This edition focuses on China; it provides a round-up of particular developments in IP, e-commerce, consumer, employment and competition law, which are likely to have particular significance for the electronics sector.
If you would like to know more about any of the topics covered in this update our capabilities in China do get in touch with Matthew Laight.
If you would like to suggest regions, countries or issues you would like us to focus on in future, Mark Heaney and Oliver Jan Juengst, who head our international electronics group, would be delighted to hear from you.
- On the horizon: new consumer rights
- New IP Management Standard for China
- China deals with LCD panel suppliers' anti-competitive behaviour
- When is an ecommerce platform provider liable for IPR infringement through online transactions? Beijing Higher Court issues guidance
- Draft Regulations on Employment Invention Remuneration
On the horizon: new consumer rights
China's consumers look set to gain further rights under an amendment to the Law on Protection of Consumer Rights recently deliberated by China's legislative body.
The Standing Committee of the National People’s Congress of China (China's legislative body) adopted the Law of the People's Republic of China on Protection of Consumers' Rights and Interests - also known as the Consumer Protection Law - in 1993.
Almost 20 years on, the Standing Committee is now considering amendments to the law in order to address economic, technological and social developments over the last two decades. These developments include the rapid growth of e-commerce markets, changes in consumption structures and concepts, and increasing consumer rights awareness and complaints.
For example, the State Administration of Industry and Commerce, its local counterparts and the main consumer protection agencies received about 6,206,000 consumer complaints in 2010 and 6,686,000 million complaints in 2011.
Key features of the Draft Amendments include:
A cooling period for consumers
This provision would offer consumers a seven-day 'cooling' or 'regret' period where business operators sell merchandise via the internet, television, telephone or mail order. Consumers would enjoy the right to make returns up to seven days after receiving the merchandise; business operators would be obliged to provide refunds within seven days of receiving returned goods. It appears that a consumer would not need a cause to make such returns. These provisions would be subject to certain exceptions including on-site purchases, bulk purchases, real estate, fresh products and food.
Improved consumer privacy
The Draft Amendments also include consumer privacy provisions. These would mean that if a business operator collected or used a consumer's personal information, it would need to expressly indicate to the consumer the purpose, method and scope of its collection and use and obtain the consumer’s consent. Business operators and their staff would also be subject to obligations to safeguard such information.
These provisions would build on a number of recent developments intended to strengthen data protection in China following increasing concerns about the disclosure and abuse of personal information such as personal identification numbers, income status, home addresses and medical histories. Marcus Vass and Grace Chen's update of April 2013 covers these developments in further detail.
A shift in the burden of proof
For civil disputes, current rules and regulations generally place burdens of proof on the claimant.
However, under the Draft Amendments, the burden of proof will shift to business operators if blemishes or flaws appear within six months from the consumer receiving any of the following products or services:
- other durable products or decoration
- renovation services
Implications for consumer electronics suppliers
Given that many of the consumer complaints made in China relate to electronics products the developments could have a real impact on the consumer electronics market. Some businesses have raised concerns about the liabilities to which they would be exposed should the current Consumer Protection Law be amended.
However, both national and international suppliers who are already committed to delivering high levels of customer service equal to or beyond those which any amendment would deliver should be more concerned by how they can gain the most from such a development.
In addition, while the developments are not expected to give consumers rights beyond those enjoyed by their counterparts in regions such as Europe, suppliers will nonetheless want to follow the progress of the amendments and to be familiar with the detail to ensure there are no subtle differences which could make compliance particularly complex.
New IP Management Standard for China
Nigel Lee & Christine Yiu
The State Intellectual Property Office has released a 16-page IP management standard for businesses. The move is another step in the implementation of China’s National IP Strategy and compliance is expected to prove beneficial for businesses seeking the benefit of certain funding programs and incentive policies.
This article looks at the standard, its background and further developments in the area.
Since June 2012, pilot programs based on the draft national standard have been launched in selected provinces and cities across China, including Beijing, Hebei, Zhejiang and Shanxi. Initial reports suggest the pilots have been successful.
The General Administration of Quality Supervision, Inspection and Quarantine and the Standardization Administration of the People's Republic of China jointly issued China’s first national standard for Enterprise IP Management in February and businesses have been able to seek certification since 1 March 2013.
The national standard, numbered GB/T 29490-2013, is a recommended, non-mandatory standard drafted by the State Intellectual Property Office and finalized after a public consultation held in September 2012. It is also part of the Promotion Plan for the Implementation of the National IP Strategy in 2013.
Key aspects of the plan include:
- improving the management of IP within businesses
- enhancing IP creation
- strengthening IP layout in key industries
- promoting IP exploitation
- reinforcing IP protection
What’s in the standard?
The standard aims to improve the way businesses manage their IP. The 16-page document outlines goals which businesses must achieve across a number of areas including:
- IP management system and documentation
- management personnel
- resource management
- implementation and operation
The standard provides 60 basic indicators and 23 advanced indicators against which all businesses seeking certification will be assessed.
Compliance with the standard may become a substantial factor in national and provincial funding decisions and incentive policies.
SIPO has announced that guidance on meeting the standards, which will provide more practical advice for IP managers is to be published shortly and will include both “Measures on Implementing the National Standard of Enterprise IP Management” and an “Enterprise Patent Practice Handbook.”
Official notice on the issuance of the Enterprise IP Management Standard
A copy of the Standard GB/ T 29490-2013 is available for purchase
The information in this article is provided subject to our terms and conditions of use.
China deals with LCD panel suppliers' anti-competitive behaviour
Frankie Tam & Catherine Mun
Earlier this year the PRC's National Development and Reform Commission (NDRC) fined six LCD panel suppliers a total of RMB353 million for price fixing that took place between 2001 and 2006.
The penalties were imposed under domestic pricing laws in force between 2001 and 2006 and exceeded the suppliers' illegal gain from the activities. A new, related regime under China’s Anti-Monopoly Law which came into effect on 1 August 2008 empowers the NDRC to impose more severe penalties for similar behaviours committed today.
The decision illustrates China’s shift towards a tougher stance on anti-competitive behaviour by foreign companies in China – highlighting the need to understand and comply with competition law when operating in China.
The Anti-Monopoly Law and the Administrative Penalty Law would, however, still allow the NDRC to be lenient where businesses self-reported their behaviour and co-operated with investigations.
The NDRC found that between 2001 and 2006, six LCD panel suppliers based in Taiwan, China and South Korea held 53 meetings in Taiwan and South Korea where they exchanged market information and discussed pricing for LCD panels sold in China. The NDRC also noted that the six LCD panel suppliers sold a total of 514,620,000 LCD panels in the relevant period which accounted for 80% of the costs for the TVs in which they were used, amounting to an illegal gain of RMB208 million.
The RMB353 million penalty imposed on the suppliers included:
- a refund of RMB172 million to domestic enterprises
- a confiscation of approximately RMB37 million
- a fine of RMB144 million
The six LCD panel suppliers also undertook to:
- strictly comply with Chinese law
- uphold the order of market competition
- protect the lawful interests of other operators and consumers
- use their best efforts to supply goods fairly in China
- extend LCD warranties in China from 18 to 36 months
The NRDC found that the suppliers had colluded "with others in manipulating market prices and harming the lawful rights and interests of other business operators and consumers” thereby breaching Article 14(1) of the Pricing Law.
Under Articles 40 and 41 of the Pricing Law, the following penalties may be imposed for the violation:
- an order to rectify the situation
- confiscation of illegal gain
- a fine up to five times the illegal gain
- an order to cease business
- de-registration of the company
- a warning
If the same facts arose today, the activities would be caught under Article 13 of the Anti-Monopoly Law. Article 13 prohibits competing businesses from entering into monopoly agreements including those for fixing or changing prices. However, in some cases agreements may be exempt under Article 15, for example, where the purpose of such an agreement is to improve technologies and research and develop new products.
The penalties for breaching the Anti-Monopoly Law would, generally, be more severe.
Where the agreement has been implemented, under Article 46 of the Anti-Monopoly Law the NDRC can:
- make an order to stop the violation
- confiscate the illegal gain
- impose a fine between 1% and 10% of the turnover in the preceding year
Where the agreement has not been implemented, the NDRC may still impose fines which are no more than RMB500,000.
The NDRC has highlighted that the fines imposed in this case were reduced given the co-operation of various parties with their investigation. The NDRC will also have discretion to take a similar approach under the Anti-Monopoly Law.
The leniency principle which will allow the NRDC to do so is provided for in Article 27 of Administrative Penalty Law and Article 46 of the Anti-Monopoly Law.
This may encourage those responsible for monopoly behaviours in the past to come forward voluntarily rather than waiting to be discovered. However, some commentators still see the discretionary and uncertain nature of the leniency principle as an issue.
Further information is available from the following Chinese language resources:
NDRC press release:
Administrative Penalty Law:
When is an ecommerce platform provider liable for IPR infringement through online transactions? Beijing Higher Court issues guidance
Lawrence Yeung & Ai-Leen Lim
The Beijing Higher People’s Court recently issued guidance on the liability of ecommerce platform service providers where third party intellectual property rights (IPRs) are infringed through transactions using the provider’s platform. The Court also clarified the steps to be taken where liability is established.
This guidance will interest the many businesses which provide e-commerce platforms alongside electronic devices, as well as those businesses which are concerned that their IPRs in electronic products may be infringed through online transactions in China.
Under the guidance, the provider is not obliged to proactively supervise or monitor transaction information which the vendor shares through the platform, if it has complied with its general obligations and duties under PRC Civil Laws.
The provider may be liable for infringement caused by a transaction if it knows or should have known that the vendor uses its platform to:
- share information about the transaction activities which infringe a third party’s IPRs.
- conduct transaction activities which infringe a third party’s IPRs.
The provider will be jointly liable with the vendor if it knows that the vendor is using its platform to infringe third party IPRs and does not take certain measures to stop such activities.
The provider will also be liable where:
- it cooperates with the vendor.
- it receives certain benefits related to either a transaction or dissemination of transaction information.
- it allows the dissemination of information which it knows will lead to an infringing transaction.
- it withholds the vendor’s details from the IPR owner.
The IPR owner is entitled to ask the provider to take appropriate action to stop infringing activities including suspending or deleting the vendor’s account.
The IPR owner does not need to provide evidence for such a request, but the vendor can request that the IPR owner subsequently provides evidence to the provider. If this evidence is not provided, the provider can allow the vendor to resume its activities.
This is the first time a Chinese court has issued guidance on liability for IPR infringement through online transactions. It should improve certainty both in the ecommerce sector and for all who seek to use and protect their IPRs in China by providing a more consistent approach across the Beijing courts.
Future developments in this area may include further national regulations on ecommerce, IPR infringement and disclosure of vendors’ identities.
The guidance, which the Beijing Higher People’s Court released in December 2012, is referred to as its “Reply to several questions in relation to trials of intellectual property infringement dispute cases in E-commerce”.
Draft Regulations on Employment Invention Remuneration
Leo He & Christine Yiu
The Draft Regulations on Service Inventions were released by the State Intellectual Property Office for public comments on 12 November 2012. The remuneration scheme set out in the Draft Regulations is largely inspired by the German law on employee inventions remuneration. The Draft Regulations form part of the initiatives under the central government’s National Medium - and Long-term Talent Development Plan (2010 - 2020) to build a highly skilled workforce in China, and try to achieve this by strengthening the right of an employee inventor to a higher level of remuneration in China. It also introduces a number of reporting requirements on the part of the employer in order for the employee inventors to assess what level of remuneration is due.
The Current Scheme
As shown in table 1, under the current law governing remuneration of employee inventors, in the absence of an agreement between the employer and employee (Article 76 to 78 of the Implementing Regulations of the Patent Law), the minimum amount of compensation is:
- A reward payment. The minimum value for this payment will depend on the type of patent used to protect the invention. For an invention patent the minimum reward is RMB 3,000 (~EUR 360); for a utility model patent, the minimum reward is RMB 1,000 (~EUR 120).
- Remuneration from exploitation - an inventor should be paid at least 2% of the employer's business profit made from the exploitation of an invention or utility model patent, or an equivalent lump sum.
- Remuneration from licensing - where the employer licenses an invention or utility model patent to another party, the inventor should receive at least 10% of the royalties paid.
The New Scheme
As shown in table 2, under the current Draft Regulations, any agreement eliminating or limiting the rights which the inventor is entitled to would be invalid (Draft Article 19).
Draft Articles 21 and 22 increase the statutory minimums to:
- Reward – for an invention patent or plant variety rights, a total minimum reward of two months' average employee salary; for other IP rights, including utility model patents, the minimum reward will be one month's average employee salary.
- Remuneration from exploitation – an inventor should receive at least 5% of the employer's operating profit (or 0.5% of sales) made from the exploitation of an invention patent/plant variety rights; for other IP rights, 3% (or 0.3% of sales).
- Remuneration from assignment or licensing - where the employer assigns or licenses an invention or utility model to another party, the inventor should be remunerated at least 20% of the fees obtained.
As shown in the flow chart, there are several steps to the compensation process:
An employee inventor is obliged to file an invention report with the employer within 2 months of completing the invention (Article 10). The report should state whether the invention is regarded by the employee as a service-invention or not. If the employee considers the invention to be non-service related and the employer disagrees, the employer must file a written objection within 2 months of receiving the report. The employee has another 2 month period to reply. If the dispute cannot be resolved, either party can start court proceedings or arbitration.
If the inventor agrees that it is a service invention, the employer needs to decide within 6 months whether to protect the invention as a patent or a trade secret. If the employer decides to protect the invention as a trade secret, the inventor also has the right to a reward and/or remuneration.
If the employer decides to protect the invention as a patent, the inventor has the right to a reward within 3 month after the patent is granted, and also a reasonable remuneration within 3 months of the year end audit (in calculating the operating profit) or 3 months of obtaining the fees from the licence/assignment.
Under Draft Article 20, the employer is obliged to inform the inventor of the economic benefit earned by the company by exploiting, assigning or licensing their invention. This will be challenging for companies operating in the electronics sector which may own hundreds if not thousands of patents which are often cross-licensed in a single transaction. In addition such information may be highly sensitive and confidential, and the employer may be unwilling to disclose it to an inventor who may have left the company by then and work for a competitor.
Additional substantive rights
The Draft Regulations provide additional substantive rights for employee inventors too. For example, Draft Article 29 gives the inventor the right of first refusal on any IPR in his invention should the employer decide to assign it. Draft Article 16 provides that inventors are able to request assignment of IPR to themselves if the company intends to terminate or abandon the application of the employee inventions. This could prove cumbersome for complex corporate and commercial transactions where portfolios of IPRs are to be assigned.
The draft regulations’ long term aim – to protect and incentivize talented and innovative employees – is one which would, in principle, benefit the electronics sector in China.
But ensuring compliance will create an administrative burden and costs, and in some cases, complying with remuneration and reward provisions may discourage corporations from investing in research and development in China.
Such concerns have been raised during the consultation process; the next step is to see how well any amendments to the next draft regulations address such concerns.
Stealth attack: a Ninja Saga from Hong Kong
This is a cautionary tale from the Hong Kong courts. It highlights the value of putting in place employment contracts with clear cut IP and trade secret provisions when setting up a new business.
Fast forward to 2012. Mr. Lee is on a business trip in Germany. He notices that Ninja Saga is interrupted on Facebook. He hears rumblings of discontent in Hong Kong. He returns quickly. His business is gone. Ninja Saga was transferred to a server that Emagist did not control. Databases had been removed. Source codes were gone. Materials were deleted. Contracts were missing. Passwords were changed. The Ninja Saga business - 99% of the revenue of Emagist - was now under the control of Nether Games, owned by the three creators.
The three creators did not hide; in fact, they believed they were right. Their evidence was they were not employees; they were co-founders of the business. They owned the copyright; after all, they created the Ninja Saga game. They terminated the licence to Emagist to use the Ninja Saga game when Mr. Lee did not give them the agreed equity stake in the business.
Messy, right? An employment dispute. A copyright dispute. A shareholder dispute. All in one. All it would have taken to stop this reaching the Courts was a written employment agreement between Emagist and each of the three creators.
The presiding judge found Mr. Lee’s evidence more credible. He believed there was an employment relationship. A work created in the course of employment belongs to the employer. The Court granted a mandatory injunction requiring Nether Games and the three creators to give back control and operation of Ninja Games to Emagist.
An employment agreement could have sorted this out from day one. An employment agreement can confirm that the company owns the intellectual property of the business. Employee incentivisation is critical for start-ups. Often the business cannot afford to pay market rate wages. An employment agreement can also introduce an employee incentive scheme, including a share scheme for key employees.
Not tying down these issues in writing at the start is risky. Not documenting it when the business turns the corner of success is downright dangerous. That’s when the business becomes a target. That’s when Nether Games and the three creators took action.
This was round one; the case may yet proceed to full trial. Regardless, I suspect Mr. Lee will not let it come to this again. He will have proper contracts in place. He will make sure that only he has access to the key trade secrets and assets of the business. He will not want the story of his business to become like a storyline in Ninja Saga.
Emagist Entertainment Ltd and Nether Games (Hong Kong) Ltd and Others  HKCFI 15