Haworth & Lexon Law Newsletter(80)-Law Bridge-Shanghai Law Firm/Lawyer

Haworth & Lexon Law Newsletter
No.6 2008 (Total:No.80) July. 20th, 2008
Edited by Haworth & Lexon

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“Haworth & Lexon Law Newsletter ” is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, E-commerce, International trade etc. with necessary comment. All the comments do not mean the legal opinion of our firm and the firm does not have any legal liability for such comment. Should you have any interest in any topics or any questions please feel free to contact the firm. You will be expected to have satisfactory response from the professional attorney of our firm.

Guidelines:

News of Haworth & Lexon:

Haworth & Lexon Partner Mr. Chambers Yang has become one of the Youngest Senior Lawyers in Shanghai

Latest Laws and Regulations:

Basic Rules for Internal Control of an Enterprise

Regulations on Management of Seal-up and Distrainment of Entry-Exit Inspection and Quarantine

Regulations on Calculation Standards for Venture Capital Reserve of Securities Companies and Regulations on Adjustment of Calculation Standards for Net Capital of Securities Companies

Notice of Department of Finance and State Administration of Taxation on Printing and Distributing “Measures for Management of Tax Refund on Goods Purchased within the Chinese Territory by Overseas Official Exhibitors and Used for Site Construction and Exhibition for Shanghai World Expo”

Notice from National Copyright Administration, Ministry of Industry and Information Technology and State Administration of Radio, Film and Television on Prohibition of Illegal Broadcast of the Olympics Games and Relevant Events on Internet

Reply on Issues concerning Individual Income Tax Collected on Purchasing Housing or other Properties for Individuals by Enterprises

Guiding Opinions on Several Issues Concerning Application of “Law on Labor Disputes Mediation and Arbitration” and “Labor Contract Law”

IP Cases:

A Trademark may be Recognized as Domestically Influential if it Joins A Domestic Industry Fair

The Court Made the Judgment that Infringer may not Stop Infringement to Balance Public Interest but Royalty of License Should be Paid

Extraterritorial Evidence shall Go Through Notarization and Authentication to Confirm Its Authenticit

Translation of the Name of a Chinese Company into a Foreign Language Including the Trademark of Others and Use it Shall Constitute Unfair Competition

Creator of Brand does not Own Copyright over the Pattern of Brand, but shall Still Be Protected

News of Haworth & Lexon

Partner Mr. Chambers Yang Has Become One of the Youngest Senior Lawyers in Shanghai

Recently Attorney Chambers Yang was awarded the Grade Two Attorney Qualification Certificate by Shanghai Municipal Personnel Bureau after examination by Shanghai Senior Professional Techniques Position Qualifications Examination Committee. And he is one of the youngest senior attorneys in Shanghai.

Professional Titles of Attorneys are divided into four grades: Grade One (Senior), Grade Two (Deputy Senior), Grade Three (Intermediate) and Grade Four (Preliminary).

Latest Laws and Regulations

Basic Rules for Internal Control of An Enterprise

Ministry of Finance, China Securities Regulatory Commission, National Audit Office, China Banking Regulatory Commission, and China Insurance Regulatory Commission printed and distributed on May 22, 2008 the Basic Rules for Internal Control of An Enterprise (hereinafter referred to as “Basic Rules”), which will be applied to listed companies as of July 1, 2009, and the unlisted large and medium corporations are encouraged to bring them into force.

The Basic Rules request that any accounting firms undertaking the audit of corporate internal control should conduct auditing on the effectiveness of corporate internal control and issue audit reports in accordance with the regulations and other supporting measures and the relevant practicing standards. Meanwhile, any accounting firms providing consulting services for corporate internal control shall not provide internal control auditing services to the same company.

Internal control is a process implemented by the board of directors, board of supervisors, the management, and all the staff of the company, for the purpose of realizing the goal of control. When a company establishes and implements internal control, it shall comply with the principle of the overall principle of importance, the principle of check and balance, and the principle of adaptation.

Concerning internal environment, the board of directors and the board of supervisors shall be responsible for the (general) shareholders’ meetings, and the management shall be responsible for the implementation of the resolutions of the (general) shareholders’ meetings and the board meetings. It is requested that the company set up an auditing committee under the board of directors to strengthen the internal audit.

In risk assessment, the company is requested to pay attention to some important elements to recognize internal and external risks, and weigh risk and profit and determine the strategies against risks, in combination with the tolerance of risk, according to the results of risk assessment. The company shall, in combination with risk assessment results, through manual control, auto-control, preventative and discovery control methods, apply suitable controlling methods, to control risks to a preventable extent. The controlling methods include control of separation of incompatible positions, of authorized examination and approval, of accounting system, of property protection, of budgeting, of operation analysis, and of performance evaluation and so on.

In addition, the Basic Rules request that the corporation shall establish a system of information and communication, and obtain internal and external information through every channel and communicate information and feedbacks among the relevant personnel, and promptly report and solve the problems arising during the communication process. Moreover, at least the following four cases shall be the focus of anti-fraudulence activity:

occupation or appropriation of the corporate assets for illegal profits without authorization or in other illegitimate ways;
False records, misleading statements or missing of important information in financial and accounting reports or information disclosure;
Abuse of authorities by directors, supervisors, managers and other senior officers;
Colluded fraud by the relevant agencies or personnel.

Regulations on Management of Seal-up and Distrainment of Entry-Exit Inspection and Quarantine

The General Administration of Quality Supervision, Inspection and Quarantine issued, on June 25, 2008, Regulations on Management of Seal-up and Distrainment of Entry-Exit Inspection and Quarantine (hereinafter referred to as the “Regulations”), which shall become effective as of October 1, 2008.

Seal-up and distrainment refer to such administrative compulsory measures as examination, seal-up or lien exercised by the Entry-Exit Inspection and Quarantine Institute. The exercises of seal-up and distrainment shall comply with the principles of adaption and damaging the interests of the involved party to the minimum extent. The circumstances in which seal-up and distrainment apply are:

There is evidence that, the imported or exported goods subject to compulsory examination are unqualified in safety to persons and assets, health or environment protection after written material examination, on-site inspection, sensors inspection or preliminary inspection;
The Imported or exported goods not subject to compulsory examination are unqualified in safety to persons and assets, health or environment protection after spot check;
Imported or exported food, edible agricultural products related to personal health and life, which do not match the legal requirements, and raw materials, accessories, additives, agricultural inputs illegally used, and other tools, equipment used for illegal production;
The manufacturing plant of the imported or exported food, edible agricultural products, etc. that are relevant to personal health and life safety, has threatening hazard to personal health and life safety;
There are contracts, invoices, accounting books or other relevant materials relevant to illegal activities that involve imported and exported good, edible agricultural products and other products related to personal health and life safety.
The Rules have strict provisions on the seal-up and distrainment procedures (including collection of evidence, reports, approval, decisions, delivery and implementation). The Rules also have strict provisions on the custodial responsibilities of the inspection and quarantine institutions: the inspection and quarantine institutions shall properly take care of the imported or exported commodities or other goods (places) under seal-up and distrainment without any use or damage; when loss is caused because of improper custody, compensation shall be made; the inspection and quarantine institutions may assign the involved party or engage a third party to undertake custody responsibility, who shall not cause any damage to or transfer the goods. If loss is caused by the involved party, the party shall be liable for compensation and if they are caused by the engaged third party, the inspection and quarantine institutions and the engaged third party shall be jointly and severally liable for compensation.

Regulations on Calculation Standards for Venture Capital Reserve of Securities Companies and Regulations on Adjustment of Calculation Standards for Net Capital of Securities Companies

The China Securities Regulatory Commission issued, on June 24, 2008, Regulations on the Calculation Standards for Venture Capital Reserve of Securities Companies and Regulations on Adjustment of Calculation Standards for Net Capital of Securities Companies, which will come into effect as of December 1, 2008.

Regulations on the Calculation Standards for Venture Capital Reserve of Securities Companies have different requests on venture capital reserves of securities companies that operate on stockbroker business, self-support business, securities underwriting business, securities assets management business and financing and securities lending business. For instance, if a securities company has stockbroker business, it shall prepare 3% of the total settlement capital of the customer as the venture capital reserve of the stockbroker business; if the securities company has self-support business, the venture capital reserve shall be 10% of the investment scale of the fixed profit securities; for securities derivatives and equity securities not under risk hedge, the venture capital reserve shall be respectively 30% and 20% of the investment, while for equity securities and security derivatives investment under risk hedge, the venture capital reserve shall be 5% of the investment.

Regulations on Adjustment of Calculation Standards for Net Capital of Securities Companies mainly make adjustments to the Securities Companies Net Capital Calculation Table and the Supervisory Sheet for Risk Control Index of Securities Companies.

The Ministry of Finance and the State Administration of Taxation issued, on June 13, 2008, the “Measures for Management of Tax Refund on Goods Purchased within the Chinese Territory by Overseas Official Exhibitors and Used for Site Construction and Exhibition for Shanghai World Expo” (hereinafter referred to as “Measures”), which became effective as of June 1, 2008.

The Measures provide that VAT refund shall be granted to goods that fulfill the following criteria:

Construction materials, equipment, and office supplies purchased in the Chinese territory by overseas official exhibitors and used directly in construction, installation, dismantlement, and maintenance of their respective exhibition sites, if in the “Catalogue of Products of Foreign Official Exhibitors Approved to Enjoy Tax Refund” (hereinafter referred to as the “Catalogue Goods”). Tax on goods not included under the Catalogue and Catalogue Goods for personal consumptions shall not be refunded.
Minimum amount for tax refund shall be set up for Catalogue Goods, i.e., only when the total amount of the price and tax in one single VAT invoice supersedes RMB2,000.00(inclusive), could the tax refund be applied to. Where foreign official participants fail to provide the VAT invoices for the Catalogue Goods, or the names of goods on VAT invoice are unclear and therefore it is unable to determine whether the goods belongs to Catalogue Goods, the tax shall not be refunded.
The deadline for tax refund application filing shall be the last day of the forth month after the exhibition is withdrawn.
The procedures for tax refund vary with different goods purchased:

While purchasing reasonable quantities of construction materials within the Chinese territory and transporting them into Shanghai Expo Park, the foreign official exhibitor shall fill out truthfully the “Application Form for Tax Refund of Overseas Official Exhibitors of Shanghai World Expo”, and provide the special VAT invoices received in buying the goods and documents of “List of Catalogue Goods for Shanghai World Expo Sites (Construction Materials)” verified by Shanghai World Expo Coordination Bureau, etc. while applying for tax refund at the administrative tax authorities. In the event that the construction materials, for which the tax refund formalities have been completed, are unused and transported out of the park, the overseas official exhibitor shall report to Shanghai Expo Bureau and the administrative tax authorities in a timely manner, and pay for the tax refund in full.
After the equipment and office supplies that are bought within the Chinese territory have been transported into the park area, in support of the “List of Catalogue Goods for Shanghai World Expo Sites (equipment, office supplies)”, the participants shall apply in advance for tax refund records at the administrative tax authorities. When the exhibition is withdrawn, tax issues shall be dealt with according to different dispositions of the goods.

Notice from National Copyright Administration, Ministry of Industry and Information Technology and the State Administration of Radio, Film and Television on Prohibition of Illegal Broadcast of the Olympics Games and Relevant Events on Internet

The National Copyright Administration, Ministry of Industry and Information Technology and the State Administration of Radio, Film and Television issued on June 20, 2008 “Notice on Prohibition of Illegal Broadcasting of the Olympics Games and Relevant Events on Internet” (hereinafter referred to as the Notice).

The Notice provides that CCTV enjoys the exclusive broadcasting rights on new media (internet and mobile platform) for the 29th Olympic Games and the relevant events in the mainland and Macau of China. Activities of broadcasting illegally the Olympic Games and the relevant events on internet and mobile platform shall be severely punished according to the law and it shall be banned by the telecommunications administrative departments once verified.

Reply on Issues concerning Individual Income Tax Collected on Purchasing Houses or other Properties for Individuals by Enterprises
The State Administration of Taxation issued, on June 10, 2008, Reply on Issues concerning Individual Income Tax Collected on Purchasing Houses or other Properties for Individuals by Enterprises” (hereinafter referred to as the “Reply”).

The Reply provides housing or other properties that fall into the following conditions, whether the right owners transfer the properties to the companies for use without or with compensation, the substantial essence shall be that the companies have distributed among the individuals on material bases, and therefore, individual income tax shall be calculated according to law:

Where the company purchases housing and other properties, and the ownership rights are registered in the name of an individual, family members of the investors, and or any company staff;
Where the individual enterprise investors, investor family members, or other company staff loan from the company for purchasing housing and other properties, they register the ownership rights in the name of the individual investors, family members of the investors, or other company staff without refunding the loans by year-end.
Considering the essential differences between sole proprietorships, partnership enterprises, and other enterprises, and those between company investors and other company staff, the Reply has different provisions over these tax collection issues as the case may be: the aforesaid income obtained by individual investors or their family members of sole proprietorships or partnership enterprises shall be regarded as profit distributions among investors and shall be calculated and collected under the item of “incomes of individual industrial and commercial households from their production and business operations”; the aforesaid income obtained by enterprises other than sole proprietorships and partnership enterprises shall be regarded as distribution of dividends among individual investors and shall be calculated and collected under the item of “income of interests, dividends and bonuses”; for other company staff, the aforesaid income shall be calculated and collected under the item of “income of wage and salary”.

Reply from State Administration of Taxation on Issues Regarding Levy of Individual Income Tax on Purchasing Shops by Individuals through Concluding Agreement at a Conditional Preferential Price with Real Estate Development Enterprises
The State Administration of Taxation issued on June 15, 2008 “Reply from State Administration of Taxation on Issues Regarding Levy of Individual Income Tax on Purchasing Shops by Individuals through Concluding Agreement at a Conditional Preferential Price with Real Estate Development Enterprises ” (hereinafter referred to as “Reply”).

If the agreement between a real estate development enterprise and an individual shop buyer provides that, the real estate development enterprise shall sell the shop developed by it to the individual shop buyer at a preferential price, but the buyers shall provide the shop to the real estate development enterprise for free for the latter to lease to others for a certain period of time, the Reply affirms the substance of this transaction is that the individual buyers pay part of the purchase price with the lease income gained by the real estate development enterprise through leasing others the shop. The house price not paid by the buyers in the above circumstance shall be regarded as individual income from lease of property, and individual income tax shall be collected under the item of “Income from Lease of Property”. The income from each lease shall be calculated based upon the average of the reduced shop purchase price divided by the agreed number of lease months stipulated in the agreement.

Guiding Opinions on Several Issues Concerning Application of “Law on Labor Disputes Mediation and Arbitration” and “Labor Contract Law”
The Supreme People’s Court of Guangdong Province, Labor Dispute Arbitration Committee of Guangdong Province issued on June 23, 2008 ‘Guiding Opinions on Several Issues concerning Application of “Law on Labor Disputes Mediation and Arbitration” and “Labor Contract Law”’ (hereinafter referred to as “Guiding Opinions”), which became effective as of its date of issuance.

The Guiding Opinions have provisions on the scope of labor disputes, determination of cases on which arbitration is final and binding, handling of avoiding in bad faith concluding unfixed-term labor contracts, calculation standards for economic compensations, payment time and burden of proof, and determination of the effectiveness of the employer’s rules.

The Guiding Opinions incorporate the following three kinds of social insurance disputes into the category of labor disputes:

the disputes on fixed number of years for payment of endowment insurance between employees and employers;
request from the employee that, the employers shall pay for their remunerations and compensations of industrial injuries, unemployment, procreation and medical treatment, on the ground that there are losses caused from failure of employers to pay for their social insurances.
request from employees that, the employer shall compensate for the losses of industrial injuries remunerations, on the ground that there are losses caused from the lowering of the salary standards by employers based on which social insurances shall be paid and cause their losses.
However, disputes arising from housing funds between employees and employers shall not be deemed as labor dispute.

As for the concerned parties in litigation, in the event that the dispute arises between an employee and an employer that does not have legitimate business qualification, the employer or its investor shall be the concerned party; if the concerned party borrows business license from others, the lender shall also be the concerned party; during the construction period, if the dispute arises between the actual individual constructor and the illegally employed worker, the contract-issuing party who has the qualification of employment shall be the accused or defendant and the individual constructor, sub-contractor or illegal contractor shall be, as the case may be, the accused, the defendant or the third party.

As for economic compensations, in accordance with the Guiding Opinions, if the employee and the employer can not reach an agreement on labor contract within one (1) month of employment, and the employer proposes the labor relation shall be terminated, no economic compensation shall be made; if the employer has sufficient evidence to prove that the employee shall be completely liable for not signing the written labor contract within the employment term after one (1) month but less than one (1) year from employment, and the employer has no fault, the employer does not need to pay twice the salary to the employee. However, if the employer proposes to terminate labor relationship, economic compensation shall be paid.

If there is a non-competition clause agreed between the employer and the employee, economic compensation shall be paid to the employee during the period of non-competition. If the employer does not pay for the economic compensation as agreed, the employee has the right to request the employer to follow the non-competition agreement. If the employer does not make any warranty on economic compensation until the job hand-over, the non-competition clause shall not have any binding force on the employee.

In the event that the employee proposes to be paid for overtime work, and the employer denies any over time work, the burden of proof shall be on the employer. The employer could prove there is no overtime work through electronic attendance records accepted by the employees. In the event that the employees seek to get remuneration for overtime work two years ago, the burden of proof shall in principle be on the employees.

IP Cases

A Trademark may be Recognized as Domestically Influential if it Joins A Domestic Industry Fair

The Higher People’s Court of Beijing made a final judgment on June 19, 2008, in the case of the appellant (the third party in the first instance) Xiamen Xinshengjie Enterprise Co., Ltd. (hereinafter, Xinshengjie Company), vs. the appellee (the defendant in the first instance) the Trademark Review and Adjudication Board of the State Administration for Industry & Commerce of the People’s Republic of China (hereinafter, Trademark Review Board), and the appellee (the plaintiff in the first instance) (Japan) Oji Paper Group, regarding a trademark administrative dispute, and affirmed that the judgment of the Trademark Review Board was correct and should be sustained.

Xiamen Hexing Industry & Trade Company (hereinafter, Hexing Company) applied to Trademark Bureau under the State Administration for Industry & Commerce of the People’s Republic of China (hereinafter, the Trademark Bureau) for the registration of the trademark No. 840299 “Wangzi (“王子” in Chinese) OJI and its pattern” (hereinafter referred to as the Basic Trademark), which was approved to be registered on May 21, 1996, to be used on Category No. 1 facsimile paper. The trademark was transferred to Xinshengjie Company on June 5, 2007. On December 2, 1996, Xiamen Annie Enterprise Co., Ltd. applied for registration of the trademark No. 1144078 “Wangzi (“王子” in Chinese)” (hereinafter referred to as “the disputed trademark”), which was approved on January 21, 1998, to be used on Category No.1 facsimile paper, thermal paper, etc. and after several transferences, the trademark was transferred to Xinshengjie Company. On November11, 2003 and January 20, 2003, the OJI Paper Group applied for revocation of the trademarks with the Trademark Review Board for the reason that the registrations of the Basic Trademark and the Disputed Trademark violated the trademark laws. On June 27, 2007, the Trademark Review Board severally issued the ‘Ruling on Dispute concerning Trademark No. 840299 “Wangzi (“王子” in Chinese) OJI and its pattern”’ (hereinafter, Ruling No. 2861) and ‘Ruling on Dispute concerning No. 1144078 “Wangzi (“王子” in Chinese)”’ (hereinafter Ruling No. 2862), which maintained the registration of Basic Trademark and Disputed Trademark. The OJI Paper Group did not subject itself to the rulings, and later filed a lawsuit to Beijing No.1 Intermediate People’s Court.

Beijing No.1 Intermediate People’s Court reviewed the case and held that, the Ruling No. 2862 sustained the registration of disputed trademark with the ground that the Disputed Trademark was a series trademark that was registered based on the Basic Trademark and it was reasonable that the Chinese characters, part of the Basic Trademark, were registered as a trademark on similar commodities when the Basic Trademark had already been registered. However, the court determined that as the registration of the Basic Trademark violated Article 41 Clause 1 of the Trademark Law, which should be repealed, the ground on which the Trademark Review Board sustained the Disputed Trademark did not exist any more. Ruling No. 2862 did not have any comment on the reasons for repealing the Disputed Trademark, saying that the registration of Disputed Trademark violated Article 13 and Article 41 of the Trademark Law, raised by OJI Paper Group during review. Therefore, the court held that Ruling No.2862 should be repealed, and the Trademark Review Board should have comments on the above reasons for repealing, and make ruling on the dispute.

After the fist instance, Xinshengjie Company did not subject itself to the judgment and appealed.

The grounds for Xinshengjie Company’s appeal were:

it was wrong of the judgment of the first instance in deciding that Hexing Company, the Basic Trademark Registering party, had knowledge of the trademark of OJI Paper Group.
it had been more than five years from the date when the Basic Trademark was approved for registration to the date when OJI Paper Group applied to repeal the Basic Trademark.
the judgment of first instance did not have sufficient evidence to prove that Hexing company had knowledge of the trademark used by OJI Paper Group before application for the Basic Trademark, nor evidence to show that Hexing Company had a intention of bad faith. Therefore, Article 41 Clause One of Trademark Law should not apply.
Trademark Review Board and OJI Paper Group followed the judgment of the first instance.

The court of the second instance held that, first of all, Article 41 Clause 2 of Trademark Law provided that for the trademarks that have already been registered, if it was in violation of Article 13, Article 15, Article 16, or Article 31 of this law, within five years from the registration date of the trademark, the owner of the trademark or the party concerned could file a request to the Trademark Review Board for repealing the registered trademark. As for bad faith registration, the five year period limit shall not apply to an owner of a well-known trademark. In this case, the registration date of Basic Trademark was May 21, 1996, but the provision on dispute time limit, as provided in Article 42 Clause 2 of Trademark Law, came into effect on December 1, 2001, and there was no provision on dispute time limit before. According to Article 5 of the “Interpretation of the Supreme People’s Court concerning Issues on Jurisdiction and Application of Laws in Trying Trademark Cases”, the dispute in this case should be governed by the provision of the five year dispute time limit, but the five year dispute time limit should be calculated from December 1, 2001, or it was unfair to “persons who have prior rights”, violating the principle of “the law is not retroactive”. For the above reasons, it was right for the Trademark Review Board and the court of first instance to review the application raised by OJI Paper Group on November 12, 2003, saying that the registration of Basic Trademark violated Article 13 of Trademark Law, since the application did not exceed the 5-year time limit for dispute. Secondly, according to the Trademark Law, the application for registration of a trademark shall not damage the existing rights of others obtained by priority, neither may it register, by dishonest means and in advance, the trademark that had been used by others and had become influential. Without authorization, if the deputy registered the trademark of the principal in his or her own name, and if the principal raised an objection, the registration should not be approved and the usage of the trademark shall be banned. “Wangzi (“王子” in Chinese)”, “OJI” and the pattern of paper stripes engirding the earth, was registered and used as a trademark on paper early and thus in Japan and other countries by OJI Paper Group. It was eminent for “Wangzi (“王子” in Chinese)”, or “OJI” to be trademark on paper products. OJI Paper Group registered in 1937 in Japan the pattern of paper stripes with OJI characters engirding the earth, which was quite creative, and it gained highest reputation in Japan and other places through its use. The Basic Trademark also consisted of “Wangzi (“王子)”, “OJI” and paper stripes engirding the earth pattern, and the registration was also on paper products. The Basic Trademark was similar to the Trademark of OJI Paper Group in characters, composition and design, etc., so it should be considered as a similar trademark used on the same or similar products. The facsimile paper of OJI Paper Group was imported to China by Itochu, and OJI Paper Group participated in the Industry Fair in 1994, and this should constitute sufficient evidence to prove that the trademark and products of OJI Paper Group had already been used in China. The quoted trademark of OJI Paper Group had already become a famous brand in Japan as of 1970, with the eighth production volume in 2001. The company began the sales of the products in China since 1993 and participated in the “First Exhibition Fair of Paper Products and Printing Appliances in China” in May, 1994, and OJI Paper Group already had trade relationship with Hexing Company, etc. before the registration of the Basic Trademark. Therefore, the court held that the quoted trademark of OJI Paper Group had already been used and become influential in China before the application of registration of the Basic Trademark, which affected the registering party Hexing Company, and the application for registration by Hexing Company had already violated Article 31 of Trademark Law. Meanwhile, because of the existence of such trade relationship, Hexing Company actually also violated Article 15 of Trademark Law, and so the registration of the Basic Trademark shall be repealed. It was wrong for the judgment of first instance and Ruling No. 2861 of the Trademark Review Board to hold that the registration of the Basic Trademark did not violate Article 31 or Article 15 of the Trademark Law; it was also wrong for the judgment of first instance and Ruling No. 2861 of Trademark Review Board to hold that Article 41 Clause 1 of the Trademark Law shall be applicable to the issue whether Basic Trademark should be repealed, and this court corrected it. To sum up, it was held that the judgment of first instance ascertained the fact clearly, and though there was mistake in application of laws, the result of this case was not affected. So the court sustained this result on the basis of correcting the application of laws: Ruling No. 2862 did not clearly ascertain the fact and it shall be re-made on the basis of clear ascertainment.

The Court Made the Judgment that Infringer may not Stop Infringement to Balance Public Interest but Royalty of License Should be Paid

The Higher People’s Court of Fujian Province made a judgment of first instance on May 12, 2008, in the case of the plaintiff Wuhan Jingyuan Environment Engineering Co., Ltd. (hereinafter, Jingyuan Company) vs. the defendant Japan Fuji Chemistry & Hydro Industry Co., Ltd. (hereinafter, Fuji Chemistry & Hydro), and the defendant Huayang Electricity Industry Co., Ltd. (hereinafter, Huayang Company) regarding infringement on patent for invention, which affirmed that the behavior of Huayang Company constituted infringement, while the court did not support the claim of stopping the infringement.

Jingyuan Company claimed that, it was the patent holder of the invention No.ZL955119389.9, of which the application date was December 22, 1995, and the authorization date was September 25, 1999. The defendant Fuji Chemistry & Hydro imitated the fuel gas desulfurization appliance compatible to the patented methods without license by patent holder and installed the appliance separately in two sets of power generators of Zhangzhou Houshi Power Plant in Fujian Province, China, which was affiliated to the defendant Huayang Company, and put into business operations since 1999. The two defendants did not get the patent holder’s license, and conducted infringement opon the patent rights for business purpose, which severely violated the legal rights of the plaintiff. Therefore, it filed a lawsuit to the court and claimed that the defendant should stop infringement and be liable for compensation for losses.

The defendant Fuji Chemistry & Hydro defended that, before the plaintiff applied for registration of patent, many publications had published identical inventions to the public, and this invention had been publicly used at home and abroad a long time ago, and it was well-known to the public.

The defendant Huayang Company defended that, before the plaintiff filed for application of the registration of the patent, many publications had published identical inventions to the public. The desulfurization method and appliance used by Huayang Company had already been launched into formal operation since 1999. For these reasons, whether or not the desulfurization method and its appliance used by Huayang Company constituted infringement in this case shall be governed by the then-effective laws and regulations. For this case, the earlier version of the patent law should apply, not the latest prevailing patent law effective as of July 1, 2001, and therefore, the legal provisions used by the plaintiff in the bill of indictment were wrong. Article 62 of “Patent Law of the People’s Republic of China” (amended in 1993) provided that, use or sales of the patented product without the knowledge that the patented product was manufactured and sold without authorization shall not be determined as infringement on patent rights. The defendant purchased the products through a legal channel from the Fuji Chemistry & Hydro with its warrant on the titles of the products, and went through demonstration of the feasibility studies by the plaintiff, so the defendant did not know that they were involved in infringement on patent. According to law, it did not constitute infringements, and the defendant shall not bear legal liabilities.

The court held that: the patent No.ZL95119389.9 “The Sea-Water Gas Fuel Desulfurization Method through Gas Exposure and the Gas Exposure Appliance” of the Jingyuan Company was legitimate and effective, and shall be protected by law. Any entity or individual shall not put it into use without authorization of the patent holder. After comparison, the technical characteristics of the desulfurization method and appliance that Fuji Chemistry & Hydro provided for the Huayang Company completely covered those of the Jingyuan Company’s patent. This action, implanting patent without license, shall be determined as infringement. The fire power plant equipped with fuel gas desulfurization appliances complied with our basic national policies and national industry policies of environmental protection, was beneficial to forming a environment-friendly society, and had very good social benefits, and the economy and people’s life were directly influenced by the power provision circumstances. In this case, if Huayang Company had stopped using the fuel gas desulfurization appliance, the local economy and people’s life would have been negatively affected. Therefore, to balance individual patentee interests and public interests, the claim of Jingyuan company that Huayang Company should stop infringement should not be supported by the court, and nevertheless, the court made the judgment that Huayang Company should pay, from the date when No.1 and No.2 power generators were put into business operation, for corresponding royalty of license to Jingyuan Company for using the pure sea-water fuel gas desulfurization method and appliance that involved this patent, until the expiry of the invention patent rights involved in this case.

Extraterritorial Evidence shall Go Through Notarization and Authentication to Confirm Its Authenticity
The Higher People’s Court of Beijing made a judgment of the final instance on June 19, 2008, in the case of the appellant (the defendant of first instance) the Patent Reexamination Board under the State Intellectual Property Office of P. R. China (hereinafter referred to as “the Patent Reexamination Board”) vs. the appellee (the plaintiff of first instance) Wu Chen, and the third party of first instance, Lin Jieke, regarding an administration dispute concerning invalidity of a utility model, which affirmed the first instance judgment was correct and should be sustained.

The patent involved in the case was a utility model (hereinafter referred to as “the patent”), and its patentee was Lin Jieke. Wu Chen had applied for invalidation of this patent with the Patent Reexamination Board on May17, 2006, on the ground that the patent claims of this patent did not comply with Clause 3 of Article 22 under Patent Law. On March 28, 2007, the Patent Reexamination Board issued the Ruling on Application for Validity No.9616 (hereinafter, Ruling No.9616), which completely sustained the validity of this patent.

No.1 Intermediate People’s Court of Beijing held that, as could be seen from the original publication used as evidence, the publication was a magazine that comprehensively introduced the technologies, parts and components, and the relevant products, etc. in the cycling field. Although this extraterritorial evidence did not go through the procedure of notarization and authentication, the publication carried specific publication numbers, was delicately bound up and printed and had a substantial content, which could preliminarily prove its authenticity, and the possibility that it was forged or imitated was slim. Therefore, it could be determined that Wu Chen had fulfilled the obligation in proving the authenticity of the evidence. Lin Jieke did not provide counter-evidence in denying the authenticity of this evidence. Therefore, it was inappropriate for the Patent Reexamination Board not to confirm the authenticity of this evidence based on the sole fact that, the evidence did not comply with the provision that extraterritorial evidence shall go through the procedures of notarization and authentication. For the above reasons, the court of first instance judged to repeal Ruling No.9616 issued by the Patent Reexamination Board and that the Board shall re-issue a ruling on the application for validity.

The Patent Reexamination Committee did not accept the first instance judgment and appealed to repeal the first instance judgment and sustain the Ruling No.9616. The main reasons were that the appellee did not go through relevant authentication procedures, which did not accord with the provisions in “Regulations on Several Issues concerning Administrative Litigation Evidence” and “Guidance for Review” by the Supreme People’s Court. Therefore the authenticity of the evidence could not be confirmed and accepted.

This court held that the focus of the dispute in this case was whether or not the evidence was authentic and effective. According to the interpretations of relevant law by the Supreme People’s Court, the evidence produced in Hong Kong, Macau, and Taiwan, shall go through the relevant authentication procedures before use as evidence. As for such evidence as publications and patent retrieval bibliographies that are obtainable through official or public channel, usually notarization and authorization procedures were not needed. However, it was improper to judge that the relevant processes were not necessary simply by the particularities of evidence. According to the facts investigated and ascertained in this case, evidence of the case was copies of the front cover, page 40, 208, and back cover of the Year 2000~2001 version of “Taiwan Bicycle Guidance Book”, as well as the front cover, page 21, 242, 273, 274 and back cover of the 2002~2003 version, which were produced by Taiwan Lunyan International Co., Ltd. As these evidences were produced in Taiwan, they should go through the relevant authentication procedures before use as evidence. During the invalidation proceedings in this case, Wu Chen provided original copies of the 2000~2001 version and 2002~2003 version of “Taiwan Bicycle Guidance Book”, and the statement issued by Taiwan Lunyan International Co., Ltd. on December 23, 2003, affirming that the contents of the copies was consistent with those in the original copy. The statement went through authentication procedures at “Local Court of Zhanghua” in Taiwan. Although there were deficiencies in demonstration formalities provided by Wu Chen, in the first instance, supplementary materials for the current evidence were submitted to support the demonstration formalities. The court held that the authenticity of the evidence should be admitted, for saving litigation costs, and promoting the efficiency of case reviewing. However, it was inappropriate for the first instance court to determine that the evidence preliminarily proved the authenticity for the reasons that the publications carried specific publication numbers and are delicately bound and printed, which shall be rectified. Since Lin Jieke did not provide any counter-evidence during the review of this case, the court held that the evidence was authentic, and could be used as a comparison document for this patent. For the above reasons, the court of second instance affirmed that the judgment of first instance was correct and should be sustained.

Translation of the Name of a Chinese Company into a Foreign Language Including Trademark of Others and Use it Shall Constitute Unfair Competition
The Higher People’s Court of Beijing made a second instance judgment on June 18, 2008, in the case of the appellant (the plaintiff of first instance) KOMANDOR S.A., vs. the appellee (the defendant of first instance) Coamdo Furniture (Shanghai) Co., Ltd., regarding a dispute concerning infringement on exclusive right of trademark and unauthorized use of an enterprise name, which held that the activity of Coamdo Furniture (Shanghai) Co., Ltd. constituted unfair competition, which should be stopped.

No.2 Intermediate People’s Court of Beijing held that, the products approved to use the registered trademark of KOMANDOR S.A. were those of Catalogue 6 or Catalogue 19 in “International Category of Products and Services for Trademark Registration”. However, the products of Coamdo Furniture (Shanghai) Co., Ltd. fell into Catalogue 20 in “International Category of Products and Services for Trademark Registration”. Therefore, they were neither the same as nor similar to the products approved to use the registered trademark of KOMANDOR S.A. For this reason, The activities of Coamdo Furniture (Shanghai) Co., Ltd. did not constitute infringement on trademark right. KOAMDOR S.A. was a company registered in the Republic of Poland, and its name was “KOMANDOR S.A.” in Polish. It had been selling its products onto the Chinese market since 2002, and KOMANDOR S.A., as an enterprise name used by the company in China for commercial purpose, shall be protected under the laws of China. “KOMANDOR” was a Polish word, so Coamdo Furniture (Shanghai) Co., Ltd. had no justifications to use this Polish word during its business operation. Moreover, confusion on the source of products would arise while the company used “KOMANDOR” and “Komandor” on its website and products brochures. Therefore, the activities of Coamdo Furniture (Shanghai) Co., Ltd. constituted unfair competition against KOMANDOR S.A. However, KOMANDOR S.A. failed to provide any evidence that “Kemanduo (“科曼多” in Chinese)” was used as an enterprise name or products names in the Chinese territory before April 24, 2003, and “Kemanduo (“科曼多” in Chinese)” was the only transliteration of KOMANDOR. Therefore, the court did not support the claim of KOMANDOR S.A. that “Kemanduo (“科曼多” in Chinese)” was the general transliteration for “KOMANDO” and the use of this name by Coamdo Furniture (Shanghai) Co., Ltd. would mislead others that there was some relationship between Coamdo Furniture (Shanghai) Co., Ltd. and KOMANDOR S.A.

KOMANDOR S.A. did not accept the first instance judgment, and appealed.

KOMANDOR S.A. held the following opinions:

The accused infringement products should be regarded as similar to the products on which the registered trademark of KOMANDOR S.A was approved to be used.
Coamdo Furniture (Shanghai) Co., Ltd. always used “Kemanduo (“科曼多” in Chinese)” and “Komandor” together, and regarded the former as a general transliteration, which sufficiently proved that “Kemanduo (“科曼多” in Chinese)” was translated from “Komandor”. The use of “Kemanduo (“科曼多” in Chinese)” by Coamdo Furniture (Shanghai) Co., Ltd. as its trademark constituted unfair competition.
KOMANDOR S.A. applied to the first instance court to apply Article 15 of Trademark Law, which was not mentioned in first instance judgment, and thus the court was wrong in the application of law.
The second instance court held that, first of all, the trademark No.G703647 “KOMANDOR and patterns” of KOMANDOR S.A. was registered and approved to be used on the products of metal and non-mental brake sliding doors, two-way sliding doors, and sliding boards, and the products on the website of Coamdo Furniture (Shanghai) Co., Ltd. and the advertising brochures were also sliding doors, which coincided with the former products. The “Kemanduo (“科曼多” in Chinese) KOMANDOR and patterns” used on the website of Comando Furniture (Shanghai) Co., Ltd., was completely the same as the trademark No.G703647 except the words, so were the words of “KOMANDOR” used in the products brochures. The joint use of “Kemanduo (科曼多 in Chinese)” and “KOMANDOR” could cause the relevant public to believe that the former was the Chinese translation of “KOMANDOR”. Therefore, the use of “Kemanduo (科曼多 in Chinese) KOMANDOR and patterns”, “Kemanduo (科曼多 in Chinese)” and “KOMANDOR” by Coamdo Furniture (Shanghai) Co., Ltd. on its website and advertising brochure constituted the activity that used a trademark similar to Trademark No.703647 of KOMANDOR S.A. on the same products, which constituted infringement on the exclusive right to use the trademark enjoyed by KOMANDOR S.A. Secondly, in practice, Coamdo Furniture (Shanghai) Co., Ltd. used “Kemanduo (科曼多 in Chinese)” and “KOMANDOR” together, and also the company name “科曼多家具（上海）有限公司” and “KOMANDOR FURNITURE (SHANGHAI) CO. LTD.” together, which objectively triggered the realization that “Kemanduo (科曼多 in Chinese)” was the Chinese translation of “KOMANDOR”，and made the consumers confuse Coamdo Furniture (Shanghai) Co., Ltd. with KOMANDOR S.A. or think that a certain relation existed between the two companies. For the above reasons, the use of its Chinese name of Coamdo Furniture (Shanghai) Co., Ltd. also constituted unfair competition, and the company should stop the use and be liable for compensation for losses.

Creator of Brand does not Own Copyright over the Pattern of Brand, but shall Still Be Protected

No. 1 Intermediary People’s Court of Shanghai made a judgment of second instance on June 20, 2008 in the case of the appellant (the plaintiff of first instance) Shanghai Bailanwang Trade Development Co., Ltd. vs. the appellee (the defendant of first instance) Shanghai Dahe Egg Products Co., Ltd., regarding a dispute of commercial slander, which affirmed that the behavior of the defendant constituted unfair competition.

Shanghai Bailanwang Trade Development Co., Ltd., the plaintiff, alleged that, as of May 2007, in several convenience shops in Shanghai, there was a statement “Apologies to our Customers” in Japanese issued in the name of “Dayu Zhengxian, the chairman of Shanghai Dahe Egg Products Co., Ltd.” of AVIAN Co., Ltd.” in the packaging boxes for eggs with the brand of “Lanwang (“蘭王” in Chinese)” produced by the defendant, as well as beside the egg stands. In the statement, the defendant claimed that Xia Zhenhuang did not get its authorization and registered the trademark “Lanwang (“蘭王” in Chinese)” in China, and to avoid market disruption, the defendant began to sell on the market the products branded with “Lanhuang (蘭皇 in Chinese))”. The plaintiff held that, the defendant not only falsely advertised products in a misleading manner, but also fabricated facts and slandered the plaintiff, which constituted unfair competition.

The defendant Shanghai Dahe Egg Products Co., Ltd. defended that, the trademark owner of the egg “Lanwang (蘭王 in Chinese)” was the defendant who was the producer, and the plaintiff was its distribution agent. The two parties already terminated their business relationship of purchase and sale. With knowledge of the above circumstances, Mr. Xia Zhenhuang registered for himself the trademark “Lanwang (蘭王 in Chinese)” without the authorization of Dayu Zhengxian. While the quality of the eggs produced by the plaintiff were different from those of the “Lanwang (蘭王 in Chinese)” produced by the defendant, the packages were very similar to those of the defendant, which would easily lead to confusion by consumers. However, the plaintiff published an advertisement on a Japanese paper claiming that the plaintiff was the right owner of “Lanwang (蘭王 in Chinese)” eggs, which greatly affected the business operation of the defendant.

The first instance court held that, the defendant, Dayu Zhengxian, or AVIAN Co., Ltd. were not the trademark owner of “Lanwang (蘭王 in Chinese)”, nor were they the copyright owner of the calligraphy characters “Lanwang (蘭王 in Chinese)”. Therefore, Xia Zhenhuang did not need the authorization from the defendant, Dayu Zhengxian, or AVIAN Co., Ltd. before applying for the registration of the trademark “Lanwang (蘭王 in Chinese)”. The trademark “Lanwang (which is蘭王 in Chinese)” was assigned to Dayu Zhengxian by Gong Shan Bo as of October 1994. Although the two parties did not go through the trademark assignment procedures, Gong Shan Bo did not oppose the assignment to Dayu Zhengxian, and the calligraphy characters “Lanwang (蘭王 in Chinese)” had since then been used on the outer packages of the eggs by the company run by Dayu Zhengxian and his son. The Japanese production company also proved that the “Lanwang (蘭王 in Chinese)” egg outer packages were created and made upon the request of Dayu Zhengxian. Dayu Zhengxian gained the copyrights of the calligraphy characters “Lanwang (蘭王 in Chinese)” in January 2006. Although the plaintiff held objections to the matter that Dayu Zhengxian enjoyed the copyright of calligraphy characters “Lanwang (蘭王 in Chinese)”, the plaintiff could not provide counter-evidence to prove its point of veiw. For this reason, the application for registration of the calligraphy characters “Lanwang (蘭王 in Chinese)” should be authorized by the copyright owner Dayu Zhengxian. The aforesaid statement by Dayu Zhengxian, in the name of the defendant and AVIAN Co., Ltd., was descriptions of objective facts, and moreover, the statement was pointed to Xia Zhenhuang, not the plaintiff, and the statement posted by the defendant did not clearly indicate the relationship between Xia Zhenhuang and the plaintiff. Therefore, the allegation of the plaintiff that the aforesaid statement violated its commercial credit and reputation shall not be established.

After the first instance, the plaintiff did not accept the judgment and appealed. The main reason was that it was wrong for the court to determine that Dayu Zhengxian was the copyright owner of the calligraphy characters “Lanwang (蘭王 in Chinese)”. The appellee Shanghai Dahe Egg Products Co., Ltd. accepted the first instance judgment.

The second instance court held that, the fabrication and dissemination of false facts and damage to the commercial credit or products reputation by a business operator was unfair competition and the business operator shall be liable. In this case, the appellee has admitted in the first instance that the calligraphy letters “Lanwang (蘭王 in Chinese)” were not written by Dayu Zhengxian, and the proof and schedule provided by the party not involved in this case Japan Ooishi Co., Ltd did not indicate whether or not there was a specific agreement on copyright of the calligraphy characters “Lanwang (蘭王 in Chinese)”. Considering that the first instance trial did not ascertain relevant Japanese regulations on the acquisition of the copyrights, this court held that the first instance court did not have sufficient evidence to prove that the copyright of “Lanwang (蘭王 in Chinese)” belonged to Dayu Zhengxian, which should be rectified. However, at the early stage cooperation between the concerned parties, they did not reach a specific agreement on the attribution of the IP rights. Considering the trademark “Lanwang (蘭王 in Chinese)” was built by the appellee in Japan for 15 years, its source had a special tie with the appellee. Therefore, the court held that, the allegation that “Xia Zhenhuang” did not gain approval before applying for registration of the trademark “Lanwang (蘭王 in Chinese)” in China” shall not be deemed as commercial slander simply because it could not be determined whether Dayu Zhengxian held the copyright of the calligraphy characters “Lanwang (蘭王 in Chinese)”. Therefore, the appeal of the first instance plaintiff shall not be supported.