China’s Outbound Investment: Time to Prosper?

China’s direct outbound investment in 2007 amounted to USD26.51 billion, representing a 25.3% increase than that of 2006. By the end of 2007, over 7000 Chinese companies have established their overseas presence covering 173 countries or regions across the globe.

The statistics jointly published by the Ministry of Commerce, National Statistics Administration, and State Administration for Foreign Exchange indicated that more privately-owned enterprises in China are investing overseas, and major invested countries and regions include Hong Kong, the United States, Russia, Vietnam, Japan, the United Arab Emirates, German, Australia and Singapore.

In spite of the perceived boom, it is reported that among the acquisitions Chinese companies have had in German during the past five years, only about 20% of the acquired companies were operated relatively well and stably.

As commented by an official from the Development and Research Center of the State Council, the major issues of Chinese companies’ outbound investment are (i) lack of strategic long-term vision, (ii) insufficiency of feasibility studies, (iii) incapability in cross-border integration, (iv) more as high-risk investment by the government, and (v) insufficient participation by mega privately-owned enterprises.

As some of those international business consultants have pointed out, the primary issue for Chinese companies’ outbound investment is their lack of capabilities in cross-cultural integration, which is a vital after-acquisition process to allow Chinese companies to achieve real success of overseas acquisitions.

Beijing: Draft Judicial Interpretations on Well-Known Trademarks in China

Owners of Chinese well-known trademarks are entitled to broader protection than ordinary trademarks registered in China. Above said, whether a trademark constitutes a well-known one in China becomes a significant issue to its owner.

The Supreme People’s Court of China promulgated draft Interpretations Concerning Certain Issues on Application of Laws in Recognizing and Protecting Well-Known Trademarks in Trails of Civil Disputes Related to Trademark Infringement (“Draft Interpretations”) on November 11, 2008.

The Draft Interpretations aim at addressing those common issues that have been revealed in judicial practice of recognizing Chinese well-known trademarks, and further strengthening protection over such trademarks in China.

Under the Draft Interpretations, only if the issue whether a disputed trademark constitutes Chinese well-known trademark is legally or factually significant in determining trademark infringement or unfair competition, such issue will be analyzed and determined by relevant people’s court.

It is noted that in order to be recognized as Chinese well-known trademark, the relevant trademark must be widely known within the territory of China. In other words, mere evidence of being well-known outside China (such as an international brand) is not sufficient to establish existence of a Chinese well-known trademark, even though overseas reputation or recognition may be taken into account in certain circumstances.

With respect to jurisdiction over cases involving judicial recognition of Chinese well-known trademarks, the views are split, and the Draft Interpretations provide for two possible options. One holds that intermediate people’s courts or above shall have such jurisdiction, while the other deem it necessary to further narrow it down to intermediate people’s court or above in major cities or others at the same level as approved by the Supreme People’s Court.

Beijing: Supreme People’s Court to Try A Copyright Case Live

On November 14, 2008, the Supreme People’s of China will try a copyright infringement case, which is to be live broadcasted online via China Court Net (www.chinacourt.org).

The trial was brought up by a famous singer in China, Sun Nan. In 2006, agent of Sun Nan purchased a CD of songs performed by Sun Nan. Based on this, Sun Nan filed a lawsuit against the CD publishers on the cause of unauthorized copying and publishing of such songs, which infringed his right to perform. He claimed the damage of RMB300,000 and requested the court to order the defendants to cease sales of, and destroy such infringing products.

The trial court supported all of Sun Nan’s claims, which was appealed by the defendants. The appellant court reversed the trial court’s judgment, and held in favor of the defendants.
Unsatisfied with the judgment of appellant court, Sun Nan applied for re-trial of this case by the Supreme People’s Court of China. It will be the first time for the Supreme People’s Court to try a case with live broadcasting online.

Shanghai: Clean Energy Vehicles for Expo?

As the host city of Expo 2010, Shanghai is pressured to reduce vehicle emission. An obvious solution is to convert from traditional vehicles into those clean energy ones; however, with a variety of different choices, what will be the right ones for Shanghai Expo?

In fact, Shanghai has been working on alternatives to diesel and gasoline for a while. For instance, Shanghai has already put some hybrid electric vehicles into operation. Furthermore, Shanghai is also looking into hydrogen fuel cell vehicles and built up the first hydrogen station for filling up such vehicles with hydrogen. Apart from that, LNG (liquefied natural gas) and DME (di-methyl ether) vehicles are in the market too.

Different clean energy vehicles employ various technologies, which are currently at different stages in terms of maturity of technologies and extent of commercialization. For example, LPG (liquefied petroleum gas) and CNG (compressed natural gas) vehicles, though more mature in terms of technological development, are not perfect given their emission. Hydrogen fuel cell and electric vehicles are much cleaner, but still not ready for large-scale commercialization. Thus, what Shanghai needs is a blueprint to achieve zero-emission step by step.

When choosing the type of clean energy vehicles, there is a 4E principle to follow, which is Environment, Energy, Easy, and Economy. From that perspective, Shanghai will start from reducing emission, and gradually move toward the target of zero emission.

Based on the current blueprint, for buses, as a first step, Shanghai will restrict those “polluting” buses in outskirts of Shanghai city, and within in the city, the government plans to expand the use of CNG buses.

When the technologies for LNG or DME buses are more developed, LNG buses will take over, supplemented by some DME and electric buses. To meet that end, most of the CNG stations will be transformed into LNG stations then.

In the meantime, Shanghai will keep with demonstration projects of hydrogen fuel cell buses, and expect to reach the stage where electric buses constitute the majority, supplemented by hydrogen fuel cell buses. At that time, those LNG stations will be transformed into hydrogen stations.

For taxis, Shanghai plans to use more LPG cars at first, which will be gradually taken over by LNG ones in the mid term, and eventually reach the stage where hydrogen fuel cell cars constitute the majority, supplemented by LNG ones.

Beijing: China and Kazakhstan to Expand Cooperation in Natural Gas

China National Petroleum Corporation (“CNPC”) recently entered into a framework agreement with KazMunaiGaz, Kazakhstan’s national oil and gas company to expand cooperation in natural gas.

KazMunaiGaz has agreed to annually supply five billion cubic meters of natural gas to phase II of the Kazakhstan-China Gas Pipeline, and ensure the transport of natural gas produced by CNPC from the Aktobe field via such pipelines.

Meanwhile, the two sides will jointly develop the Urikhtau gas condensate field and export 5-10 billion cubic meters of natural gas to China on a yearly-basis, subject to the demand in southern Kazakhstan.

Based on the above, the two companies will jointly construct and operate the Beineu-Bozoy-Kyzylorda-Shymkent section of the Kazakhstan-China Gas Pipeline, the natural gas transport capacity of which is designed to be 10 billion cubic meters per year.

The parties also agreed to expand phase I of the Kazakhstan-China Gas Pipeline based on further assessment of incremental natural gas resources.

According to the joint statement of China and Kazakhstan, the Kazakhstan-China Gas Pipeline is a milestone project for cooperation between the two countries, which is expected to be completed by the end of 2009.

Beijing: First Lawsuit on Supermarket’s Use of Background Music

Music Copyright Society of China (“MCSC”) sued a supermarket in Beijing based on alleged infringing use of background music, and claimed damage of RMB16,500.

On November 4, 2008, Beijing Haidian People’s Court began to try this first copyright infringement lawsuit arising from supermarket’s use of background music since the promulgation of PRC Copyright Law.

MCSC is a collective management organization of music copyright in China, which aims at protecting music copyright holders, and representing them in infringement cases.

According to MCSC, the defendant, absent the right holder’s authorization, used a song as background music of the supermarket, which constituted copyright infringement.

MCSC indicated that around 8,000 companies in China have voluntarily paid royalties to MCSC for their use of background music in their respective stores; however, this only represents a minority of supermarkets or stores in China. Therefore, MCSC, via this lawsuit, intends to alert those companies to the potential infringing use of background music and its resulting violation of Chinese law, and in the meantime, encourage right holders to claim their rights in such cases through MCSC.

The defendant argued that use of background music in the supermarket is not for profit-making purpose, which is different from use of music in KTVs or other similar places. Thus, different rates of royalties should be applied to different types of use of music.

Though this case is still under trial, it is clear that all sorts of brand new intellectual property disputes are getting more common in China.

Beijing: Supreme People’s Court Commented on Implementation Issues of Anti-Monopoly Law

The long-awaited PRC Anti-monopoly Law (“AML”) has left quite a number of implementation questions unanswered; and recently, the head of Administrative Tribunal of the Supreme People’s Court of China responded to some of those questions with respect to administrative lawsuits that may be brought under AML.

Who has the jurisdiction?
Pursuant to the AML and the PRC Administrative Litigation Law, people’s courts that have jurisdiction over AML-related administrative lawsuits are relevant intermediate or higher people’s courts located where defendants reside.

Who can be defendants?
AML set up two-level institution. One is a Anti-monopoly Commission under the State Council, which is to coordinate anti-monopoly related work at a national level, and research for, make, and publish anti-monopoly related policies and regulations. The other is institutions which are responsible for enforcement of AML, i.e., the Ministry of Commerce (“MOFCOM”), the National Development and Reform Commission (“NDRC”), and the State Administration for Industry and Commerce (“SAIC”), and their respective counterparts at provincial level.

Given that the second-level institutions are those who will enforce AML in daily practice, and take specific administrative acts, they are potential defendants in AML-related administrative lawsuits.

What acts can be sued?
Under the PRC Administrative Litigation Law, only specific administrative acts (as opposed to administrative rules for general application). Therefore, specific administrative acts related to AML (including, without limitation, administrative licensing, penalties, decisions, approvals, and enforcement) can be cause of actions for AML-related administrative lawsuits.

Who bears the burden of proof?
As a general rule under the PRC Administrative Litigation Law, defendants bear the burden to prove that their specific administrative acts are in compliance with applicable laws, and facts that are not recorded at the time of conducting administrative acts should be excluded as inadmissible. If defendants do not produce evidence or delay in producing evidence without justification, it is deemed that disputed administrative acts lack corresponding evidences.

OEMs and CMs: Risks and Precautions

OEMs (original equipment manufacturers) are prevalent in today’s cost competitive environment. Despite the popularity, intellectual property risks lie on both sides --OEMs and CMs (contract manufacturers).

For OEMs, one major risk is that CMs may over-manufacture the designated products without OEMs’ authorization, and re-sell such products to third parties or directly to end users, which may dilute OEMs’ market. Another risk is that CMs may use, disclose or disseminate OEMs’ confidential information, without due authorization. Such act may be intentionally taken by CMs for profit-making, or due to negligence in restricting their employees in complying with their confidentiality obligations. Whatever the reason, such undue disclosure of confidential information exposes OEMs to business risks and harm.

For CMs, the primary risk is their inadvertent infringement of third party intellectual property rights due to OEMs’ lack of relevant rights. In this scenario, third party right holders may directly sue CMs for infringement, and if CMs are not properly protected under OEM contracts, CMs’ losses can hardly be indemnified by OEMs.

Awareness of risks leads to design of precautions. Suggested steps for OEMs and CMs include:

1. CMs should conduct intellectual property due diligence of OEMs, making sure that OEMs are legitimate holders of relevant intellectual property rights;
2. OEMs and CMs should specify detailed rights, obligations and remedies under their contracts, especially with respect to potential intellectual property disputes;
3. OEMs may require CMs to keep detailed records of how the designated products are manufactured, and entitle themselves to review and inspect; and
4. CMs should take precautions to protect confidential information of OEMs (including, without limitation, entering into confidentiality and non-compete agreements with employees).

Beijing: Digital Copyright of Thesis Infringed?

482 master and Ph.D. degree holders (collectively, the “Plaintiffs”) sued Beijing Wanfang Data Co., Ltd. (“Wanfang Data” or the “Defendant”) with respect to the Defendant’s infringing use of the Plaintiffs’ thesis. The trial judgment held the Defendant lost to 364 of the Plaintiffs, and should cease collecting thesis, make public apologies on its website, and compensate those winning Plaintiffs for the damages and reasonable litigation expenses.

According to the Plaintiffs’ claim, Wanfang Data, without due authorization, collected the Plaintiffs’ thesis, scanned them into digital files, and included the same into a “China Thesis Database”, which was available for search by various libraries across the nation after their paying certain subscription fees to use Wanfang Data’s system.

The Plaintiffs claimed that Wanfang Data’s conduct was illegally publishing, copying, disseminating, and selling the Plaintiffs’ thesis for profit, which constituted copyright infringement.

During the trial, Wanfang Data counter-argued that China Science and Technologies Information Research Institute (“CSTIRI”) is the designated institute to collect thesis under Chinese law, and the Defendant was authorized by CSTIRI to develop a database of such thesis. The Defendant further argued, given that the database was only available to users of college and other nation-wide libraries (as opposed to the general public), the purpose of this database was to promote exchange of research results, instead of for-profit-sale. In addition, the Defendant also pointed out that 324 of the Plaintiffs have signed certain agreements with their respective graduating universities, authorizing those universities to dispose their thesis, and those universities have all entered into agreements with CSTIRI, authorizing CSTIRI to include those thesis into the database.

According to the trial court, Wanfang Data infringed copyright to thesis of 158 of the Plaintiffs who have not entered into any agreements with their graduating universities with respect to the disposal of their thesis. Among the remaining 324 Plaintiffs, the agreements 206 of them have entered with their graduating universities were insufficient to justify Wanfang Data’s use of the disputed thesis, thereby rendering the Defendant’s conduct as copyright infringement too.

Thus, 364 of the Plaintiffs were entitled to damages in the range from RMB2,300 to RMB5,100 individually, which added up to over-RMB1 million-damage in total to be paid by Wanfang Data. With respect to the remaining 118 of the Plaintiffs, due to their agreements with graduating universities, plus the latter’s agreements with CSTIRI, the trial court determined that Wanfang Data’s conduct did not infringe their respective copyright.

Upon announcement of the trial judgment on October 16, 2008, the attorney representing the Plaintiffs indicated that the Plaintiffs would further continue this case with an appeal.

Shanghai: Intellectual Property Arbitration Tribunal Founded

On October 29, 2008, Shanghai Intellectual Property Arbitration Tribunal was officially founded, with the first batch of 61 arbitrators appointed.

This tribunal offers a new avenue to solve intellectual property disputes in China, apart from the traditional administrative or judicial channels. It aims at taking advantage of the features of arbitration, such as confidentiality, efficiency, and expertise of arbitrators, and thereby providing a more cost-effective way to resolve intellectual property disputes.

This tribunal is formed to meet the dispute resolution demand arising from the increasing number of cross-border intellectual property transactions (including transfer or licensing) involving China.