Dr. Matthias Meyer (IP, Head of China Desk Germany), Frederik Born (Corporate/Commercial, China Desk Germany) and Dr. Sophia Yang (China Desk Germany) have recently co-authored a contribution to the German anthology "Chinese Outbound Investments in Germany" (Chinesische Outbound-Investitionen in Deutschland) edited by Professor Yuanshi Bu, University of Freiburg.
The article "Chinese Companies’ Particular Aspects of Intellectual Property Rights with regard to the Acquisition of German Companies" highlights intellectual property, tax and corporate issues in Germany as well as technology transfer problems in China when Chinese companies acquire a target company in Germany and shift intellectual property rights to China.
Chinese companies often aim to access advanced technologies as well as well-known trademarks when buying a German company because joint ventures with a foreign company in China cannot satisfy their needs any longer. Furthermore, being an owner of key technologies enables Chinese companies being qualified as a tax-preferred "high and technology enterprises" ("HNTE") in China.
There are various legal problems Chinese buyers face with regard to intellectual property rights during the acquisition process and the post-merger integration of the technology into another group company in China.
With respect to the acquisition process, identifying the target company’s major IP-assets might bring problems with regard to employee inventions and with respect to the know how that must be of particular interest for the buyer as it enables it to finally deploy the technology it is interested in. It is of great importance determining the know-how in view of the Technology Transfer Block Exemption Regulation 316/2014 (EU).
Conducting a freedom to operate analysis during the due diligence is becoming more and more important. Intellectual property rights and licence agreements of third companies are crucial to the very situation of the target company’s competitors: Third companies might have not paid attention to their (intellectual property) rights before. But, however, with the acquisition of its competitor the competitive pressure might increase and give cause for defensive behaviour. This is in particular true with respect to strong Chinese companies.
Having signed the sale and purchase agreement and closed the deal, legal problems may arise when shifting intellectual property rights to entities in China. The buyer must respect the corporate law’s capital maintenance regime in Germany and may not neglect transfer pricing issues and avoid that the transfer of technology is qualified as a "function relocation" in terms of German international tax law as this could trigger, i.e., the taxation of hidden reserves.
Furthermore, attention has to be paid to the Chinese technology transfer regime that restricts the imports of certain technologies and prohibits certain clauses in technology transfer agreements.
The book was published by the respected publisher Mohr Siebeck. A Chinese edition will appear in China soon. Click here to read the full article in German.