On 13 April 2015, the State Administration for Industry and Commerce (SAIC) (中华人民共和国国家工商行政管理总局) issued the Provisions on Prohibiting the Abuse of Intellectual Property Rights to Exclude and Restrain Competition 2015, which prohibit the use of intellectual property rights to effect non-price related anti-competitive conduct (see Legal update, SAIC issues new rules in relation to intellectual property rights).

Multiple prior drafts of the provisions have been circulated and discussed since 2009. The final version, which will take effect 1 August 2015, maintains China’s traditional restrictions on IPR licensing arrangements and follows a more recent trend to root out the perceived abuse of IPR by major domestic and foreign technology companies.

According to many commentators the provisions give the SAIC, one of China’s three regulators under the Anti-Monopoly Law of the People's Republic of China 2007 (2007 Anti-monopoly Law), greater powers than regulators in other major competition law jurisdictions.

Others, like Adrian Emch, antitrust partner at Hogan Lovells, say that the text of the provisions does not deviate much from international antitrust practice. "But it will remain to be seen", says Emch, "how the SAIC will enforce the provisions in practice". Indeed, following a common thread in Chinese legislation, the provisions are broadly drafted and present the SAIC with wide discretionary powers, leaving a significant amount of uncertainty for business operators and their advisors.

The provisions apply to situations involving multiple operators, as well as operators acting alone, and generally focus on attempts by business operators to restrict competition by imposing unreasonable trading conditions without a "reasonable justification". The relevant market is either a traditional "product market" or a "technology market", where the technology reflected in the IPR competes with available substitutes. Under the 2007 Anti-monopoly Law, market dominance is presumed if single company has at least a 50 percent share of the relevant market.

Absent a reasonable justification, the provisions prohibit an IPR holder with a dominant market position from imposing the following unreasonable trading conditions:

Two other aspects of the provisions have attracted considerable attention. The provisions appear to establish an "essential facilities" doctrine. That is, where the IPR constitutes an essential facility to production and business operations (for example, a standard essential patent, also known as SEP), an operator with a dominant market position is prohibited from refusing to license the IPR to other operators in the market for the purpose of eliminating or restricting competition.

Conversely, the provisions offer innovative "safe harbours" for competitors (that is, business operators involved in horizontal arrangements) with a combined 20 percent or less market share and for non-competitors (that is, business operators involved in vertical arrangements) where no single party possesses a 30 percent or more market share. The safe harbours, however, do not apply to the "hard core restrictions" listed in the 2007 Anti-monopoly Law, that is cartels and resale price maintenance.

Violations of the provisions are punishable by penalties of between 1 and 10 percent of the company’s relevant turnover and may expose the operator to civil liability.

China in recent years formulated a set of strategic goals that aim to develop its service sector, foster innovation, explore financial services reform, and promote the internationalization of China’s currency. In late 2013, China initiated an experimental program in the China (Shanghai) Pilot Free Trade Zone (Shanghai FTZ) (中国(上海)自由贸易试验区) to partially implement those goals. The Shanghai FTZ was permitted to temporarily replace China’s long standing examination and approval procedure for foreign investment with the national treatment / negative list approach common to the foreign investment regimes of other major economies (see Practice note, China (Shanghai) Pilot Free Trade Zone: overview: Negative list approach).

As we reported in the April issue of GC Agenda, China significantly expanded the pilot program with the initiation of three new experimental free trade zones: China (Guangdong) Pilot Free Trade Zone (Guangdong FTZ) (中国(广东)自由贸易试验区), China (Tianjin) Pilot Free Trade Zone (Tianjin FTZ) (中国(天津)自由贸易试验区), and China (Fujian) Pilot Free Trade Zone (Fujian FTZ)(中国(福建)自由贸易试验区) (see Article, GC Agenda China: April 2015: New FTZs Launched in Guangdong, Tianjin and Fujian to Compete with Shanghai FTZ).

Each new free trade zone not only further implements China’s strategic goals, but also attempts to exploit the natural market advantages of each region. The Guangdong FTZ will further integrate Hong Kong and Macau with the Mainland’s economy, the Tianjin FTZ will promote development of Beijing and North China by capitalizing on Tianjin’s status as a major port and logistics centre, and the Fujian FTZ will facilitate further economic cooperation with Taiwan.

For a collection of legislations for each new FTZ, see legislation trackers:

On 8 April 2015, Ministry of Commerce (MOFCOM) (中华人民共和国商务部) issued the Measures for Record-filing Administration of Foreign Investment in Pilot Free Trade Zones (for Trial Implementation) 2015 (2015 FTZ Record Filing Measures). Under the 2015 FTZ Record Filing Measures, beginning 8 May 2015, any foreign investment project in the expanded Shanghai FTZ or one of the new free trade zones that is not included within the scope of a list of prohibited and restricted projects (that is, the negative list) will be given free market entry, subject to a record filing requirement that involves a streamlined "one-stop" online registration procedure. After formation, the 2015 FTZ Record Filing Measures require a foreign-invested enterprise (FIE) (外商投资企业) to perform periodic online reporting obligations and to amend the particulars of its record filing upon the occurrence of changes to corporate form, shareholding, governance and other important matters.

Also on 8 April 2015, the State Council (中华人民共和国国务院) released the Notice of the General Office of the State Council on Printing and Distributing the Special Management Measures for the Market Entry of Foreign Investment in Pilot Free Trade Zones (Negative List) 2015 (2015 Negative List). Under the 2015 Negative List, where a foreign investment project in any of the free trade zones falls within the scope of the restricted schedule, the project will undergo an access license review procedure and may be subjected to a set of restrictive conditions to market entry. The 2015 Negative List:

For more information on the features of the 2015 Negative List, see Legal update, China publishes 2015 Negative List for FTZs

On the same day, the State Council issued the Notice of the General Office of the State Council on Printing and Distributing the Trial Measures for the National Security Review of Foreign Investment in Pilot Free Trade Zones 2015 (2015 FTZ National Security Review Notice), which apply to foreign investment projects where a foreign investor will obtain a controlling stake of a business engaged in the development of sensitive technology or deemed vital to national defence, the economy or social order. The 2015 National Security Review Notice preserves the government’s gatekeeping role for foreign investment in sensitive industry sectors. The criteria for a national security review is based on consideration of several factors, including among others the impact of the investment on China’s national defence, technological development, the spread of dual use technology, infrastructure, internet security, supplies of food and other key resources, economic stability and public order (see Practice note, China (Shanghai) Pilot Free Trade Zone: overview: National security review).

To reduce its swollen foreign exchange reserves and promote the use of renminbi (RMB) as an international currency, China has taken several steps in recent years to liberalize its foreign exchange control rules. In 2014, the State Administration of Foreign Exchange (SAFE) (国家外汇管理局) issued Notice of the State Administration of Foreign Exchange on the Pilot Reform of the Administrative Approach Regarding the Settlement of the Foreign Exchange Capitals of Foreign-Invested Enterprises in Certain Areas 2014 (Notice 36), which permitted FIEs to convert foreign capital into RMB on an at-will basis in a limited number of localities. On 8 April 2015, SAFE issued the Notice of the State Administration of Foreign Exchange on Reforming the Administrative Approach Regarding the Settlement of the Foreign Exchange Capitals of Foreign-invested Enterprises 2015 (Notice 19), which will apply the reforms introduced under Notice 36 nationwide beginning 1 June 2015. Like Notice 36, however, Notice 19 leaves in place a number of restrictions on the settlement and use of foreign exchange. Settlement will continue to be based on the existence of an authentic transaction supported by documentary proof, the RMB proceeds from foreign exchange settlement will continue to be held in a designated bank account, and the use of foreign exchange in domestic transactions will continue to be prohibited in most instances. In addition, following the restrictions in Notice 36, Notice 19 prohibits an FIE from using foreign capital, even after settlement, for purposes beyond the FIE’s scope of business, to purchase securities or real estate (other than self-use real estate), for dispersing RMB entrusted loans, and for other unlawful activities (see Practice note, Foreign exchange control in China: Restrictions on conversion). According to Gloria Liu, a partner at Goodwin Procter, "though Notice 19 provides certain opportunities, the key question in evaluating the relaxed rules is the government’s ability to ensure uniform enforcement across China."

On 4 May 2015, the State Council issued the Opinions on Vigorously Developing E-commerce as a New Economic Growth Engine as part of the Chinese government’s continuing effort to redirect the Chinese economy away from traditional manufacturing and exports toward innovation and consumerism. China has been promoting the development of what it calls "Internet Plus", which refers to an effort to integrate e-commerce, mobile IT, cloud computing, big data and the Internet of Things with modern manufacturing and to encourage Chinese IT businesses to expand into international markets. Support for e-commerce and the IT sector generally may prove to be a powerful policy tool given China’s long standing desire to promote "indigenous innovation", to produce meaningful employment opportunities for China’s burgeoning educated youth demographic, to assist in further developing China’s logistics sector, and to integrate traditional and emerging industries.

The opinions set forth a list of broadly phrased measures with the goal of developing an open, secure and reliable e-commerce market by 2020. In addition to promoting innovation and similar measures, the list also includes the elimination or reduction of market entry barriers for foreign investment in the e-commerce sector, the provision of tax relief, and the adoption of China’s emerging "secure and controllable" IT standards. In discussing the opinions, Robert Lewis of Zhong Lun remarked, "while all signs indicate a major change is pending in the threshold requirements for e-commerce companies, the market is anxiously awaiting the issuance of specific implementing rules, which are expected by the end of 2015."

On 5 May 2015, MOFCOM issued the Measures on the Administration of Non-store Retail Business (for trial implementation) (draft to solicit public comments). Non-store retailing refers to retail sales by means of television, mail order, the internet and vending machines (but not direct sales, which are regulated separately), where products are delivered directly to consumers by manufacturers or merchants.

In discussing the measures, Betty Tam, a partner at Mayer Brown JSM in Shanghai, cited two major issues with the current draft: "A lot of the obligations imposed by the draft measures already exist in regulations promulgated by other government authorities, and it is not entirely clear what role MOFCOM will play in the supervision of non-store retailing activities given the lack of enforcement power under the draft measures."

To engage in non-store retailing activities the measures require retailing operators, that is, the manufacturers or merchants that sell products, to provide their identification and registration documents to their service providers, that is, those that facilitate the retailing activities. The measures also impose an affirmative obligation on service providers to monitor and report any illegal or irregular behavior by retailing operators and prohibit retailing operators and service providers from soliciting business directly to consumers by email, text, WeChat or other instant communication channels unless invited to do so by a consumer. Both retailing operators and their service providers are also required:

Upon completion of non-store retailing transactions, retailing operators must provide consumers with official tax receipts and other lawful proof of purchase, and they must repair, replace or return defective products in accordance with China’s consumer protection laws and regulations.

Following a trend in recent years toward strengthening the regulation and enforcement of consumer rights, on 24 April 2015 the National People's Congress (NPC) Standing Committee (全国人民代表大会常务委员会（全国人大常委会)) issued amended versions of the Advertising Law of the People's Republic of China 2015 (2015 Advertising Law) and the Food Safety Law of the People's Republic of China 2015 (2015 Food Safety Law). The 2015 Advertising Law will take effect on 1 September 2015, and the 2015 Food Safety Law will take effect on 1 October, 2015. Both revised laws contain new or strengthened provisions related to consumer protection.

The 2015 Advertising Law incorporates new media advertising (for example, on the internet or via mobile phones), tightens rules applicable to specific industries, and specifies types of false or deceptive advertisements. It also regulates advertising spokespeople, agents and distributors and gives the SAIC increased investigative and enforcement powers.

The 2015 Food Safety Law stipulates harsher penalties on food safety related violations and allows consumers to claim punitive damages for substandard food at 10 times the purchase price or three times the actual loss. It also includes new provisions to strengthen regulations on baby formula, health food and food products sold over the internet, and gives the State Food and Drug Administration a broad mandate to oversee the entire food industry.

Howard Wu, a senior corporate partner with Baker & McKenzie in Shanghai, commented, "False advertisements and food safety incidents not only hurt Chinese consumers, but also companies who play by the rules. The amended laws represent the changes people have long wished to see."