The Function and Regulation of Credit Insurance in China

    Authored by Dr. Zhan Hao (zhanhao@anjielaw.com) and Liang Bing (liangbing@anjielaw.com) at AnJie Law Firm

Since the issuance of Several Opinions of the State Council on Accelerating the Development of the Modern Insurance Service Industry on August 10, 2014, credit insurance has been increasingly applied in insurance practice. However, “credit insurance ” is different from “warranty” in Chinese Guarantee Law,and there is a heated discussion on the nature of a credit insurance.  

In the Chinese P2P or the other transactions, credit insurance is often used to protect creditors’ benefits. In this paper, we are going to discuss the points creditors need to be aware of.

 
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Extended Warranty, a Service Plan or an Insurance Product?

 Authored by Dr. Zhan Hao (zhanhao@anjielaw.com) and Wei Chuankai (weichuankai@anjielaw.com) at AnJie Law Firm

An extended warranty is a prolonged warranty offered to customers in addition to the standard warranty on a new item. It is provided for various products, such as automobile, electronic and electrical appliance in household and similar. It has been a popular dispute that whether an extended warranty is an insurance product for a long time.

According to Article 2 of the Insurance Law of the People’s Republic of China, “Insurance” is defined as: “The commercial insurance activities where an insurance applicant pays an insurance premium to an insurer under an insurance contract and the insurer undertakes to pay the insurance proceeds to compensate for the property loss caused by the occurrence of a potential incident specified in the insurance contract or pay the insurance proceeds when the insured dies, becomes disabled or sick or reaches a specified age, time limit or any other condition specified in the contract. ”

China Insurance Regulatory Commission (hereinafter referred to as “CIRC”) did not give more explanation on detailed elements of “Insurance”, but issued other regulations on the implied factors of “Insurance”, which indicates clues on distinction between extended warranty and insurance product. The distinctions between an extended warranty and an insurance product are as follows:

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Annual Review of Public Enforcement of China's Anti-Monopoly Law (2016)

 Authored by Michael Gu (michaelgu@anjielaw.com) at AnJie Law Firm

I. OVERVIEW

In 2015, the Chinese market experienced rapid developments in anti-monopoly law enforcement. Further efforts also went into new guidelines and rules aimed at refining China's antitrust regime. Also, China's three anti-monopoly law enforcement agencies were very active in terms of the number of cases handled, the rate of fines imposed, and the varied grounds for investigations. In particular, high-profile antitrust cases have further profiled China as an emerging centre for antitrust enforcement. The Qualcomm case concluded by the National Development and Reform Commission (NDRC) set a new record for the highest antitrust penalty ever issued in China’s anti-monopoly enforcement history, and also is the first investigation concluded by Chinese antitrust agency against the abuse of standard-essential patents (SEPs). A pharmaceuticals company in Chongqing has become the first company penalized for refusing to deal in the antitrust enforcement history of China. 

On 7 April 2015, the State Administration for Industry and Commerce (SAIC) published China’s first anti-monopoly regulation specifically aimed at the abuse of intellectual property rights - the Provisions on the Prohibition of Abuse of Intellectual Property Rights for the Purpose of Eliminating or Restricting Competition - which became effective on 1 August 2015. The provisions fill the legislative gap in China’s anti-monopoly regulations governing the IP field and aim to balance the lawful rights and interests of IP rights holders and other interested parties, while also further promoting innovation and market competition. 

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Chinese Antitrust Agency Imposes Fines for Coinsurance

   Authored by Dr. Zhan Hao (zhanhao@anjielaw.com) and Song Ying (songying@anjielaw.com) at AnJie Law Firm

In December 2015, Chinese Antirust Agnecy, the Hubei Administration for Industry and Commerce (“Hubei AIC”), disclosed its punishment on 12 insurance companies for signing illegal coinsurance agreements. In this case, Chinese antitrust agency considered a coinsurance for Construction Project Personal Accident Insurance illegal. 12 insurance companies were fined CNY 4.69 million in total. It is not the first time that insurance companies and coinsurance targeted by China’s antitrust agencies. 

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Overview of Yingding v. Sinopec Case

  Authored by Dr. Zhan Hao (zhanhao@anjielaw.com) and Song Ying (songying@anjielaw.com) at AnJie Law Firm

Introduction

Yunnan Yingding Bio-energy Co., Ltd. (“Yingding”) is an abio-energy manufacturer. In the last years, Yingding claimed that Sinopec and the Yunnan branch of Sinopec's (“Sinopec Yunnan Branch”) trading company had abused their market dominant position by refusing to incorporate the biodiesel they produced from waste cooking oil into Sinopec's distribution system, without justifiable reasons. The lawsuit was filed with Kunming Intermediate People’s Court (“Kunming Court ”) in China’s Yunnan province.

In the first instance ruling, Kunming Intermediate People’s Court (“Kunming Court”) ruled against Sinopec, holding that the Yunnan branch of Sinopec's trading company was obligated to purchase and distribute the biofuel made by Yingding and abused its dominance in the sales market of refined oil by refusing to purchase the biofuel made by Yingding without justifiable reasons. 

In the second instance ruling, Yunnan High People’s Court (“Yunnan Court”) reversed the first instance ruling and remanded the case on account of unclear facts and procedural errors. Currently, the case is pending. 

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SEPs and Application Boundary of the Anti-monopoly Law of China

 Authored by Dr. Zhan Hao (zhanhao@anjielaw.com) and Song Ying (songying@anjielaw.com) at AnJie Law Firm

In recent years, the term "standard essential patent" ("SEP") may have been a buzzword in the circle of anti-monopoly research in China. As the issue on SEPs relates to the application boundary of the anti-monopoly law, the balance between public and private rights, and the future direction of the enforcement and judicature of the Chinese anti-monopoly law, it is necessary to further discuss this issue.

In 2011, Huawei sued IDC, an American wireless manufacturer, at Guangdong and the National Development and Reform Commission ("NDRC") suspended its investigation on IDC afterwards; in 2013, the NDRC initiated an anti-monopoly investigation against Qualcomm Incorporated and made its penalty decision in early 2015; later that year, in October, the Ministry of Commerce ("MOFCOM") conditionally approved the case of Nokia's acquisition of Alcatel-Lucent. The above cases show that the question of "how to assess the SEP-related activities under the framework of China's anti-monopoly law" has not only attracted the attention of the administrative law-enforcement and judicial departments of anti-monopoly in China, but also caught the eye of many competitors in the relevant markets, especially those in the high-tech industry. Currently, the Anti-Monopoly Commission, which operates under the State Council, has taken the lead in formulating the Anti-monopoly Guidelines on the Abuse of Intellectual Property Rights, in the hope of providing more specific and targeted guidelines regarding the practice of anti-monopoly law enforcement, in which the issue on SEPs is one of the core contents.

It should be admitted that the anti-monopoly law enforcement and judicature in the field of intellectual property rights ("IPRs") is complicated; once combined with the "standard setting activities" which cover wider fields and have more complicated procedures, it will become more sensitive and challenging.

Where a relevant enterprise participates in the process of standard setting, it needs to spend a lot of human, material and financial resources on research and development, technical discussion, screening and evaluation, promotion and planning, and other activities. If its technology is eventually included in the standards and can be used in a wider area, then the enterprise can have its earlier investment recovered and even make considerable profits. If in the end, the technology is rejected by the standards, then the enterprise cannot recover the huge investment it made during the early stages. This makes the participation in standard setting activities to some extent commercially risky and not all enterprises have the capability and sufficient motivation to actively participate in standard setting activities. However, only if more enterprises are encouraged to engage in the standard setting process so as to cover as many competing technologies as possible for comparison and selection, can the best advanced technologies which benefit most consumers be included in the standards. Once practical and feasible standards are formed, they will help the entire industry improve the operational efficiency and the level of standardization. Therefore, under normal circumstances, due care and encouragement should be given to businesses in order to motivate them to actively engage in standard-setting activities.

However, we have also noticed that some patentees of SEPs abuse their rights and the market dominance brought by the indispensability of the SEPs, and thus the intervention by the Anti-monopoly Law is necessary under some extremely exceptional circumstances. Despite such indispensability, a reasonable balance should be sought between the protection of SEP holder's patent right and the regulation by the Anti-monopoly Law. The intervention by the Anti-monopoly Law regarding the relevant conduct of SEP holder must be cautious, and should not be in the form of law enforcement and administration of justice deviating from the reality of the markets and the specific competition situation on the relevant markets; otherwise, it will undermine the motivation of businesses to actively innovate and participate in standard setting activities.

In this article, we will first give more background information regarding standards, standardization organizations and SEPs; we will then go on to explain the anti-monopoly regulation system in China for SEP-related behaviors; finally, we will put forward our views on several important issues concerning the application of law, emphasizing that due prudence should be given in the anti-monopoly law enforcement and judicature with respect to SEP-related behaviors, and recommending businesses to conduct an assessment based on the specific competition conditions on the relevant markets and comprehensive consideration of various factors, including the special nature of patent licensing as well as strictly limiting the interpretation of SEPs to a proper extent. We hope our readers will get something from this article.

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2015 China Anti-Monopoly Annual Report

Authored by Dr. Zhan Hao (zhanhao@anjielaw.com) and Song Ying (songying@anjielaw.com) at AnJie Law Firm

I. Legislation

A. Legislation Tendency Highlight

  • In the year of 2015, China’s antitrust enforcement agencies, namely the National Development and Reform Commission (“NDRC”), the State Administration for Industry and Commerce (“SAIC”) and the Ministry of Commerce (“MOFCOM”)   made more efforts regarding legislation, especially when it comes to strengthening the role of soft law, compared to 2014.
  • Intellectual property right (“IPR”) related antitrust issues are a hot topic. At this stage, three antitrust enforcement bodies and the State Intellectual Property Office are respectively drafting the IPR antitrust guidelines based on their respective enforcement areas and are going to submit their respective guidelines to the State Council’s Anti-monopoly Commission (“AMC”). The AMC will eventually come up with the final and unified guidelines (the “IPR Antitrust Guidelines”) based on the draft versions submitted by above-mentioned bodies.
  • The auto industry has consistently attracted attention under the framework of AML. Apart from continuous enforcement activities against cartel, vertical monopolistic agreement and abusing dominance in the auto industry, the antitrust guidelines for the auto industries being drafted by NDRC (the “Auto Industry Antitrust Guidelines”), are the only antitrust guidelines  specialized for a particular industry. This suggests a deepening and detailing of legislative activities of China’s antitrust enforcement authorities. 
  • In addition to the IPR Antitrust Guidelines and the Auto Industry Antitrust Guidelines, the NDRC has also drafted four other guidelines in 2015 in order to normalize and guide the enforcement activities. The four guidelines include Guidelines on Leniency Policy, Guidelines on Commitment of Undertakings, Guidelines on Calculating the Illegal Gains and Fines for Monopoly Conducts and Guidelines on Procedures of Monopolistic agreement Exemption.

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OEM Liability Decision Protects against Bad-faith Trademarks, but Leaves Border Protection Questions Unanswered

 Authored by Mr. He Jing (hejing@anjielaw.com), Mr. Zhao Kefeng (zhaokefeng@anjielaw.com) and Ms. Anita Chen at Anjie Law Firm

China's Supreme People's Court (SPC) recently held that an original equipment manufacturer (OEM) may not be held liable for trademark infringement for exporting products bearing a trademark that is registered outside China.  The SPC ruled that the trademarks used on exported OEM products are not intended to serve as an indication of origin to Chinese consumers; therefore, there is no likelihood of confusion and such use does not constitute trademark use under the Trademark Law.

The decision is the latest in a series of court rulings on OEM-related trademark issues.  Back in 2004, Nike prevailed in a case in which the Shenzhen court confirmed that the export of goods bearing unauthorized marks constitutes infringement. But in recent years, courts in various locations have decided in favour of OEMs, especially  in the context of border protection seizures.  Chinese courts and Customs have discussed these issues regularly with industry players,  but no consensus has been reached.

This case was being closely watched by the trademark community because of the potential implications. The issues were whether the defendant's manufacturing infringed the plaintiff’s exclusive trademark rights and constituted trademark use under the Trademark Law.

The suit was filed by Chinese company Focker Security Products International Limited, owner of the China- registered trademark PRETUL and device mark.   Defendant Zhejiang Pujiang Yahuan Locks Co, Ltd. was an OEM which exported goods to Mexican company TRUPER SA, which owned a registration for the PRETUL trademark and device mark in Mexico. 

Focker was said to have been a distributor for the Mexican company for some time previously.

Focker sued Yahuan for trademark infringement in the Zhejiang Ningbo Intermediate People's Court, which ruled in favour of the plaintiff, awarding damages of Rmb50, 000. Both parties appealed to the Zhejiang High People's Court, which affirmed the decision and increased the damages to Rmb80, 000. Yahuan applied for a retrial to the SPC as the last resort.

The SPC stated that under the Trademark Law, 'trademark use' refers to the use of a trademark on goods, packaging or containers and similar, or in advertisements, exhibitions  and other commercial activities, in order to indicate the origin of the products.  The SPC further explained that as in this case the products were all exported to Mexico and would not be sold on the Chinese market, the mark did not serve to distinguish their origin in China, as a trademark normally does. The relevant public in China thus would not confuse these products with those of the plaintiff.

The SPC further observed that as the mark did not serve as an indication of origin,   it was not necessary to compare the similarity of the marks at issue and the respective goods they covered. The SPC overturned the entire decision.

Brand owners may have ambivalent feelings about this result. To some extent, the exemption for OEMs - at least in certain circumstances - helps companies which have fallen victim to bad-faith registrations in China, allowing their OEM partners to export their products without hindrance.  This may be particularly helpful for medium-sized brand owners that primarily source their goods from China, but have somehow failed to register their marks in China.  The SPC decision allows these companies to continue their activities.

But many brand owners are also concerned that a broad reading of the SPC ruling could open up a big loophole for counterfeiters. What if counterfeiters or infringers managed to register a well-known trademark somewhere in the world and then came to China to order OEM'  goods? At a deeper level, the decision even undermines the legal foundations of the IP border protection regime.  Chinese Customs has been stopping significant numbers of exports of counterfeit goods. If the court really means that export-only goods are not infringing, exporters will be able to challenge every customs seizure order in the courts.  Predictably the Supreme Court may have to either figure out a way to deal with these problems or clarify the scope of the decision in some form in the near future.

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Trade Association Comes Under the Spotlight Again - First Boycott Case Published by the SAIC

 Authored by Michael Gu (michaelgu@anjielaw.com) and Bai Chen (baichen@anjielaw.com) at AnJie Law Firm

Introduction

China’s Guangdong Provincial Administration for Industry and Commerce (“Guangdong AIC”) fined local trade association Guangzhou Panyu Animation and Game Association (“GAGA”) RMB 100,000 for alleged monopolistic conduct, according to a penalty decision posted on the website of the State Administration for Industry and Commerce (“SAIC”) on 8 December 2015. This is the first ever boycott case penalized by the PRC competition enforcement agencies. 

According to the penalty decision, the Guangdong AIC’s investigation was not triggered by third party complaints, as is often the case; instead the agency initiated the investigation based on a report published by Guangzhou Daily on 13 March 2013. The local newspaper reported that GAGA had signed an “exhibition alliance agreement” (“Alliance Agreement”) with its 52 members. Under the Alliance Agreement, GAGA’s members were prohibited from attending exhibitions that were either not related to the animation and game industry or not approved by GAGA. 

After an initial investigation, the Guangdong AIC regarded that GAGA’s behavior might violate China’s Anti-monopoly Law (“AML”). On 21 July 2014, the Guangdong AIC officially started its probe into the suspected conduct after obtaining authorization from the SAIC.

After further investigation, the Guangdong AIC concluded that the Alliance Agreement constituted a monopolistic agreement under Article 13 of the AML since the participants were competing undertakings and the Alliance Agreement was designed to carry out a boycott which effectively restricts or eliminates competition. Therefore, citing Article 46(3) of the AML, the agency imposed a penalty of RMB 100,000 on the association, and ordered it to cease the illegal conduct. 

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Commentary on MOFCOM's Conditional Approval of NXP's Acquisition of Freescale

 Authored by Michael Gu (michaelgu@anjielaw.com) at AnJie Law Firm

Introduction

On 27 November 2015, the Ministry of Commerce (“MOFCOM”) granted clearance to the proposed acquisition of Freescale Semiconductor Inc. (“Freescale”) by NXP Semiconductors N.V. (“NXP”). This is the second conditional clearance case in the 2015 merger review.

NXP is a global semiconductor firm mainly engaged in the design, manufacture and sale of integrated circuits (ICs) and discrete components. Its products are used in various sectors, including the automotive, wireless network infrastructure, lighting, mobile, consumer and computer industries. The target company, Freescale, is mainly engaged in the manufacture and R&D of microcontrollers and digital networking processors (embedded processors). Freescale also provides customized semiconductor products to clients to complement its embedded processing solutions.

After conducting detailed analysis of the impact the concentration of undertakings may have on the relevant product markets, MOFCOM established that the proposed deal could eliminate or restrict competition in the radio frequency (RF) power transistor product market. MOFCOM comprehensively evaluated the remedies submitted by NXP, which includes the divestment of NXP’s RF power transistor business, and eventually granted conditional clearance to the proposed acquisition of Freescale based on NXP’s commitments. This is the only conditional clearance case granted by MOFCOM in the last three years, with the condition that the parties adopt the structural remedy of divesting business that may have negative effects on competition in the relevant market. As this deal involves a global notification, it obtained conditional approvals from the European Commission (EU) on 17 September 2015, as well as from the Korean Fair Trade Commission (KFTC) on 23 November 2015. The remedy submitted to MOFCOM by NXP is quite similar to that submitted to the EU and KFTC. This is, to a large extent, due to the fact that the geographical markets of the relevant products, which drew the attention of anti-monopoly authorities in different jurisdictions, are defined as the global market. This also indicates that MOFCOM’s anti-monopoly review and law enforcement practices are becoming more in line with international practice.

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