China Law Update : China Business Law Lawyers & Attorneys : Sheppard Mullin Law Firm : Direct Investment, Dispute Resolution, Intellectual Property, Antitrust, Venture Capital

After a 5-year Chinese court battle, Ferrero SPA (“Ferrero”), an Italian chocolate maker, recently won a dispute to stop infringement of its intellectual property rights against Montresor (Zhangjiagang) Food Co. Ltd. (“Montresor”) and Montresor’s distributor, Zhengyuan Distribution Co., Ltd (“Zhengyuan”) in China’s Supreme People’s Court (SPC).  This is the first known case where Chinese Courts applies the Anti-Unfair Competition Law to protect well-known foreign merchandise.

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No clear statutory right of privacy exists in China.  Support for and protection of reputation and privacy rights can be found, however, in certain judicial decisions and regulatory interpretations.  More development in the area is necessary, and the National People's Congress is considering enactment of a Personal Information Protection Law.  This article reviews the current state of privacy and reputation protection in China.

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Electronic sports games ("E-sports games") have been sweeping across China as elsewhere in the world, and the sector in China is developing at a rapid and accelerating pace. More and more foreign E-sports companies are taking aim at the Chinese market.  With E-sports games gaining tremendous popularity in China, more and more foreign companies are aiming at the Chinese market.  However, upon entering China with enthusiasm, foreign enterprises are often paralyzed by Chinese regulations.

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On June 28, 2008, the Basic Rules for Corporate Internal Control (“Rules”) were jointly issued by the Ministry of Finance, the National Audit Office, the China Securities Regulatory Commission, the China Banking Regulatory Commission and the China Insurance Regulatory Commission. The Rules will take full effect on July 1, 2009 and initially affect only listed companies.

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The Provisions on the Takeover of Domestic Enterprises by Foreign Investors ("Old Rule") and the accompanying pre-merger filing system have been in effect for five years.  According to available government statistics, there have been more than 500 pre-merger filings under that regime.  The new Anti-Monopoly Law ("AML") became effective on August 1st, requiring new implementing regulations and thresholds.  MOFCOM is at the end stage of preparing its new Rules on Notification of Concentration by Undertakings ("New Rule") to support the AML, and the new thresholds triggering required pre-merger filings will soon be announced.

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One challenge for foreign investors in China is moving profits generated by their Foreign-Invested Enterprises (FIEs) out of China at reasonable cost.  Foreign investors commonly do so through dividends, interest, and royalties paid to them by their FIEs subject to a withholding tax of ten percent.  However, bilateral agreements on double taxation create opportunities for withholding tax savings.  An attractive way for withholding tax savings is by establishing FIEs through a Hong Kong Special Purpose Vehicle (SPV).

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Through regulations and directives in 2006 and 2007, Chinese authorities have adopted a restrictive stance towards foreign investment in real estate.  Foreign enterprises investing in Chinese real estate are required to incorporate in China.  In addition to the usual approval requirements for foreign enterprises, foreign-invested real estate enterprises (FIREs) are subject to the following restrictions:

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When the world’s largest steel company Arcelor Mittal acquired a 28% stake in steel company China Oriental Group in November 2007, it made no secret of its desire to gain control of China Oriental and aggressively expand into the Chinese market.  That dream, however, became short-lived.  On May 13, 2008, Arcelor dropped its takeover bid of China Oriental after the deal failed to clear the Chinese anti-monopoly authority in the required six months.

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China has not had a particularly good reputation for protecting intellectual property.  People focus on the occurrences of IP infringement in China and mistakenly conclude that there is effectively no IP protection here. China’s present IP dilemma is rooted in the concept of “rule of the man – Emperor.”  Western civilization’s concept of “rule of law” was not adopted by China until about 25 years ago when Deng launched the modernization of China.  Since then, China has been faced with a huge challenge of establishing an internationally acceptable legal framework. China has made significant progress in the enactment of laws, establishment of a court system, and training of legal personnel which have substantial vested interest in protecting their own IP.  The fact is that IP protection is available in China today.  This area has been a key focus of the Chinese Government and China’s emerging high-tech industries.  Thus, significant ongoing progress in IP protection in China can be expected.

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When looking into registering domain names in Asia, companies often encounter the problem that their .cn domain names in China have already been registered by someone else.  Companies who are zealous about protecting their brands should consider reclaiming their .cn domains.

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Why Invest in the Chinese Bio-Industry

The Chinese Government is placing significant emphasis on developing and expanding China's biotech and pharmaceutical sectors, using a variety of tax breaks, government inducements, and other incentives. The goal is to make China the leader in global life sciences industries. This priority effort poses significant opportunities for foreign investors.

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After promulgating the Labor Contract Law, the Chinese legislature enacted the Law on Labor Dispute Mediation and Arbitration (hereinafter referred to as “the New Law”) to further safeguard the rights and interests of worker in procedural matters. The New Law took effect on May 1, 2008.

As the first law that specially regulates labor disputes between employers and employees in China, this New Law imposes more burdens and obligations on employers, making it seem pro-worker. But, is that an accurate perception?

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The recently effective PRC Labor Contract Law contains crucial new provisions not present in the existing Labor Law. The major changes and additions are as follows:

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