In China, workplace accidents and deaths have steadily declined since the mid 2000s[1]. Although rarer than before, regretfully, workplace accidents causing death in China continue to occur on average 75 times per day[2].

Oftentimes, such fatal accidents immediately result in a shutdown order from the local municipal safety bureau (a “Stop-work Order”) to prevent further harm.

Stop-work Orders can cause a worksite to completely cease operations for weeks or even months while the safety bureau investigates the accident, leading to lost operating time.

The losses from this down-time can reach dollar amounts in the tens of millions. This is especially common in manufacturing and construction industries after a fatal equipment malfunction.

Whether such losses are covered by Business Interruption (“BI”) insurance, is the central question in many property insurance disputes.

Stop-Work Orders

Intended to uncover additional workplace hazards and prevent further harm, the site of an accident is cordoned off and access restricted upon issuance of a Stop-work Order. Stop-work Orders are typically issued by local safety bureaus pursuant to the Work Safety Law of the People’s Republic of China (“Work Safety Law”).

Under Chinese law, any accident resulting in a workplace fatality is grounds for a Stop-work Order. They are commonly issued in response to occurrences which meet the statutory definition for an “accident”. Per the Regulations on the Reporting, Investigation and Disposition of Work Safety Accidents, the death or injury of a worker, or losses amounting to RMB 10 million yuan, meet this definition.

BI Insurance

Because Stop-work Orders interrupt business for weeks or even months, they frequently lead to BI claims.

BI insurance is commonly purchased by the policyholder as additional coverage to property damage insurance.

However in the PRC insurance market, BI policies cannot be purchased independently. Instead, they can only be purchased together with property damage polices, such as property all-risks insurance or property comprehensive insurance.

Therefore, a given BI policy usually specifies that in order to be triggered, a threshold level of physical damage must first be met. Among such formulations are clauses stipulating “this policy only provides coverage directly resulting from physical loss or damage to the insured property as described in the property damage policy.” A serious workplace accident is usually a sufficient trigger, especially when it involves damaged equipment or facilities.

However, when an additional event such as a Stop-work Order is factored in, determining the period of liability becomes very difficult.

Is the insurer liable only for the time lost from restoring property due to physical loss or damage caused by the accident (EG: replacing broken equipment, a few days or weeks), or is the insurer instead liable for time lost due to the Stop-work Order (potentially months)?

In some cases, the difference between the two periods of liability can vary the insured’s insurance benefit by tens of millions of dollars.

The answer almost always lies in contractual interpretation.

In the US, in many cases, losses resulting from a Stop-work Order following an accident are not covered by BI property insurance. When the policy includes the following proviso, that losses be “directly resulting from physical loss or damage”, time lost due to a Stop-work Order is not factored into the benefit. Instead, such language limits the period of liability to the time needed to repair or replace broken equipment. That down-time time will be included, but any additional losses due a Stop-work Order will not.

The reasoning is simple: people are not property. Stop-work Orders result directly from hazards or harms to people, not property. They are issued to prevent harms to human life, upon the occurrence of a workplace accident or death, and only rarely due to damage to equipment or facilities. That is also why extensions to BI losses which clearly cover Stop-work Orders, such as “Denial of Access,” and “Civil Authority Order” extensions, are commonly offered by property insurers.

However, in some cases, a policy features subtle words or formulations which include losses resulting from a Stop-work Order within a BI clause’s scope of coverage, even absent an extension.

In some cases, just two words make the difference between a modest benefit and a potential windfall for the insured. Losses from the Stop-work Order are not included when the policy ends the period of liability upon the damaged property being restored to the “same or equivalent physical conditions that existed prior to the damage.”

However, adding two simple words to the policy, “physical and operating conditions,” can broaden the scope of coverage to include a Stop-work Order. This is because while restoring “physical conditions” refers strictly to repairing or replacing damaged property, restoring “operating conditions” extends to restoring the work site to the state it was in prior to the accident.

Proximate Cause in China

What about the role of causation in such clauses? In the absence of compelling contractual wording like that shown in the paragraph above, the scope of coverage for BI losses will depend on judicial findings of proximate cause.

Even though the principle of proximate cause is not clearly defined in the Insurance Law of the People’s Republic of China, it has been broadly accepted as a fundamental principle of insurance law and applies when assessing causation for insurance claims.

Proximate cause refers to, within the chain of causation between risk and damage, the most direct, effective and decisive cause which plays a fundamental, traceable and dominant role in causing the damage to occur[3]. When the proximate cause falls within the insurance policy’s coverage, the insurer must bear liability and pay the benefit. However, when an intervening event “breaks” the chain of causation, the policy will not cover that secondary event’s resulting losses.

Under the circumstances described, a Stop-work Order will be seen as breaking the chain of causation and its resulting losses will not be covered by BI insurance. This is because while a physical accident is the most “fundamental, traceable, and dominant” cause for losses resulting from property damage, a Stop-work Order is, as a government directive, only a cause of non-property damage, which is generally outside the scope of coverage.


When a policy requires that losses be “directly resulting from physical loss or damage”, insurers are not liable for time lost due to a Stop-work Order. Under such a policy, the Stop-work Order — under the principle of proximate cause in China — is an intervening event which “breaks” the chain of causation. Accordingly, BI insurance will not cover that secondary event’s resulting losses. Without an applicable “Denial of Access” or “Civil Authority Order” extension, such policies will not cover Stop-work Order losses.

However, in some cases, a policy includes subtle words or formulations which incorporate losses resulting from a Stop-work Order within a BI clause’s scope of coverage, even absent an extension. In some cases, just two words (see “operating conditions” example, above) make the difference between a modest or fulsome insurance benefit.

Whether insurer or insured, retaining experienced counsel to review a new policy’s BI clause before concluding it can save valuable time, effort, and resources before an accident occurs.

 [1] China Labour Bulletin, “How China outsourced work-related accidents and deaths”, 16 January 2018, online: <>.

[2]  National Bureau of Statistics of China, “2020 Statistical Bulletin of the National Economic and Social Development of the People’s Republic of China” (Feb 28, 2021), online: <>.

[3]  Under Article of the National Standard of the People’s Republic of China GB / T 36687-2018 Insurance Terminology, Proximate Cause means “the most fundamental, traceable and dominant cause of the loss. Note: Not necessarily the closest cause in time or space to the loss.”


China has been continuously strengthening and developing data security rules over the last decade. One of the hallmarks of this trend is increasing regulation over outbound cross-border data flows.

Against this background, the Cyberspace Administration of China (CAC) issued the Draft Measures for Security Assessment for Cross-Border Data Transfers (the draft measures) on 29 October 2021, open for public comment until 28 November 2021. The draft measures seek to implement the outbound data transfer provisions within the Cybersecurity Law, the Data Security Law, the Personal Information Protection Law, and other laws and regulations by focusing on the compliance procedures that entities should follow for outbound data transfers.

The draft measures show a stricter regulatory approach towards cross-border transfers of data. They contain a security assessment trigger that is as low as 10,000 people’s sensitive information. Many companies expected higher thresholds, and multinational corporations (MNCs), which often use global systems to process customer and employee data, will likely be affected. As the draft measures require entities to conduct self-assessments before outbound data transfers, MNCs will also face uncertainty regarding current outbound data transfers and whether they can pass security assessments for future data transfers.


The draft measures have the purpose of regulating outbound data flows, protecting personal information rights and interests, safeguarding national security and public interests, and promoting the safe and free flow of data across borders.


The draft measures oblige entities that provide important data and personal information – collected and generated during their Chinese operations – to foreign recipients to conduct outbound data transfer security assessments. Entities must complete assessments before making transfers and continually monitor those arrangements.

Declaration thresholds

An entity must declare outbound data transfers to provincial cyberspace administration authorities and seek security assessments by the CAC in the following circumstances:

  • The personal information and important data are and were collected and generated by a critical information infrastructure operator.
  • The outbound data contains important data.(1)
  • The entity processes the personal information of at least one million people.
  • The outbound transfers cumulatively involve the personal information of over 100,000 people or the sensitive personal information of over 10,000 people.
  • Other situations where the CAC requires a security assessment exist.

It is understood that many companies would prefer to see a rise in the threshold transfer volumes that trigger declarations.

Assessment criteria

Two types of assessment are described in the draft measures: self-assessments and security assessments by the CAC. An entity must submit the following materials to apply for a security assessment by the CAC:

  • a written application form;
  • a cross-border data transfer self-assessment report;
  • the contract or other legally binding documents to be concluded between the entity and the overseas recipient; and
  • any other materials required for the security assessment.

The self-security assessment and the security assessment by the CAC involve the consideration of:

  • the legality, legitimacy and necessity of the transfer and the purpose, scope and manner of data processing by the overseas recipient;
  • the quantity, scope, type and sensitivity of the outbound data, and the risks the outbound data might pose to national security, public interests, and the legitimate rights and interests of individuals and organisations;
  • whether the management and technical measures and capabilities of the entity can prevent risks such as data leakage or destruction;
  • whether the responsibilities and obligations undertaken by the overseas recipient, as well as its management and technical measures and capacity to fulfil those responsibilities and obligations, can guarantee the security of data leaving China;
  • the risk of leakage, destruction, falsification and misuse of data after export and retransfer, and whether individuals have smooth channels to safeguard their rights and interests in their personal information and other data;
  • whether the contract related to outbound data flows adequately deals with data security protection responsibilities and obligations; and
  • the destination country’s laws and network security environment.

Assessment timescale

The CAC determines whether to accept security assessment applications within seven working days of receiving application materials. Once an application is accepted, the CAC must complete the security assessment within 45 working days. However, that term may be extended in complicated circumstances, or where supplementary materials are required, but it may not exceed 60 working days in total.

The security assessments by the CAC are valid for up to two years unless a triggering event occurs, in which case a new security assessment by the CAC is required. Triggers include changes to the factors upon which an outbound data transfer security assessment was made.

For further information on this topic please contact Samuel Yang at AnJie Law Firm by telephone (+86 10 8567 5988) or email ( The AnJie Law Firm website can be accessed at


[1] Important data is a type of regulated data, the criteria and scope of which is still to be defined by the authorities.


Standard-Essential Patents (“SEPs”) are patents which protect technology essential to compatibility with technical industry standards.

To avoid abuse by patent holders, SEPs are typically required to be licensed on Fair Reasonable and Non-Discriminatory (FRAND) licensing terms. However, what constitutes a FRAND rate is often unclear and can lead to protracted negotiations, hold-ups, and ultimately, litigation. FRAND disputes are notoriously complex and lie at the intersection of contract, patent, and antitrust law.

Chinese enterprises are increasingly familiar with FRAND disputes. The groundbreaking case was in 2013, when Huawei Technology Co., Ltd. (“Huawei”) litigated Huawei v Interdigital, the first FRAND dispute where a Chinese court publicly ruled on interpreting and enforcing FRAND commitments pledged by an SEP holder to a Standard Setting Organization (“SSO”). In the ensuing years, outbound Chinese tech champions like Huawei and ZTE Corporation (“ZTE”) also became important litigants in overseas disputes over FRAND-encumbered patents. Among the more prominent disputes, they were appellants in a landmark 2020 UK ruling, Unwired World/Conversant v Huawei/ZTE (“Conversant“).

Conversant is a noteworthy ruling where the UK Supreme Court (“UKSC“) interprets the policy of a foreign SSO. Namely, that of the European Technical Standards Institute (“ETSI“). In its decision, the UKSC allowed itself to rule on the language and drafting history of ETSI policy, and reached conclusions about the intent of that language. This ruling forced a hold-out licensee to accept a global patent portfolio, and was a blow to the use of protracted, jurisdiction-by-jurisdiction FRAND negotiations by SEP implementers.

August 2021 marked the start of a related new trend: not only Chinese companies, but now also Chinese courts are assuming a greater role in global SEP licensing disputes. Ruling over the dispute between Sharp Corporation, Saenbacher Hippo Co., Ltd. (“Appellants“), OPPO Guangdong Mobile Communications Company Ltd., and OPPO Guangdong Mobile Telecommunications Co., Ltd. Shenzhen Branch (“Respondents“, the “Oppo” case), the Intellectual Property Division of the Supreme People’s Court (“SPC IP“) affirmed Chinese jurisdiction over a global SEP patent licensing rate dispute.

In Oppo, the SPC IP not only affirmed jurisdiction but laid out a test for lower courts to follow when deciding whether to accept jurisdiction over such disputes. Specifically, it set out an “or” elements test for determining whether a global SEP licensing dispute has a sufficient enough connection with China for a Chinese court to accept jurisdiction. These include whether China was the jurisdiction which issued the patent, where the patent is exploited, where the patent license contract is executed or negotiated, where the patent license contract is performed, or whether the place where the property subject to seizure or enforcement is located in the territory of China. As long as one of the above places is within the territory of China, the case is deemed to have appropriate connections with China, and the PRC courts have jurisdiction over the case.

This jurisdictional test applies to global SEP patent license disputes generally. Ruling on whether it is appropriate for a PRC court to interpret the global licensing conditions of a disputed SEP, the decision determined the criteria outlined above based on the fact that “there is a willingness of the parties concerned to conclude a global license,” the principle of “closer connection”, and the convenience of the court. The SPC IP further ruled that even when the parties concerned did not express jurisdictional consensus on the global licensing conditions at issue, where the case has a closer overall relationship with PRC courts, it is still appropriate for PRC courts to rule on the global licensing conditions of the disputed SEPs.

Thus, the ratio from Oppo is that where the parties show a willingness to conclude a global (rather than localized) patent license, and there is a nexus with China, Chinese courts may claim jurisdiction. Moreover, absent a clear intent from the parties to conclude a global license, a sufficiently close connection to China will still allow a People’s Court to accept jurisdiction.

This is the first time that the SPC IP has clarified its jurisdictional rules on global patent licenses for SEPs. It marks a milestone on China’s road to more active participation in the formulation of global IP governance rules and precedents.

While the SPC IP only clarified the rules for jurisdiction, and did not go so far as to interpret the language of a foreign SSO and set rates itself in this case, it affirmed the Shenzhen court of first instance’s ruling doing just that, leaving the door open for other Chinese lower courts to follow suit.

Other observers have noted that because the SPC IP in Oppo rules on other markets’ rates, including the US, Germany, and Japan, it engages issues of sovereignty. This concern was also raised in the wake of Conversant. So far, comity towards foreign decisions like the UKSC’s in Conversant has avoided an international clash among judiciaries in rate-setting decisions. It remains to be seen whether the same deference will be extended to Oppo.

If the ruling in Oppo were to hold, China’s courts may very well begin to regularly serve as a forum for breaking through logjammed SEP licensing negotiations, so long as those cases have a sufficient connection to China. In fact, due to the patent exhaustion doctrine and to electronics being heavily produced in China, even years prior to this decision some authors wagered that China could become the most important jurisdiction when it comes to setting FRAND licensing terms and royalty rates. Should Chinese courts take the initiative and accept jurisdiction over such disputes, this prediction may become reality.

However, cases less intimately intertwined with China may be distinguished from Oppo by Chinese courts. Oppo stood out because most of the patents at issue were Chinese, Defendants’ principal place of business is China, negotiations were conducted in Shenzhen, China, and Defendants’ assets were located principally in China. While the SPC IP, by endorsing an “or” test in deciding jurisdiction, sent a strong signal that the patent’s place of issue, the parties’ place of business, place of negotiations, or the place where their assets are located may all engage a sufficient “nexus” with China, lower courts may avoid applying this dogmatically where parties satisfy the letter but not the spirit of this new guidance. In particular, they may be wary of parties abusing the courts’ newly enlarged jurisdiction in a bid to conduct strategic forum-shopping.


Chinese tech-champions like Huawei and ZTE have played an increasingly prominent role in the development of global SEP jurisprudence, as recently as last year litigating issues of jurisdiction over SEP disputes in Conversant. This year, Chinese courts have shown themselves ready and willing to decide cases involving foreign SEP rates litigated on Chinese soil. Going forward, FRAND rates set by Chinese courts will — to the extent tolerated by international comity — apply to foreign patents licensed beyond China’s borders.

These courts and tech-champions, located principally in Beijing, Shanghai, and Shenzhen, have picked up quill and ink and are now comfortable contributing and adding to the global FRAND precedents written in foreign jurisdictions. Left unchallenged, these decisions bind entities both inside and outside of China, engaging sovereignty concerns. While presently, comity has allowed such decisions to stand, the true test for global FRAND licensing rules will come when unsatisfied parties, having exhausted all avenues of appeal in one jurisdiction, try their luck in the next, potentially rekindling the very jurisdiction-by-jurisdiction FRAND disputes which decisions like Oppo and Conversant specifically sought to snuff.

[1] Wi-Fi is enabled by the 802.11 standard established by the Institute of Electrical and Electronics Engineers (IEEE). For more information, see IEEE 802.11 Wi-Fi Standards, RADIO-ELECTRONICS.COM, online: <>. The IEEE publishes a list of patents associated with 802.11, online: <>.

[2] A Douglas Melamed & Carl Shapiro, “How Antitrust Law Can Make FRAND Commitments More

Effective” (2018) 127:7 Yale L J 2110 at 2121.

[3] Ibid at 2022

[4] Jiaohu Shuzi Tongxin Youxian Gongsi (InterDigital Communications, Inc.) Su HuaweiJishu Youxian Gongsi, [Huawei Techs. Co. v. InterDigital Commc’ns, Inc.], (Guangdong High People’s Ct. Oct. 16, 2013) (China).

[5] Jie Gao, “Development of the FRAND Jurisprudence in China” (2020) 21:2 Colum Sci &

Tech L Rev 446 at 457.

[6] [2020] UKSC 37

[7] (2020) Zui Gao Fa Zhi Min Xia Zhong No. 517, decided Aug 19, 2021.

[8] Ibid.

[9] Ibid.

[10] Ibid.

[11] Ibid.

[12] Garry A Gabison, “Worldwide FRAND Licensing Standard” (2019) 8:2 Am U Bus L Rev 139, at n 222, citing D. Daniel Sokol & Wentong Zheng, FRAND in China, 22 Tex. Intell. Prop.

L.J.71, 73 (“The operation of market forces will result in globalization of the lowest rate set by a court or agency for a particular patent or patent portfolio in a major jurisdiction. China is such a jurisdiction. Consequently, if China is more influential, it will be because China will be inclined to set rates lower than other jurisdictions. In essence, what happens in China on FRAND now impacts decision-making in the boardrooms of Silicon Valley.”).

In Homer’s Odyssey, the wayward hero Odysseus is travelling by ship when beset by two threats within an arrow’s distance from one another: on one side is Scylla, a beast with many heads, and on the other side is Charybdis, a deadly whirlpool.[1]

This is an apt metaphor for what faces litigants trying to navigate the choppy waters of transnational discovery; nowhere is this more true than with managing jurisdictional discovery under both US and Chinese legal systems.


Foreign Defendants and Personal Jurisdiction

Since the US Supreme Court’s decision in International Shoe Co. v. Washington,[2] Courts have come to recognize two types of personal jurisdiction: “general” jurisdiction and “specific” jurisdiction.[3] This distinction can be attributed to Professors Arthur T. von Mehren and Donald T. Trautman, who authored a paper on the subject in 1966.[4]

With general jurisdiction, Courts rely on the “essentially at home” test. In other words the defendant’s contacts with the forum must be “so continuous and systematic as to render them essentially at home in the forum state.”[5] As it relates to foreign defendants, general jurisdiction was limited by the US Supreme Court ruling in Daimler and today plays a reduced role.[6]

Chinese defendants without a domicile in the US will typically be haled into US Courts through the use of “specific” jurisdiction. Unfortunately, this most often involves the infamous minimum contacts test. A minimum contacts enquiry involves two prongs. First, the “purposeful availment” prong, which asks whether the litigant intentionally directed their activities in the forum state.[7] Second, the “relatedness” prong, which asks whether the lawsuit results from injuries that are related to (or arise out of) activities in the forum state.[8] Nevertheless, defendants may defeat a finding of specific jurisdiction, even after meeting the minimum contacts test, if doing so is considered unreasonable in that it contradicts notions of “fair play” and “substantial justice”.[9]

The minimum contacts test is notorious because its elements (especially relatedness) have been described, by some, as nebulous at best:[10]

There is little in the way of clear standards for what makes a contact with the forum ‘related to’ the litigation or qualifies a dispute as ‘arising out of the defendant’s contacts with the forum.’

Indeed, there is more agreement among the Courts about what specific jurisdiction is not rather than what it is. While guidance from the US Supreme Court does suggest that specific jurisdiction is distinctive, in that it is “case-linked”, it stops short of clarifying thornier issues involved with the concept.[11]

The Role of Personal Jurisdiction — Taishan Drywall

In some cases, disagreements over personal jurisdiction can lead to a decade of litigation.

In the past, Chinese defendants in the US market could “have the best of both worlds.” It was common practice to access the US market while avoiding liability for breaching local laws. In the words of Peking University Professor Ray Campbell:[12]

Historically, with U.S. judgments not recognized in China, many Chinese defendants had the best of both worlds—they were free to sell into the U.S. market, but protected from after-the-fact regulation [in the form of litigation] should the products prove defective.

This changed drastically with a seminal class action involving a Chinese defendant. (“Taishan Drywall“).[13] A Chinese company, Taishan Gypsum Co., was not only held in default for failing to appear in a Louisiana Court to defend a claim (liability for defective drywall), but was further barred from the US market by presiding Judge Fallon. This was especially significant considering that the next most significant case fought over personal jurisdiction against a Chinese defendant at the time, Gucci Am., Inc v Weixing Li (“Gucci I” from Gucci “I“, “II“, and “III“, the “Gucci Trio“), resulted in contempt for failure to comply with an asset freeze,[14] not denial of market access.

Challenging this default judgment, Taishan argued that it must be void on the grounds that this and other US Courts lacked personal jurisdiction.

And so began, in October 2010, a jurisdictional discovery battle between Taishan and the plaintiffs. The former were required to prove that Taishan had sufficient “minimum contacts” with forum states to allow US Courts to exercise personal jurisdiction.

As a result of this battle, Taishan had to submit to the US plaintiffs’ discovery requests. These included three depositions in Hong Kong which degenerated into “chaos and old night” (as described by Judge Fallon), and which were ultimately in vain after being found ineffectual (due to disagreements among interpreters, counsel, and witnesses, among other issues). It also included production of both written and electronic documents, and a second, more “hands-on” deposition in Hong Kong where the Court appointed a Federal Rule of Evidence 706 expert to operate as the sole interpreter at the depositions. The Court also decided to travel to Hong Kong itself to preside over the depositions, allowing it to rule immediately on objections and avoiding many problems present during the first deposition.

Upon conclusion of this lengthy transnational process, the Louisiana Court found in favour of the plaintiffs. The Court held that Taishan, indeed, had the minimum contacts necessary to exercise personal jurisdiction. In 2014, the 5th Circuit upheld this ruling in two judgments.[15] Adding another wrinkle to the case, following the U.S. Supreme Court case of Bristol–Myers Squibb v. Superior Court of California,[16] Taishan again challenged the Court’s personal jurisdiction and filed a motion to dismiss in 2017.[17] This challenge, too, was in vain.

Finally, after a decade of litigation, the parties reached a settlement agreement. Under this agreement, finally approved on January 10, 2020, Taishan agreed to pay $248 million to settle the claims of most plaintiffs.[18] In US Courts, as evidenced by this hard-fought and lengthy litigation process, personal jurisdiction is a critical factor in determining whether or not a plaintiff will succeed in claiming against a foreign entity.


Jurisdictional Discovery: Hague Convention or FRCP

In conducting jurisdictional discovery to establish personal jurisdiction against a foreign defendant, an important consideration is whether the plaintiff should follow the procedures set out in the Convention on Taking Evidence Abroad in Civil or Commercial Matters (“Hague Evidence Convention“) or the Federal Rules of Civil Procedure (“FRCP“).

Despite being signatories, many countries imposed reservations at the time of their accession to the Hague Evidence Convention. China’s reservations are extensive,[19] making the Hague Evidence Convention a method that is tardy and inapplicable to most discoveries.[20] It is not a popular option. According to correspondence between Professor Campbell and the Chinese Ministry of Justice (“MOJ“), only about 40 requests are received — cumulatively from countries around the world — by the MOJ each year.[21] Nevertheless, the Hague Evidence Convention was designed not as a ceiling, but as a floor (Art. 27), and many Courts prefer to forego its processes in favour of other methods.

Much more popular is the FRCP, granting US plaintiffs speedier timelines and more familiar processes. Generally US Courts are willing to allow discovery under the FRCP, though further to the decision in Aerospatiale these must be case-by-case determinations.[22] Accordingly, Courts must balance the importance of the information sought, sovereign interests, and the likelihood that the Hague Evidence Convention will be effective in determining whether to grant discovery under the FRCP. While not automatic, the chances are that the FRCP will apply for obtaining foreign evidence against Chinese litigants. The District Court in Gucci v Weixing ruled that the “Hague Convention is of limited utility in China in large part because its implementation remains uncertain and unpredictable.”[23] Of course, one condition of relying on the FRCP is that the Court have personal jurisdiction over the defendant, or reason to conduct discovery into personal jurisdiction. When personal jurisdiction has yet to be established, as is the case with jurisdictional discovery attempts, failure to satisfy the latter condition (reason to conduct discovery into personal jurisdiction) can lead to a catch-22.[24]

It is noteworthy that Chinese defendants are increasingly choosing to avail themselves of their rights before US Courts. Large default cases like Taishan Drywall are now rare, and Chinese companies today are much savvier than before in navigating the US legal system.


A Rock and a Hard Place: Narrowing US Jurisdictional Discovery Requests

Invoking conflict with Chinese laws is a common way for Chinese defendants to seek to narrow the scope of US jurisdictional discovery requests. These include, most commonly, Articles 2 and 32 of the Law of the People’s Republic of China on Guarding State Secrets, under which state secrets are broadly defined to include trade secrets.[25] Divulging state secrets to a foreign entity in violation of this law can result in criminal consequences under Article 111 of the Criminal Code of China, and as such can sometimes narrow an overbroad discovery request when invoked before a US Court. An emerging trend is to also invoke conflict with Chinese data privacy laws, engaging numerous data control and privacy concerns. The latest such blocking statute, the Data Security Law which came into effect September 1st, 2021, imposes fines for unauthorized compliance with overseas judicial orders.[26]  This is significant because in a digital word, discovery increasingly means ediscovery.

In seeking to limit US discovery requests though, it is important to set realistic expectations, because overreaching risks reducing the defendant’s chances of success. US Courts have repeatedly ordered foreign banks to produce documents in violation of their home country laws. They are generally unwilling to consider fear of punishment under foreign laws when deciding whether to subject offshore documents to US discovery. The reason? To do so would encourage parties to hold such documents offshore and risk undermining US discovery. In a canonical US Supreme Court ruling on the subject, Société Internationale Pour Participations Industrielles et Commerciales v. Rogers,  the Court stated:[27]

[T]o hold broadly that petitioner’s failure to produce […] records because of fear of punishment under the laws of its sovereign precludes a court from finding that petitioner had “control” over them, and thereby from ordering their production, would undermine congressional policies […] and invite efforts to place ownership of American assets in persons or firms whose sovereign assures secrecy of records.

In light of this ruling it is no surprise then that US Courts are often unwilling to surrender sovereignty over the judicial process, even to the point of imposing “directly conflicting obligations” on a foreign party.[28] This was notably the case with the Bank of China (“BOC“) in the Gucci Trio of cases.[29] In this matter involving an action under the Lanham Act, a US Court ordered the BOC to freeze the assets of Chinese defendants suspected of counterfeiting (Gucci I). On remand from the Court of Appeal’s decision (“Gucci II“), District Judge Sullivan asserted personal jurisdiction over the BOC and granted Gucci’s motion even though this would force BOC to violate Chinese law (“Gucci III“):[30]

Although BOC asks the Court to consider the fact that granting Gucci’s motion would force BOC to violate Chinese law, BOC cites to no other courts that have considered such arguments in the context of assessing the reasonableness of an exercise of personal jurisdiction, as opposed to a separate and subsequent comity analysis, and the Court declines to be the first.

In another ruling, Wultz v Bank of China, the US Court compelled production of foreign electronically stored data despite the knowledge that doing so was illegal under Chinese state secret laws.[31] Rather than have the best of both worlds, the BOC was caught in a battle for judicial sovereignty between two of the world’s superpower legal systems.

Nevertheless, when performed as an analysis that is separate from a personal jurisdiction enquiry, the doctrine of international comity may in some cases successfully limit jurisdictional discovery and asset freeze orders from US judges. This was certainly a signal from the Second Circuit in Gucci II:[32]

[E]ven where personal jurisdiction over a foreign non-domiciliary is established, a court should not uphold an international subpoena in possible contravention of foreign law, without first performing a comity analysis pursuant to Section 442 of the Restatement (Third) of Foreign Relations Law.

This ruling in Gucci II was more conciliatory than that of the Court in Gucci I & III. The former considered an order issued against BOC from the Beijing Second Intermediate People’s Court that conflicted with Gucci I,[33] evidence from a Chinese law expert attesting to the direct conflict of law, Chinese official concerns on the order’s effects on China-US relations, and an amicus brief from the US government (then under the Obama administration) arguing for vacatur.[34] In at least one case similar to Gucci, Tiffany (NJ) LLC v. Qi Andrew,[35] the Court was also persuaded by the BOC and the Industrial Bank of China, and accommodated their request not to disclose customer records for fear of exposing them to Chinese civil and criminal liability.

The holdings from these two conflicting strings of New York cases left the law on jurisdictional discovery unclear and unpredictable. In fact, the parties to a similar string of cases involving the Lanham Act, the Nike cases (Nikes “I“, “II“, “III“, “IV“, and “V“, together the “Nike Quintet“), expressly agreed to hold off on further litigation until resolution of the Tiffany case and the Gucci Trio.[36] In the Nike Quintet, Next (successor-in-interest for Nike) had succeeded in obtaining jurisdictional discovery, production, and asset freeze orders against the BOC and other Chinese banks in 2013.[37]

However, eight years later in Nike V, Next failed to convince the Second Circuit Court that the defendants should be sanctioned for failing to extend these orders to their banks located in China.[38] The reason? Ironically, because even after Tiffany and the Gucci Trio, the law remains somewhat unclear on the subject. The legal circumstances of this case set the burden on Next to show why these orders apply abroad, and the Court in Nike V was persuaded that Next had failed to do so because (without ruling, like the Nike IV district Court that it affirms did, on the correctness of BOC’s arguments) BOC raised reasonable arguments (specifically, a “fair ground of doubt”) that, due to both comity concerns and New York’s separate entity rule, the orders do not clearly apply to banks in China.[39] Next’s delay in bringing the action also frustrated the Court,[40] making it unclear whether acting earlier against BOC to enforce the orders in Nike I would have made a difference. Nike V also affirms important parts of Nike III (itself affirming Nike II),[41] most notably how they allow the Nike I discovery order to accommodate Chinese banking laws (allowing China’s MOJ to select and forward permitted documents to the US). Despite this, it is made clear in Nike II that the US’ interest in enforcing Lanham Act judgments against counterfeiters outweighs China’s interest in enforcing bank secrecy laws.[42]

The easiest conclusion to draw from these cases involving the BOC is that while the Second Circuit encourages a fulsome comity analysis when considering discovery requests, results from Second Circuit cases like Gucci II, Tiffany and Nike V remain difficult to replicate because narrowing such requests remains a case-by-case determination. On this point, Gucci II and the Nike Quintet support reliance on a comity analysis based on Section 442 of the Restatement (Third) of Foreign Relations Law. Under this approach, the Court must select and weigh five factors (like in Gucci II), or seven if the Court is considering a contempt motion (as in Nikes II and III),[43] in a balancing test to determine whether to limit foreign discovery against a foreign litigant: (1) the documents or information’s importance to the litigation, (2) the degree of specificity of the request, (3) whether the information originated in the United States, (4) the availability of alternative means of securing the information, and (5) the extent to which noncompliance with the request would undermine important interests of the United States or compliance with the request would undermine important interests of the state where the information is located.[44] These factors vary even among similar cases and leave considerable room for discretionary analysis.

From a policy perspective, serious contempt orders from Chinese courts might help dissuade US Courts from placing Chinese litigants between Scylla and Charybdis. One practitioner’s insight on why US Courts force Chinese defendants to violate Chinese laws in order to comply with US laws is revealing: “U.S. courts are no longer convinced that there is a credible threat of punishment for violating the PRC bank secrecy laws […] While foreign laws purport to prohibit disclosure, governments generally do not impose penalties on their banks for complying with U.S. court orders.”[45] This analysis is consistent with the results in Nike I, Wultz, and Gucci III, where in the latter case the Court imposed a USD $50,000 contempt order for every day the BOC failed to comply with the Court’s production order. While it is harder to square with the more recent Nikes II through V, that line also affirmed that China’s bank secrecy laws are not a “get out of jail free” card,[46] and that banks cannot “hide behind Chinese bank secrecy laws as a shield,”[47] suggesting that the Nike Quintet is not intended to afford significantly more leniency towards litigants trying to use foreign legal restrictions to check US discovery requests.

Of course, different facts or circumstances may lead to narrower jurisdictional discovery orders. A US Court may be more amenable to narrowing jurisdictional discovery against a Chinese litigant if the underlying claim is not grounded in the Lanham Act. Moreover, requiring a Chinese bank to disclose information on a state-owned enterprise or government official, rather than a counterfeiter, could involve a more persuasive sovereign-immunity defense.[48] Under the Foreign Sovereign Immunities Act, jurisdictional discovery is generally allowed only to confirm specific facts that are crucial to the immunity determination.[49]

Finally, to further narrow discovery, retaining US-licensed counsel allows Chinese litigants to benefit from the same rules of legal privilege enjoyed by US litigants. There are risks to having no US counsel at all, because US Courts do not recognize any Chinese analogy to legal privilege. This was at issue in the aforementioned case Wultz v Bank of China, where the Court compelled the production of documents governed by Chinese law, on the grounds that a Chinese lawyer’s duty of confidentiality falls short of US-style attorney-client privilege:[50]

Because attorney-client and work-product communications and documents could be subject to discovery under Chinese law, applying Chinese privilege law does not “violate principles of comity” or “offend the public policy of this forum.”


Because Chinese law does not recognize the attorney-client privilege or the work-product doctrine, Bank of China must produce those items listed on its privilege log which are governed by Chinese privilege law.

Does this mean US-licensed attorneys can, merely by laying eyes on the communications records of foreign counsel, earn the right to affix upon said documents “attorney-client privileged” in bold letters? While having US-licensed counsel certainly helps establish privilege abroad, US law on this point is far more nuanced. US Courts adopt the “touch-base” approach to applying privilege to foreign documents. In the words of the Court in another case (also involving Gucci), Gucci America, Inc. v Guess?, Inc.:[51]

“[C]ommunications relating to legal proceedings in the United States, or that reflect the provision of advice regarding American law, ‘touch base’ with the United States and, therefore, are governed by American law, even though the communication may involve foreign attorneys or a foreign proceeding.


[such communications should] have a ‘more than incidental’ connection to the United States.”

Therefore to benefit from US-style privilege against US proceedings involving Chinese evidence, it is not enough to simply have an American lawyer in the room. The document must be relating to or in anticipation of legal proceedings in the US, or otherwise provide advice involving the US, and that advice’s connection to the US must be more than incidental. It is certainly not enough to simply stamp “attorney-client privileged” on every page if the “touch-base” requirement is not satisfied.



Discovery into personal jurisdiction is intended to be narrower than ordinary discovery.  That said, it is stubbornly difficult to narrow any further. US Courts tend to favour domestic interests even at the expense of international comity, whether by applying the FRCP over the Hague Evidence Convention or by requiring foreign banks to violate home country laws to comply with discovery orders. This is especially the case with Lanham Act claims.

Invoking a violation with home country laws did, in some cases (Tiffany, Gucci II, Nikes II & III)  successfully narrow discovery. However this is not the rule and is instead a case-by-case determination following the five-factor comity analysis endorsed by Gucci II. US Courts are generally not persuaded that complying with their discovery orders will lead to at-home sanctions, and until such sanctions begin to appear, it is unlikely that the policy fundamentals on this point will change. Courts are aware that litigants in such cases caught between Scylla and Charybdis will, like Odysseus, steer their compliance efforts down the path that harms them the least.


[1] Homer, Iliad, The Odyssey, 12.235 (“For on one side lay Scylla and on the other divine Charybdis terribly sucked down the salt water of the sea”).

[2] (1945) 326 U.S. 310.

[3] See comment in Bristol-Myers Squibb Co. v. Superior Court of California (2017) 137 S. Ct 1773 at 1780; 198 L. Ed. 2d 395 (“Since our seminal decision in International Shoe, our decisions have recognized two types of personal jurisdiction: ‘general’ (sometimes called ‘all-purpose’) jurisdiction and ‘specific’ (sometimes called ‘case-linked’) jurisdiction.”); see also Xin Xu, “Show Me the Money: Evaluating Personal Jurisdiction over Foreign Nonparty Banks in Light of the Gucci Case” Cornell Intl L J, Vol 49, Issue 3 (Fall 2016) at 749, which posits another line of thinking that this distinction only emerged after International Shoe in Helicopteros Nacionales de Colombia, S. A. v. Hall, 466 U.S. 408, 414 (1984).

[4] Arthur T. von Mehren & Donald T. Trautman, “Jurisdiction to Adjudicate: A Suggested Analysis” (1966) 79 Harv L. Rev. 1121, 1136.

[5] Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011).

[6] Daimler AG v. Bauman, 134 S. Ct. 746 (2014), which found that Courts may exercise general jurisdiction only when the corporation is “essentially at home” in the forum state, replacing the previous “continuous and systematic general business contacts” test, which was “unacceptably grasping.”

[7] Hanson v. Denckla, 357 U.S. 235, 253 (1958) (discussing purposeful availment);

[8] Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985) (Burger King), applying the concept of relatedness created in International Shoe v. Washington, 326 U.S. 310, 316– 18 (1945).

[9] Burger King, 471 U.S. at 477–78.

[10] Lea Brilmayer, A General Look at Specific Jurisdiction, 42 Yale J. Int’l L. Online 1, 5 (2017).

[11] Howard M. Erichson, John C. P. Goldberg & Benjamin C. Zipursky, Case-Linked Jurisdiction and Busybody States, 105 Minn. L. Rev. Headnotes 54 (2020) at 55 (n 6: “For example, [Courts] do not like specific jurisdiction premised solely on the plaintiffs contact with the forum state. See Walden v. Fiore, 571 U.S. 277, 284 (2014). Nor do they like a sliding scale approach that merges general jurisdiction with specific jurisdiction. See Bristol-Myers Squibb, 137 S. Ct. at 1781.”).

[12] Ray Worthy Campbell & Ellen Claar Campbell, Clash of Systems: Discovery in U.S. Litigation Involving Chinese Defendants, 4 PEKING U. Transnat’l L. REV. 129 (2016) at 156.

[13] Ibid at 157, describing Germano v. Taishan Gypsum Co. (In re Chinese Manufactured Drywall Prods. Liab. Litig., No. 2047, 2014 U.S. Dist. LEXIS 183686 (E.D. La. July 17, 2014). See also ibid, n 88 citing Gucci Am., Inc. v. Huoqing, No. C-o9-o5969 JCS, 2011 U.S. Dist. LEXIS 783, at 63 (N.D. Cal. Jan. 3, 2011), where Huoqing was forbidden from doing further business in the USA following a series of counterfeiting and trademark violations against the plaintiff.

[14] Gucci Am., Inc. v. Weixing Li, No. 10 Civ. 4974 (RJS), 135 F. Supp. 3d 87 (S.D.N.Y. Sept. 29, 2015) (Gucci III), reaffirming on remand from Gucci Am., Inc. v. Bank of China, No. 11-3934-cv (2d Cir. Sep. 17, 2014) (Gucci II) the asset freeze and document production request in Gucci Am., Inc. v. Weixing Li, No. 10 Civ. 4974 (RJS), 2011 U.S. Dist. LEXIS 97814 (S.D.N.Y. Aug. 23, 2011) (Gucci I, vacated on other grounds, together the “Gucci Trio“). For a detailed discussion of this trio of rulings, see Xin Xu, “Show Me the Money: Evaluating Personal Jurisdiction over Foreign Nonparty Banks in Light of the Gucci Case” Cornell Intl L J, Vol 49, Issue 3 (Fall 2016).

[15] In re Chinese-Manufactured Drywall Prods. Liab. Litig., 753 F.3d 521 (5th Cir. 2014); In re Chinese-Manufactured Drywall Prods. Liab. Litig., 742 F.3d 576 (5th Cir. 2014).

[16] 137 S. Ct.

[17] In re Chinese-Manufactured Drywall Prods. Liab. Litig., Doc. 22460, MDL NO. 2047 [Jan 10, 2020], online: <>

[18] Ibid at 12.

[19] Hague Evidence Convention PRC, Hong Kong & Macau Reservations, HCCH, online: <> (last visited Aug. 16, 2021).

[20] Ray Worthy Campbell & Ellen Claar Campbell, Clash of Systems: Discovery in U.S. Litigation Involving Chinese Defendants, 4 Peking U. Transnat’l L. Rev. 129 (2016) at 153.

[21] Ibid.

[22] Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court for S. Dist. of Iowa, 482 U.S. 522 (1987).

[23] Gucci I at *27 (upheld in part, vacated on other grounds).

[24] Ray Worthy Campbell & Ellen Claar Campbell, Clash of Systems: Discovery in U.S. Litigation Involving Chinese Defendants, 4 Peking U. Transnat’l L. Rev. 129 (2016) at 154.

[25] Ray Worthy Campbell & Ellen Claar Campbell, Clash of Systems: Discovery in U.S. Litigation Involving Chinese Defendants, 4 Peking U. Transnat’l L. Rev. 129 (2016) at 163 (Article 2 requires Chinese Citizens to guard against revealing “state secrets”, and Article 30 requires State pre-approval before furnishing some of them to others).

[26] Data Security Law of the People’s Republic of China, National People’s Congress, 13th sess., Standing Committee, 29th sess., enacted June 10, 2021, arts 36, 48, online (unofficial English translation): <> (art 48 reads: “Where entities violate requirements under Article 36 of this Law and provide data to overseas judicial or law enforcement organs without obtaining approval from competent authorities, departments performing data security duties shall issue warnings [sic] impose a fine …”).

[27] 357 U.S. 197, 205 (1958) at 204.

[28] Gucci II, Dkt. 346, 09/17/2015.

[29] 15 U.S.C. § 1051.

[30] Gucci III, at 99; see also ibid quoting Licci, 732 F.3d at 171 (the banks’ “in-forum conduct is deliberate and recurring, not ‘random, isolated, or fortuitous. … the selection and repeated use of New York’s banking system … constitutes ‘purposeful availment of the privilege of doing business in New York.”).

[31] Wultz v. Bank of China Ltd., 942 F. Supp. 2d 452, 466, 473 (S.D.N.Y. 2013); see also Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court for S. Dist. of Iowa, 482 U.S. 522, 546 (1987).

[32] Gucci II, at 141; per Linde v. Arab Bank, PLC, 706 F.3d 92, 111 (2d Cir. 2013) (quoting Societe Nationale Industrielle Aerospatiale, 482 U.S. at 543-44, 107 S.Ct. 2542) this analysis must weigh “all of the relevant interests of all of the nations affected by the court’s decision.” See also Nike II, infra, which quotes this reasoning.

[33] Gucci II, Dkt. 346, 09/17/2015.

[34] Ray Worthy Campbell & Ellen Claar Campbell, Clash of Systems: Discovery in U.S. Litigation Involving Chinese Defendants, 4 Peking U. Transnat’l L. Rev. 129 (2016) at 170.

[35] 276 F.R.D. 143 (S.D.N.Y. 2011). Interestingly, this and another Tiffany case, Tiffany (NJ) LLC v. Forbse, No. 11cv4976 (NRB), 2012 WL 1918866 (S.D.N.Y. May 23, 2012), are among the few Chinese precedents where evidence was produced through the Hague Evidence Convention. The result was deemed unsatisfactory by the Court (in both cases, the Chinese Ministry of Justice only “partly executed” the Hague Convention requests that the Ministry “deem[ed to] conform to the provisions of the [Hague] Convention,” QI Andrew, 2015 WL 3701602, at *1 n.1). This was raised again in Nike II, infra.

[36] Nike, Inc. v Wu (S.D.N.Y. 2020) WL 257475 at 3 (“Nike IV“) (“the two sides agreed to put their dispute on hold until the Second Circuit ruled on two pending appeals in the Tiffany and Gucci cases, two other trademark infringement suits in which certain of the Chinese Banks were challenging the enforceability of discovery orders and prejudgment asset freezes overseas”).

[37] Ibid.

[38] Next Investments, LLC v. Bank of China, No. 11-3934-cv (2d Cir. Aug. 30, 2021) (“Nike V”).

[39] Nike V at lines 11–2 (“there is a fair ground of doubt as to whether, in light of New York’s separate entity rule and principles of international comity, the orders could reach assets held at foreign bank branches”).

[40] See ibid at 22 (Next’s delay in bringing an action was not well regarded by the Second Circuit Court, noting that the district Court “refused to reward Next’s “‘gotcha’ tactics” and other 16 efforts “to delay resolution” of key legal issues”).

[41] 349 F. Supp. 3d 310, 318 (S.D.N.Y. 2018) (“Nike II”), interestingly, Nike II like Gucci II allowed evidence from a Chinese law professor, Banks Mem., at 14–5, citing Guo Decl. ¶ 15-21.

[42] Nike II at *339.

[43] Per Linde v Arab Bank, PLC, 706 F.3d 9284 Fed.R.Serv.3d 961 at 110, a Second Circuit decision, when deciding whether to impose sanctions, a district court should also examine the [6] hardship of the party facing conflicting legal obligations and [7] whether that party has demonstrated good faith in addressing its discovery obligations. Note that for an asset freeze, the comity enquiry is different and relies instead on s. 403 of the Restatement (Limitations on Jurisdiction to Proscribe), Nike V, at 25 (“we eschew any categorical rule and instead draw on the eight-factor framework found in Section 403 of the 15 Restatement (Third) of Foreign Relations Law.”)

[44] Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court for S. Dist. of Iowa, 482 U.S. 522, 546 (1987).

[45] Meg Utterback, “Lessons from the GUCCI case: Chinese banks increasingly subject to U.S. jurisdiction”, Lexology (Aug 29 2016), online: <>.

[46] Nike III at *364.

[47] Nike II, citing Gucci I at *10.

[48] Ibid.

[49] Laura G. Ferguson & Charles F. B. Mcaleer Jr, “Playing the Sovereign Card: Defending Foreign Sovereigns in US Courts”, Litigation, Vol 43, No., 2, Winter 2017.

[50] Wultz v. Bank of China Ltd., 979 F. Supp. 2d 479 (S.D.N.Y. 2013).

[51] U.S. Dist. Court 271 F.R.D. 58  (S.D.N.Y 2010).

Nearly six years and a half since four Ningbo magnetic material manufacturers (“Plaintiffs”) brought lawsuits against Hitachi Metals, Ltd. (“HML”), China’s Ningbo Intermediate People’s Court (“Court”) finally entered its first instance rulings on 23 April 2021, in which the Court found in favour of the Plaintiffs and ruled that the refusal to license patents by HML constitutes an abuse of dominance, as the non-SEP patents owned by HML were held as ‘essential facility’ under the antitrust law scheme by the Court. In essence, the ruling required HML to license its patents to the Plaintiffs on FRAND terms while HML itself has never made any FRAND commitments in the past as its patents have never been considered as standard essential patents (“SEPs”). Currently, HML already has eight licensees in China.

  1. Relevant Facts
  • The Beginning of the Story

In August 2013, an Alliance established by seven Chinese companies including the four Plaintiffs-i.e., Ningbo Tongchuangqiang. Magnetic Materials Co., Ltd., Ningbo Permanent Magnetic Industry Co., Ltd., Ningbo Ketian Magnetic Industry Co., Ltd. and Ningbo Huahui Magnetic Industry Co., Ltd., filed a complaint to the U.S. Patent Office against HML for invalidation of its core patents of sintered neodymium-iron-boron (“sintered NdFeB”), a type of rare earth magnets.

In May 2014, the Alliance and HML negotiated in San Francisco yet failed to reach an agreement; the seven companies have not obtained the relevant licenses. Therefore, the four Ningbo members sued HML at their base, Ningbo; the case was officially accepted on 11 December 2014.

  • The Long Trial

The first hearing was held on 17 December 2015, and the second one on 10 March 2017. And then, the dormant case was back to life in early 2021, after four years of silence. The regional court handed down all four decisions on 23 April 2021, in favour of the Plaintiffs. The Court ordered partial damages for the Plaintiffs, for a total of RMB 142.6 million, and required HML to stop its refusal to license.

  1. Key Issues of the Rulings

In those lengthy 69-page rulings, upon citing the factual claims and legal arguments as well as evidence from both sides, the Court went on laying down its own findings and reasoning; key issues of the rulings are set below:

  • Overstepping the Boundary between Antitrust and IPRs Protection

Intellectual property rights (“IPRs”) protection and antitrust regulations alike, is set to stimulate innovation, promote competition and consumer welfare. The existence of patents, serves the basic needs of IPRs protection by establishing a legal monopoly. Such monopoly is granted to an inventor to enable the inventor to exploit the benefits of his or her creativity. Therefore, antitrust law, in general, must respect the exercise of such monopoly power; interference is allowed, only under exceptional circumstances. As Article 55 of the Anti-Monopoly Law of China (“AML”) stipulates that, the AML is not applicable to undertakings who exercise their IPRs in accordance with the laws and administrative regulations on IPRs unless such undertakings eliminate or restrict market competition by abusing their IPRs. However, the Court seemed to believe that all IPRs related conducts are subject to the AML, that the “abuse of IPRs” is simply the summarisation of the anti-competitive effects of a given exercise of IPRs. Such an interpretation by the Court could render the clause of AML an empty shell, so as to jeopardise its protection of IPRs.

  • The SEP Treatment for a Non-SEP and The Fabrication of ‘Essential Patents’

In the Guide of the Anti-Monopoly Committee of the State Council for Countering Monopolisation in the Field of Intellectual Property Right, it is clear that the definition of the relevant market in terms of IPRs related cases shall follow the ordinary approach thereof. And according to Guidance of the Anti-Monopoly Committee of the State Council for the Definition of the Relevant Market, the substitution analysis shall centre from the perspective of the demand side, and only where supply substitution constitutes similar competitive restraints on undertakings’ behaviours as demand substitution, supply substitution may also be taken into consideration. Therefore, in both Chinese and foreign practices[1], it is the SEPs relates to widely used standards that would usually be considered as constituting a separate relevant market; for non-SEPs, substitutability should be analysed.

In the current case, having defined the downstream product market as the market for sintered NdFeB products, for lack of substitutability between NdFeB and other magnetic products, the Court decided that the relevant upstream market as the market for the licensing of the essential patents related to sintered NdFeB owned by HML, which means that HML is the sole market player in such a defined market. In reaching such conclusion, the Court mainly and solely relied on the opinions of the Plaintiffs’ witness that claimed a series of patents owned by HML are necessary for sintered NdFeB production, the marketing strategies of HML using words such as ‘critical’ and ‘essential’ to describe its patents, and the compliments and recognition of HML’s patents by customers and industry. Customers and industry analysis speak highly of HML’s patents because HML has a reputation for producing high-end sintered NdFeB products, which constitutes only a part of all sintered NdFeB products. For the same reason that HML prides on its quality and exaggerates in its marketing-a common commercial practice that most companies take; the indispensability test of a patent cannot be a subjective one as the duty to deal only arises from the commercial indispensability of the facility it controls. In addition, what the Court has chosen to ignore is the fact that Plaintiffs have, on many occasions, publicly declared that they had the independent production process and technology of sintered NdFeB, which did not infringe on HML’ patented technology. Although the Court recognised that the technology concerned is not the subject of any industry standard, it, nevertheless, acknowledged the so-called ‘essential patents’(‘必需专利’ in Chinese), made up by the Plaintiffs. As the name ‘standard essential patents’ speak for itself, a SEP refers to a patent that claims an invention that must be used to comply with a technical standard. Absent a standard, there would be no SEP. Even in practice, a de facto SEP is found, there must be a de facto standard at present. In the current case, the mere preference and recognition of the customers for a small part of the products is nothing close to what could be considered as a standard. But even so, the Court still managed to define some of HML’s patents to constitute an independent relevant market where they are replaceable with many other technologies owned by competitors. If such a decision and the reasoning behind were to prevail, valuable patent holders would tremble with fear for the uncertain fate of their own, even when the patents they hold are not SEPs.

  • The Framed Monopoly

Given that the upstream market is defined by the Court as the licensing market for part of HML’s NdFeB patents, it readily concluded that HML has a dominant position in the market as it has 100% market share therein. In doing so, the Court pontificated that HML possesses the ability to set prices above competitive level and prevent others from launching effective competition. While in fact, China, the country that accounts for approximately 36.67% of global rare earth resources, provides the largest rare earth production worldwide. The eight Chinese licensees are all leading enterprises in the relevant industry; they have more advantages in the acquisition of raw materials as well as strong competitiveness and bargaining power. The reasonable licensing fees set by HML for the eight companies could well be an illustration of this. Yet the Court’s findings suggest that the assessment of whether the licensing fees set by HML are beyond competitive level has never been part of its six years’ headwork.

In addition, the Court also found market power of HML from its ‘control force’ over non-licensees since the latter are allowed to sell only outside HML’s licensing scope. It is exactly the ‘control force’ that lays down the foundation for patents, a type of intellectual property that gives its owner the legal right to exclude non-licensees from making, using, or selling an invention for a limited of time at the very land that the patent is granted.

  • The Application of ‘Essential Facilities Doctrine’ to a Non-SEP

The essential facilities doctrine, an antitrust and competition law doctrine, refers to a duty imposed on a monopoly that controls access to an important resource “essential” or “bottleneck” facility to deal with its competitors by providing access to such a ‘facility’ that it controls and is deemed necessary for effective competition, at a reasonable price. Such doctrine applies in rare cases, with strict standards. An undertaking shall “freely to exercise his own independent discretion as to parties with whom he will deal”[2]; antitrust and competition law ‘does not restrict the long-recognised right of trader or manufacturer engaged in an entirely private business’[3]. Compulsive trading runs contrary to fundamental principle of freedom of contract.

Despite the usual strictness and prudence in applying the doctrine by the courts all over the world and the fact that by far, not a single Chinese court has used this doctrine in the refusal to license cases, the Court in this case, simply listed the test of essential facilities and concluded the following without providing any solid analysis. In his speech of ‘intellectual property and competition policy’, Joaquín Almunia, the vice president of the European Commission responsible for Competition Policy, specified that “the Courts have also made it clear that refusing to licence can be an infringement of competition law only in ‘exceptional circumstances’; that is, when a company needs access to the IPR to enter the market and effective competition would be eliminated if the license were not granted”[4]. Article 7 of the  Provisions on Prohibiting the Abuse of Intellectual Property Rights to Preclude or Restrict Competition (“IP Provisions”) lists the similar preconditions for the application of essential facilities: (1) the IPRs cannot be reasonably substituted, and it is necessary for other operators to participate in the competition in the relevant market; (2) refusal to license the IPRs will adversely affect competition or innovation in the relevant market and harm the interests of consumers or the public interest; (3) licensing the IPRs will not cause unreasonable damages to the right holders. The existence of many other independent patents, the rapid growth of the leading competitors with innovative products and technology, and the competitiveness in the market, all exclude the application of the essential facilities doctrine in the current case.

Behind the circumspect practices of courts from different jurisdictions is respect to transaction freedom and the foundation of the intellectual property system. Should mandatory licensing become commonplace, innovation would come to an end.

  • The Accused of Violating FRAND Principles and Imposing ‘Non-Challenge’ Clause

While the absence of evidence proving the anti-competitive effects of HML’s conducts by the Plaintiffs seems to suggest that they failed to fulfil their burden of proof, the Court, nevertheless, voluntarily pointed out that HML did not act in accordance with FRAND principles and restricted the Plaintiffs’ assess to the downstream market without comprehensive competition analysis. However, as a non-SEP holder, HML has never made any FRAND principles in any form nor should it need to. Similarly, the Court viewed HML’s termination of negotiation when the Plaintiffs brought litigation against HML as a demand of a, de facto, “non-challenge” clause and further accused HML of attaching an unreasonable trade condition of such a ‘non-challenge clause’, another abusive behaviour under the AML. However, these clauses refer to clauses that set ‘direct or indirect obligations not to challenge the validity of the licensor’s intellectual property, without prejudice to the possibility, in the case of an exclusive licence, for the licensor to terminate the technology transfer agreement in the event that the licensee challenges the validity of any of the licensed technology rights’[5]. It is, essentially, preventing a licensee from ‘biting the hand that feeds it’. In the current case, such a licensing agreement is absent.

As mentioned above, according to the IP Provisions, adverse competition effects to competition or innovation in the relevant market and harm to consumers or the public could not be circumvented in finding an abuse of dominance under Article 17 of the AML

In fact, in the concerned sintered NdFeB product market, there are more than 200 companies competing in China alone. HML’s refusal to license does not hinder the emergence of new products; by seeking licensing from HML, the Plaintiffs were only trying to produce and sell the same sintered NdFeB products. The licensing practices of HML have not changed the market structure in the past years and the product market remains extremely competitive; undertakings including the Plaintiffs, have seen an increasing turnover every year.

  • The Unbearable Heaviness on A Non-SEP Holder     

In its decisions, the Court compelled HML to license its non-SEP to the four Plaintiffs, so these four Ningbo manufacturers could sell in some part of the relevant geographic market. If such decisions become the common practice of the Chinese courts, every single non-SEP holder will face the possibility of being forced to hand over their fruits of painstaking labour to all of their non-licensees.

Furthermore, such a ruling may lead to significant inefficiency as a result. For one, if HML is imposed on the obligation to license to any market player in the downstream market, the transaction cost and monitoring cost would be a huge burden to HML and will disturb its operation of normal business. For another, as the rulings did not specify the licensing terms between HML and the plaintiffs, which means, if HML and the Plaintiffs cannot agree on the licensing terms, the ruling is hard to be enforced in practice. Further disputes on this issue will lead to inefficiency as well.

In addition, the Court allowed partial damages for the Plaintiffs in the case. By its nature, HML was held liable for its unauthorisation. If such decisions become the common practice of the Chinese courts, every single valuable non-SEP holder will face the possibility of having to compensate all of its non-licensees. The floodgate of litigations will inevitably be open, attracting slackers or rent-seekers who are not enthusiastic about innovation, but to seek ‘compensation’ and plunder the fruits of others.

And then there is none, under the patent system in China.


Admittedly, the HML rulings by the Ningbo Court is a case of many firsts. Unlike in Huawei v InterDigital, it is the licensing practices of a non-SEP holder in the current case that are found as abuse of dominance; it is the first case of its kind. The unprecedented application of essential facilities raises many questions, questions now left with the Supreme People’s Court of China (“SPC”). Clarifications are needed to assure millions of non-SEP holders, who now have to worry whether they will be compelled to give away their critical intellectual property assets if they ever say no to a Chinese competitor seeking licensing.

[1] For example, Unwired Planet International v Huawei, [2017] EWHC 711; Huawei v IDC (2013) Yue Gao Fa Min San Final Instance No. 306.

[2] United States v Colgate, 250 US 300, 39 S. Ct. 465 (1919).

[3] Ditto.


[5] Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements,

Due to the COVID-19 epidemic, many observers are predicting an increase in claims relating to insolvency proceedings. Against the backdrop of the increasing prevalence of arbitration clauses and agreements governing commercial disputes, in 2021 courts are likely to face a growing number of claims at the intersection of both arbitration and insolvency law.

In the PRC, the applicable laws for arbitration claims against an insolvent debtor are the 2006 Enterprise Bankruptcy Law of the People’s Republic of China (“EBL“) and the Arbitration Law of the People’s Republic of China (“PRC Arbitration Law”).

There are two paths to bankruptcy under the EBL, both requiring approval from the competent people’s court. First, the debtor may voluntarily petition the court for bankruptcy, and second, a creditor may pursue an involuntary petition against the debtor.

Bankruptcy Results in a Stay of Arbitration Proceedings

Whether initiated by the debtor or creditor, a successful petition for bankruptcy results in a temporary stay of legal proceedings — including both litigation and arbitration claims — against the debtor.  This stay suspends arbitration proceedings relating to the debtor until the court appoints a third-party administrator (the “Administrator“) to handle the debtor’s assets. Until such appointment, ongoing arbitration is suspended and the court is not permitted to direct any of the parties to submit further disputes to arbitration (EBL Art. 20). Note that while the EBL does provide for debtor-in-possession proceedings, in practice, in almost all cases an Administrator is appointed.

The Administrator May Disclaim Some of the Bankrupt’s Contracts, While Arbitration Agreements are Subject to the Strict Doctrine of Severability

Pursuant to EBL 18, once the stay is lifted, the Administrator has a special right to rescind the debtor’s unperformed contracts, but not an arbitration agreement within such a contract. This limited power of rescission is the result of how EBL Art 18 interacts with the strict doctrine of severability articulated in Art 19 of the PRC Arbitration Law. Under Article 19 of the PRC Arbitration Law, an arbitration agreement exists independently from the contract that contains it, such that a contract’s rescission (解除) does not affect the arbitration agreement within. Instead, the validity of the arbitration agreement is decided by PRC Arbitration Law Article 17(3), whereby arbitration agreements can be invalidated only when entered into “by coercive means”. In practice, showing coercion is only possible in exceptional cases.

In a similar vein, pursuant to EBL 31 and 32, the Administrator also has a special right to apply with the court or arbitration commission having jurisdiction over the matter to revoke a contract that is obviously unfair.

The Administrator Steps into the Debtor’s Shoes

Upon the Administrator assuming control of the debtor’s assets, the Administrator registers creditor claims against the debtor and steps into the debtor’s shoes during civil proceedings. First, creditors are required to submit their proof(s) of claims to the Administrator, who then tallies them to create a register of debts (EBL 57). This includes would-be litigants. Unregistered claimants may not bring claims against an insolvent debtor, and claimants seeking to stand on an arbitration agreement to circumvent this requirement are unlikely to succeed.

The Administrator reports to creditors once they are registered, who then supervise the Administrator’s efforts (Ibid Arts 23, 68–69). The Administrator must therefore participate in any applicable arbitration against creditors on the debtor’s behalf, while attempting to maximize the realizable returns of the other creditors. This is an ongoing duty. Where said arbitration continues even after the insolvency proceedings have concluded, the Administrator must nevertheless continue to perform the duties involved and carry such litigation or arbitration through to completion (Ibid Art. 122).

Once the Administrator takes charge of the debtor’s assets, is it business as usual for arbitration claimants against the debtor? The unfortunate fact for most arbitration claimants is that once the debtor enters insolvency, winning an award is still no guarantee that the claimant will recover the amount owed.

There are special procedural hurdles unique to insolvency law which require special consideration from arbitration claimants. Most creditors must follow the priority of claim order detailed in EBL Arts 43 and 113, which describe which creditors are paid first. These clauses call for priority payments to go to bankruptcy expenses, collective debts, medical and disability benefits, pension payments, old-age insurance premiums, employee wages, social insurance premiums, taxes, and finally “common bankruptcy claims”. Art 119 protects claimants whose civil or arbitration proceedings against the debtor extend beyond the conclusion of bankruptcy proceedings. It does so by apportioning a share of the debtor’s assets (proportionate to the claim sought) before an award or judgment is issued:

Article 119

With respect to a claim that involved […]  a […] pending arbitral decision […] [A]dministrator shall preserve the share involved in distribution in advance.

Facing an Administrator, an Arbitration Claimant Must Carefully Craft an Arbitration Strategy

The Administrator is an unusual adversary for an arbitration claimant.

During arbitration proceedings, the arbitration claimant faces an Administrator acting on the debtor’s behalf. The Administrator is also responsible for investigating the amount and validity of claims. However, when the arbitration claimant’s creditor rights have yet to be determined, that claimant may not always have a chance to exercise voting rights along with the other creditors (EBL Art 59, an exception to this is when the People’s Court is able to determine creditor rights provisionally). In addition, and perhaps to the arbitration claimant’s dismay, the Administrator also proposes how to apportion the debtor’s assets for the benefit of creditors (Ibid para Art 115(4)).

This would affect an arbitration claimant in two ways. First, this leaves the door open to the Administrator adjusting the arbitration claimant’s notional claim downwards as new evidence comes to light.  Second, the Administrator can use their role as the drafter of the plan of distribution as leverage against the arbitration claimant. Depending on the size of the arbitration claimant’s claim relative to those of other creditors, it may be easily out-voted during creditor meetings. Once the Administrator’s distribution plan is approved by the Creditors’ Meeting, it is submitted to the People’s Court for approval (Ibid Art 116), and once approved, the debtor’s assets are liquidated and distributed to the creditors. If those creditors wrongfully enlarged their shares at the expense of the arbitration claimant, the claimant’s only recourse after dissolution may be a pyrrhic victory on appeal, since the debtor by that point no longer exists as an entity.

An additional consideration for arbitration claimants is the importance of carefully setting the notional value of an arbitration claim before the responsible people’s court. Once the people’s court grants the arbitration claimant a notional value, this may set a ceiling on their realizable award. Strategically speaking, the amount to be “reserved” for the arbitration claimant’s benefit under EBL Art 119 is difficult to increase after the debtor’s assets have been liquidated. This means that obtaining an unfavourably low “reserve” award could be costly for an arbitral claimant. By way of example, if only $1 million was reserved for the claimant, it does little good for a claimant to win a $5 million award, since any amounts that were not earmarked may be distributed to other creditors by the time the award is issued. Therefore to maximize the amount of a realizable award, an arbitration claimant’s attorneys must be ready to front-load their case and present the full merits of their claim before they may, in fact, have fully developed their arbitration strategy.

Overall, an arbitration claimant should carefully weigh the options available in devising a suitable arbitration strategy against an insolvent debtor.


[1]Steele et al, “Trends and Developments in Chinese Insolvency Law: the First Decade of the PRC Enterprise Bankruptcy Law” 66 Am. J. Comp. L. 669 (2018) at 682

[2]William Lu, “Arbitration and Insolvency Proceedings: The Chinese Law Perspective” Asian Dispute Review, Vol. 23, Issue 1 (January 2021) 18 at 20. See also Supreme People’s Court, “Application of the Enterprise Bankruptcy Law of the People’s Republic of China, Provisions on Several Issues (3)” People’s Court News Media Network, March 28, 2019, online: <>.

When concluding an insurance contract, the insurance applicant has a duty of disclosure. The applicant is not obliged to disclose information unless the insurer enquires.

The insurer’s remedy for breach of this duty varies. The insurer can either:

  • Rescind the contract and keep the premium. The availability of this remedy depends on the degree of connection between the loss and the intention of the policyholder. If the policyholder deliberately breached this duty, then the insurer can avoid the policy, refuse all claims, and keep the premium.
  • Rescind the contract but return the premium.If the policyholder was merely negligent in breaching the duty, the insurer can avoid the contract but must return the premium.

The insurer has no right to rescind the contract if it underwrote the contract fully aware that the applicant had not provided honest answers.

Also, the right of an insurer to rescind a contract is extinguished if it is not exercised within 30 days from the date the insurer discovers the non-disclosure. Moreover, there is a two-year limitation period from the conclusion of the contract. After this expires, the insurer cannot take any action to avoid the policy.

What is insurance non-disclosure under Chinese law?

To control for adverse risks, the insurance industry is strictly regulated. In turn, insurance policies allocate risk in society. However, the conclusion of an insurance policy involves its own risks; risk of non-disclosure by one of the parties being foremost among them.

In light of its tremendous growth, it is easy to forget that insurance remains comparatively new in China. The first law on insurance, the Insurance Act (1995, the “Insurance Act“) was enacted in 1995 and then amended in 2002, 2009, and 2015.

Typically, non-disclosure arises out of the insured’s failure to disclose material information to the insurer. This is the basis for the doctrine of utmost good faith in the duty to disclose.

The rules governing the insured’s duty to disclose, misrepresentation, and remedies, are laid out in Article 16 of the Insurance Act.

The duty to disclose is found in paragraphs 16(1–2), together with the corresponding remedy of rescission for failing in this duty. Importantly, this duty only extends to non-disclosures or misrepresentations which go to the heart of the policy; in other words, which “affect the insurer’s decision on whether to underwrite the insurance or raise the insurance premium“:

Article 16

(1) Where the insurer makes any inquiry about the subject matter insured or about the insurant when entering into an insurance contract, the insurance applicant shall tell the truth.

(2) The insurance applicant fails to perform the obligation of telling the truth as prescribed in the preceding paragraph intentionally or for gross negligence, which is enough to affect the insurer’s decision on whether to underwrite the insurance or raise the insurance premium, and thus the insurer shall have the right to rescind the contract.

Per paragraph 16(3), there are strict time limits on the insurer exercising a right of rescission. The insurer’s right of rescission expires after 30 days of discovering the non-disclosure or misrepresentation. Moreover, there are no grounds for rescission two years after conclusion of the contract:

(3) The right to rescind as stated in the preceding paragraph shall be extinguished if not exercised within 30 days of the time the insurer knows of the cause for rescission. Once two years have elapsed after the contract is entered into, the contract may not be rescinded even if cause for rescission exists; where an insured incident occurs, the insurer shall be liable for paying indemnity or insurance benefit.

Paragraphs 16(4–5) describe intentional and grossly negligent misrepresentations in further detail, and treat the former more seriously than the latter. They both provide that the insurer shall not be liable for paying indemnity or insurance money for an insured incident that occurs before the contract is rescinded. The major difference is that whereas intentionally failing to tell the truth causes the insured to lose both benefits and premium, gross negligence will cause the insured to lose benefits but obtain a refund of the policy premium:

(4) Where the insurance applicant intentionally fails to perform the obligation of telling the truth, the insurer shall not be liable for paying indemnity or insurance money for an insured incident that occurs before the contract is rescinded, and shall not refund the insurance premium.

(5) Where an assured in gross negligence fails to make truthful disclosure so as to contribute materially to the occurrence of an insured event, the insurer shall not be liable for paying indemnity or insurance money for an insured incident which occurs before the contract is rescinded, but shall refund the insurance premium.

Under paragraph 16(6), the insurer has no right of rescission when it agrees to the policy despite knowing that the insured is not telling the truth:

(6) Where the insurer knowing the truth which the insurance applicant fails to tell enters into an insurance contract with the insurance applicant, the insurer, shall not rescind the contract and, if an insured incident occurs, shall be liable for paying indemnity or insurance money.

Finally, there is also a relevant portion of the Maritime Code of China, which addresses disclosure to a similar degree as the Insurance Act. Specifically, under Article 222,

[B]efore the contract is concluded, the insured shall disclose to the insurer material circumstances which the insured has knowledge of or ought to have knowledge of in his ordinary business practice and which would influence the insurer in deciding the premium or whether he agrees to insure or not.

Thus, while a Chinese insurer may rescind a policy for intentional or grossly negligent non-disclosure, it may not rescind for innocent or minor non-disclosures. While negligent non-disclosure (instead of grossly negligent or intentional non-disclosure) may entitle the insurer to other contractual remedies, this does not include rescission. That said, under Chinese law there are currently no legal definitions for the terms “intentional” or “gross negligence”, leading to judicial uncertainty. Even though the policies might have the definitions for “intentional” or “gross negligence”, the difference between gross negligence and negligence is  difficult to distinguish in many circumstances.

Note that not all non-disclosure by the insured will entitle the insurer to the right of rescission. non-disclosure which does not go to the heart of the agreement does not entitle a contractual party to rescission. According to some authors, there is a legal basis for this in the Interpretation of the Supreme People’s Court on Several Issues pertaining to Application of the Insurance Law of the People’s Republic of China (II), (the “SPC Interpretation II“). The SCP Interpretation II limits, under Article 6,  the insured’s duty to disclose to the insurer’s scope of inquiry (投保人的告知义务限于保险人询问的范围和内容), and furthermore puts the burden of proof on the insurer when a dispute over the scope or content of the enquiry arises. Another author posits that “if the insurer is not asking about important facts, the insured does not breach the duty even by concealing or misrepresenting.” For the latter opinion, there are disagreements in Chinese academia.

Thus while facts which involve assessing the underwritten risks are considered material, if the insurer asks about unimportant or irrelevant facts, the insured does not open the policy to rescission by concealing or misrepresenting such facts. Accordingly, the insurer’s inquiry should be limited to material facts and the insurer should not expect a right of rescission after discovering misrepresentation or concealment of facts which had little or no bearing on the conclusion of the policy.

Nevertheless, to avoid rescission, certain facts must be proactively disclosed by the applicant even absent a question from the insurer. While the Insurance Act itself does not address this, interpretive guidance was made available in the 2006 Reply on Issues Related to Insurance Contract Disputes (the “Reply on Insurance Contract Disputes“). Originally, under the Reply on Insurance Contract Disputes, when the insured “knows or should know of certain material matters upon which insurability may turn, and said matters affect the insurer’s decision on underwriting or pricing the premium, then even if the insurer has not made a clear inquiry, the insured must inform the insurer of said information.” That said, this was limited to only information which the insured knows (rather than should know) in Article 5 of the SPC Interpretation II, which specifically classifies information that the policyholder knows of (投保人明知的与保险标的或者被保险人有关的情况) as facts to be declared under paragraph 16(1) of the Insurance Act. Since the duty to disclose said facts falls under Article 16, the insured’s failure to disclose them will also entitle the insurer to the right of rescission.

The duty to proactively disclose facts therefore turns on two elements. First, the fact must be material. Second, the fact affects the insurer’s decision on underwriting or pricing the policy’s premium.

How then to decide which facts are material or immaterial? Somewhat confusingly, this appears to be a partially redundant enquiry between both the first and second elements. A material fact is one “[which] is enough to affect the insurer’s decision on whether to underwrite the insurance or raise the insurance premium.” Whether the standard used for “affect the insurer’s decision” is a subjective or objective one remains an unsettled question under Chinese law. That said, judges from many courts have adopted the “objective standard” of the prudent insurer, rather than place themselves in the shoes of the insurance provider at issue.

Since the first element of the test, on materiality, requires answering the second element of the test, on “affect[ing] the insurer’s decision”, the second element in practice turns on causation. In other words, after establishing that a fact [1] was material (because it would have affected a prudent insurer’s decision), the judge must then be satisfied that [2] the failure to disclose the fact did, in fact, affect the insurer’s decision on underwriting or pricing the policy. If both first and second elements are satisfied, then the insured will be found to have failed in their duty to proactively disclose the fact at issue.

Note that since PRC law does not distinguish between sophisticated insurance applicants and individual insurance applicants, or “business insurance” and “consumer insurance” applicants. Accordingly, the above rules on misrepresentation apply both to natural persons and legal persons applying for insurance. Note however that other specific rules apply when an insurance brokerage is involved in the policy’s negotiation.

What changes do the new Civil Code bring to insurance misrepresentation?

China’s new Civil Code brings very few additions to China’s insurance law regime. In fact, there are only a few articles related to insurance at all. These include, under the section on tort liabilities, a few clauses on compulsory automobile liability insurance (in connection with the Traffic Accident Social Assistance Fund). This is in order to ensure policies are in place to provide compensation to insureds and the third-party victims of traffic accidents. See Civil Code of the People’s Republic of China, arts 1213, 1215–1216. There are also passing references to insurance in the book on real property rights, art 390, on security interests, and art 461, on rights to insurance indemnities when in possession of another’s property, in addition to the book on contracts, which features art 909 on warehousing.

Nevertheless it is important to note that the Civil Code repealed the PRC Contract Law. As a result, Part III (Contracts) of the Civil Code is now the general law applicable to all contracts, including insurance agreements.



[2]Insurance Law of the People’s Republic of China (promulgated by the Standing Comm. Nat’l People’s Cong., June 30, 1995, effective Apr. 24, 2015), art. 16.

[3]Qihao He & Chun-Yuan Chen,  Insurance Law between Commercial Law and Consumer Law: Can the United States Inspire China in Insurance Misrepresentation, 26 CONN. Ins. L.J. 145 (2020), citing Zhen Jing, Remedies for Breach of the Pre-Contract Duty of Disclosure in Chinese Insurance Law, 23 CONN. INS. L.J. 327, at 348 (2017).

[4]Qihao He & Chun-Yuan Chen,  Insurance Law between Commercial Law and Consumer Law: Can the United States Inspire China in Insurance Misrepresentation, 26 CONN. Ins. L.J. 145 (2020) at 160.

[5]Qihao He & Chun-Yuan Chen,  Insurance Law between Commercial Law and Consumer Law: Can the United States Inspire China in Insurance Misrepresentation, 26 CONN. Ins. L.J. 145 (2020) at 160, citing Min Chang, Study on Insurance Contract Incontestability System, 2 GLOBAL L. Rev. 76-91 (2012).

[6]Qihao He & Chun-Yuan Chen,  Insurance Law between Commercial Law and Consumer Law: Can the United States Inspire China in Insurance Misrepresentation, 26 CONN. Ins. L.J. 145 (2020) at 160, citing the Reply on Issues Related to Insurance Contract Disputes, promulgated by the China Ins. Regulatory Comm’n, Feb. 21, 2006, effective Feb. 21, 2006).

[7]Qihao He & Chun-Yuan Chen, Insurance Law between Commercial Law and Consumer Law: Can the United States Inspire China in Insurance Misrepresentation, 26 CONN. Ins. L.J. 145 (2020) at 160.

[8]Qihao He & Chun-Yuan Chen, Insurance Law between Commercial Law and Consumer Law: Can the United States Inspire China in Insurance Misrepresentation, 26 CONN. Ins. L.J. 145 (2020) p 161, citing the Insurance Law of the People’s Republic of China (Standing Comm. Nat’l People’s Cong., June 30, 1995, effective Apr. 24, 2015), art. 16.

[9]Qihao He & Chun-Yuan Chen, Insurance Law between Commercial Law and Consumer Law: Can the United States Inspire China in Insurance Misrepresentation, 26 CONN. Ins. L.J. 145 (2020) at 160, citing (Zhen Jing, Insured’s Duty of Disclosure and Test of Materiality in Marine and Non-Marine Insurance Laws in China, J. BUS. L. 681, 686-87 (2006).)

[10]Ibid  at 163.

Michael Gu / Grace Wu / Vivian Wang [1]Introduction

The year 2020 is an unusual year. The outbreak of COVID-19 pandemic and continued international trade tensions posed challenges to Chinese antitrust law enforcement authority, the State Administration for Market Regulation (SAMR). Particularly, the SAMR was tested on their ability to address the impacts coming along with the crisis and to rapidly respond to new circumstances in the Chinese market. Despite the challenges, the SAMR maintained prudent in conducting the merger control review and even concluded more merger cases compared with the year 2019. In fact, the SAMR’s review process has become more efficient in 2020. On average, compared with 2019, it took less time for concluding a merger case review, especially for simple cases and normal cases with less competition impacts. According to the working report 2020 of the SAMR [2], the SAMR accepted filings of 481 cases and concluded the review of 473 cases. The figures represent an increase of 5% for accepted merger filings and 1.7% for concluded merger cases from 2019. The average time for case filing and conclusion fell by 27% and 14.5%, respectively.

As to conditionally-approved cases, the number is relatively stable in 2020 (four cases) compared with the previous year (five cases). Four cases were approved with behavioural conditions. Two of the four conditionally-approved cases in 2020 were withdrawn and resubmitted before the expiry of the first statutory merger review period (i.e., 180 days). This shows that the SAMR is still prudent in reviewing mega mergers which may raise competition concerns. Withdrawal of the filing also provides notifying parties with flexibility and sufficient time to communicate with the SAMR. From the first submission of filing materials to the case being conditionally concluded, the review process for the four cases above lasted for a minimum of 238 days [3] , a maximum of 358 days [4] , and an average of 291 days. There was no prohibition decision rendered by the SAMR in 2020.

Furthermore, the SAMR continued its tough stance against non-filers. The SAMR published 13 penalty decisions that failed to fulfil the notification obligations under Anti-monopoly Law.  In addition, the SAMR also clarified that the concentration involving variable interest entity (VIE) structure transactions [5] is within the scope of merger control review.


Release of The Interim Provisions for Merger Control Review

On 7 January 2020, the SAMR released a draft of the Interim Provisions for Merger Control Review (hereinafter “the Interim Provisions”) for public comment. The final version of the Interim Provisions was adopted in October 2020 [6] . The Interim Provisions consolidate all major regulations for merger control review into one coherent, comprehensive and easy-to-follow regulation, although no substantial changes have been proposed thereunder. However, it is notable that, pursuant to Article 2 of the Interim Provisions, the SAMR can authorize its provincial branches to take charge of merger control review. The decentralization of antitrust enforcement serves the purpose to better allocate the heavy workload undertook by the SAMR, by which it could focus on reviewing relatively complex cases. Therefore, we expect that the SAMR will continue to lead the review process of most cases in the near future. However, specific questions remained to be answered. For example, in what types of cases will the SAMR authorize its provincial branches? When exactly will the SAMR authorize? If authorized, what scope, i.e. to what extent, will the authorization be? These questions are expected to be answered through observation of SAMR practices.

Revision of The Anti-monopoly Law in Process

On 2 January 2020, the SAMR released a draft of revisions to the Anti-monopoly Law for public comment (hereinafter “the Revised AML”) [7] . Although the Revised AML follows the current Anti-monopoly Law’s basic framework, it significantly enhances the legal liability of Anti-monopoly Law violators. For example, in accordance with Article 55 of the Revised AML, the proposed penalty will be up to 10% of the non-filer’s annual sales in previous year instead of the maximum amount of fine RMB500,000 under the current Anti-monopoly Law, which is clearly insufficient for deterring non-filers. The Revised AML also clarifies practical issues such as ‘controlling rights’ for merger filing purposes. In addition, the Revised Draft introduces the so-called ‘stop-clock’ clause that specifies three conditions to discontinue the mandatory timelines for merger review:

  • on application or consent by the notifying parties;
  • supplementary submissions of documents and materials at the request of the antitrust authority; or
  • remedy discussions with the antitrust authority.

The revision of Anti-monopoly Law has been scheduled as key legislative work for 2021 [8] , and the new Anti-monopoly Law is expected to be adopted in the near future.

Enhanced Antitrust Scrutiny on E-commerce Platforms

On November 2020, the SAMR released “Antitrust Guidelines for the Platform Economic Industry” for public comment (hereinafter “Guidelines for Platform”). Just within three months, the final version of Guidelines for Platform was approved and implemented on 7 February 2021 [9] . The Guidelines for Platform provide a chapter of regulations, specifically obliging business operators in the platform economic industry to merger control review, including the filing standard, evaluation of competition concerns and restriction conditions. It is also notable that the Guidelines for Platform clarify that the concentration involving VIE structure transactions is within the scope of merger control review. The Guidelines further clarify that transactions involving start-ups, new types of platform or free business models with the possibility of eliminating or restricting competition cannot be exempted from merger filing, even though they do not meet the turnover standard.

Unconditionally cleared cases

The SAMR unconditionally approved 469 cases in 2020 – slightly more than the previous year (460 cases). With regard to simple cases, a total of 364 cases were concluded in 2020, accounting for 76.96 per cent of all cases. The proportion of simple cases increased compared with that of 2019 (the number of simple cases accounted for around 73.3 percent of total cases in 2019). On average, simple cases took 12.81 days to be concluded (among which 12.79 days for the first quarter, 12.59 days for the second, 13.35 days for the third, and 13.35 days for the fourth), which was slightly reduced from 15.37 days in 2019 (among which 15.12 days for the first quarter, 18.29 days for the second, 18.24 days for the third, and 13.37 days for the fourth). And in 2020, 27.47 per cent of those cases were unconditionally approved upon expiration of the 10-day publication period. This demonstrates that simple case procedure plays an active role in enhancing the efficiency of concentration review, particularly in the sense of reducing the reviewing time.

Based on statistics above and our experience, we reckon that since the fourth quarter in 2020, the SAMR has been exploring tailored approach of review to different types and structures of transactions, and accelerating its process for certain transaction types. Moreover, we notice that from the fourth quarter in 2020, the accelerating rate of the SAMR’s efficiency on simple case review has slowed down. Accordingly, we estimate that time spent before acceptance of the case, i.e. the time from the submission of filing materials to the acceptance notice of filing, will be longer, had the SAMR intended to further reduce the interval time between the public notification and that of case conclusion. Notably, for the first time, the SAMR disclosed that the time spent before acceptance of the case was 24 days on average in 2019, as provided in its Annual Report on the Enforcement of Anti-monopoly Law of China (2019) [10] .

Concluding from recent cases, it appears that the SAMR has a varying standard with its merger control review process depending on the nature and structure of the transaction. Firstly, horizontal mergers typically attract greater level of scrutiny compared to non-horizontal mergers; secondly, the SAMR also pays closer attention to transactions concerning industries with higher level of concentration; thirdly, for purely offshore transactions, that is, transactions that only involve joint ventures or companies with a small asset base in China that do not engage in substantial economic activities within China, the level of scrutiny is noticeably (and unsurprisingly) lower compared to transactions with a domestic implication; fourthly, transaction that involves the acquisition of an equity stake would be more closely reviewed compared to joint ventures; finally, complex transactions, such as multi-stage acquisition, privatization of a listed company, and red-chip model restructuring, would likely endure a more prolonged review process by the SAMR.

Mingcha Zhegang Case [11]

On 16 July 2020, the SAMR unconditionally approved the joint venture between Shanghai Mingcha Zhegang Management Consulting Co., Ltd. (‘Mingcha Zhegang’) and Huansheng Information Technology (Shanghai) Co., Ltd. (‘Huansheng’). Mingcha Zhegang provides data analysis and artificial intelligence solutions to enterprises in the catering industry, whereas Huansheng is a subsidiary of Yum China which in turn owns brands including KFC, Pizza Hut, and Taco Bell. The joint venture proposes to engage in information and network technology development in the catering industry. This is the first case reviewed by the SAMR where it officially acknowledged the presence of a VIE structure used by a party to the transaction. Here, the ultimate controlling party of Mingcha Zhegang is a Cayman-incorporated company, Leading Smart Holdings Limited. Since the SAMR’s publication of the simple case review on 20 April 2020, the case received widespread attention due to the uncertain result of merger control review involving VIE arrangements.

Despite the lengthy approval process (88 days), which is significantly longer than the average review period of unconditionally approved cases, taking up almost the entire duration allowed for in simple case review, the delay, contrary to public perception, may be unrelated to the presence of the VIE structure. Instead, the delay was more likely a result of the reasonable objections by related third parties, with regard to relevant market definition, market share of the notifying parties, etc., which in turn led to competition concerns to the SAMR. As the transaction was likely motivated by data consolidation between the two notifying parties, it was also alleged that this would raise issues relating to data monopolization. Ultimately, however, these issues did not appear to be detrimental to the result of merger control review, as the SAMR approved the transaction unconditionally.

Car Inc (Shenzhou Zuche) Case [12]

On 25 November 2020, the SAMR published the simple case summary that it would be reviewing MBK Partners’ proposed acquisition of Car Inc (Shenzhou Zuche). MBK Partners is a private equity firm predominantly focused on the North Asia region, and Shenzhou Zuche is China’s largest car rental company. Similar to the Mingcha Zhegang Case, this case also involves the use of a VIE structure, though this would almost certainly not be the focus of the SAMR’s review. Instead, the SAMR closely scrutinized this transaction for competition concerns, as this particular transaction involves financial and transportation industries, which have been the focus of regulatory attention in recent years. With MBK’s shares in the consortium that took eHi Car Services, China’s second largest car rental firm, private last year, such competition concerns would certainly be more pronounced. Beyond anti-competition issues, this transaction may also trigger foreign investment concern with the recent passage of Measures on Security of Foreign Investments [13] . Ultimately, the SAMR approved this case on 21 January 2021, which was a rather lengthy approval process (57 days).

As highlighted by these two cases, the SAMR has signaled its intention to review, with heightened scrutiny, cases which involve VIE structures. Putting aside any extrapolation from these decisions of the SAMR’s stance on the legality of the VIE structure, it is evident that at least within the anti-monopoly enforcement framework, it would be imprudent for companies which employ a VIE structure to ignore filing obligations. This is further evidenced with the introduction of the ‘Guidelines for Platform’, the penalties opposed on three tech companies for failing to comply with their filing obligations, and from recent statements made by the SAMR [14] . Given the SAMR’s approval in the Mingcha Zhegang Case and Car Inc (Shenzhou Zuche) Case, the consensus among practitioners is that transactions involving VIE structure would not be adversely affected. Companies should thus proactively assess their situation and ensure that they are compliant with the Anti-monopoly Law.

Conditionally cleared cases

In 2020, the SAMR conditionally approved four cases, a relatively stable number compared with 2019 (five cases). Figure 1 (below) illustrates the number of cases conditionally cleared from 2009 to 2020.

Figure 1

These conditional cases cover automobile, computer, electronic components, and pharmaceutical industries. They are the key areas of antitrust enforcement. The relevant products involved in these cases are not only related to people’s daily life but also high-tech driven. For example, the relevant product markets in ZF Friedrichshafen AG’s acquisition of WABCO Holdings case is related to automatic manual transmission (AMT) controllers; in Nvidia’s acquisition of Melox case is related to Ethernet adapters; and in Danaher’s acquisition of GE’s BioPharma case is related to microcarrier and other biological analysis instruments. Due to the relatively strong technical nature of the relevant market, the notifying parties in two of the four conditional cases withdrew and resubmitted the notifications. From the first submission of filing materials to the case being conditionally concluded, the review process for the four cases lasted for a minimum of 238 days, a maximum of 358 days, and an average of 291 days. There are many reasons for the lengthy review process, which may include the following.

  • In the absence of the ‘stop-clock’ clause in Anti-monopoly Law, the process of preparation for supplementary materials and negotiation for restrictive conditions are included in the reviewing period. Therefore, the review time for complex cases may exceed the statutory merger review period;
  • The transaction structures and the relevant products are complicated (e.g. in GE/Danaher case, Danaher and the target had horizontal overlaps in 25 products);
  • The relevant market is highly technical and complicated (e.g. Ethernet adapter and data center server in Melox/Nvidia case); and
  • The SAMR becomes more cautious in analyzing the competition impact of these cases.

Danaher’s acquisition of GE’s BioPharma Case [13]

On 28 February 2020, the SAMR conditionally approved Danaher’s acquisition of GE’s BioPharma unit, almost a year after the transaction’s initial merger filing. Danaher is an American diversified conglomerate involved in the healthcare and environmental industry. GE’s BioPharma unit, renamed Cytiva, provides both hardware and software used in biopharmaceutical research.

In addition to implicating a sensitive and strategically important industry, this case stands out for its complexity, involving 25 different product markets where the notifying parties had horizontal overlaps. In the SAMR’s analysis, the relevant geographical market for these product markets is defined as the worldwide market given that there were minimal trade barriers (as evinced by the low ratio of shipping cost to sales price) and minimal price differentiation across borders. The SAMR found that in many of the product markets, including the markets for microcarriers, chromatography systems, and hollow fiber filter modules, the transaction would have the effect of eliminating or restricting competition. For example, the SAMR found that, in the microcarriers market, the notifying parties would have a combined market share of nearly 70 per cent to 75 per cent worldwide. In addition to market share, the SAMR also appeared to be concerned with the impact of the transaction on innovation and R&D, particularly in the hollow fiber filter module market.

After several rounds of consultation, the SAMR accepted Danaher and GE’s proposal for structural remedies to salvage the transaction, concluding that the remedies would reduce the transaction’s adverse impact on competition. Danaher was to divest various businesses, such as the businesses in the aforementioned product markets which raised competitive concerns, including all its tangible and intangible asset and staff. Moreover, Danaher was to reach transitional agreement and share its relevant tangible assets and proprietary research of the ‘Emily Project’ to buyers of its divested businesses, aimed to encourage R&D and investment into new products. This last remedy stands out with the SAMR going beyond its traditional anti-competition toolbox to impose conditions that the agency believed would encourage innovation and facilitate greater product selection within the relevant market, instead of merely eliminating the negative impact raised.

We expect that the SAMR will continue to explore and deepen its anti-competition toolbox in major scientific research fields in life sciences and other high-end scientific research fields (for example, cutting-edge R&D involving biopharmaceuticals, or transactions involving innovative drugs for the treatment of critical diseases and rare diseases). The notifying parties should weigh and coordinate the filing strategies of various jurisdictions and carefully submit remedies based on the impact on the Chinese market to resolve the competition concerns of the SAMR.

Penalties on Non-filers

In recent years, the antitrust authorities have never relaxed their supervision of non-filing cases. In 2020, the SAMR significantly strengthened its supervision of and penalties on non-filing parties. The SAMR published 13 non-filing cases with a total fine of RMB5.65 million. The highest fine issued was RMB500,000, while the lowest was RMB300,000.

MBK Partners/Siyanli Industrial Case [16]

On 6 January 2020, the SAMR published its penalty decision against MBK Partners for its failure to notify its acquisition of a 23.53 per cent stake in Siyanli Industrial (‘Siyanli’). By failing to do so, the notifying parties breached Article 21 of the Anti-monopoly Law and was fined RMB350,000 accordingly.

This case also marks the first penalty decision relating to an investment fund acquiring a minority interest, suggesting that the SAMR has not only kept itself up to date of market movements, but that it is taking up a proactive role in policing this area. While the stake of 23.53 per cent prima facie appears to be a small proportion of the overall business, it is likely that the SAMR took a strict approach with its interpretation on ‘controlling rights’. The reason could be that this transaction is distinguished from most other PE/VC transactions where there is a greater difference in the proportion of equity stake between the fund investor and controlling party, and where the investment fund was largely kept away from the operations of the business.

Based on our experience, notifying parties holding a minority interest would have to assess their filing obligations under specific circumstances. Typical considerations include:

  • the voting right arrangement on major corporate decisions (such as whether financial investors had veto power), and
  • the presence of any special shareholder rights (such as preemptive rights, preferential rights, drag-along rights, buyback rights).

If an investor in a later financing round shares the same special shareholder rights to previous investors due to a most-favored-nation clause, this may also trigger filing obligations.

Intime Retail Case, New Classics Media Case & China Post Smart Delivery Case

On 14 December 2020, the SAMR published its penalty decisions against three non-filers, namely, (1) Alibaba for its acquisition of Intime Retail (Intime Retail Case) , (2) China Literature Limited for its acquisition of New Classics Media (New Classic Media Case) [18] , and (3) Hive Box Technology for its acquisition of China Post Smart Delivery (Hive Box Technology Case) [19] . The three cases all involve Internet companies using a VIE structure. It is the first time where the SAMR penalized concentration involving a VIE structure.

Among the three cases, the SAMR’s investigation into the Intime Retail Case and New Classics Media Case each took approximately 40 days, whereas the SAMR’s investigation into the China Post Smart Delivery Case took 174 days, significantly longer than the other two. It is further worth noting that the actual transaction of the first two cases took place in 2017 and 2018 respectively, whereas Hive Box Technology’s acquisition of China Post Smart Delivery was only recently completed in May 2020, implying that the SAMR had begun its investigation only a month after the deal’s conclusion. According to the SAMR’s subsequent press conference (Press Conference) [20] , the SAMR had conducted a comprehensive review of the transactions’ impact on market competition, examining the underlying market condition and the effect that the concentration would have. In the end, however, the SAMR concluded that the three transactions would not reduce or eliminate competition.

Dohia Case [21]

On 9 September 2020, the SAMR published their penalty decision against Zhejiang Construction Investment Group (‘ZCIGC’) for its failure to notify the agency of its 29.83% acquisition of Dohia Group (‘Dohia’). The transaction was conceived as a reverse merger whereby ZCIGC, a private company, would bypass the IPO process and become publicly listed through a complex arrangement with Dohia Group. The first phase involved ZCIGC acquiring a 29.83% of shares in Dohia. This was completed on 10 May 2019, where ZCIGC became Dohia’s largest shareholder. The second phase involved an asset swap between the two entities such that ZCIGC’s shareholders would become shareholders in Dohia.

Relevantly, ZCIGC had notified the SAMR when it was engaging in the second phase of its reverse merger in October 2019. However, the SAMR found that filing obligations would already have been triggered in the first phase of the transaction, handing out a penalty decision accordingly. Based on the penalty decision, it is likely that the SAMR made its decision based on the ownership concentration. With the SAMR specifically highlighting the 29.83% of shares, this suggests that the SAMR intended to create a deterrence effect, serving as a clear warning sign for other undertakings, as in the MBK Partners/Siyanli Industrial Case [22] . Therefore, companies engaging in asset restructuring, reverse mergers, and other multi-stage transactions should critically assess and determine the relevant stage of which filing obligations may be triggered. Moreover, publicly listed companies with a disperse shareholder base should also be mindful that a minority interest less than 30% may still be considered to be controlling interest. Any transaction that involves a change in ownership should be critically assessed as to whether the transaction triggers filing obligations.

Concluding from the non-filing cases as stated above, it is likely that the SAMR will continue its ex-post crackdown on previous transactions involving Internet companies using a VIE structure which have failed to comply with their filing obligations. Such companies shall remain vigilant and ensure that a robust compliance framework is in place. Strategic decisions, including the order of transaction to be reported and the supplementary material to be provided, shall consider all potential repercussions. The aforementioned cases are good precedents which shed light into the SAMR’s approach in defining the relevant market and in determining whether the conduct engaged would amount to monopolistic behavior.

Comments and Conclusion

In 2020, the SAMR maintained a consistently rigorous and prudent attitude towards merger control review. Despite the COVID-19, the time scale for filing and approval of merger control review (especially simple cases) has shortened compared to the previous year. As to conditional cases, the SAMR has imposed various conditions based on the characteristics of relevant products and the competition and innovation conditions of the relevant market, so as to eliminate the possible negative effects of concentration. In addition, 13 non-filing cases published in 2020 shows that the SAMR maintains its supervision of and penalties on non-filing parties. The SAMR has also clarified its attitudes towards transactions in the Internet sector involving a VIE structure.

The new trends and features of the SAMR should raise attention of enterprises in the relevant industries, whether it be the trend of scrutinizing transactions involving a VIE structure and the non-filing of minority stake investment by funds, or the trend of making intensive competition analysis of innovative markets. We expect that the SAMR will continue to accelerate the construction of antitrust enforcement system in 2021. When conducting the merger control review, the SAMR usually maintains the consistency between current and past cases, in particular, as to the market definition and certain factual issues. Meanwhile, to facilitate efficiency, high quality of notification materials will be required from the SAMR. Therefore, enterprises are advised to focus on the trends of antitrust enforcement and the revision process of the Anti-monopoly Law. In particular, enterprises shall understand the regulations of merger control review correctly, actively fulfill their filing obligations, and work closely with external experts to avoid delays in the closing of transaction, which would in turn affect their business plans. Furthermore, we expect that the SAMR will continue to strengthen the investigation and penalty of non-filing cases in 2021. Thus, before the revision of AML, enterprises shall consider to submit the post-consummation filing to the SAMR of such transactions.


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[1]Michael Gu is a partner of AnJie Law Firm based in Beijing. Michael specializes in competition law and M&A. Michael can be reached by email:, or telephone at (86 10) 8567 5959. Grace Wu is an associate of AnJie Law Firm, and Vivian Wang is an intern of AnJie Law Firm.[2]The original Chinese version of the working report 2020 of the SAMR is available at the SAMR’s website:

[3]Infineon’s acquisition of Cypress case, the announcement is available at the SAMR’s website

[5]Nvidia’s acquisition of Melox case, the announcement is available at the SAMR’s website

[5]A VIE structure is designed to allow foreign offshore investors to invest and control Chinese onshore business(es) through a series of contracts and agreements, overcoming foreign capital restrictions on particular sectors.

[6]The original Chinese version is available at the SAMR’s website: 2010/t20201027_322664.html

[7]The original Chinese version is available at the SAMR’s website: t20200102_310120.html.


[9]The original Chinese version is available at the SAMR’s website:

[10]The original Chinese version is available at the SAMR’s website:

[11]The announcement of unconditional approval is available at the SAMR’s website:

[12]The publication of simple case review is available at the SAMR’s website

[13]The original Chinese version is available at the NDRC’s website:

[14]The press conference of the SAMR is available at the SMAR’s website:

[15]The original Chinese version is available at the SAMR’s website:

[16]The original Chinese version is available at the SAMR’s website:

[17]The original Chinese penalty decision is available at the SAMR’s website:

[18]The original Chinese penalty decision is available at the SAMR’s website:

[19]The original Chinese penalty decision is available at the SAMR’s website:

[20]The press conference is available at the SAMR’s website:

[21]The original Chinese penalty decision is available at the SAMR’s website:

[22]The original Chinese penalty decision is available at the SAMR’s website:

China’s Supreme Court made a final judgment applying HCCH 1965 Service Convention to serve a Japanese litigant by post in 2019, under the situation where the government of Japan opposed to postal service but the Japanese litigant agreed to accept it.

I. Overview

On 22 Nov. 2019, the Supreme People’s Court of China (“the SPC”) rendered a final judgment over guarantee liability matters, Tang Yimin v. China Development Bank[1], involving the issue of cross-border service by postal channels to a Japanese under HCCH 1965 Service Convention[2].

In this case, one of the litigants, the Japanese named Toshihide Inoue provided in writing to the SPC his mailing address in Japan and expressly accepted the court to serve him directly by mail. The SPC served the judicial documents to Toshihide Inoue by post even though Japan declared the opposition to Article 10(a) of HCCH 1965 Service Convention that “the freedom to send judicial documents, by postal channels, directly to persons abroad”[3] under the situations where China and Japan are both contracting states of HCCH 1965 Service Convention.

II. Case Brief

On 26 Mar. 2007, China Development Bank (hereinafter referred to as “CDB”) and Xu Hui (hereinafter referred as “Xu”) signed the “Guarantee Contract”. Xu assumed joint and several suretyships for the debts under the “Syndicated Loan Contract” with the amount of US$65 million.

On 23 Dec. 2011, Xu, the Guarantor, deceased. On 10 May 2017, Tianjin No. 2 Intermediate People’s Court made a final judgment[4] that Tang Yimin inherited 50% of Xu’s estate and Inoue Toshihide inherited 9% (other heirs not related to this article will not be described here).

On 24 Dec. 2018, Tianjin Higher People’s Court rendered the first-instance judgment. In this case, CDB sued Tang Yimin, Inoue Toshihide and other heirs of Xu to assume joint and several guarantee liabilities within the inheritance, the first-instance court supported the plaintiff’s claims.[5] Tang Yimin appealed to the SPC. In the second-instance trial, the SPC served judicial documents to one of the appellees, Inoue Toshihide, in the postal method. Finally, the SPC dismissed the appeal and upheld the first instance judgment.

III. The SPC’s Decision and Opinions

Regarding the service to the Japanese citizen Inoue Toshihide in the second instance of this case, the SPC ascertained that Japan is a contracting state of HCCH 1965 Service Convention, and gave notice of its declaration of opposition to Article 10(a) that “the freedom to send judicial documents, by postal channels, directly to persons abroad” on 21 December 2018. However, in this case, Toshihide Inoue provided the SPC with his mailing address in Japan, and expressly accepted the SPC to serve him by mail. After receiving the judicial documents from the SPC, Toshihide Inoue signed those documents and sent the corresponding certificate of service back to the SPC.

The SPC held that in terms of civil cases that require cross-border service, if one contracting State to HCCH 1965 Service Convention where the litigant domiciles made oppositions to the postal method of cross-border service, serving judicial documents in a postal manner by the other contracting States to litigants who domicile in the contracting State shall not have the procedural legal binding force. However, the SPC reasoned that HCCH 1965 Service Convention is a convention of private law in nature as its content mainly deals with the service abroad of judicial and extrajudicial documents in civil or commercial matters. In terms of specific cases, if the litigants expressly agree to accept the postal service from the courts of other countries, it shall be construed as a waiver of the party. Respecting the parties’ reasonable choices based on their own places is conducive to the protection of the parties’ litigation interests and the justice of procedure.

Therefore, the waiver that Japanese citizen Toshihide Inoue has made in a private law case involving his own interests is not inconsistent with the Japanese government’s opposition to the way of service by post. Subject to the written consent and the actual acceptance of Inoue Toshihide, the postal service of judicial documents by the SPC complies with due process.

IV. Comments

Article 267 paragraph 1 of Civil Procedure Law (“CPL”) of China stipulates the ways for Chinese courts to serve judicial documents towards parties who do not have a domicile in China, that is, ” in the way specified in the international treaties concluded or acceded to by both the China and the country where the person on whom service is to be made resides”. In the realm of cross-border service, HCCH 1965 Service Convention has a strong influence around the world, both China and Japan are contracting parties to it. In this case, the SPC applied HCCH 1965 Service Convention to serve judicial documents to a Japanese litigant by mail according to the litigant’s clear choice, even if the Japanese government opposed the postal service.

Service abroad is a vital part of international civil procedure. It not only directly relates to whether the transnational litigation in a certain jurisdiction can be carried out in a timely and legal manner, but also relates to whether the procedural rights of the parties are fully protected, and whether the judicial sovereignty of a territory where the party is served is respected as necessary. In this case, the SPC tended to balance the side of judicial efficiency, judicial sovereignty, and the procedural rights of the parties.



[1] (2019) Zui Gao Fa Min Zhong No. 395.

[2] Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters concluded on15 November 1965 by Hague Conference on Private International Law (HCCH).


[4] (2016) Jin 02 Min Zhong No. 4339.

[5] (2014) Jin Gao Min Er Chu Zi No.0052.


CAC seeks comments on revising Administrative Measures for Internet Information Services

On January 8, 2021, the Cyberspace Administration of China (“CAC”) issued the Administrative Measures for Internet Information Services (Revised Draft for Comments) (the “Draft for Comment”) for public comments by February 7, 2021.

The Draft for Comment applies to any organization or individual within the territory of the People’s Republic of China providing Internet information services to domestic users by using domestic and foreign network resources.

The Draft for Comment requires that those who engage in Internet information services, which belong to operating the business of telecommunications, shall obtain the business license from the competent department of telecommunications; those who do not belong to operating the business of telecommunications shall undertake the filing-for-record formalities with the competent department of telecommunications. Those who have not obtained the business license of telecommunication business or have not completed the filing-for-record formalities shall not engage in Internet information services.

The Draft for Comment requires that Internet information service providers, Internet network access service providers and their staff shall adopt technical measures and other necessary measures to protect the identity information and log information collected and used from leakage, damage and loss.


MOFCOM issued the Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation and Other Measures

On January 9, 2021, the Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation and Other Measures (“Rules”), are hereby promulgated by Ministry of Commerce of the People’s Republic of China (“MOFCOM”) and shall be effective as of the date of the promulgation.

These Rules apply to situations where the extra-territorial application of foreign legislation and other measures, in violation of international law and the basic principles of international relations, unjustifiably prohibits or restricts the citizens, legal persons or other organizations of China from engaging in normal economic, trade and related activities with a third State (or region) or its citizens, legal persons or other organizations.

These Rules require that where a citizen, legal person or other organization of China is prohibited or restricted by foreign legislation and other measures from engaging in normal economic, trade and related activities with a third State (or region) or its citizens, legal persons or other organizations, he/it shall truthfully report such matters to the competent department of commerce of the State Council within 30 days.

These Rules require that the State shall establish a working mechanism composed of relevant central departments (“Working Mechanism”), to take charge of counteracting unjustified extra-territorial application of foreign legislation and other measures. Where the Working Mechanism, upon assessment, confirms that there exists unjustified extra-territorial application of foreign legislation and other measures, it may decide that the competent department of commerce of the State Council shall issue a prohibition order to the effect that, the relevant foreign legislation and other measures are not accepted, executed, or observed (“prohibition order”). The prohibition order may be suspended or withdrawn by decision of the Working Mechanism based on actual circumstances.

A citizen, legal person or other organization of China may apply to the competent department of commerce of the State Council for exemption from compliance with a prohibition order. Meanwhile, these Rules follow that where a person complies with the foreign legislation and other measures within the scope of a prohibition order, and thus infringes upon the legitimate rights and interests of a citizen, legal person or other organization of China, the latter may, in accordance with law, institute legal proceedings in a people’s court, and claim for compensation by the person.\


PBOC issued the Administrative Measures for Credit Reporting Business (Draft for Comment)

On January 11, 2021, the People’s Bank of China (“PBOC”) issued the Administrative Measures for Credit Reporting Business (Draft for Comment) (the “Draft for Comment”) for public comments by February 10, 2021.

On credit information collection, the Draft for Comment stipulates that credit agencies should:

  • follow the principle of “minimum and necessary” and credit information collection should not be excessive;
  • examine the business legitimacy, information source, information quality, information security and authorization of information subject of the information provider to ensure the legality, accuracy and sustainability of credit information collection;
  • clarify with the information provider their respective rights and obligations in data correction, objection of handling, information security, etc.; and
  • obtain the information subject’s consent, and inform the information subject clearly of the purpose, source and scope of credit information collection, as well as the possible adverse consequences of not agreeing to the information collection.


MIIT launches pilot program on classified and graded management of cybersecurity of industrial Internet enterprises

On January 13, 2021, the Ministry of Industry and Information Technology (“MIIT”) issued the Circular on Launching the Pilot Program on Classified and Graded Management of Cybersecurity of Industrial Internet Enterprises (the “Circular”).

The Circular provides that, in light of the actual development of the industrial Internet in various regions, and by taking into full consideration the willingness of various regions to participate in the program, 15 provinces (autonomous regions and municipalities directly under the Central Government) including Tianjin, Jilin, Shanghai, Jiangsu, Zhejiang, Anhui, Fujian, Shandong, Henan, Hunan, Guangdong, Guangxi, Chongqing, Sichuan, Xinjiang are initially scheduled to launch the pilot program.

The Circular requires that, through the pilot program:

  • the rationality, effectiveness and operability of rules, standards and procedures of classification and grading for cybersecurity of industrial Internet enterprises, and security-series protection specifications for industrial Internet shall be perfected, and the construction of a classified and graded management system for cybersecurity of industrial Internet enterprises shall be accelerated;
  • the main responsibility of the cybersecurity of pilot enterprises shall be performed, to form a reproducible and popularized classified and graded management model of cybersecurity of industrial Internet enterprises; and
  • a batch of typical solutions for cybersecurity of industrial Internet shall be summarized, a batch of excellent demonstration enterprises shall be selected, and a batch of professional service organizations shall be cultivated.


SPP issued the Provisions on the Handling of Cybercrime Cases by the People’s Procuratorates

On January 25, 2021, the Supreme People’s Procuratorate (“SPP”) issued the Provisions on the Handling of Cybercrime Cases by the People’s Procuratorates (the “Provisions”) for implementation as of the date of issuance.

The Provisions has a total of 65 articles in seven chapters, including general provisions, guided collection of evidence and case review, review of electronic data, and attendance in court in support of public prosecutions.

The Provisions require that the people’s procuratorate should strengthen the punishment in handling cybercrime cases in whole and pay attention to examining and discovering the clues of upstream and downstream related crimes. For a suspected crime, if the public security organ does not put it on file for investigation and should apply for approval of arrest but does not apply for approval of arrest, or if the case should be transferred for prosecution but does not be transferred for prosecution, supervision shall be carried out according to law.



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Hongquan (Samuel) Yang is a partner with AnJie Law Firm. He has worked as in-house counsel and external lawyer in the technology, media and telecoms (TMT) sectors for nearly 20 years and is regarded as a true expert in these areas. He advises clients on a wide range of regulatory, commercial and corporate matters, especially in telecommunications, cybersecurity, data protection, internet, social networking, hardware and software, technology procurement, transfer and outsourcing, distribution and licensing, and other technology-related matters. He also advises clients on compliance and investigation matters.

Samuel has been recognized as a Leading Individual in PRC TMT firms (Legal 500, 2020), a Band 1 Cyber Security & Data Protection Lawyer (LEGALBAND, 2019, 2020) and one of the Top 10 Cyber Security and Data Protection Lawyers in China (LEGALBAND, 2018). Legal 500 commented that Samuel and his team at AnJie have a particular strength in “telecom-related regulatory and general commercial legal services” and “issues such as cyber security and data protection areas” and have “built a real niche” in these areas.

Samuel mainly serves Fortune 500 companies, large state-owned enterprises and leading Chinese internet companies. Samuel is a regular contributor to many legal journals and his publications regarding Chinese data protection and cybersecurity laws are well-received and widely reproduced.

Before joining AnJie, Samuel worked for British Telecom, CMS and DLA Piper.