China 20/20 Legal Regulatory Developments - February 2013

by Orrick, Herrington & Sutcliffe LLP

The Decision of the Standing Committee of the National People's Congress on Revising the Labor Contract Law of the People's Republic of China Released

On December 28, 2012, the Standing Committee of the National People's Congress released the Decision on Amending the Labor Contract Law of the People's Republic of China (the "Amendments"), which will be implemented from July 1, 2013. The Amendments primarily modify the labor dispatch regime by: 1) specifying higher and more onerous requirements for conducting labor dispatch business to raise the threshold for market entry, for example, registered capital being no less than RMB 2,000,000; 2) requiring that a company obtain an administrative license with the labor department before it can conduct labor dispatch business and process such company registration; 3) specifying that a unit to which a worker is dispatched ("Receiving Unit") shall apply the same compensation distribution method for dispatched employees and regular employees in similar positions and that the compensation for a dispatched employee as specified or agreed upon in the relevant contracts should be consistent with the stipulations relating to "equal pay for equal work"; 4) emphasizing that labor dispatch "can only" be used for temporary, ancillary or alternative positions, and specifying the definitions of "temporary positions", "ancillary positions" and "alternative positions"; and 5) imposing more severe penalties to labor dispatch service providers or Receiving Units in violation of the stipulations.

After issuance and implementation of the Amendments, labor dispatch service providers and Receiving Units should revise the labor contracts and labor dispatch agreements entered into before issuance of the Amendments accordingly if they do not comply with the stipulations in the Amendments relating to "equal pay for equal work". A company which currently conducts a labor dispatch business and desires to continue conducting such business must obtain the administrative license and complete company alteration registration within a year from the date of implementation of the Amendments.

The full Chinese text of the Amendments is available here.

MOFCOM Solicits for Public Comments on the Interim Measures for Recognition of Re-investment Made by Taiwan Investors via a Third Place (Draft for Comments)

On December 21, 2012, the Department of Foreign Investment Administration of the Ministry of Commerce ("MOFCOM") issued a notice to seek public opinions on the Interim Measures for Recognition of Re-investment Made by Taiwan Investors via a Third Place (Draft for Comments) (the "Draft"). The deadline for submission of comments was December 31, 2012. The Draft provides that Taiwan investors that invest for establishing enterprises in the Mainland China by using companies, enterprises, or other economic organizations directly or indirectly owned or controlled by them at a third place as investors ("Third Place Investors") are entitled to make applications in accordance with the Draft for such Third Place Investors to be deemed as Taiwan investors. The Draft provides a definition of Taiwan investors, including: 1) individuals holding Taiwan identification documents; 2) enterprises registered and established in Taiwan and operating substantial business in Taiwan, including companies, trust, trading companies, partnerships or other institutions; and 3) enterprises solely established by the above mentioned individuals or enterprises in Taiwan targeting to invest in the Mainland China through a third place. As for the "third place", the Draft defines it as any country or region excluding Mainland China and Taiwan.

The Draft also states that the MOFCOM, Taiwan Affairs Office of the State Council, provincial commerce authorities and provincial Taiwan affairs offices are responsible for recognizing the re-investment made by Taiwan investors via a third place, and the application documents for recognition of such re-investment should be submitted to the provisional commerce authorities at the place where the re-invested enterprises are located.

The full Chinese text of the Draft is available here

Securities Investment Fund Law of the People's Republic of China Released

On December 28, 2012, the 30th session of the Standing Committee of the 11th National People's Congress adopted the amended Securities Investment Fund Law of the People's Republic of China (the "Amended Law"), which was released on the same day. It will become effective on June 1, 2013. The Amended Law has expanded the scope of its regulation to cover non-publicly-raised funds.

The Amended Law covers the raising, operation and management of non-publicly-raised funds. It requires that non-publicly-raised funds shall be raised from qualified investors and the accumulative number of such investors shall not be over two-hundred. In addition, non-publicly-raised funds shall be under the custody of fund custodians, unless otherwise agreed in the fund contracts. Meanwhile, the proposed fund manager of a non-publicly-raised fund must be registered with the securities regulatory authority or, if exempted from registering with the securities regulatory authority, with the fund industry association. The Amended Law prohibits any entity or individual from using the word "fund"; or "fund management" or similar names for conducting security investment activities without registration, unless otherwise provided by laws or regulations. It also provides that a non-publicly-raised fund shall formulate and execute a fund contract, which should specify the following: 1) the rights and obligations of the holders of fund units, the fund manager and the fund custodian; 2) the operational method of the fund; 3) the forms, amount and payment terms of capital contribution to the fund; 4) the investment scope, investment strategies, and investment restrictions of the fund; 5) the principles for distribution of the fund returns, and the implementation method; 6) relevant fees to be borne by the fund; 7) the contents and manners provided by fund information; 8) the procedures and methods for the subscription, redemption or transfer of fund units; 9) the causes and procedures for the modification, revocation and termination of the fund contract; 10) the methods for fund assets liquidation; and 11) other issues agreed upon by the parties.

The Amended Law also specifies the nature and responsibilities of the fund industry association and requires fund managers and fund custodians to be members of the fund industry association.

The full Chinese text of the Law is available here

Amendments of Trademark Law of the People's Republic of China (Draft) Released 

On December 28, 2012, the 30th session of the Standing Committee of the 11th National People's Congress reviewed the Amendments of Trademark Law (Draft) (the "Draft"), which was published on the same day for soliciting public comments. The deadline for submitting comments was January 31, 2013.

The Draft adds a provision on trademark opposition and stipulates that in the event of an application for registration of a trademark which is identical or similar to a trademark used by another person in an earlier time on the same or similar goods, if the applicant has a contractual, business contact or any other relationship (other than agency or representation relationship) with such other person and thus is clearly aware of the existence of such other person's trademark and if such other person opposes the registration, the trademark shall not be registered. As to whether a trademark must be recognized as a well-known trademark, the Draft states that it shall, upon the request of concerned parties, be determined as a fact when the issue is essential to decide a specific case involving the trademark. The Draft also protects the fair competition market order. For example, it stipulates that where a party uses another person's well-known trademark or registered trademark as a trade name in its enterprise name, which misleads the public and constitutes an unfair competition, it shall be handled in accordance with the Law of the People's Republic of China against Unfair Competition. In addition, the Draft strengthens the protection of an exclusive right to use trademarks, adopts punitive damages for malicious infringement on an exclusive right to use trademarks where serious circumstances are involved, and increases the maximum amount for statutory damages that a people's court may determine under certain circumstances for infringement of an exclusive right to use trademarks.

The full Chinese text of the Draft is available here.

Interpretations of the Supreme People's Court on Certain Issues Related to the Application of the "Law of the People's Republic of China on Application of Laws to Foreign-Related Civil Relations" (I) Released

On January 7, 2013, the Supreme People's Court released the Interpretations of the Supreme People's Court on Certain Issues Related to the Application of the "Law of the People's Republic of China on Application of Laws to Foreign-Related Civil Relations" (I) (the "Interpretations"), which became effective on the same day.

The Interpretations address certain main issues for the implementation of the Law the People's Republic of China on Application of Laws to Foreign-Related Civil Relations (the "Law"). They define five conditions under which a court can recognize a civil relation as a foreign-related civil relation and provide for the retrospective effect of the Law where there was no applicable law at the time of occurrence of the event and the methods to deal with conflicts between the Law and other laws. The Interpretations also allow the parties concerned to choose or change governing law by agreement before the closure of court debate of the first instance. As for the "compulsory provisions" in Chinese laws, the Interpretations define them clearly as regulations involving the protection of labor rights and interests, food or public health safety, environmental safety, financial safety including foreign exchange control, anti-monopoly and anti-dumping and other regulations which should be deemed as compulsory provisions. In terms of governing law for a foreign-related arbitration agreement, if the parties concerned have not chosen the governing law, and have not agreed on the arbitration institution or the place of arbitration, or if the agreement is not clear about this, the court can apply Chinese laws to determine the effectiveness of the arbitration agreement.

The full Chinese text of the Interpretations is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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