China: China Update

Last Updated: 30 May 2014

According to the latest statistical data issued by the State Intellectual Property Office ("SIPO"), SIPO received 825,000 invention patent applications in 2013 which increased 26.3% year-on-year. Interestingly, over one third of the total number of patent applications received by SIPO were made up of standard invention patent applications, over utility model patent applications (which are generally weaker in nature). It seems that local Chinese entities in particular are moving towards obtaining stronger enforceable patents for their inventions, rather than relying on the filing of utility model applications that are not examined against prior art, prior to grant.

China proposes to establish "food and drug police"

In late March, Mr. Hua Jingfeng, Deputy Chief of Security Management Bureau of Ministry of Public Security, confirmed that China will set up a new food and drug illegal investigation bureau to carry out all kinds of investigations associated with food and drug issues, such as counterfeiting, quality issues, and various others. Currently, the Ministry of Public Security and State Food and Drug Administration are finalizing details for the establishment of the new bureau, and it is expected that the new bureau will commence operation in late 2014.

Enforcement of IP rights in the Shanghai Free Trade Zone

Currently, it is possible to enforce IP rights in the new Shanghai Free Trade Zone ("FTZ") via the courts as well as the traditional administrative authorities such as the FTZ branches of the Administration of Industry and Commerce (trademarks and trade dress), Customs (all types of IP), copyright and patent bureaus. Further, the Shanghai FTZ Management Committee is empowered to handle disputes relating to IP issues arising within the FTZ as well in accordance with Measures for the Administration of China (Shanghai) Pilot Free Trade Zone. According to the Shanghai Municipal Intellectual Property Bureau, the authorities are looking establishing a trinity IP rights administrative management and enforcement system where one new government agency would be able to enforce all types of IP rights within the FTZ for IP owners. Such a plan has been considered in the past in different regions of China, however specialist knowledge and skills related to each type of IP right and its enforcement has led to keeping the relevant agencies separated by IP right. It will be interesting to see how these plans develop within the FTZ, as we can not see any reason why one body can not be established with different departments within that body for handling specialized disputes.

GUI is patentable for design patent

An amendment to Patent Review Guide was issued by SIPO recently and will become effective on May 1, 2014. According the amendment, it will then be possible to register design patents for products that incorporate graphic user interfaces ("GUI"). The amendment states that for a GUI to be registerable as a design patent within a product, the GUI must be interactive and functional. Interestingly, computer game interfaces/GUIs are expressly excluded from the scope of patentable design patents in the amendment.


Amendment made to registered capital regime of the Company Law

Certain significant amendments made to the registered capital regime have came into effect on March 1, 2014. Those amendments include: 1) removing the minimum registered capital limit unless specified in laws and regulations; 2) reforming the annual check system to an annual reporting system; 3) loosening registration requirements on residence which will be specified by local governments; 4) greatly promoting construction of enterprises' credibility; and 5) changing the mandatory paid-up registration to a subscription registration which will reduce the costs of establishing a company. According to the AIC, the said reforms are applied equally to foreign-invested and locally owned enterprises in China due to the principle of national treatment.

AIC fines Nu Skin for violating the direct-selling regulations

Direct selling is strictly regulated in China such that foreign investment in the area is prohibited unless such selling is incidental to an established and approved retail operation. The State Administration of Industry and Commerce ("AIC") launched an investigation into the activities of Nu Skin in 2013 on the grounds that it conducted direct selling outside the scope permitted by law, made misleading statements as to its products and other violations of Chinese law. At the end of March, the AIC issued a decision in the case, imposing fines of over US$625,000 on Nu Skin and various employees, and seizing illegally derived income. This case should serve as a wake-up call for foreign direct sellers who may be operating in China under the guise of a retail store operation.

FDI increases 10.44% in the first two months of 2014

The latest investment data released by the Ministry of Commerce indicates that foreign direct investment ("FDI") in the first two months of 2014 in China has grown well: during January and February, 2,764 new foreign-invested enterprises were established within China. Further, 55% of the FDI capital inflows were for services focused entities.

"Negative list" of Shanghai FTZ may be cut by 40%

With an unexpectedly slow take up of residence in the FTZ, it has been announced that the authorities are intending to free up more categories for foreign invested enterprises, by removing them from the list of areas where foreign investment is prohibited or restricted. According to Mr. Zhou Zhenhua, Director of the Shanghai Municipality Development Research Center, negotiations are occurring with the central and Shanghai governments to try to reduce the "negative list" by around 40%.

Foreign-invested telecommunications and the Shanghai FTZ

The Ministry of Industry and Information and Shanghai Municipality have recently co-issued the Opinions on Further Opening Value-added Telecommunications Business in Shanghai Pilot Free Trade Zone. According to the Opinions, foreign invested entities will be allowed to provide value-added telecommunications services within the FTZ, provided that the percentage of foreign ownership does not exceed 55%. In China proper, foreign investment in such ventures is capped at 50%, which reflects China's WTO commitment in this field. It is expected that foreign telecommunications companies will be particularly interested in exploiting the FTZ policy and establishing FTZ entities to provide call centre and telecommunications support services at least. Foreign invested virtual mobile network operators could also be on the horizon in the FTZ.


Hong Kong to exchange tax information with the US

The Hong Kong Special Administrative Region has signed an agreement for the exchange of tax related information with the US. The agreement is aimed at further the US's mission of cracking down on global tax evasion and was executed in pursuance the objectives laid down in the Foreign Account Tax Compliance Act (US).


New Implementing Regulations on State Secrets comes into effect

On March 1, 2014, the Implementing Regulations on State Secrets commenced operation. Although it specifies nine situations where the disclosure of state secrets could damage national safety and interests in political, economical, national defense and diplomatic fields, unfortunately we still do not have a definition of "state secret" either in the law itself or this regulation. It is understood that the authorities wish to allow for flexibility in determining whether information constitutes a "state secret", and would like to be able to consider different scenarios on a case by case basis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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