GC Agenda China: April 2017 | Practical Law

GC Agenda China: April 2017 | Practical Law

A look back at the most recent legal developments for general counsel (GC) and their advisers working on China-related matters. GC Agenda China identifies and analyses the key issues that affect businesses, provides insight from leading legal practitioners and professionals, and gives specific and actionable guidance in response to these issues.

GC Agenda China: April 2017

Practical Law UK Articles w-007-8146 (Approx. 9 pages)

GC Agenda China: April 2017

by Brad Herrold, Consultant and Practical Law China
Law stated as at 27 Apr 2017China
A look back at the most recent legal developments for general counsel (GC) and their advisers working on China-related matters. GC Agenda China identifies and analyses the key issues that affect businesses, provides insight from leading legal practitioners and professionals, and gives specific and actionable guidance in response to these issues.

CAC circulates draft rules on exporting personal information and important data

On 11 April 2017, the Cyberspace Administration of China (CAC) circulated for public comment the Measures on Security Assessments for the Export of Personal Information and Important Data (Draft for Comments) (个人信息和重要数据出境安全评估办法(征求意见稿)). The draft will partially implement the Network Security Law of the People's Republic of China 2016.
Under the draft:
  • "Personal information" means electronic or other types of records capable of identifying a natural person's identity either by itself or in combination with other information, including without limitation a natural person's name, date of birth, identification number, personal biometric information, address and phone number.
  • "Important data" means data closely related to national security, economic development, and the public interest as specified in national standards and important data guidelines.
The draft requires a "network operator", that is, any network owner, manager or service provider, to:
  • Store in China personal information and important data collected and generated during their China operations.
  • Obtain consent from data subjects before exporting their personal information.
  • Conduct a self-assessment of network security before carrying out any "data export", that is, transmitting personal information and important data to organisations, groups or individuals outside China.
  • Conduct an additional self-assessment whenever:
    • the recipient of a data export is different;
    • the purpose, scope, amount or type of data exported changes significantly; or
    • a major security incident occurs to the data recipient or the exported data.
The draft also requires a network operator to submit to a government organised security assessment in certain circumstances and prohibits the export of certain data.

Market reaction

Marissa Dong, Partner, Jun He, Beijing
"The cross-border data transfer assessment requirement may potentially impact the data transfer by China-based operations in this fast-developing digitised world with their headquarters, business partners, regulators and so on in other jurisdictions. Companies which have adopted a cloud solution for internal management on a global basis will need to revisit their IT infrastructure, data storage and transfer arrangements, and internal rules to prepare for the measures."

Action items

GC for any company with China operations will want to closely study the draft and revisit the company IT infrastructure to determine the implications and changes that the new data export development might bring to the company businesses.

State Council circulates draft guidelines on anti-competitive abuses of IPR

On 23 March 2017, the Anti-Monopoly Commission of the State Council (国务院反垄断委员会) circulated for public comment the Anti-monopoly Guidelines on the Abuse of Intellectual Property Rights (Draft to Solicit Comments) (关于滥用知识产权的反垄断指南(征求意见稿)).
The draft represents an attempt to balance the often-conflicting goals of encouraging business operators to develop and exploit proprietary technology, while limiting their ability to use their intellectual property rights (IPR) to eliminate or restrict competition.
This draft was developed from prior draft guidelines prepared by the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC) (see Legal updates, NDRC circulates draft anti-monopoly guidelines on IPR abuse and SAIC circulates new draft of guidelines on abuse of IPR), and will serve as a unified set of guidelines once finalised.
While the Anti-Monopoly Bureau of the Ministry of Commerce (MOFCOM) (商务部反垄断局) was charged with consolidating the prior drafts, the current plan is to enact the final guidelines in the name of the Anti-Monopoly Commission under the State Council. With this level in China’s normative hierarchy, the final guidelines will apply to all three of China’s antitrust agencies, that is, MOFCOM, the NDRC and the SAIC.
Specifically, the draft describes the factors for determining if the use of IPR violates the Anti-Monopoly Law of the People's Republic of China 2007 through:
  • Monopoly agreements (垄断协议), such as imposing field of use restrictions in an IPR licensing agreement.
  • Abuse of a dominant market position (滥用市场支配地位), such as tying other IPR licence or sale of other goods or technology to an IPR licence.
  • Concentrations of undertakings (经营者集中), such as gaining control or decisive influence over other operators.

Market reaction

Adrian Emch, Partner, Hogan Lovells, Beijing
"MOFCOM is seeking input on the draft from stakeholders. This consolidated draft is important especially for businesses with significant IPR portfolios. However, the draft clearly needs further improvement on the substance. For example, it reveals significant scepticism toward certain licensing restrictions, such as field of use restrictions. Licensing can help disseminate technology and lead to further innovation, and sometimes restrictions are necessary to encourage a technology owner to license."

Action items

GC for technology companies and companies with IPR licensing agreements or opportunities in China should closely study the draft and review any business arrangements or initiatives that are likely to bear an IPR anti-trust concern before the final guidelines take effect. In certain cases, GC and their government relations colleagues may wish to discuss concerns directly with the relevant competition regulators to gain an increased level of certainty in relation to their interpretations of the guidelines and the available justifications for potential anti-competitive conduct.

SAIC issues new rules on online trade mark applications

On 9 March 2017, the SAIC issued the Interim Provisions on Online Applications for Trademarks 2017, which took effect the following day.
The 2017 interim provisions set forth the procedures for filing an application to register a trade mark through the 2017 version of the online application system established by the SAIC's Trademark Office (TMO).
An older version of the online application rules was released in 2014 to reflect the revised Trademark Law of the People's Republic of China 2013 and its implementing regulations. The 2014 version required all online applications be submitted through a trade mark agency.
Under the new 2017 rules, domestic trade mark applicants, including foreign-invested enterprises (FIEs), may submit online trade mark registration applications directly or through an authorised trade mark agency. However, foreigners and foreign entities without habitual residence or business premises in China must apply through a trade mark agency.
Before filing an application to register a trade mark, an applicant must complete a User Agreement on the Trademark Online Application System (商标网上申请系统用户使用协议). Enterprises may use their electronic business licences to carry out the user registration formalities.
An online application will be deemed not submitted if the applicant fails to:
  • Submit the application and all supporting documents in accordance with the file formats, data specifications, operating standards and transmission methods prescribed by the TMO.
  • Pay all related regulatory fees online on the day the application is submitted.
The filing date of the application is the date the application documents are successfully submitted and uploaded into the online application system.
All provisions governing hardcopy trade mark applications also apply to online applications, unless they expressly apply only to hardcopy applications.

Market reaction

Clifford Borg-Marks, Consultant, Baker & McKenzie, Hong Kong
"While it is good to see the continued march toward online filings, trade mark owners and practitioners are concerned that online filings, coupled with other measures, are making things easier not only for legitimate trade mark owners but also for registry pirates. Piracy at the register remains rampant, though it is too early to tell if the provisions will result in increased numbers of pre-emptive applications. It is also worth noting that the vast majority of foreign investors do not hold trade marks in the name of their China subsidiaries."

Action items

No specific action is required as a result of this development, but GC for companies with trade marks registered in China should be aware of the revised rules and that the online filing may also cover trade mark renewal, transfer, cancellation and amendment in late 2017.

China establishes landmark Xiong'an New Area

On 1 April 2017, the CPC Central Commission and State Council announced to establish a new national economic zone (Xiong'an New Area (雄安新区)) based in north China's Hebei province.
Located in and around Xiongxian (雄县), Rongcheng (容城) and Anxin (安新) counties to the west of Baoding (保定) city in Hebei province, Xiong'an New Area joins the Shenzhen Special Economic Zone and Shanghai Pudong New Area as China's third central-level economic zone. It initially will comprise 100 square kilometres and eventually encompass 2,000 square kilometres. The region possesses convenient transportation, a moderate geography with rich freshwater resources, a relatively low level of development with abundant room for growth, and other basic conditions for development.
Xiong'an New Area is intended to facilitate the development of a northern economic axis connecting Beijing, Tianjin and Hebei province's capital city Shijiazhuang (石家庄) with a view toward:
  • Redirecting some of Beijing's "non-capital functions" (非首都功能).
  • Alleviating congestion and pollution in Beijing and Tianjin.
  • Speeding the growth of a relatively poor section of north China.
  • Creating a new, more environmentally stable development model by attracting high-technology "clusters" and other innovative businesses.
The government will support planning and financing arrangements for major transportation, ecology, water conservancy, energy and public service development projects.
For more coverage of this development, see Legal update, China establishes landmark Xiong'an New Area.

Market reaction

Paul McKenzie, Partner, Morrison & Foerster, Beijing and Shanghai
"Beijing is abuzz with discussion about the establishment of the Xiong’an New Area. It is viewed by many as likely to have immense historical impact. Certainly, if successful, launch of the Xiong’an New Area will effect dramatic changes on Beijing, easing environmental and social pressure on an urban area that cannot accommodate further growth itself. Meanwhile, in its implementation, Xiong’an New Area represents an epic public infrastructure project that will likely present significant opportunities for foreign investors."

Action items

CG for companies in industries such as technology, transportation, energy and environmental protection may wish to work with business colleagues and officials from the Xiong'an New Area to determine if the new economic zone offers significant investment opportunities.

State Council releases 2017 legislative plan

On 27 February 2017, the General Office of the State Council released the Notice on Printing and Distributing the State Council's 2017 Legislative Work Plan (国务院办公厅关于印发国务院2017年立法工作计划的通知). The plan is prepared by the State Council each year in conjunction with the annual legislative plan of the National People's Congress (NPC) Standing Committee.
The 2017 State Council legislative plan is comprised of two main sections and includes (among others) drafting or revising the following laws and administrative regulations:
Projects urgently needed to comprehensively deepen reforms (全面深化改革急需的项目)
  • Law of the People's Republic of China on the Administration of Tax Collection 2015 (中华人民共和国税收征收管理法).
  • Standardisation Law of the People's Republic of China 1988 (中华人民共和国标准化法).
  • Regulations on the Administration of the Housing Provident Fund 2002 (住房公积金管理条例).
  • Unemployment Insurance Regulations 1999 (失业保险条例).
Projects to be completed within the year (力争年内完成的项目)
  • Patent Law of the People's Republic of China 2008 (中华人民共和国专利法).
  • Implementing Regulations for the Food Safety Law of the People's Republic of China (食品安全法实施条例).
  • Administrative Measures on Internet Information Services 2000 (互联网信息服务管理办法).
  • Law of the People's Republic of China on the Procedures for the Conclusion of Treaties 1990 (中华人民共和国缔结条约程序法).
For more coverage of this development, see Legal update, State Council releases 2017 legislative plan.

Market reaction

Thomas Man, Professor from Practice, Peking University School of Transnational Law
"No news is the news for the latest State Council legislative plan. Although the work plan covers a wide range of legislative areas, the list of items is shorter than most years and includes no major new initiatives. Thus, it appears 2017 will be another year of gradual and incremental legislative change."

Action items

There are no immediate action items for GC as a result of this development, but counsel should be generally aware of the types of pending legislation included in the list and watch for publication of the NPC legislative plan, as well as legal updates on the promulgation of specific listed items in the near to mid-term.

State Council releases overall plans for seven new FTZs

On 31 March 2017, Xinhua News Agency reported on the State Council's overall plans for seven new pilot free trade zones (FTZs) in each of Liaoning, Zhejiang, Henan, Hubei, Sichuan, Shaanxi provinces and Chongqing.
The new FTZs mark the third stage in China's experiment with legal and regulatory reforms in designated areas. After a trial period, these experimental reforms are rolled out in other areas of China, revised or terminated.
The strategy began in 2013 with the establishment of the China (Shanghai) Pilot Free Trade Zone (Shanghai FTZ) and continued in 2015 with the creation of three other regional FTZs in Guangdong and Fujian provinces and Tianjin. For more information on the Shanghai FTZ, see Practice note: overview, China (Shanghai) Pilot Free Trade Zone: overview.
This third stage, which will run for three to five years, aims to revive China's northeast, develop the western and central regions and strengthen the Yangtze River Economic Belt as part of the "one belt, one road" infrastructure initiative.
The overall plan for each new FTZ describes a specific "strategic position" (战略定位) for that FTZ.

Market reaction

Paul McKenzie, Partner, Morrison & Foerster, Beijing and Shanghai
"Launch of the new group of FTZs shows the central government’s confidence in the FTZ model first implemented with the launch of the Shanghai FTZ. However, the model in this phase is being used for slightly different purposes. Shanghai and the other three existing FTZs were all launched in relatively prosperous coastal areas, and certainly a central purpose of the Shanghai FTZ was to pilot economic and legal reforms that might then be launched nationally. In contrast, some of the current group of FTZs are being set up in less-developed areas and are focused more on fostering regional development and furthering China’s "One Belt One Road" initiative than on serving as a testing ground for reforms. Nonetheless, all 11 FTZs share the goal of attracting foreign investment and offering foreign investors more liberal sectoral market access."

Action items

GC may wish to study the specific purpose, or strategic position, of each new FTZ to assess which, if any, present potential opportunities, and then work with business colleagues and local officials to identify and negotiate specific incentives for investment.