“Haworth & Lexon Law Newsletter” is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, Intellectual property rights, 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.
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§News of Haworth & Lexon
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§Latest Laws and Regulations
In developed countries, it is an important way for enterprises to finance through loans secured by receivables. In our country, such kind of financing method has also been adopted in financial practices and has brightening prospects. Meanwhile, the “Real Right Law” promulgated in this March filled in the legislative blank. However, the “Real Right Law” did not give detailed provisions, and thus the Measures were formulated for regulating the registration of pledge with receivables as well as protecting legal rights of parties concerned and persons who have interests.
The term “receivables” refers to creditors’ right to ask debtors to make payments for goods, services or facilities offered by creditors, including existing and potential monetary claims and the proceeds thereof, but not including claims for payments incurred from bills or other negotiable securities. Rights for “receivables” are as follows: creditor’s rights from sales, including sale of goods, supply of water, electricity, gas and heat, and licensed use of intellectual property; creditor’s rights from lease, including lease of movables and immovables; creditor’s rights from rendering services; creditor’s rights to charge fees for such immovables as highway, bridge, tunnel and ferry, etc; and creditor’s rights from making loans or other credit.
The Measures provide that registration of pledge with receivables shall be handled by pledgees through a registration publicity system. The contents to be registered shall include basic information of pledgee and pledgor, a description of receivables and registration term, and pledge agreements executed by both parties shall be submitted to the registration publicity system as an appendix.
Registration terms shall be counted on a yearly basis and be no longer than 5 years. A pledgee may apply for renewing a registration term within 90 days before expiration and the period may be renewed for many times. Registration of pledge with receivables shall become invalid once a registration term expires.
Under any of the following four circumstances, the pledgee shall handle the formalities of deregistration within 10 workdays from the date when such circumstances occur: the principal creditor’s right is eliminated; rights of pledge are realized; the pledgee gives up all rights on receivables as registered; other circumstances that lead to elimination of the registered rights of pledge.
As to effect of registration, the most prominent feature for registration of pledge with receivables lies in its force against the third party. Pledge with receivables registered through such system shall enjoy a priority pledge right than any former unregistered pledges rights on the same receivables; and if there are more than one pledge rights on the same receivable, the pledgee shall exercise rights of pledge according to sequence of registration.
Meanwhile, the Measures require the pledgee, the pledgor and any other interested party to fill in items as suggested by the registration publicity system according to facts. One shall be liable if he provides false materials which cause damage to others.
Order No. 39 maintains the general framework and major contents of Order No. 11, while emphatically making amendments to and improvements in contents relevant to the “Real Right Law” and perfecting relevant articles to solve some issues arising during implementation of Order No. 11. The newly promulgated Order No. 39 further enlarges the range of bidding, auction and quotation, fully reflects market principles of openness, equality and justice and is beneficial to form a price mechanism based on resource allocation.
Order No. 39 changed the term “state-owned land use right” into “state-owned construction land use right”.
Order No. 39 provides, with respect to a land for business use such as industry, commerce, tourism, entertainment, commercial housing, or a land with two or more intending land users, the assignment thereof shall be conducted through bidding, auction or quotation. Compared with Order No. 11, Order No. 39 adds the item of “land for industrial use”, which includes lands for storage but excludes lands for mining. In fact, “land for industrial use” has been included in the assignment range of bidding, auction and quotation in “Decision of the State Council on Deepening Reform and Strengthening Land Management” of Year 2004, and the “Real Right Law” upgraded it from a policy level to a legislation one. Assigning lands for industrial use by means of bidding, auction and quotation is significant for establishing and perfecting land market mechanism and developing basic functions of market in resource allocation to a larger extent.
Order No. 39 brings another major change by making “state-owned land use right” a concept of space, replacing the previous concept of plane, which means that land use rights can be established on the surface, above or under the ground of lands.
As different places have different practices in termination of quotation, Order No. 39 makes clear provisions that, the termination of quotation shall be determined by a quotation presider. Upon expiry of the quotation term, the quotation presider shall announce the highest quotation and its quoter on the scene, and inquire whether competitive buyers would like to continue the price competition. Where there is any competitive buyer who intends to continue the price competition, the quotation shall be turned into onsite price competition, and the winner shall be determined through such onsite price competition. If there is no buyer willing to continue the price competition, whether the transaction has been stricken shall be determined in accordance with corresponding provisions.
This Decision cancels 128 administrative examination and approval items, which mainly involve market access of enterprises, assessment of qualification grades, business scope and definition of species of financial institutions, examination and approval of import and export qualification, quota distribution and examination and approval of specific business activities of enterprises, etc. In respect of assessment of qualification grades, accreditation of railway professional qualifications for construction enterprises, engineering survey enterprises, design enterprises, engineering supervision enterprises, construction costs consulting entities are canceled, and examination and approval for advertising business qualification of enterprises are canceled. As the “Enterprise Income Tax Law” will come into force on January 1, 2008, regulations inconsistent with this new law will be terminated by the end of 2007, e.g. examination and approval on tax refund on reinvestment by foreign investors, examination and approval on regular reduction or exemption of enterprise income tax by foreign-funded enterprises, examination and approval on preferential tax treatments to foreign-funded enterprises that make investment in phases or additional investments, examination and approval on reduction or exemption of income tax on franchise royalties of foreign-funded investors, examination and approval on credit of enterprise income tax against the investment of foreign-funded enterprises in purchasing domestic made products, etc.
The Notice makes provisions in respect of administration on loans for real estate development, loans for land reserve, loans for housing consumption and loans for purchase of business premises, etc.
According to the Notice, for a project in which the ratio of project capital (owners’ equity) is less than 35% or certificate of land use right, planning permit for construction land, planning permit for construction project or construction permit has not been granted, a commercial bank shall not make a loan in any form; for a real estate development enterprise that is found by authorities of land and resources or competent authorities for construction to have stocked up land or housing sources, a commercial bank shall not make a loan to it; and for commercial buildings that have been vacant for more than three years, a commercial bank shall not accept them as collateral for a loan.
The Ministry of Construction promulgated Implementation Opinions on the “Measures for Qualification Accreditation of Bidding Agencies of Engineering Construction Projects” (hereinafter, the “Implementation Opinions”) on September 21, 2007.
The Implementation Opinions gives explicit provisions on materials to be submitted when applying for initial qualification, qualification upgrading or qualification extension of project bidding agencies. Meanwhile, where a Grade A project bidding agency applies for a modification of its enterprise name in its qualification certificate, the application shall be submitted to the Ministry of Construction with corresponding materials.
Qualification certificates for project bidding agencies are all numbered by competent construction authorities under the State Council and issued by examination and approval organs. All grades of qualification certificates are recognized nationwide and such certificates may be reissued if they are missing.
The fifth part of the Implementation Opinions, namely “relevant statements” requires special attention. For example, a bidding agency shall not be subordinate to any administrative organ or any pubic institution with administrative functions; several practicing qualifications held by one person shall not be repeatedly counted; and contents necessary to be contained in the project bidding agency contract.
According to the Notice, for drugs that have already obtained “Approval of Drug Clinical Trial” before October 1, 2007, their clinical trials shall be conducted according to requirements on clinical trial provided in the previous “Measures for the Administration of Drug Registration” (hereinafter, the “Old Measures”) and contents in the “Approval of Drug Clinical Trial”. After completion of clinical trials, such drugs shall apply for production according to the new “Measures for the Administration of Drug Registration” (hereinafter, the “New Measures”).
For applications, accepted before October 1, 2007, for production of drugs other than those for large volume medical injection preparation, traditional Chinese medicine injection, multi-component medical injection and biological products, an Approval Number shall be issued after technical review. The relevant bureaus of provinces (autonomous regions and municipalities) shall organize inspection of production sites and draw trial samples of the first batch of products. Only those qualified may be put to market. Application conditions are more rigid for large volume medical injection preparation, traditional Chinese medicine injection, multi-component medical injection and biological products.
The Measures shall be applicable to prevent and remedy environmental pollution by dismantling, utilization and disposal of electronic waste within the territory of the People’s Republic of China; and prevent and remedy environmental pollution by producing and storing electronic waste.
The Measures provide, to build, rebuild or expand a project for dismantling, utilization and disposal of electronic waste, a construction entity (including individual industrial and commercial households) shall, according to relevant state provisions, submit an environmental impact assessment document to the environmental protection administrative department under the local people’s government at or above municipal level for approval. After completion of a construction project, the construction entity (including individual industrial and commercial households) shall apply to the environmental protection administrative department that formerly examined and approved the environmental impact assessment document on the construction project for check and acceptance of the environmental protection measures that shall be adopted for the construction project.
The environmental protection administrative department under the people’s government at or above county level that is responsible for examining and approving the environmental impact assessment document shall promptly incorporate qualified entities into the provisional list of entities (including individual industrial and commercial households) for dismantling, utilization and disposal of electronic waste, and make public such list. Those entities, which have been incorporated into the provisional list, if they not violate any law or regulation on environmental protection or commit any illegal acts as provided in the Measures two or more times within the latest three years, will be incorporated into the list of entities for dismantling, utilization and disposal of electronic waste, which will be publicized and regularly adjusted.
Under any of the following circumstances, the electronic waste shall be provided or entrusted to those entities (including individual industrial and commercial households) for dismantling, utilization and disposal of electronic waste that have been incorporated into the list and have the corresponding business scope for carrying out the dismantling, utilization and disposal: (1) entities generating industrial electronic waste which do not dismantle, utilize or dispose of electronic waste in the environmentally friendly manner; (2) producers, sellers, importers, users, renovators, repairers or reproducers of electronic or electrical products discard electronic or electrical products or equipment; (3) entities (including individual industrial and commercial households) for dismantling, utilization and disposal of electronic waste that cannot completely dismantle, utilize or dispose of electronic waste; (4) illegally produced or imported electronic or electrical products or equipment as confiscated by relevant administrative departments in their administrative activities which need to be dismantled, utilized or disposed of.
The State Administration of industry and commerce promulgated the “Rules on Hearing in Administrative Penalty Cases” (hereinafter, the “Rules”) and “Provisions on Procedures for Administrative Penalty” (hereinafter, the “Provisions”) on September 4, 2007, which came into force on October 1, 2007.
According to the present “Provisional Rules for Administrative Departments of Industry and Commerce on Hearing in Administrative Penalty Cases”, a hearing may only be held where a citizen is imposed a penalty above RMB 5000 Yuan or where a legal person or any other organization is imposed a penalty above RMB 50,000 Yuan. After amendment, the Rules lower the threshold for hearing application——a hearing may be held where a citizen is imposed a penalty above RMB 3000 Yuan or where a legal person or any other organization is imposed a penalty above 30,000. The Rules also provides if administrative authorities of commerce and industry give an administrative penalty on confiscating illegal gains and illegal goods and money whose value reaches certain number, the party concerned has the right to request a hearing. Besides, concerning ways of application, the Rules add the provision that “a party concerned may sign his/its request on the receipt of the notice on hearing right”, and make clear that in case the notice on hearing right is sent by mail, if the party concerned does not receive it within the prescribed period because of force majeure or any other special circumstance, the application for a hearing shall be submitted three days since the date of actual receipt of the notice on hearing rights.
§ IP Cases
The Supreme People’s Court made a final judgment on September 3, 2007, in the case of the appellants (the defendants in the first instance) Wuhan Yinsha Leisure Commodity Co., Ltd. (hereinafter, “Yinsha”), Parkson Business Development Co., Ltd. (hereinafter, “Parkson”) and Beijing Xidan Market Co., Ltd. (hereinafter, “Xida”) vs. the appellee (the plaintiff in the first instance) Haluo·Siteruite Co., Ltd., with the defendants of the first instance (Hong Kong) Fuwen International Investment Co., Ltd. (hereinafter, “Fuwen”) and Zhongyi Hualian Co., Ltd. (hereinafter “Zhongyi Hualian”), regarding infringement on trademark and unfair competition, which repealed the judgment of first instance and dismissed the litigation claims of Haluo·Siteruite.
The court of the first instance held that, concerning the issue whether the behavior of the five defendants constituted infringement on trademark, from the “Trademark License Contract” executed between Haluo·Siteruite (HK) and Fuwen, as submitted by the plaintiff, the rights obtained by Fuwen were exclusive license right and sub-license right. Based on this “Trademark License Contract” and relevant authorization letters issued by Haluo·Siteruite (HK) and Fuwen, it was legally authorized when using the disputed trademark by Fuwen and Zhongyi Hualian from August 1, 1995 to December 31, 1998, while this “Trademark License Contract could not prove that Zhongyi Hualian enjoyed the right of sub-license. Therefore, the authorization letter issued by Zhongyi Hualian on April 15, 1998 was invalid. Without obtaining the plaintiff’s legal authorization, Yinsha applied the plaintiff’s registered trademark, “Maui and Sons” with a round figure, on the clothes, sports commodities and other articles produced and sold by Yinsha, which had constituted infringement on the plaintiff’s right to exclusive use of the registered trademark and thus Yinsha should undertake the corresponding civil legal responsibilities. In addition, according to the “Joint Operation Contract” and “Joint Sales Contract” executed by Parkson and Yinsha as well as the “Agreement” executed by Xidan and Yinsha, the relationship established by Yinsha with Parkson and Xidan was joint operation or joint sales, rather than pure leasing relationship. Therefore, Parkson and Xidan should undertake joint and several liabilities to compensate economic losses incurred to the plaintiff.
Yinsha did not accept the judgment of the first instance, holding that the court of the first instance had not ascertained the facts of authorization clearly and the application of laws was wrong. The “Authorization Agreement” executed by Fuwen with Zhongyi Hualian authorized Zhongyi Hualian with the implementation right and sub-license right, and the appellants had paid huge consideration to perform this Agreement. The appellee had known it but it had never raised any objection. In the cases that the parties concerned did not present such contention, nor was there any investigation on the relevant facts, the court of first instance lacked factual and legal grounds in affirming that the behavior of the appellants constituted infringement by holding that no direct relationship of authorization existed between the appellants and the appellee,.
Parkson appealed and alleged: according to the contract executed by Parkson and Yinsha, the relationship established between both parties was a relationship of joint operation with the nature of leasing and Parkson was not the actual seller. The facts ascertained by the court of fist instance were wrong.
Xidan appealed and alleged: the relationship between Xidan and Yinsha was site-leasing and Xidan did not sell any disputed commodity by itself. Xidan did not sell any infringing commodity intentionally and according to provisions of Trademark Law, it shall not undertake liabilities of compensation.
The Supreme People’s Court held that, the focus of this case was whether the behaviors of the appellants Yinsha, Parkson and Xidan constituted infringement. The previous Trademark Law, before its amendment in 2001, should be applied to the behavior in this case. According to the “Trademark License Contract” executed by Haluo·Siteruite (HK) and Fuwen, Fuwen obtained the exclusive license right and sub-license right of the agreed products. Then Fuwen, by executing the “License Agreement” with Zhongyi Hualian, authorized Zhongyi Hualian with the right to sub-license any independent contractors to produce and sell the licensed products within the licensed territory. Based on that, Zhongyi Hualian, by executing the “Authorization Agreement” with Yinsha, sub-license the aforesaid trademark and products to Yinsha and thus Yinsha obtained the right to use “Maui and Sons” serial trademarks and products and the right to apply “Maui and Sons” to all the authorized products produced by Yinsha in Beijing. Though the appellee Haluo·Siteruite defended that its “License Agreement” executed with Fuwen had restriction that the rights authorized to Fuwen were only production and sales, rather than sub-license, yet according to the facts investigated by the Supreme People’s court, the “Trademark License Contract” executed by Haluo·Siteruite (HK) and Fuwen clearly provided that Fuwen could grant the sub-license of the licensed products and there was no restriction on it. Besides, the licenses granted by Haluo·Siteruite (HK) to Fuwen, Fuwen to Zhongyi Hualian and Zhongyi Hualian to Yinsha were all exclusive licenses, and none of these companies had any behavior of production or sales; without subsequent licenses, the interest of Haluo·Siteruite (HK) in license would not be realized. As Haluo·Siteruite (HK) sent a letter of termination of the agreement to the registered addresses of Zhongyi Hualian and Yinsha on April 29, 1998 when Fuwen failed to pay trademark license fee upon the effectiveness of the agreement, it could be construed that Haluo·Siteruite (HK) knew the behaviors of Zhongyi Hualian and Yinsha, while Haluo·Siteruite (HK) had not raised any objection on such license before sending a termination letter. As Haluo·Siteruite used the “Trademark License Agreement” executed between Haluo·Siteruite (HK) and Fuwen as evidence to claim rights when lodging a suit with the court of the first instance, it could be affirmed that the license granted on Fuwen by Haluo·Siteruite (HK) had been approved by Haluo·Siteruite. Therefore, the series of licensing behaviors should be affirmed as effectiveness. Even if Fuwen did not have right of sub-license as claimed by Haluo·Siteruite, Fuwen’s behavior should belong to breach of contract and should not be handled in this case as infringement.
The plaintiff in the first instance Chengdu Xinxing Zhongwei Technology Co., Ltd. (hereinafter, “Zhongwei”) alleged: the plaintiff and the defendant executed a “Cooperation Agreement” in 2003, which agreed that the defendant acquired the ownership and use right of “Zhongwei VCRM system” with RMB 650,000 Yuan. After the execution of the Agreement, the plaintiff delivered and installed relevant software and hardware equipment of “Zhongwei VCRM system” as well as software package of “Zhongwei Home-School Communicator”, etc. according to the Agreement, and also provided background services and technical support, which enabled normal operation of the defendant’s “Zhongwei Home-School Communicator” program. However, with the development of business, the defendant no longer conducted promotion of “Zhongwei Home-School Communicator” program according to the Agreement, instead, the defendant developed clients in the name of “Shenzhou Home-School Communicator” and terminal users had been far beyond 10,000. As the defendant refused to pay the remaining amount of RMB 200,000 Yuan, RMB 1,200,000 Yuan drawn from the revenue and income from added-value services and the defendant promoted the “Home-School Communicator” program beyond the agreed business region, used the plaintiff’s software technology and transferred the use right of the plaintiff’s software to third parties without consent, the plaintiff lodged a suit at the court for the defendant’s breaching behavior, and asked for terminating the contract, paying due amount and undertaking liabilities for breach of contract.
The defendant in the first instance Chongqing Yanhuang Newstar Information Industry Development Co., Ltd. (hereinafter, “Yanhuang”) responded that, the plaintiff only provided the network account and portal equipment of “Zhongwei VCRM system” and did not provide central control and management system or complete software products as agreed, which caused the defendant’s failure to independently run “Zhongwei Home-School Communicator” program. The “Shenzhou Home-School Communicator” program run by the defendant was developed by the defendant independently and its relevant business actions did not breach the Agreement. Also, the defendant had already paid the Agreement amount at more than RMB 500,000 Yuan, which surpassed the agreed payment schedule. So it did not have any breaching behavior and it asked the court to reject the claims by the plaintiff.
The court of the first instance held that, Yanhuang’s behavior should not be held as constitution of breach of agreement because “the defendant failed to pay the remaining Agreement amount of RMB 200,000 Yuan and RMB 1,200,000 Yuan drawn from the revenue”, “the defendant run business of ‘Shenzhou Home-School Communicator’ program beyond the agreed business region and “relevant materials of ‘Shenzhou Home-School Communicator’ are partly identical or similar to those of ‘Zhongwei Home-School Communicator”. However, the court of the first instance supported the claim made by the plaintiff that the defendant’s behavior constituted breach of agreement because “the defendant Yanhuang terminated the operation of ‘Zhongwei Home-School Communicator’ program and turned to run ‘Shenzhou Home-School Communicator’ program”. Therefore, the court of the first instance ruled that the Agreement should be terminated and that the defendant should pay a penalty of RMB 1,000,000 Yuan.
Both Zhongwei and Yanhuang were dissatisfied with the judgment of first instance.
The court of the first instance held that, the protection range of a design patent should be decided by a design patent product shown in pictures or photos. The protection range of the design patent of the logo held by Jinfeng was claret, golden, a figure that upper rim of a rectangular was attached to an arc, and combination of patterns, characters and numbers. Comparing the two logos of Baita and Risheng with that of Jinfeng, they shared similar figures, with the golden as the bottom color of patterns, with claret tracing out the outline of a Shikumen (stone portal) and with the same arrangements of such numbers and Chinese or English words as “2001”, “上海老酒” and “Shanghai Hi-story” on similar horizontal inscribed boards and portals, and the bottom colors and color of such numbers and words were identical, characters and letters. Therefore, the two logos of the defendants were similar with that of the plaintiff, which might mislead the public. So the logos of 500ml and 300ml bottled “上海老酒”, produced and sold by the defendants, infringed the design patent of Jinfeng. Based on this, the defendants Baita and Risheng should undertake corresponding civil liabilities. In addition, since the patent right was a kind of property right, so the claim made by Jinfeng that Baita and Risheng should make apologies on national press was not supported by the court.
Jinfeng, Baita and Risheng were dissatisfied with the judgment of the first instance and appealed to Shanghai Higher People’s Court. Among them, Jinfeng held that the compensation ruled by the court of first instance was too low.
The court of the first instance held that, the plaintiff HP claimed that the defendant Aolingdun infringed on HP’s right to exclusive use of trademark based on the decision to impose a quality technical supervision administrative penalty on Aolingdun, made by Xuhui Bureau of Quality and Technical Supervision (hereinafter, “Xuhui Bureau”). As the plaintiff did not provide any relevant real objects, the court could not examine whether or not the xerography, ink boxes or other products investigated and prosecuted by Xuhui Bureau had infringed upon HP’s right to exclusive use of trademark. Besides, concerning what was stated in this penalty decision letter, Xuhui Bureau imposed the administrative penalty on Aolingdun for the reason that Aolingdun falsified and imitated other’s factory name and factory address, based on the relevant provisions of the “Product Quality Law”, without referring to whether there existed any trademark infringement facts. Therefore the court could not directly rule that Aolingdun had infringed on HP’s right to exclusive use of trademark either according to this administrative penalty decision. Moreover, Aolingdun infringed on HP’s right to exclusive use of the registered trademark “HP, HEWLETT PACKARD” by applying such registered trademark of HP to packing of Aolingdun’s products prominently, and thus the defendant Aolingdun should undertake corresponding civil liabilities.
Both parties concerned were dissatisfied with the judgment of first instance and appealed to Shanghai Higher People’s Court. The major argument of HP was that, Xuhui Bureau’s investigation and prosecution of Aolingdun’s falsified and imitated HP products, logos and marks could fully prove the facts of Aolingdun’s infringement on trademark. Even if the court of the first instance thought the evidence was not enough to prove Aolingdun’s infringement on trademark, it should affirm that Aolingdun had constituted unfair competition according to provisions in the “Anti-Unfair Competition Law” and rule Aolingdun to make compensation according such provisions. Aolingdun argued that, firstly, the administrative law enforcement of Xuhui Bureau could not be an evidence for proving Aolingdun’s infringement on HP’s trademark and secondly, Aolingdun’s trademark was neither identical nor similar with that of HP, and thus it should not be prevented from using.
The court of the first instance held that, Zhengyang’s commercial information belonged to commercial secrets and should be protected by laws. Ma Hongdong got Zhengyang’s client information by using improper methods of stealing and copying and worked for Fumin to export dehydrated vegetables abroad. The behavior of Fumin had constituted infringement on Zhengyang’s commercial secrets, and as a legal person, Fumin should be liable for the infringement conducted by its staff. Therefore, the court ruled that Fumin should compensate Zhengyang with 258, 4324.99 Yuan for the economic losses and 896,178.06 Yuan for developing client information, and that Fumin should not openly disclose or disseminate any of Zhengyang’s client business information, etc.
Both Zhengyang and Fumin were dissatisfied with the above judgment of first instance and appealed to the Supreme People’s Court. Zhengyang held that the compensation decided by the judgment of the first instance was too low. Fumin alleged that Zhengyang did not own any commercial secrets in a legal sense; Fumin obtained and used Zhengyang’s client list as a bona fide third person and did not have any intention or gross negligence, so the behavior should not constitute infringement and thus Fumin should not undertake any civil liabilities for infringement.
