Haworth & Lexon Law Newsletter (88)-Law Bridge-Shanghai Law Firm/Lawyer

Haworth & Lexon Law Newsletter
No.3 2009 (Total:No.88) April.15th, 2009
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

Austin Haworth & Lexon (Sydney) Law Firm Is Invited by Australian Attorney-General's Department to Give Lectures

Latest Laws and Regulations:

Several Provisions of the Supreme People’s Court on the Service of Judicial Documents of Civil or Commercial Cases concerning Hong Kong and Macau.

Notice of the Ministry of Commerce on Examination and Approval Items for Foreign Invested Venture Investment Enterprises and Venture Investment Management Enterprises.

Notice of the Ministry of Commerce on Transferring the Examination and Approval Power for Foreign Invested Investment Company.

Supplementary Provisions to the Measures for the Administration of Foreign Investment in the Commercial Sector (IV).

Administrative Measures for Overseas Investment.

Provisions of the Supreme People’s Court on Several Issues concerning Application of Law in Cases involving Delivery of Goods without Original Bill of Lading.

Administrative Measures for Software Products.

Opinions of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues concerning the Recognition of Circumstance for the Discretionary Action of Sentencing as Voluntary Surrender, Performing Meritorious Service and the like in Handling Duty Crime Cases.

Legal Practices:

Analysis on Legal Practices concerning Use of Registered Trademark on Drugs.

Whether the Shareholder Who Has Not Fully Made the Capital Contribution Has the Right to Information.

Whether the Transfer of A Trademark Is Fair or Not Is Not Determined by the Connection between the Transfer Price and the Value of the Trademar.

Extraterritorial Laws and Regulations:

Skills on Confession of Crimes.

News of Haworth & Lexon

Austin Haworth & Lexon (Sydney) Law Firm Is Invited by Australian Attorney-General's Department to Give Lectures

Austin Haworth & Lexon (Sydney) Law Firm is invited by Australian Attorney-General’s Department to give lectures for the Australia – China Legal Profession Development Program 2009.

This Program is jointly held by the Ministry of Justice of the People’s Republic of China, All China Lawyers Association, Australian Attorney-General’s Department, Australian Bar Association, Australian International Legal Services Advisory Council, and New South Wales Bar Associationwhich has been held for 4 years since of 2005. The purpose of this Program is to introduce the Australian law system to the Chinese legal professionals through the three months’ of training, probation and communication.

During the previous years, the law firms invited Australian Attorney-General’s Department to train Chinese lawyers and legal professionals that are working in non-chinese law firms; however, the Program of this year illustrates that, with the increase of Australia - China economic and cultural communication and the growing importance of Chinese capital and Chinese merchants in the Australia – China economy, the elite of Chinese lawyers has obtained further recognition from the Australian mainstream society.

This Program is held in New South Wales Bar Association. Partner Daniel Sheen and Attorney Xu Yiming, Li Gangliang, Gu Ming and Chen Shan of Austin Haworth & Lexon (Sydney) Law Firm have participated in this Program to give lectures to Chinese counterparts.

Latest Laws and Regulations

Several Provisions of the Supreme People’s Court on the Service of Judicial Documents of Civil or Commercial Cases concerning Hong Kong and Macau

The Several Provisions of the Supreme People’s Court on the Service of Judicial Documents of Civil or Commercial Cases concerning Hong Kong and Macau (hereinafter “the Provisions”) are promulgated by the Adjudication Committee of the Supreme People’s Court on March 9, 2009 and shall come into force as of March 2009.

The Provisions apply to the service of judicial documents to the addressee that is in Hong Kong SAR and Macau SAR in civil and commercial cases examined by the people’s court that are in relation to Hong Kong SAR and Macau SAR. The term “judicial document” under the Provisions refers to the duplicates of bills of complaint, duplicates of pleadings, summons, judgments, receipts of service, and other documents that are related to the litigation.

As to the addressee, the Provisions have specified the following special circumstances: the people’s court may (1) directly serve the judicial documents upon the natural person or legal representative or major person-in-charge of an enterprise or any other organization that is within the territory of MainlandChina; (2) serve judicial documents upon the legal attorney where the addressee does not expressly indicates in the authorization that its legal attorney has no right to receive judicial documents on its behalf; or (3) directly serve the judicial document to the representative organization set up by the addressee within the territory of the Mainland of China.

The service method that is provided by the people’s court may serve the judicial document upon the addressee by post, fax, email or any other suitable method that is able to confirm the receipt; unable to use the above methods, the judicial document may be served by public announcements. The content of the public announcements shall be published on the public papers or magazines in Mainland China and the domicile of the addressee. The judicial document shall be deemed to have been served for three months after the date of the public announcement. Except to public announcement, the people’s court may adopt several legal methods to serve the judicial document upon the addressee. The date of the first service shall be regarded as the date that the judicial document will be served.

In addition, the Provisions have specified the following two circumstances to recognize the legal service of judicial documents. Under such circumstance where the addressee fails to handle the signature formalities: (1) the addressee has mentioned the content of the judicial document to the people’s court in writing; or (2) the addressee has performed the content of the judicial document so served.

Notice of the Ministry of Commerce on Examination and Approval Items for Foreign Invested Venture Investment Enterprises and Venture Investment Management Enterprises
The Notice of the Ministry of Commerce on Examination and Approval Items for Foreign Invested Venture Investment Enterprises and Venture Investment Management Enterprises (hereinafter “the Notice”) is promulgated by the Ministry of Commerce on March 5, 2009 and shall come into force as of promulgation.

The Notice has transferred the examination, approval and administration power concerning the establishment and modification of foreign invested venture investment enterprises and foreign invested venture investment management enterprises. Based on the Notice the establishment and modification of any foreign invested venture investment enterprise and foreign invested venture investment management enterprise whose registered capital is less than USD 100 million (inclusive) shall be examined, approved and administered by the administration of commerce at the provincial level and the economic and state level of technical development zones. At the same time, it is provided that the exception of the single increase in investment that is more than USD 100 million and the modification of necessary investor of a foreign invested venture investment enterprise, the supplementary modification items of foreign invested venture investment enterprises and the foreign invested venture investment management enterprises that are approved by the Ministry of Commerce shall be examined and approved by the administration of commerce at the provincial level and at the state level of economic and technical development zones.

In addition, the Notice specifies after submitting the complete set of the materials, the administration of commerce at the provincial level and economic and technical development zones of the state level shall, within 30 days decide to approve or not approve the application in writing. If approved, it shall issue the approval certificate for foreign invested enterprises and fill the Filing Sheet for Foreign Invested Venture Investment Enterprises. It will then report the information to the Ministry of Commerce for record through the examination of approval and administration system for foreign invested enterprise.

It is also provided by the Notice that the venture investment enterprise shall fill the Filing Sheet for the Foreign Invested Venture Investment Enterprise in March every year to report the collection of capital. The administration of commerce at the provincial level and at the state level of economic and technical development zones , who shall thereafter issue the filing certificate as the examination and approve the materials for venture investment enterprises to participate in the joint annual review.

Notice of the Ministry of Commerce on Transferring the Examination and Approval Power for Foreign Invested Investment Company
The Notice of the Ministry of Commerce on Transferring the Examination and Approval Power for Foreign Invested Investment Companies (hereinafter “the Notice”) is promulgated on March 6, 2009 by the Ministry of Commerce and shall come into force as of promulgation.

The Notice has transferred the examination, approval, and administration power concerning the establishment and modification of foreign invested investment enterprises. Based on the Notice, the establishment and modification of any investment company whose registered capital is less than USD 100 million (excluding the single increase of investment that is more than USD 100 million) by foreign investors and the supplementary modification items (excluding the single increase of investment that is more than USD 100 million and the change of investor) of investment companies that are approved by the Ministry of Commerce shall be examined and approved by the administration of commerce at the provincial level which is where the investment company is registered.

The Notice provides that the investment scope of the investment company shall not relate to the field where foreign investment is restricted or prohibited or to the industry that is subject to macro regulation and control. The industry that is allowed by specific provisions on foreign investment and the administration of commerce at the provincial level shall obtain the consent from the competent state administrations according to the applicable procedures. But beyond that, projects invested by investment companies shall comply with the applicable laws, regulations and industrial policies. The specific investment projects shall be separately reported for approval according to the relevant procedures provided by the State.

The Notice provides enterprises that are invested by investment companies or are jointly invested by other investors may enjoy the preference as a foreign invested enterprises, given that the proportions of foreign exchange investment by foreign investors (refers to the investment company and other foreign investors) compared with the registered capital of the invested enterprises is not less than 25%.

Supplementary Provisions to the Measures for the Administration of Foreign Investment in the Commercial Sector (IV)

The “Supplementary Provisions to the Measures for the Administration of Foreign Investment in the Commercial Sector (IV)” (hereinafter “the Provisions”) is promulgated on February 5, 2009 by the Ministry of Commerce of the People’s Republic of China and shall come into force as of promulgation.

The Provisions supplement the Measures for the Administration of Foreign Investment in the Commercial Sector as follows: a single service provider from Hong Kong or Macau has set up more than 30 shops in the Mainland and the commodity of their businesses includes drug, pesticide, agricultural films, fertilizer, vegetable oil, sugar, and cotton, of different brands and of different suppliers allowing service providers from Hong Kong and Macau to run the business through sole proprietorships.

Administrative Measures for Overseas Investment
The “Administrative Measures for Overseas Investment” (hereinafter “the Measures”) is promulgated on March 16, 2009 by the Ministry of Commerce and shall come into force on May 1, 2009. The Provisions on the Examination and Approval of Investment to Set up Enterprises Abroad and the Notice of the Ministry of Commerce and the Hong Kong and Macao Affairs Office of the State Council on Printing and Promulgating the "Provisions on the Examination and Approval of Investment for Inland Enterprises to Set up Enterprises in Hong Kong or Macao Special Administrative Region" shall be abolished simultaneously. Where there is a conflict between any provision and the Measures, the Measures shall prevail. The Measures shall also apply when a public institution legal person invests overseas or an enterprise sets up non-enterprise legal person overseas, or an enterprise invests in Hong Kong, Macau and Taiwan region.

A typical overseas investment is an enterprise that is legally established in China (hereinafter referred to as the “Enterprise”) and sets up a new non-financial enterprise overseas. It acquires the right to own, control, or manage an existing non-financial enterprise overseas in the way of new establishment or M & A. It is provided in the Measures that the Ministry of Commerce shall be responsible for administrating and supervising overseas investment. The competent administration of commerce at the provincial level shall be responsible for administrating and supervising the overseas investment within their respective administrative regions. The Measures have revised the former regulations on the following major points:

I. Standard Authority and Procedure

It is provided by the Measures that the Ministry of Commerce and the competent administration of commerce at the provincial level mainly examine and verify such circumstances as if the overseas investment is (a) endangering the state sovereignty, national security and public interests of China or violating a law or regulation of China; (b) damaging the relationship between China and a relevant country or region; (c) likely violating any international treaty concluded by China with a foreign party; or (d) importing any technology or goods prohibited by China. The economic and technical feasibility of an overseas investment shall be the sole responsibility of the enterprise.
The Ministry of Commerce only reserves the approval authority to the overseas investment of central enterprises and a small number of other overseas investments, including: (1) overseas investment in a country which has not established a diplomatic relationship with China; (2) overseas investment in a specific country or region (the list of such countries or regions shall be determined by the Ministry of Commerce in conjunction with the Ministry of Foreign Affairs and other relevant departments); (3) Chinese overseas investment with the amount of USD 100 million or more; (4) overseas investment that involves the interests of multiple countries or regions; or (5) the establishment of a special-purpose company overseas. A special-purpose company is an overseas company that directly or indirectly subjected within the enterprise interests and rights of the domestic company owned by the enterprise.

According to the Measures, the approval procedure is simplified: After receiving an application, the Ministry of Commerce and the competent administration of commerce at provincial level shall within five workdays will decide whether or not to accept it, and shall, within 15 workings after acceptance to decide whether it will be approved or not. Except for the overseas investment taken by the special enterprises as provided by the regulation, the Overseas Investment Application Form shall be submitted only through Overseas Investment Management System. The Ministry of Commerce or the competent administration of commerce at the provincial level shall make an examination within 3 working days after receiving the application form. An Enterprise Overseas Investment Certificate shall be issued if the application form is completely filled.

II. Guiding Service and Feasibility Clause

It is provided by the Measures that the competent administration of commerce shall strengthen the guidance on promotion and services for overseas investment and to issue the Guidebook on Overseas Investment Cooperation Country (Region). In addition the construction of overseas investment and cooperation information service system will ; provide advice and information service to overseas companies; build the multi- and bi-lateral economic and trading cooperation mechanism; promote overseas investment by using multi- and bi-lateral economic and trading negotiation mechanism or investment promotion working mechanism and to enter into bi-lateral treaties on investment promotions to protect and avoid double taxation and considerably to strengthen the communication between different governments and create good international environment.
The Measures have provided many provisions available for operation, for example, it is provided by the Measures that where two or more enterprises set up overseas enterprise by joint investment, the relatively bigger shareholder may, after receiving written consent from other investors, be responsible for handling the examination and approval formalities.

III. Code of Conduct and Penalties

The Measures have added the Code of Conduct for Overseas Investment on Chapter 4 as it requests that the enterprises shall take positive and steady overseas investment on the ground of objective evaluation of its conditions and capability as well as the investment environment of the host country (region). The Measures have provided the penalties in respect of the enterprises.: If the enterprise present fake application materials or answers the application form unfairly, the administration of commerce may not accept or approve the application and will issue a warning that it may not accept any overseas investment of such enterprise within one year; if the enterprise obtains overseas investment approval but produce fake materials and other unfair methods, the administration of commerce may cancel the relevant documents and will not accept any overseas investment of such enterprise within three years. Any enterprise that has violated the Measures shall not enjoy any support from overseas investment policies from the country.

Provisions of the Supreme People’s Court on Several Issues concerning Application of Law in Cases involving Delivery of Goods without Original Bill of Lading
The “Provisions of the Supreme People’s Court on Several Issues concerning Application of Law in Cases involving Delivery of Goods without Original Bill of Lading” (hereinafter referred to as the “Provisions”) was promulgated by the Supreme People’s Court on February 16, 2009 and shall come into force on March 5, 2009.

The Provisions mainly defines the issues concerning the cases of delivery without original B/L, rights concurrence of the original B/L holder, calculation of compensation, cases of exemption from liabilities of the carrier, the way of bearing liabilities by the carrier and consignee, and the limitation of action.

According to the Provisions, the carrier delivers the goods without the original B/L (including delivers the goods with the fake B/L), will cause losses to the original B/L holder. The original B/L holder may request the carrier to be liable based on breach of contract or tort, and may request the carrier and the consignee without B/L to assume joint and several compensation liabilities.

The compensation made by the carrier shall be calculated according to the value of goods on shipment, plus the freight and insurance fee. The Article 56 of the Maritime Law concerning the limitation on liability of compensation shall not apply.

As to the action based on delivery of goods without the original B/L (including action based on joint tort by the carrier and consignee without the original B/L), the limitation of action is one year from the date when the carrier should deliver the goods.

Administrative Measures for Software Products
The “Administrative Measures for Software Products” (hereinafter referred to as the “Measures”) is promulgated by the Ministry of Industry and Information Technology of P. R. C promulgated on March 1, 2009 and shall be effective from April 10, 2009. The former Administrative Measures for Software Products promulgated by the Ministry of Information Industry on December 27, 2000 shall be annulled simultaneously.

The Measures have revised the former Administrative Measures for Software Products as follows:

The Measures unify the jurisdiction on domestic and import software. The Measures provide that the software industry administrative department of a province, autonomous region, municipality directly under the Central Government or city under separate state planning (hereinafter referred to as “the provincial software industry administrative department”) shall be responsible for the registration, reporting for record-filing, and administration of software products within its own administrative. The provincial software industry administrative department entrusts the local software products registration institute to be responsible for acceptance and examination of application for the software products registration.

The Measures have detailed provisions on the acceptance procedure. The software industry registration department of a province, autonomous region, municipality directly under the Central Government or city under separate state planning shall examine the application materials. If the materials are complete, they shall be submitted to the provincial software industry administrative department for examination, and then reported to the MIIT for record-filing. The MIIT shall, through the designated media, make an announcement of the software products which has undergone the record-filing formalities. If no objection is raised within 7 working days as of the date of announcement, the provincial software industry administrative department shall issue a software product registration number and software product registration certificate.

The Measures delete Article 14 of the former Administrative Measures for Software Products, and no qualification is requested for a software products manufacturer.
The Measures delete the relevant provisions and limitations in the former Administrative Measures for Software Products concerning “the software products without software products registration or filing, or those registration that has been canceled” and “other pirated software's and decrypted software's”.

Measures of the General Administration of Customs of the People’s Republic of China for the Implementation of the Regulations of the People’s Republic of China on the Customs Protection of Intellectual Property Rights
The “Measures of the General Administration of Customs of the People’s Republic of China for the Implementation of the Regulations of the People’s Republic of China on the Customs Protection of Intellectual Property Rights” (hereinafter referred to as the “Measures”) is promulgated by the General Administration of Customs on March 3, 2009 and shall come into force on July 1, 2009. The former “Measures of the General Administration of Customs of the People’s Republic of China for the Implementation of the Regulations of the People’s Republic of China on the Customs Protection of Intellectual Property Rights” (Order No. 114) promulgated on May 25, 2004, shall be annulled simultaneously (the “Former Measures”).

The Measures have revised the Former Measures mainly in the following aspects:

The Measures have made detailed provisions concerning supervision on imported and exported goods. According to the Measures, if the customs find that the imported and exported goods involve any intellectual property filed at the General Administration of Customs and the importer or exporter has not filed the case concerning use of the intellectual property at the General Administration of Customs, then the customs may request the consignor, within the prescribed time limit to declare the intellectual property of the goods and submit the relevant certificates. Then the customs will suspend the passing of goods and notify the intellectual property owner in writing.

The Measures have revised the provisions on deposit. If the intellectual property owner considers some goods infringes on its intellectual property rights filed at the General Administration of Customs and requests the customs to detain the goods, he shall submit the written application to request the customs to detain the suspected goods, together with the guarantee or the guarantee letter issued by the bank or non-bank financial institutions. With respect to the total guarantee amount in the infringement on trademark, the Measures provide that it shall be equal to the total amount of storage, safekeeping and disposal fees incurred in application for detaining infringing goods by the intellectual property owner last year.

In addition, the Measures also add the clause on reconciliation between the intellectual property owner and the consignor and consignee. If the intellectual property owner, the consignor, and the consignee reach an agreement on the suspected infringing goods detained by the customs and was able to submit an application to the customs in writing to request it to relieve the detaining, the investigation may be ceased, unless the customs hold that it constitutes a crime.

The Measures have made detailed provisions on disposal of infringing goods. If the customs find that the imported or exported goods carried or mailed by individuals is suspected to be infringing on intellectual property, the amount of which is beyond the self-use and reasonable extent, then the goods shall be detained; if the individual crossing the border or the mail receiver or sender thinks that the goods detained by the customs does not infringe on the relevant intellectual property or the goods is for self-use, then he may submit a written explanation, together with some evidence. If the customs identifies, after investigation, that the intellectual property is infringed on and thus the goods shall be confiscated, or the owner of imported or exported goods or articles can not be ascertained, then after the expiry date of three (3) months from the date of issue of announcement, the goods will be confiscated. If the infringement is suspected to commit a crime, the customs shall transfer the case to the public security organs. In addition, the Measures provide if the customs sells the infringing goods by auction, the opinions from the intellectual property owner shall be solicited.
The Measures also have made detailed provisions on the payment of filing fees and application for property preservation by consignor and/or consignee.

The “Opinions on Several Issues concerning the Recognition of Circumstance for the Discretionary Action of Sentencing as Voluntary Surrender, Performing Meritorious Service and the like in Handling Duty Crime Cases” (hereinafter referred to as “Opinions”) is printed and distributed by the Supreme People’s Court and the Supreme People’s Procuratorate on March 12, 2009.

The Opinions clarify the conditions and procedures for circumstances such as voluntary surrender, performing meritorious service, confession of the criminal facts and pursue of proceeds of crime.

1. Recognition and Handling of Voluntary Surrender

The Opinions emphasize that voluntary surrender shall have two requisites of voluntarily giving himself to the police and confessing his crimes honestly. But the Opinions also provide two circumstances in which there is no voluntarily giving himself to the police but still recognized as voluntary surrender: (1) the criminal honestly confesses the crime that is not known by the police, which is a different type from the crime known by the police; (2) the criminal fact based on the clues known to the police in charge of the case could not be established, and the criminal confesses a crime of the same type beyond this extent.

In addition, as to the crimes committed by an entity, the Opinions provide that if the entity collectively decides or the person in charge or the persons in the entity who are directly in charge decides to surrender itself voluntarily and confesses the crime of the entity, it shall be deemed as voluntary surrender by the entity. If the entity surrenders itself voluntarily, and the person in charge or the persons in the entity and the person who shall be directly liable does not surrender himself but confess the facts he knows, voluntary surrender shall be established. If the entity does not surrender itself voluntarily, and the person who shall be directly liable surrenders himself voluntarily and confesses the facts he knows, voluntary surrender of this person who shall be directly liable shall be established.

2. Recognition and Handling of Performing Meritorious Service

The Opinions emphasize that meritorious service shall be performed by the criminal himself. The materials about the others’ crimes shall have detailed criminal facts, and the clue or assistance, ground of performing meritorious service, shall have practical effect to crack the case or arrest the criminal suspects. As to the sources of the clues and materials, the Opinions provide that the following four (4) circumstances shall not be deemed as performing meritorious service: (1) they are obtained by illegal means or ways; (2) they are obtained because of taking the position of investigating crimes; (3) others provide them to the criminals in violation of regulations on supervision; (4) they are provided by the public servants or other state functionary in charge of investigating crimes taking advantage of their positions.

3. Recognition and Handling of Confession of the Criminal Facts

Concerning the recognition and handling of confession of criminal facts, the Opinions clarify the following circumstances: the case-handling organ has known part of the criminal facts and the criminal confesses other facts of the same crime, or the facts known by the case-handling organ are not enough and what confessed by the criminal is helpful to collect evidence to decide a case. If they are not enough to establish a voluntary surrender, then a lighter punishment can be imposed. In addition, if the case-handling organ has only known a small part of crime and the criminal confesses the major part which has not been known, or the confession has an important role in production of evidence to decide the case, then a lighter punishment shall be imposed.

4. Handling of the Cases such as Pursue of Proceeds of Crimes

If all or the majority part of proceeds in a corruption case is pursued, the lighter punishment shall be considered. If all or the majority part of proceeds in a bribery case is pursued, the lighter punishment shall be considered discretionarily, as the case may be. If the criminals and his relatives and friends return the proceeds of crime voluntarily or cooperates positively in the pursue of proceeds by the case-handling organ, then in terms of discretionary action of sentencing, it shall be different from the case where the case-handling organ pursues the proceeds of crime by exercising its power.

Legal Practices

Analysis on Legal Practices concerning Use of Registered Trademark on Drugs

How to use trademarks on drugs that are getting more and more respected from the development of the pharmaceutical industry in China. This text intends to simply analyze the issues arising in use of trademarks on drugs in legal practice.

Whether the trademarks used on the drugs shall be registered
According to Article 6 of the Trademark Law, “With respect to the commodities that the state has designated as requiring the use of a registered trademark, an application for trademark registration must be filed; the commodities may not be sold on the market before the registration is granted.” Article 4 of the Regulations for the Implementation of the Trademark Law provides that “The commodity to which registered trademarks must be used is referred to the commodities to which registered trademarks must be used according to the provisions of laws or administrative regulations.”

If the drugs belong to the commodities, is it mandatory to register the trademarks according to the provisions of the state?

It is provided in Article 41 that the Measures for Administration of Drugs (1984) requires “registered trademarks must be used for all drugs with the exception of traditional Chinese medicinal materials and their preparations in ready-to-use forms”. But the revised Measures for Administration of Drug (2001) canceled the provision on compulsory registration of trademark used on drugs. Effective from June 1, 2006, Article 27 of the Provisions on the Administration of Drug Directions and Labels promulgated by the State Foods and Drug Administration, , provides that it is prohibited to use any unregistered trademark or any other pharmaceutical name not approved by the State Food and Drug Administration on drug directions and labels.

Alhough the Provisions on the Administration of Drug Directions and Labels are not “laws or administrative regulations”, they are authorized by Article 46 of Rules for Implementation of Measures for Administration of Drugs. Meanwhile, considering the administration on the pharmaceutical industry by the State Food and Drug Administration, it could be deemed that if the drug trademark is intended to be used in practice, such as use on the drug directions and labels, it shall be registered.

Examination rules for registered trademarks on drugs
Application for registered trademark on drugs needs special attention on the following aspects considering the specialty of drugs:

The use of a generic name as a trademark. Article 50 of the Measures for Administration of Drugs provides that the names of the drugs listed in the State pharmaceutical standards are the generic names of the drugs. Those names that have become the generic names of drugs shall not be used as trademarks of drugs. The generic name of drugs shall not be applied as a trademark. Certainly, in practice, there will be some changes, such as application for a registered trademark composed of a part with outstanding features and the generic name, or application for a registered trademark by using a non-standard generic name (including alternative given name or a name once used) or the name similar to the generic name, or by using a generic name on drug for human use on the drug for animals. Detained analysis is necessary for an individual case.

Application for trademarks by the use of descriptive words denoting the function, raw materials and target users. Generally speaking, registration shall not be granted in these cases. However, in special circumstances, though the trademark contains the words of the human organ or disease, it has a second meaning in the whole and no mislead will be caused, and thus the preliminary examination could be passed, such as “my heart flies”. Also, the whole trademark refers to a non-fixed group of people, not the target users of the commodities, or it has an extended meaning, and thus the preliminary examination could be passed, such as “beautiful girls”. Therefore, as to the application for trademarks by use of descriptive words denoting the function, raw materials and target users, analysis shall be given, as the case may be, on whether the approval can be granted. However, the key to examination is “whether it may or is inclined to cause mislead by the customers”.

In terms of recognition of similar drug trademarks, there are some special circumstances. For example, “Tang” is a byword for shops in the pharmaceutical industry. Therefore, the two trademarks shall be similar if “Tang” is the only difference between them, such as “Renji” and “Renji Tang”. These circumstances shall be considered according to the customs of the pharmaceutical industry and use of drug in Chinese.

Points on Use of Registered Trademark on Drugs
The norms in this respect are mainly described in the “Provisions on the Administration of Drug Directions and Labels” referred to above and the relevant provisions, especially Article 27, “Where a drug label uses a registered trademark, the said trademark shall be printed at the border corner of the drug label. If any words are included, their size shall, in terms of the area of characters, not be larger than one fourth of that of the general name.”

In addition, in the provisions such as the Standards for the Examination and Publication of Drug Advertisements, there are also requirements on the use of registered trademark in the drug advertisement, such as “No drug ad may make publicity by replacing drug name by the registered trademark of the product, but a word registered trademark used as the commodity name of the drug as approved shall not be restricted by this clause”, and other requirements including, “the name of a prescription drug is the same as the trademark of the drug or the trade name of the manufacturing enterprise, no entity or individual may publish any ad by using this trademark or enterprise trade name in any disguised form through any medium other than the professional publications of medicine science and pharmacy”, and so on.

Besides, in the regulations of China, the registered trademark on the drug also involves intellectual property issues, including anti-counterfeit, parallel import, and domain name dispute, which needs the attention from the drug manufacturer and sales enterprises.

(Contact of the author: baileyxu@hllawyers.com)

Whether the Shareholder Who Has Not Fully Made the Capital Contribution Has the Right to Information.

[Summary]
L Company was established in July 2006 with registered capital of RMB 3,000,000. In accordance with the agreement of its shareholders (A, B and C), A shall contribute RMB 1,500,000, as 50% of the registered capital, B shall contribute RMB 1,200,000, as 40% of the registered capital, and C shall contribute RMB 300,000, as 10% of the registered capital. Complying with this agreement, the establishment procedures, including execution of Articles of Association, establishment of shareholders’ name list, registration with Administration for Industry and Commerce (AIC), and issuance of business license were completed. Although B is listed as a shareholder in the Articles of Association, shareholders’ name list and the registration files, he has not made any contribution to the registered capital, nor participated in the management of L Company.

B has filed a lawsuit with the court to claim for exercise of right to know the L Company’s financial statements, account books and other documents.

[Brief Comments]
The main disputes of this case are:
Whether or not B shall be deemed as a shareholder of L Company; and
Whether or not B is able to enjoy the right to know like the other shareholders.

Regarding the first dispute, the shareholders’ name list is an important basis for a shareholder to claim for his shareholder rights. When there is any dispute between company and shareholder (including nominal shareholder, dormant shareholder and real shareholder) regarding shareholder’s qualification, the shareholders’ name list should play a decisive role. In this case, it relies on the shareholders’ name list and the Articles of Association and AIC registration files as public records before B’s qualification of shareholder could be confirmed.

In addition, as regulated in Article 26 of the Company Law of China, the amount of the initial capital contributions made by all shareholders shall not be less than 20% of the registered capital, nor less than the statutory minimum amount of registered capital. The margin shall be paid off by the shareholders within 2 years from the day when the company is established; for an investment company, it may be paid off within 5 years.

Therefore, in accordance with the Company Law, the registered capital of a limited liability company could be contributed within the statutory period after the establishment of the company. Contribution to the registered capital is only the main obligation for shareholders, rather than a condition for obtaining the shareholder qualification. Failure in making contribution shall not result in loss of shareholder qualification. However, B should take liability of the breach due to his default in the contribution of the registered capital, but his qualification of being shareholder shall not be affected.

As to the second dispute- “whether or not a shareholder without contribution to capital is able to enjoy the right to know”, there is no specific regulation to this problem. However, as an important right of the shareholder, the right to know is the basis for exercise of other rights and the exercise of right to know will not only affect the interests of shareholders. But it is also closely connected to the normal operation of the company. In case of failure in contributing (or fully contributing) to the registered capital, the shareholder shall make his contribution complying with the laws, and bear liabilities of breach for any loss incurred by the other shareholders, but his basic shareholder rights shall not be affected, meaning a shareholder with default in contribution to capital, shall be entitled to exercise shareholder rights complying with the Company Law and the Articles of Association until the loss of his shareholder qualification. Therefore, the right to know of a shareholder shall not be denied due to default in contribution to capital unless it is otherwise regulated in the Articles of Association or otherwise agreed between the shareholder and the company.

（Contact of Author: Jasonxia@hllawyers.com）

Whether the Transfer of A Trademark Is Fair or Not Is Not Determined by the Connection between the Transfer Price and the Value of the Trademark
[Summary]
Applicant for Retrial (plaintiff of the first trial, and appellant of the second trial): the bankruptcy liquidation team of Qinhuangdao Shanhaiguan Hoisting Machinery Factory (hereinafter referred to as the “bankruptcy liquidation team of Shanhaiguan Hoisting Machinery Factory”);
Respondent (defendant of the first trial, and appellee of the second trial): Shandong Crane Works Co., Ltd. (hereinafter referred to as “Shandong Crane Works”);
Third Person of the original trial: Shandong Shanqi Heavy Industry Co., Ltd. (hereinafter referred to as “Shandong Shanqi Company”);
Cause of Action: dispute relating to trademark transfer agreement.

Through the retrial, the Supreme People’s Court of China decided that the trademark transfer between Shanhaiguan Hoisting Machinery Factory and Shandong Crane Works is not obviously unjust, and the transfer shall be effective.

As examined by the court of the original trial: The trademark “Shan Qi” (No. 324758) was registered in 1988 by Shanhaiguan Hoisting Machinery Factory, and in 1998, its effective term was renewed to 2008. In May 2005, Shandong Crane Works consulted with Shanhaiguan Hoisting Machinery Factory in order to obtain this trademark, and on Jul.6, 2005, a transfer agreement was executed. According to the transfer, the price shall be RMB 50,000. Upon payment for the transfer price, , the application for transfer of trademark was submitted to the Trademark Office of the State Administration for Industry and Commerce (hereinafter referred to as the “Trademark Office”)in August, and an announcement was publicized after the Trademark Office accepted this application. After that, Shandong Shanqi Company quoted RMB 300,000 for this “Shan Qi” trademark. The bankruptcy liquidation team of Shanhaiguan Hoisting Machinery Factory held that the transfer agreement was obviously unjust with the low price and it filed an action with the Intermediate People’s Court of Qinhuangdao to claim for cancellation of this transfer agreement.

The Intermediate People’s Court of Qinhuangdao held that, as the actual value of the object of transfer is six times the transfer price. If it continues to perform this agreement, Shanhaiguan Hoisting Machinery Factory will suffer great loss. Therefore, the agreement was confirmed to be obviously unjust and the claim for cancellation of the agreement was supported by the court. On March 3, 2006, the court made its judgment [(2006) Qin Min Er Chu Zi No.4] to cancel this Trademark Transfer Agreement.

After this judgment came into force, Shandong Crane Works submitted the application for retrial to the High People’s Court of Hebei Province, and the High People’s Court of Hebei Province appointed the Intermediate People’s Court of Qinhuangdao to organize another collegiate bench to try this case.

In the retrial of this case, Shandong Shanqi Company was added as a third person of this case by the Intermediate People’s Court of Qinhuangdao. The facts described in the Judgment [(2006) Qin Min Er Chu Zi No.4] was confirmed by the court. In addition, as examined by the court, Jinan Shuncheng Hevay Industry Co., Ltd. used to quote RMB 250,000 for purchasing “Shan Qi” trademark. On Apr.14, 2006, when the Judgment [(2006) Qin Min Er Chu Zi No.4] came into force, the bankruptcy liquidation team of Shanhaiguan Hoisting Machinery Factory entered into a transfer agreement with Shandong Shanqi Company, according to which, the trademark “Shan Qi” shall be transferred at the price of RMB 300,000. Therefore, on Oct.30, 2006, the Intermediate People’s Court of Qinhuangdao issued the Judgment [(2006) Qin Min Zai Chu Zi No.4], deciding that due to the huge gap between the transfer price and the proper value of the object of transfer, the Trademark Transfer Agreement between Shanhaiguan Hoisting Machinery Factory and Shandong Crane Works obviously violated the principle of justice and consideration for equal value, and thus, the court sustained the Judgment [(2006) Qin Min Er Chu Zi No.4].

Shandong Crane Works filed an appeal with the High People’s Court of Hebei Province.

In the second trial, the High People’s Court held that, as the original owner of the trademark “Shan Qi”, Shanhaiguan Hoisting Machinery Factory shall have no less understanding of this trademark than Shandong Crane Works. The negotiation between the two enterprises about the transfer of the trademark lasted for almost two months, which has shown Shanhaiguan Hoisting Machinery Factory’s cautiousness. There should not have been any thoughtlessness, lack of experience, gross misunderstanding, fraud or coercion. When deciding whether or not a contract is obviously unjust, the result of performance of the contract shall not be deemed as the only basis, since commercial risk is very common in market economy. The Trademark Transfer Agreement could not be decided as obviously unjust only relying on the statement made by Shandong Shanqi Company and Jinan Shuncheng Hevay Industry Co., Ltd. Therefore, the High People’s Court rescinded the two judgments issued by the Intermediate People’s Court of Qinhuangdao and overruled the claim of the bankruptcy liquidation team of Shanhaiguan Hoisting Machinery Factory.

The bankruptcy liquidation team of Shanhaiguan Hoisting Machinery Factory applied for retrial and was held that Shandong Crane Works has taken advantage of Shanhaiguan Hoisting Machinery Factory’s lack of experience in the trademark transfer. If this agreement continues to perform, Shanhaiguan Hoisting Machinery Factory will definitely suffer great loss, which has met the statutory condition of “obvious injustice”.

[Final Judgment]

The Supreme People’s Court held that, Shanhaiguan Hoisting Machinery Factory as the original owner of the trademark “Shan Qi”, should have the ability to evaluate its trademark. When consulting about transfer of the trademark, Shanhaiguan Hoisting Machinery Factory and Shandong Crane Works were on equal terms, and no party has taken advantage of the other party’s inferiority. The consultation lasted for almost two months without fraud, coercion or hasty decision. The claim for cancelation of the agreement raised by the bankruptcy liquidation team of Shanhaiguan Hoisting Machinery Factory just relied on some later higher quotations, and should not be supported by the laws. Therefore, the court overruled the claim of the bankruptcy liquidation team of Shanhaiguan Hoisting Machinery Factory.

[Brief Comments]

In addition to laws and regulations relating to trademarks, the General Principles of the Civil Law as well as the Contract Law shall also be applicable to transfer the trademarks. As regulated in Article 59.2 the General Principles of the Civil Law, a party shall have the right to request a people’s court or an arbitration organization to alter or rescind an obviously unjust civil acts; and pursuant to Article 72 of the Opinions of the Supreme People’s Court on Several Issues concerning the Implementation of the General Principles of the Civil Law (For Trial Implementation). If any party makes use of his own advantages or takes advantage of the other party’s lack of experiences to have the rights and obligations, the two parties obviously violates the principle of fairness when making compensation for equal value and shall be determined as injustice. In this case, although there maybe a huge gap between the transfer price of the trademark and its actual value, Shanhaiguan Hoisting Machinery Factory failed to prove there was any fraud or coercion during the consultation and execution of the transfer agreement. Its claim for cancelation of the agreement could not be supported. Therefore, the gap between the transfer price and the value of a trademark shall not act as the only basis for confirmation of “obvious injustice”.

（Contact of Author: Juliazhu@hllawyers.com）

Extraterritorial Laws and Regulations

Skills on Confession of Crimes

Due to its relatively mature and rigorous legal system, a little mistake in Australia may result in prosecution of serious crime. However, skills of pleading guilty, including personality warranty, writing of testimony, communication with the prosecutor and final submission to the court, may be helpful in lightening the sentences.

When pleading guilty, the defendant shall be required to provide a personality warranty in order to prove the defendant’s moral quality to the court. The warrantor shall explain to the judge that he/she believes that the defendant will never make the same mistake again and shall intercede with the judge. Generally speaking, relatives and friends of the defendant had better not act as the personality warrantor, but professionals with certain social status, like lawyers and accountants should be suitable. The personality warrantor had better have known the defendant for more than three years (at least one year), have read the court attendance notice, known about the crime prosecuted, and understood the meaning and purpose of the personality warranty.

Writing of testimony needs a lot of skills. Writing of testimony shall include the testimony of the defendant, witness, and the deponent who knows about the site of the crime. The materials submitted by the prosecutor, including court attendance notice and facts sheet, are made from the standpoint of the victim, and may have contain some ex parte statement from the victim. Therefore the main purpose of testimony is to make the judge have overall understanding of the background of the event. Writing of testimony requires preciseness. The defendant should clearly explain to the court that he/she has pleaded guilty and he/she will never make the same mistake. The testimony should not make the judge have a feeling that the defendant is looking for an excuse for his/her crime, instead, the testimony should make the judge to understand the background of this event and to sympathize with the defendant. As a result, the sentences maybe lightened. In different cases, the testimony of the defendant should focus on the life background, economic status, and other conditions of the defendant.

Contact and consultation with the prosecutor is another important step. Generally, the police will file a case and list the items of prosecution. Upon the appraisal by the procurator's office, the items of prosecution will not be changed if there is no objection. However, an experienced lawyer will negotiate with the prosecutor about the items of prosecution. For instance the defendant will plead guilty on the condition that the prosecutor agrees to downgrade the items of prosecution to the lower level (for instance, in a case of injuring a person, the highest sentence shall vary for different level of prosecution), and etc. The negotiation with the prosecutor requires not only skills, but also proper evidence. For example, an experienced lawyer will advise the defendant that he/she should see a psychologist to get a psychologist report or should find advantageous evidence in accordance with the background of the event.

Submission of the lawyer, as a summing-up to ask for leniency it should include the steps listed above. Different skills of submission maybe needed in different cases. For example, in a case of family violence, some Chinese lack the understanding of Australian laws. They may have not recognized quarrels and fights between husbands and wives will cause the prosecution under a serious crime. Once the case is filed, and if the victim decides to withdrawal from the case, the police will continue the proceedings. In this case, an experienced lawyer may use this fact by contacting the victim through the defendant or his/her relatives and to ask the victim to prepare a letter to the court to explain the background of this event. Either by explaining that the fight was started by the victim or by explaining that the defendant is not a violent person and at other times has taken good care of the victim. The victim may also tell the court that if a serious sentence is given the family’s relationship in the future will be affected. Of course there are many other skills in preparing for the submission. But different cases have different skills to persuade the judge to lighten the sentences; however, the different skills cannot be discussed here as each case varies.