Haworth & Lexon Law Newsletter (83)-Law Bridge-Shanghai Law Firm/Lawyer

Haworth & Lexon Law Newsletter
No.9 2008 (Total:No.83) October. 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 Is Engaged by the Development and Construction Management Committee Office of Shanghai Changxing Island as Its Legal Adviser

Latest Laws and Regulations:

Regulations on the Implementation of the Labor Contract Law of the People’s Republic of China

Notice of the Ministry of Commerce on the Decentralization of Approval and Alteration of Foreign-invested Joint-stock Companies and Enterprises

Opinions on Regulating the Employee Stock-ownership Plan and Investment in State Owned Enterprises

Measures on Implementation of Paid Annual Leave for Employees

Provisions on Administration of Foreign-invested Advertising Enterprises (Revised)

Administrative Measures for the Use of China Environmental Label

Notice of the Ministry of Transport on Relevant Issues about Strengthening the Administration of Transfer of Rights and Interests of Toll Roads

Notice of the Ministry of Finance and the State Administration of Taxation on Relevant Issues concerning the Collection of Enterprise Income Tax from Non-resident Enterprises

Notice of the Ministry of Finance and the State Administration of Taxation on the Relevant Tax Policies concerning the Pre-tax Deduction Criterions on Interest Expenses maid by the Affiliated Party of Enterprises

Law Practice:

As the Registered Trademark Has Not Been Used, the Lawsuit Brought by the Right Owner against Infringement Is Rejected by the People’s Court

Deliberation on Article 10 of the Implementation Regulation of China Labor Contract Law

After Transfer of the Stock, Who Shall Assume the Liability for Withdrawal of Contribution

Shipper and Carrier shall Each Assume the Extra Expenses Incurred in Transportation pursuant to Respective Liabilities

News of Haworth & Lexon

Haworth & Lexon Is Engaged by the Development and Construction Management Committee Office of Shanghai Changxing Island as Its Legal Adviser

The Development and Construction Management Committee of Shanghai Changxing Island (hereinafter “the Management Committee”) is an institution established by Shanghai Municipal People’s Government to make an overall research on the major matters and major issues in connection with the development and construction of Changxing Island, and coordinate and organize relevant departments and units to implement the development and construction of Changxing Island. The Development and Construction Management Committee Office of Shanghai Changxing Island (hereinafter “the Management Committee Office”) is the administrative body of the Management Committee to assume the daily work of the Management Committee. It is responsible for the organization and implementation of the development strategy, development scheme and plan of the development and construction of Changxing Island; drafting the overall land utilization scheme as well as the land storage plan and project in respect of Changxing Island, upon the delegation by relevant administrative authority, in charge of the examination and approval of such projects as investment, development and construction and the like; coordination on the use and management of the development and construction funds of Changxing Island, and coordination with relevant administrative authority to administrate the development and construction of Changxing Island.

Changxing Island is located at the Yangtze Estuary, which is the second largest island in Shanghai. Pursuant to the overall urban development scheme of Shanghai Municipality, Changxing Island aims to be an island with advanced ocean equipment, an island providing natural and ecological water resource to Shanghai, and an island of specific landscape.

The legal service team leading by the senior lawyer Chambers Yang, the partner of Haworth & Lexon, has rich experience in providing legal services for development zones and government agencies in such legal fields as real estate, investment and financing. Therefore, the team stands out above the rest bidders and is engaged by the Management Committee Office as its legal adviser to provide a full range of legal services for the development and construction of Changxing Island.

Latest Laws and Regulations

Regulations on the Implementation of the Labor Contract Law of the People’s Republic of China

The “Regulations on the Implementation of the Labor Contract Law of the People’s Republic of China” (hereinafter “the Regulations”) were publicly promulgated on September 18, 2008. The Regulations are important supportive administrative rules to the Labor Contract Law, and will further play an important role in the implementation of Labor Contract Law.

The Regulations contain six chapters and 38 articles, which mainly focus on such three parts as “conclusion of a labor contract”, “dissolution of a labor contract” and “specific provisions on a labor dispatch”. In general, the Regulations have further given more concrete and definite provisions to some existing disputed issues especially the “hot problems” nowadays in the society that arising from the implementation of Labor Contract Law, and to a certain extent have increased the maneuverability of Labor Contract Law.

First, the Regulations have further confirmed the scope of employer. It is provided that “legally established accounting firms, law firms and other partnerships and foundations” are the “employers” defined in the Labor Contract Law. At the same time, it is still provided that “a branch office established by an employer as defined in the Labor Contract Law which has obtained its business license or registration certificate according to law may conclude labor contracts with employees in the name of the employer; if it has failed to obtained a business license or registration certificate, it may conclude labor contracts with employees only upon the authorization of the employer”, which further extends the scope of employer and incorporates more employment relationship into the coverage of legal protection.

Secondly, the Regulations have given detailed definition on the calculation of “double wages”. The Labor Contract Law provides if the employer fails to conclude the labor contract with the employee for more than one month counting from the date of employment, it shall pay double wages. However, the law fails to define the concrete dates for the calculation of double wages. Therefore, the Regulations provide that the starting time of the period when an employer is required to pay double wages to an employee shall be the day following the full month from the date of employment, and the ending time shall be the day before the day when the written labor contract is concluded. Where an employer fails to conclude a written labor contract with an employee after the lapse of one full year from the date of employment, the employer shall pay double wages for every month from the day next to the lapse of a full month to the day before it is a full year since the employment, and it shall be deemed that the employer has concluded a labor contract without a fixed term with the employee on the day when it is a full year since the employment. One thing shall be mentioned to the employer that the Regulations still provide where an employee refuses to conclude a written labor contract with his employer, the employer shall terminate the employment relationship, notify the employee in writing, and make economic compensations to the employee. Under these circumstances, the employer shall establish a supervision system on the conclusion of labor contracts so as to make sure that every employee has concluded the labor contract within one month after the date of employment. If any employee so refuses, the employer shall notify the employee in writing or even fire the employee, or it shall bear the legal risk to pay double wages.

Thirdly, Article 8 of the Regulations has given detailed definition on the “roster of employees”, which requires that the “roster of employees” shall include the employees’ name, gender, citizen’s identity number, registered permanent residence address and current address, contact information, form of employment, starting time of employment, and term of the labor contract, etc, which is more maneuverable. Moreover, the Regulations provide where any employer violates the above provisions, the competent labor administrative department shall impose a fine of not more than 20,000 Yuan but not less than 2000 Yuan upon it.

Forthly, the Refulations have also provided concrete definition concerning the calculation of “10 consecutive years” as required by the Labor Contract Law to conclude labor contracts without fixed term, which expressly states that the starting time of the term “10 consecutive years” as mentioned in the Labor Contract Law shall be the day when the employer hires the employee, including the time of employment before the Labor Contract Law came into force. Where an employee is transferred to a new employer for reasons not attributable to the employee himself/herself, the Regulations provide that his/her working time with the original employer shall be consolidated into his/her working time with the new employer.

Fifthly, as to the misunderstanding by the public that labor contract without a fixed term is a kind of “Iron Rice Bowl” or “Lifelong Job”, the Regulations have categorized the conditions provided by the Labor Contract Law to terminate the labor contracts and respectively listed 13 situations on which the employee is entitled to terminate the labor contract and 14 situations on which the employer is entitled to terminate the labor contract, which as a whole make the termination of labor contract more clear and definitive. In other words, even if the labor contract between the employer and the employee is of no fixed term, as long as the legal conditions are matched, the employer may still terminate the labor contract pursuant to the law.

Sixthly, the Regulations have further perfected the economic compensation system. Where an employer dissolves or terminates the labor contract with an employee against the Labor Contract Law, the Regulations expressly provide if the employer has paid the indemnification, it is not required to make economic compensations.

At last, the Regulations have made supplementary provisions on issues concerning labor dispatch. To prohibit the situation where the labor dispatch entity avoids its legal obligations, the Regulations expressly provide that the labor dispatch entity shall not employ part-time to-be-dispatched employees. When terminating the labor contracts, the labor dispatch entity shall make economic compensations to the employees based on legal conditions and standards. At the same time, the Regulations further state that a labor dispatch entity funded by an employer or a subsidiary entity or jointly established by them is the labor dispatch entity which is prohibited to be established.

Certainly, aprt form the above points, the Regulations have also made express provisions in respect of the payment of wages for probation period, wages in lieu of notice, calculation of economic compensation, which makes the Labor Contract Law more practical in practice. However, we noted although a lot of problems arising from the implementation of Labor Contract Law have been explained by the Regulations, many questions therein have still not been answered by the Regulations, such as the scope of “specific technical trainings” and the definition of “temporary, supportive or alternative posts” that are applicable to labor dispatch. Maybe such problems shall be correctively resolved by long term judicial practice together with the interpretation of competent departments.

Notice of the Ministry of Commerce on the Decentralization of Approval and Alteration of Foreign-invested Joint-stock Companies and Enterprises

The “Notice on the Decentralization of Approval and Alteration of Foreign-invested Joint-stock Companies and Enterprises” (hereinafter “the Notice”) is promulgated by the Ministry of Commerce on August 5, 2008 and shall come into force as of August 11, 2008.

For a foreign-invested enterprise authorized by the Ministry of Commerce or the former Department of Foreign Trade and Economic Cooperation, if its newly increased total investment and the newly increased registered capital are below the limit (USD 100 million for a foreign-invested enterprise in the encouraged or permitted category in the Catalogue of Industries for Guiding Foreign Investment, and USD 50 million for one in a restricted category, hereinafter referred to as the “limit”), the competent provincial department of commerce shall be responsible for examination and approval. For the establishment and alteration of foreign-invested companies below the above limitation (the value of reformed enterprises shall be the net assets), including the relevant alteration of foreign-invested listed companies below that limitation, the competent provincial department of commerce shall be responsible for examination and approval.

There are two exceptions to the above provisions: (a) foreign investment in specific industry, or of specific industrial policies or in macro-controlled industry shall still follow the existing provisions; and (2) the strategic investment made by foreign investors shall still be applied to the Ministry of Commerce for examination and approval.

Opinions on Regulating the Employee Stock Ownership and Investment in State-owned Enterprises

The “Opinions on Regulating the Employee Stock Ownership and Investment in State-owned Enterprises” (hereinafter “the Opinion”) were promulgated on September 16, 2008 by the State-owned Assets Supervision and Administration Commission of the State Council.

The Opinions confirm that the basic principles for employee stock ownership and investment are to differentiate the treatment and classify the guidance, regulate the operation and strengthen the management, and protect the legal rights and interests of the employees and improve the activity of the enterprise.

The Opinions have made some regulations on the employee stock ownership:

(1) large and medium-sized state-owned enterprises shall divide the auxiliary business from the main business and thereafter reform the auxiliary business. The employees in the enterprises with auxiliary business are stipulated to hold the stock of reformed enterprises; however, the employees in the state-owned enterprises with main business are not allowed to hold the stock of enterprises with auxiliary business.

(2) the principle for an employee to hold stock is that the stock shall be of the enterprise where the employee is. The employees shall not directly or indirectly hold the stock of subsidiaries or co-stock enterprises invested by the principal enterpise or other enterprises invested by the group company. Where by special reasons technicians in science and research, design or high and new technique enterprises shall hold the stock of subsidiary enterprises, such stock ownership shall be approved by competent state-owned assets supervision and administration departments at the same level and the technicians involved shall not be the representative of state-owned stock holder in such a subsidiary enterprise.

(3) pattern of employee stock ownership: when reforming the state-owned enterprises, the employee stock ownership may be used pursuant to the Company Law of the People’s Republic of China and other laws and regulations in such a way as raising capital from specified objects to establish the joint stock company; nonetheless, the research for other pattern of employee stock ownership plan is allowed.

(4) state-owned enterprises shall not provide loans or advane funds for employee stock ownership, neither shall they use state-owned property rights or assets as the subject matter of guarantee, mortgage, pledge or discount for the financing of employees; it shall still not request other enterprises that have business relationship with it to provide loan or financing to the employee investment.

The Opinions strictly limit the investment by employees in affiliated enterprises (the affiliated enterprises refer to the enterprises without that have a affiliated relationship or business relationship with the principal state-owned enterprise); prohibit the employees to invest in enterprises that provide fuel, raw material, auxiliary material, machine and parts, or provide such services as design, construction, repair, sale of goods, intermediate service or have other business relationships with the principal enterprises; and prohibit the employees to invest in enterprises that dealing in the same business with the principal enterprise.

If the employee stock ownership is in the process of dividing part of the business from the state-owned enterprise as well as the asset reform to establish a new company, the new company shall not deal in the same business with the original state-owned enterprises; the revenue or profit from the affiliated trade by the new company from such a state-owned enterprise shall not exceed one third of the total revenue or profit from the business of the new company.

The Opinions expressly indicate that for enterprises where the employees are nor allowed to hold the stock, the management above the intermediate level in such an enterprise shall, within one year after the printing and distribution of the Opinions, assign the stock they hold or resign from the posts.

Measures on Implementation of Paid Annual Leave for Employees

The “Measures on Implementation of Paid Annual Leave for Employees” (hereinafter “the Measures”) were formally promulgated on September 18, 2008 by the Ministry of Human Resource and Social Security, which shall come into force as of promulgation. The Measures are applicable to all the enterprises, private entities not in the form of enterprises and the individual industrial and commercial households hiring employees and the employees that have employment relationship with them within the territory of the People’s Republic of China.

Any employee that has continuously worked for a period more than 12 months has the right to take the paid annual leave. As to days of annual leave, the Measures confirm that it shall be calculated according to the accumulation of working days of the employee. The working term of the employee in the same or different entities, as well as the working time that is deemed by law, administrative regulation or the provisions of the State Council as the working term may be accumulated. Where an employee enters into a new entity and continuously works for more than 12 months, the days of annual leave in the current yeat shall be determined at a discount of the remaining calendar days of the employer.

Home leave, marriage or funeral leave and maternity leave as legally stipulated by the state, as well as the period of suspension of work with salary reserved for work-related injuries shall not be counted into the paid annual leave. Where an employee takes winter and summer vacations that are much more than the days of annual leave, he/she is not entitle to the annual leave in the current year. Pursuant to relevant provisions, the employee shall not take annual leave in the event of the following four circumstances in the current year: (a) where the employee has taken leaves for private reasons for totally 20 days or more and no wage has been deducted by the employer for that reason; (b) where the employee, who has accumulatively worked for 1-10 year(s), has taken sick leave for totally 2 months or more; (c) where the employee, who has accumulatively worked for 10-20 years, has taken sick leave for totally 3 months or more; or (d) the employee, who has accumulatively worked for 20 years or more, has taken sick leave for totally 4 months or more.

If the employer, as agreed by the employee, does not arrange the annual leave or the days of annual leave arranged are less than the actual days of annual leave, it shall pay the employee in the current year 300% of the employee’s daily wage income for each day of annual leave not taken by the employee, including the employee’s wage income in normal working term. When dissolving or terminating the labor contract between the employer and the employee, if the annual leave in the current year is not fully taken by the employee, the employer shall first calculate the un-taken days of annual leave that should have been taken by the employee on the basis of the employee’s working time and then pay the wages for the un-taken days of annual leave.

Provisions on the Administration of Foreign-invested Advertising Enterprises (Revised)

The revised “Provisions on the Administration of Foreign-invested Advertising Enterprises” (hereinafter “the Provisions”) were promulgated on September 23, 2008 jointly by the State Administration for Industry and Commerce and the Ministry of Commerce, which shall come into force as of October 1, 2008.

The first change after revision is the deletion of the provision that “Since the date of implementation of this Provisions, foreign capital is allowed to take major portion of equity in a sino-foreign enterprise; however, the portion of equity shall not be more than 70%. Since December 10, 2005, the establishment of wholly foreign-invested advertising enterprises is allowed”.

According to the provision, foreign-invested advertising enterprises that satisfy the provided conditions may operate such services as the design, production, publication and agent of various advertising business both at home and abroad. Its concrete business scope may be verified by the State Administration for Industry and Commerce or its authorized administration for industry and commerce at a province level.

To establish a sino-foreign advertising enterprise, the investing parties shall be enterprises dealing in advertising business and operating for more than 2 years; To establish a wholly foreign-invested advertising enterprise, the investing parties shall be enterprises mainly dealing in advertising business and operating for more than 3 years.

Where the foreign-invested advertising enterprises apply to set up branch institutions, its registered capital shall be fully paid and the annual advertising revenue shall not be less than RMB 20,000,000.00.

Administrative Measures for the Use of China Environmental Label
The “Administrative Measures for the Use of China Environmental Label” (hereinafter “the Measures”) were promulgated on September 27, 2008 by the Ministry of Environmental Protection, which shall come into force as of promulgation.

China Environmental Label is a demonstrating mark made and published by the Ministry of Environmental Protection that has been filed to State Administration for Industry and Commerce. Any entity or individual shall not, without the license from the Ministry of Environmental Protection, register such a mark or any similar mark as a trademark; neither shall it use the name of the mark or any similar mark.

China Environmental Label Products Certification Institution is designated by the Ministry of Environmental Protection to administer the daily work in respect of the issue and use of China Environmental Label.

The applicants and requirements for Environmental Label: manufacturers that undertake certain measures to eliminate or decrease the pollution in the process of production, use and disposal; (b) meet the technical figures of China Environmental Labelling products; and (c) gain China Environmental Labelling certification for its products may apply to China Environmental Labelling Products Certification Institution for use of China Environmental Label.

The certification institution will conclude an agreement on licensing of China Environmental Label with manufacturers passing China Environmental Label certification and thereafter verify and issue China Environmental Label to approve the manufacturer and seller to use China Environmental Label within stipulated scope. At the same time, the information will be published on the website of the Ministry of Environmental Protection.

Notice of the Ministry of Transport on Relevant Issues about Strengthening the Administration on Transfer of Rights and Interests of Toll Roads
The “Notice on Relevant Issues about Strengthening the Administration on Transfer of Rights and Interests of Toll Roads” (hereinafter “the Notice”) was promulgated on September 18, 2008 by the Ministry of Transport.

The Notice expressly states that the term “after a toll road has been built and open to traffic” as provided in Article 3 of the Measures for the Transfer of Rights and Interests in Toll Roads refers to: (1) the project quality of the road has met the conditions for being open for traffic after accepted inspection, and eventually the road has been opened for traffic; and (2) the relevant documents on toll have been obtained from the competent examination and approval department.

As to transferee, the Notice expressly states that the requirements of “sound financial conditions” of the transferee as provided in the Measures for the Transfer of Rights and Interests in Toll Roads mainly refer to the requirements that the transferee remains profitable for the last three consecutive years; the net operating cash flow of the transferee is positive; and the asset-liability ratio of the transferee at the end of last year is below 65%. “Good business reputation” mainly refers to the requirement that (a) there is no false statement in the transferee's financial and accounting documents during the last three years; (b) the transferee has not breached in the performance of contract; and (c) there is no bad record in the bank and tax credit evaluation system or the enterprise credit system. Besides, when one enterprise accepts the rights and interests of several toll roads, the appraisal of owner’s rights and interests shall be not less than 35% of the actual project costs of all the toll roads to be transferred. When transferring the rights and interests of a road for which the government repays the loan; and of a commercial road with fiscal investment or invested with state-owned capital in the form of tender, the bidders are not allowed to bid for the project in an association that combines several enterprises.

Notice of the General Affairs Department of the State Administration of Foreign Exchange on Distributing the Operating Guidelines for the Trade Credit Registration Management System (Deferred Payment Section)
The “Notice on Distributing the Operating Guidelines for the Trade Credit Registration Management System (Deferred Payment Section)” was promulgated on September 26, 2008 by the State Administration of Foreign Exchange, which gives concrete provisions in respect of the registration and management of the deferred payment under the trade in goods imported by enterprises.

Since October 1, 2008, any deferred payment with a term of more than 90 days under the collect on delivery (COD) (merely referring to TT and collection, and excluding letters of credit and payments made by overseas agencies) shall be registered through the trade credit registration management system on the on-line services platform of the State Administration of Foreign Exchange (SAFE) (website: www.safesvc.gov.cn). For a payment in foreign exchange made under the import customs declaration form issued by the customs office prior to October 1, 2008, the enterprise may directly make the payment through a bank without going through the formalities for the registration of deferred payment.

An enterprise’s deferred payment in foreign exchange shall not exceed a certain proportion of the total foreign exchange payments for its imports during the immediately previous year (hereinafter referred to as the “base proportion for deferred payments”). Except for enterprises that import complete sets of large equipment, the base proportion for deferred payments of an enterprise in principle shall not exceed 10%, and the maximum proportion shall not exceed 20%. The accumulative amount of foreign exchange payments actually made under its already registered annual deferred payments shall not exceed the annual amount of payments in foreign exchange for deferred payments. Each branch or foreign exchange administrative department of the SAFE shall confirm the already registered deferred payments to the extent of the enterprises’ annual foreign exchange quota for deferred payments. An enterprise can only make payments for the confirmed deferred payments.

Where an enterprise registers a money withdrawal for a deferred payment after the lapse of 120 days following the customs issuance date, this deferred payment will show in red in the list of “Unconfirmed Deferred Payments” or in the list of “Already Confirmed Deferred Payments” of the system (other deferred payments are in black). The enterprise shall provide relevant materials when applying to the foreign exchange administration for examination and approval on the time limit for the registration of a deferred payment. The enterprise shall not make payment for this deferred payment unless this deferred payment shows in black in the system because it has been examined and approved by the foreign exchange administration.

As for deferred payments with a term of 90 days or less, the enterprise may directly make the payment through a bank. As for the deferred payments with a term of more than 90 days, the enterprise can only make payments for those that are black as shown in the list of “Already Confirmed Deferred Payments”.

At the end of each year, the total amount of deferred payments of an enterprise during the previous year as shown in the list of “Unconfirmed Deferred payments” shall be carried forward to the following year and be deducted from the enterprise’s annual foreign exchange quota for deferred payments for the following year. The foreign exchange administration shall, under the aforesaid principle of one-by-one confirmation, confirm the abovementioned deferred payments as shown in the list of “Unconfirmed Deferred payments”.

Notice of the Ministry of Finance and the State Administration of Taxation on Relevant Issues concerning the Collection of Enterprise Income Tax from Non-resident Enterprises

The “Notice on Relevant Issues concerning the Collection of Enterprise Income Tax from Non-resident Enterprises” (hereinafter “the Notice”) was jointly promulgated on September 25, 2008 by the Ministry of Finance and the State Administration of Taxation.

For a non-resident enterprise having no office or establishment within the territory of China, or for a non-resident enterprise whose incomes have no actual connection to its institution or establishment in China, it shall pay enterprise income tax on the incomes derived within the territory of China. When calculating and collecting the enterprise income tax from the abovementioned income of a non-resident enterprise, disbursements other than that provided by relevant regulations shall not be deducted.

Notice of the Ministry of Finance and the State Administration of Taxation on the Relevant Tax Policies concerning the Pre-tax Deduction Criterions on Interest Expenses made by the Affiliated Party of Enterprises

The “Notice on the Relevant Tax Policies concerning the Pre-tax Deduction Criterions on Interest Expenses made by the Affiliated Party of Enterprises” (hereinafter “the Notice”) was promulgated jointly by the Ministry of Finance and the State Administration of Taxation on September 19, 2008.

According to the Notice, if the enterprise can provide relevant materials as required by the Enterprise Income Tax Law and its Implementation Regulation to prove that relevant transactions of it conform to the independent transaction principle, or if the actual tax borne by such an enterprise is not higher than its affiliates in China, the interest expenses actually made to its affiliates in China are allowed to be deducted when calculating the taxable amount of incomes. Besides, concerning the the interest expenses actually made by the enterprise to its affiliates, the proportion of the investment as credit’s right and that as ownership shall be as follows (a) for financial enterprise: 5: 1; or (b) for other enterprises: 2:1. In the calculation of taxable amount of income, the interest expenses actually made by the enterprise to its affiliates that have not exceeded the above proportion and are covered by the Enterprise Income Tax Law and its Implementation Regulation are allowed to be deducted. The exceeding part shall not be deducted in the current year and the following years.

The interests received by the enterprise from its affiliates, if not compliance with the relevant regulations, shall be imposed on the enterprise income tax.

Law Practice

As the Registered Trademark Has Not Been Used, the Lawsuit Brought by the Right Owner against infringement Is Rejected by the People’s Court

Summary of the Case

Plaintiff: Beijing Qian Cheng Jin Xiu International Advertising Co., Ltd. (hereinafter “the Qian Cheng Jin Xiu Company”); Defendant: Hunan Dramatist Association (hereinafter “HDA”); The Plaintiff claimed that it had been publishing the magazine “Jin Ri Yi Shu (今日艺术” in Chinese)” since 1999 and the network version of this magazine had also been published to public in the recent years. On August 14, 2002, the Plaintiff, as approved by the Trademark Office under the State Administration for Industry and Commerce (hereinafter “the Trademark Office”), had obtained the exclusive use rights of the trademark “Jin Ri Yi Shu (今日艺术” in Chinese)” on Class 16, publications. However, HDA used the registered trademark “Arts Today” owned by the Plaintiff on the magazine “Jin Ri Yi Shu (今日艺术” in Chinese)” held by the HDA, which had infringed on the exclusive rights owned by the Plaintiff over its registered trademark. Therefore, the Plaintiff sued to the people’s court for prevention of the infringement and the compensations against the HDA. The Defendant pleaded that the Plaintiff did not have exclusive rights over the trademark “Arts Today” as the right owner of the said trademark was Beijing Propel Media Co., Ltd. (hereinafter “the Propel Media”), and thus the Plaintiff had no right to claim rights on this trademark. Even if the right owner of the trademark was Qian Cheng Jin Xiu Company, as it had not used the trademark for a long term, this trademark should have been rescinded. As a result, the Plaintiff cannot claim infringement on the ground of a trademark to be rescinded.

Judgment
After trial, Beijing Chaoyang District People’s Court found that, Qian Cheng Jin Xiu Company had published the magazine Arts Today in 2002 without a publication number. On the upper half of the magazine, there were two lines of words, which are “artstoday.com” and “Jin Ri Yi Shu (今日艺术” in Chinese)”. In April 2002, the magazine ceased to be published. On August 14, 2002, the Qian Cheng Jin Xiu Company got the approval of registration of “Jin Ri Yi Shu (今日艺术” in Chinese) artstoday.com” with registration number 1923462 on class 16 of publications. However, Qian Cheng Jin Xiu Company failed to prove that it had used or had licensed others to use the trademark on the approved goods since the approval of the said trademark. Later on July 14, 2008, Qian Cheng Jin Xiu Company had assigned the registered trademark to Propel Media. “Jin Ri Yi Shu (今日艺术” in Chinese)” was a monthly magazine published by the editorial office of “Jin Ri Yi Shu (今日艺术” in Chinese)”, of which the HDA was the sponsor. The predecessor of “Jin Ri Yi Shu (今日艺术” in Chinese)” was World of Drama. On April 6, 2007, the General Administration of Press and Publication agreed the change of World of Drama to “Jin Ri Yi Shu (今日艺术” in Chinese)”. The editorial office of “Jin Ri Yi Shu (今日艺术” in Chinese)” was not a legal person, and it did not obtain the business license. Since the fifth edition in 2007, the World of Drama published by the editorial office of“Jin Ri Yi Shu (今日艺术” in Chinese)” changed its name to “Jin Ri Yi Shu (今日艺术” in Chinese)” for trial publication. After receiving the journal license in May 2008, “Jin Ri Yi Shu (今日艺术” in Chinese)” was formally used as the name of the magazine. On the upper half of the magazine “Jin Ri Yi Shu (今日艺术” in Chinese)”, there were two lines of words, which are “Jin Ri Yi Shu (今日艺术” in Chinese) and “Today Art”.

The people’s court held that, first, from the trademark registration certificate and the approved trademark assignment certificate filed by the Qian Cheng Jin Xiu Company, it was certain that the Qian Cheng Jin Xiu Company shall have the exclusive rights over the trademark “Jin Ri Yi Shu (今日艺术” in Chinese) & artstoday.com” from August 14, 2002 to January 14, 2008 on class 16, publications. No one else shall infringe on the exclusive right owned by the Qian Cheng Jin Xiu Company over such a trademark. Therefore, the defense by the HDA that the Qian Cheng Jin Xiu Company was not the right owner of the disputed trademark shall be of no ground. Secondly, pursuant to the Implementation Regulation of China Trademark Law, if any one used a mark that was identical or similar to other’s registered trademark over the same kind of commodities or similar commodities which in consequence misguided the public, the act so committed shall be deemed as infringement on the exclusive rights of registered trademark. Therefore, the establishment of such acts shall be on the basis of misguidance to the public and confusion. In this case, the Qian Cheng Jin Xiu Company, within the term owning the exclusive rights of the registered trademark, had never used the disputed trademark over the approved commodity, neither had licensed others to use it over the approved commodity. As there was no commodity on the market bearing the disputed trademark used by the Plaintiff or others licensed by the Plaintiff, therefore, the use of “Jin Ri Yi Shu (今日艺术” in Chinese)” on the magazine “Jin Ri Yi Shu (今日艺术” in Chinese)” published by the editorial office of Jin Ri Yi Shu (今日艺术” in Chinese) would not misguide the public, neither would it give confusions. At last, the people’s court held that the claim by the plaintiff was of no ground and shall be objected.

Comments
In this case, the Plaintiff had fully proved that it had legally had the exclusive rights over the registered trademark. Therefore, whether or not its claim for protection of its exclusive rights over the trademark will be supported by the people’s court shall be determined by whether the use of “Jin Ri Yi Shu (今日艺术” in Chinese)” as the name of the magazine Jin Ri Yi Shu (今日艺术” in Chinese) by the HDA had constituted the infringement as provided by the laws and regulations in China.

Item 5 of Article 52 of China Trademark Law provides that the acts that cause other damage to the exclusive rights of a registered trademark of others shall be infringement to the exclusive right of a registered trademark. And the Implementation Regulation of China Trademark Law has further given detailed introduction to the acts infringing on exclusive rights of registered trademarks as stated in Item 5 of Article 52 of China Trademark Law. Item 1 of Article 50 of the Implementation Regulation of China Trademark Law provides that “if any one uses a mark that is identical or similar to other’s registered trademark over the same or similar commodities or as the decoration of the commodities which in consequence misguide the public”, the act so committed shall be deemed as infringement on the exclusive rights of registered trademark as stated in Item 5 of Article 52 of China Trademark Law. According to the above provisions, an act may not be deemed as infringement until the satisfaction of “over the same kind of commodities or similar commodities”, “using a mark that is identical or similar to other’s registered trademark as the name or the decoration of the commodities” and “misguiding the public”. Specifically speaking, first, the name “Jin Ri Yi Shu (今日艺术” in Chinese)” was used by the HDA on magazines, which was the same with the approved commodity of the trademark “Jin Ri Yi Shu (今日艺术” in Chinese) artstoday.com” owned by the Qian Cheng Jin Xiu Company, both of them were publications. Therefore, it had satisfied the first condition of infringement. Secondly, the registered trademark owned by the Qian Cheng Jin Xiu Company was “Jin Ri Yi Shu (今日艺术” in Chinese) artstoday.com”, considering that Chinese language is the mainly used language by the public in China, the Chinese character “Jin Ri Yi Shu (今日艺术” in Chinese)” shall be obvious part of the registered trademark. As the HDA had used the “Jin Ri Yi Shu (今日艺术” in Chinese) Arts Today” as the name of the magazine, it certainly had constituted the condition of “using a mark that is identical or similar to other’s registered trademark as the name or the decoration of the commodities”. At last, as the previous two conditions were satisfied, the determination of infringement shall be decided by the fact if the use by the HDA had caused confusion to the public. As investigated by the people’s court, after the discontinuance of the magazine Arts Today in April 2002 by the Qian Cheng Jin Xiu Company, it had not ever used the trademark “Jin Ri Yi Shu (今日艺术” in Chinese) artstoday.com”, neither had licensed others to use the trademark. In other words, the disputed trademark had not been used for several years, therefore, there was no publication bearing the trademark “Jin Ri Yi Shu (今日艺术” in Chinese) artstoday.com” in the market. As a result, the magazine Today Art published by the HDA cannot give confusions to the relevant public. In consequence, as the legal conditions were not fully satisfied, the people’s court finally held that the acts committed by the HDA had not constituted infringement and the claims by the Qian Cheng Jin Xiu Company were rejected.

It can be seen from this case that, the right owner does not own absolute rights even if it has received the exclusive rights of the registered trademark. The function of the trademark, as well as the original intention to protect the trademark is based on the common sense that trademark is an important ground for the public to distinguish the sources of different commodities. However, if the right owner does not positively use the registered trademark, it is very hard to prove the confusion and misguidance caused by others for using its trademark as the name of commodities, which thereby harms the legal protection to the registered trademark. As a result, the right owners of registered trademarks shall exercise the trademark rights positively on the approved commodities or services, so as to avoid the loss of judicial relief.

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

Deliberation on Article 10 of the Implementation Regulation of China Labor Contract Law

Original Legal Provision

Where an employee is transferred to a new employer for reasons not attributable to himself/herself, his/her working time with the original employer shall be consolidated into his/her working time with the new employer. If the original employer has made economic compensations for his/her working time with the original employer, the new employer shall not consider the employee’s working time with the original employer when calculating economic compensations made to such employee for dissolving or terminating the labor contract with him/her.

Lawyer’s Opinions

Many clients have the following questions when we provide services:

1. What can we do if we need to delegate a manager who is in charge of Company A to Company B?

2. The Group wants to “move” all the staff in Company A to Company B, how can we deal with this issue?

3. If Company A plans to “assign” all the assets and employees in one department of Company A to Company B, how to deal with the employment relations?

The different situations mentioned above may be consolidated into one question, i.e. “how to deal with the employment relationship when the employer is transferring employees to a new employer for reasons not attributable to the employees”. The following aspects shall be focused on when handling such kind of issues: (a) Whether the contract between the original employer and the employee shall be dissolved? (b) How to dissolve the contract? (c) Whether the original employer shall pay the economic compensation?

The following discuss will start from the third question mentioned above:

According to the judicial practice before the promulgation of the Implementation Regulation of China Labor Contract Law (hereinafter “the Regulation”), when assigning the assets and employees of one department within a company, the Company A shall discuss with the employees so involved on such issues as whether they want to stay or leave.

For those who do not want to go to Company B, Company A shall provide other working posts for them. In the event of no new post, the company shall discuss with such employees to dissolve the labor contract or directly inform the employees in writing by a 30 days prior notice to dissolve the labor contract if the condition provided in Item 3 of Article 40 of China Labor Contract Law is satisfied. Whether the dissolution of the labor contract is by discussion or by written notice, Company A shall pay the economic compensation according to Article 47 of Labor Contract Law.

For those who want to stay at Company B, the employees may not build new employment relationship with the new company until the dissolution of the employment relationship with the original company as they are two different and independent entities. Under such circumstances, as the dissolution of employment relationship is based on reasons not attributable to the employees, the original company shall pay the economic compensation, unless the employees agree to resign or if the employees voluntarily abandon the economic compensation by signing an agreement.

No matter whether the economic compensation is paid by the original company, or quit or abandoned by the employee, the new company shall never assume the liabilities for dissolution of original labor contract, nor shall the issue of consolidation the original working time into that in the new company arise (unless the original company, new company and the employee have reached an agreement on consolidation of working time).

From the above analysis, the payment of economic compensation as well as the consolidation of working times shall be determined by the discussion of the parties involved. However, this circumstance is changed accordingly after the promulgation of the Regulation.

Literally, Article 10 of the Regulation means that the original company shall pay the economic compensation to employees, and if no payment is made by the original company, the working time shall be consolidated. This provision is too simple as it has not solved many of the existing practical problems. When applied to judicial practices, the provision will mainly face the following problems:

Where the original company does not pay the economic compensation, whether the employee may only claim compensations from the new company on the ground of consolidated working time? Or do they have the right to claim economic compensation from both the original company and the new company for two different periods of working time.

The core of the question is who is the principal to bear the liabilities? According to the above provision, whether the original company has discharged the liability to pay economic compensations? Whether the original company shall indemnify the new company if the new company pays the economic compensation? Or whether the original company shall assume joint and several liabilities if the new company fails to fully pay the economic compensation?

Secondly, other issues could arise from the extension of this issue, for instance: when the employees claim for economic compensation against the new company, will the limitation of 12 months salary as provided in Paragraph 2 of Article 47 of China Labor Contract apply (if the employees have the right to claim for economic compensations from two companies, the amount of compensation may exceed 12 months salary)?

If the above issues cannot be settled via legislation, the principle of “mutual discussion” shall be applied when handling similar issues. And we shall take a cautious attitude towards Article 10 of the Regulation.

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

After Transfer of the Stock, Who Shall Assume the Liability for Withdrawal of Contribution
Company A is a limited liability company. During the business operation, it fails to pay the debts to its creditor Company B as its capital turnover falls into bad situations. Then, Company B sued to the people’s court in July 2006 to claim for repayment of debts owed by Company A, which was later supported by the people’s court. In the enforcement procedure, it was found that the assets of Company A that may be enforced were not enough to pay up the debts owed to Company B; At the same time, it was found that Shareholder C of Company A had contributed RMB 500,000.00 Yuan for the establishment of the company, however, he had withdrawn RMB 150,000.00 Yuan after the establishment who later transferred all of its stock to a new Shareholder D. The question is, under such circumstances, who shall be added as the enforcee by Company B?

The key point of the question is who shall assume the liability for withdrawal of contribution after the transfer of stock?

The Company Law of China adopts the registered capital system, in which one of the important principles is that the founder of a company shall assume the liability of full contribution. In other words, the shareholder shall not withdraw the contribution as soon as it has been contributed. Any shareholder who withdraws the contribution shall bear relevant civil and administrative liabilities, or even the criminal liabilities. Article 201 of China Company Law provides that, if a founder or shareholder is found to have withdrawn his/her contribution away after the establishment of a company, he/she shall be ordered to correct the wrongdoing and imposed a fine from 5% to 15% of the contribution withdrawn as required by competent company registration agency. From this provision, the liability to maintain the contribution is borne immediately the establishment of company, which shall be borne by the founder or originator of the company rather than those being assigned with the transfer of the stock. The person who becomes the new shareholder after accepting the defected stock shall not be the one, instead of the transferor of the stock, to assume the liability for withdrawal of contribution.

At the same time, Article 80 of the Provision of the Supreme People’s Court on Relevant Issues concerning the Enforcement by People’s Court (Trial) provides that, where the enforcee has no asset to repay the debt, if the founder of the enforcee has not fully invested the registered capital or has withdrawn the registered capital, the people’s court may render a verdict to change or add the founder as the enforcee, who shall be responsible to the applicant to the extent that the registered capital is un-contributed or withdrawn. As to a company, the founder refers to its promoter or founder. The above judicial interpretation by the Supreme People’s Court is naturally the same with China Company Law. At the same time, it has been further confirmed if any shareholder of the enforcee withdraws its contribution after the establishment of the company, then the people’s court will change or add such a shareholder as the new enforcee if the enforcee has no asset to repay the debt.

In this case, Shareholder C, as one of the founders of Company A, intentionally withdraws its contribution after the establishment of Company A, which violates the liability of full contribution as provided by Company Law. Therefore, according to above legal provisions, Company B shall apply to add Shareholder C as the enforcee and ask him to assume the indemnification liabilities to the extent of the contribution withdrawn by him. One thing shall be mentioned is that the maximum liability of Shareholder C to Company B shall be RMB 150,00O Yuan so withdrawn by him. If Company A still cannot to repay the debt owed to Company B after Shareholder C has indemnified RMB 150,000 Yuan to Company B, Shareholder C shall not assume any more liability for repayment.

As to the new Shareholder D of Company A, its acceptance of Shareholder C’s stock in Company A shall be legally protected. Although Shareholder C fails to assume the liability of full registered capital for its withdrawing of contribution after the establishment of Company A, who thereby shall bear relevant legal liabilities, the new Shareholder D shall not bear any legal liability for the wrongdoing committed by Shareholder C even the stock so accepted is of defect since such defect has no relationship with new Shareholder D. It is not reasonable to claim against the new Shareholder D for legal liabilities caused by the wrongdoing committed by the Shareholder C merely on the ground of new Shareholder D’s acceptance of Shareholder C’s stock. In a word, Company B cannot apply to add new Shareholder D in Company A as the enforcee and then claim indemnification liabilities against him.

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

Shipper and Carrier shall Each Assume the Extra Expenses Incurred in Transportation pursuant to Respective Liabilities
In the course of import & export of goods, regardless of CIF, FOB or C&F by ocean, or by airway, road or railway, the shipper (normally the exporter of the goods) usually will, in view of needs for division of labor based on specialization and for the economic cost and profit, consign various logistics companies, carriers and their agents to arrange the procedural works such as transportation, import & export inspection and customs declaration for the goods. In the international transportation by sea, the appearance of several links such as the actual carrier and issuer of B/L (include carrier by agreement) has led to the situation that the shipper, in any single international import & export business, has to face many different companies and is very busy in coordinating with various disputes therein.

Generally, the transportation would run smoothly if the carrier (including the issuer of B/L and the actual carrier) performs the contract with due diligence and if the shipper prepares the goods and necessary documents and receipts and makes the payment. Otherwise, the default by either party may bring a series of unnecessary troubles to the complexity of international transportation by sea. Here is a simple case.

Brief of the Case

Plaintiff: One Cargo Transportation Company in Zhejiang Province
Defendant: One Machinery Manufacture Company in Shanghai

From April 2006 to April 2007, the Defendant (Shipper) consigned the Plaintiff to arrange the transportation, by which the Plaintiff made good arrangement. An outsider of the case issued a shipping order for the goods as the carrier. The Defendant paid RMB 2,260,768 Yuan to the Plaintiff as the freight. However, for reasons attributable to the Defendant (untimely payment of freight and miscellaneous expenses), extra expenses such as container demurrage, overtime storage charge, port congestion charge and re-stowage charges at the amount of RMB 57,062 Yuan had incurred in the course of transportation for the goods. And, the Defendant refused to pay such extra expenses.

The Plaintiff believed that it had performed the obligation of agency; therefore, the Defendant shall bear the extra expenses caused by it. As the mediation failed, the Plaintiff sued the Defendant to one maritime court claiming that the Defendant shall repay the extra expenses at the amount of RMB 57,062 Yuan and assume the litigation fees and charges for application and execution of asset preservation.

Judgment

After trial, the maritime court held that the freight forwarding contractual relationship between the Plaintiff and the Defendant is legally effective. The focus is how to divide the liability for container demurrage, overtime storage charge, port congestion charge and re-stowage charges incurred in the course of transportation for the goods. The maritime court held that: (1) The Defendant is contractually obligated to pay the freight and miscellaneous expenses to the Plaintiff, unless otherwise specified in the contract. So, the consequences caused by Defendant’s failure to pay the freight and miscellaneous expenses shall be solely borne by the Defendant; (2) As the agent of the shipper (Defendant), the Plaintiff shall urge the carrier to ship the goods to the destination port as soon as possible, therefore, the Defendant does not have the legal liabilities to make repayment for the consequences caused by reasons not attributable to the Defendant; (3) To avoid long term free use of the containers by others, the owner of the containers shall have the right to decide the charging rate on overtime use of containers on the pre-condition that the charging rate shall not violate the compulsory provisions of law; and (4) The Plaintiff may dispose of the goods within reasonable time. The price of the goods from such a disposition shall first be deducted with the extra expenses so incurred.

In view of the above, the maritime court rendered a judgment that the Shipper (Defendant) shall bear the liabilities for failure of payment of freight and miscellaneous expenses. The Plaintiff shall also have liabilities for not promptly urging the carrier to deliver the goods to the destination and not disposing of the goods within reasonable time. Therefore, they shall assume the extra expenses respectively.