As the first implementing rules for the Cybersecurity Law, the Draft Measures define the framework for the Chinese cybersecurity review system, which may impose significant influence on entities’ digital assets and future IT solutions. Related entities are suggested to closely monitor its development.

On Saturday, February 4, the Cybersecurity Administration of China (CAC, also translated as China Internet Information Office) released the Security Review Measures for Network Products and Services (Draft) (“Draft Security Review Measures”). Please see attached the courtesy translation by AnJie and the CAC website (http://www.cac.gov.cn/2017-02/04/c_1120407082.htm). Public comments are due March 4, 2017.

Preliminary Analysis:

The Draft Security Review Measures appear to implement elements of the National Security Law and Cybersecurity Law. The 16 articles address some of the most challenging concepts and issues in the cybersecurity review mechanism stipulated in the Cybersecurity Law.

Highlights include:

1. The purpose of the Draft Security Review Measures is to enhance “securable and controllable level of the network products and services”, ensure the safety of the supply chain and implement the National Security Law and Cybersecurity Law. (Art. 1)

2. Art. 2 and Art. 11 deal with the scope of application. Art. 2 generally stipulates that “important” network products and services concerning the “national security and public interest” should be subject to security review. Art. 11 further specifies that the network products and services purchased by Critical Information Infrastructure (CII) operators should go through security review as long as “it may impact national security.” (Art. 2, 11)

Comment: Art. 35 of Cybersecurity Law only requires security review for CII related products and services. However, Art. 59 of the National Security Law requires security review for “foreign investment…that affect or may affect national security, construction projects that involve national security matters, and other major matters and activities to effectively prevent and resolve national security risks.”

There may be a legal question as to whether the Draft Security Review Measures are effectively expanding the scope of the security review beyond the law.

3. The security review is to focus on four kinds of risks endangering “security and controllability,” including (1) instability, (2) threat to supply chain integrity, (3) illegal data retention, and (4) abuse of user dependency (the risk that providers may conduct unfair competition and harm users “by taking advantage of dependency of the users”). (Art. 4)

Comment: Some of these “risks” may exceed the scope of cybersecurity.

4. The CAC will align with other government departments to establish a Network Security Review Office and engage experts. Third parties certified by the CAC will undertake particular reviews. (Art. 5, 6, 7, 8, 12, 13)

Comment: This may raise concerns regarding the competency and neutrality of third parties conducting security review activities.

5. The finance, telecom, and energy sector regulators will conduct security reviews separately, while security reviews in other sectors are to be organized by CAC. (Art. 9)

6. The party and government agencies, as well as “key industries” should place a priority on procuring network products and services which have passed security review and should not procure products and services that have failed to pass security review. (Art. 10)

Comment: The scope of “key industries” is unclear.

7. The Network Security Review Office will have the authority to issue a security evaluation report on the security level of relevant providers on an ad hoc basis. (Art. 14)

Comment: It may be worth considering whether such reports may expose providers’ trade secrets or other legitimate interests.

These incentives are clearly response of the Chinese government toward the exodus of foreign investment in recent years. We see signs of relaxed control over the commercial activities in general, stronger intention to protect IPR, and national treatment to FIEs in areas like R&D. However it is more accurate to say these policies are currently staying as general principles only. Whether or not the State Council can really execute them locally remains to be seen.

On January 17th, The State Council published a 20-article Notice on measures to broaden the openness of market and effectively utilize foreign investment (the “Notice”), which includes measures to liberalize the market access, improve the investment environment and attract foreign investment. What is worth mentioning may be that the corresponding competent authorities are listed after each set out measure, which seems to add more serious expression to the Notice.

Here are some highlights that may have impacts on Nike’s business in China:

  • Liberalizing market access: The Notice indicates that the Foreign Investment Industrial Guidance Catalogue and other relevant policies and regulations will be revised to further relax the restriction on foreign investment in manufacturing and other sectors. Specifically, foreign investment in high-end, smart or green manufacturing projects is encouraged as well as other efforts to upgrade the traditional industries.
  • Research and development: Foreign-invested enterprises and research institutes are allowed to cooperate with their domestic counterparts on R&D initiatives. FIEs are able to take part in projects listed in the national science and technology plan, get tax deductions for R&D expenses, and enjoy other incentives for hi-tech companies and R&D centers.
  • National treatment: Reiterating the State Council’s Opinions on Fair Competition in 2016, the Notice requires all local and departmental rules and regulations to comply with the national policies and prohibits discriminatory practices against foreign investment. When it comes to the regulatory approval procedures for business licenses and qualifications, the same time frame and criteria must apply to both FIEs and local companies. The Notice also emphasizes equal treatment in government procurement projects.
  • Intellectual property protection: The Notice stresses the protection of FIEs’ IPR by improving the IP law enforcement mechanism, and reinforcing the efforts in rights safeguarding assistance, arbitration and mediation. International cooperation on IPR protection, such as the establishment of mediation and arbitration branches of international organization, is are welcomed.
  • Involvement in standard setting: The Notice calls for equal opportunities for both Chinese companies and FIEs in China’s standard setting efforts to improve the transparency of standard setting and revising process. Information sharing and public supervision are emphasized.
  • Incentives to foreign investment: The Notice openly allows local governments, particularly in the north-west and north-east regions, to formulate local rules giving FIEs income tax, land, and other incentives to attract foreign investment.

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We believe this new initiative will have a bigger impact on foreign app stores, which will face more stringent censorship. Foreign entities may need to pay attention to the developments to ensure smooth distribution and operation of its apps.

On January 13, 2017, the Cyberspace Administration of China (CAC) issued the Notice on Initiating Recordation of Internet App Stores (“Notice”). As of January 16, 2017, all app stores must file for recordation with the provincial-level cyberspace authority according to the Notice, a measure to implement the Regulations on the Administration of Mobile Internet App Information Services (“Regulation on APP”) issued by CAC in mid 2016.

According to the CAC spokesperson, the initiative aims to identify and crack down such violations as distributing illegal information, infringing online users’ rights and endangering public security on apps.
All app stores must record for start of operation, modification of recorded items and termination of operation. App stores refusing recordation, providing false information, or having severe violations in operation will be penalized according to law.

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The proposed legislation remains staying at high level rules, without imposing real enforcement effects on the platforms such as Alibaba. Nonetheless, there are some encouraging articles entities may leverage on, such as those concerning IPR protection, which, though, are not strong enough in our opinion. Running on-line stores, entities may also need to pay attention to the articles providing personal information protection obligations for Platforms.

The draft E-Commerce Law (the “Draft”) is open for public comments till January 26, 2017. The law aims to regulate the e-commerce market, and protect the legitimate rights and benefits of various parties in the e-commerce transactions.

The Draft is not changed much from the version submitted to the NPC for review. One notable difference is that financial products and services as well as audio-video programs and internet publishing are excluded from the law.

The key highlights of the Draft are summarized as follows:

The Scope and Definition

E-commerce is widely defined as “business activities involving products or services transactions through information networks such as the Internet”, which means e-commerce transactions taking place through mobile Internet are included as well. Additionally, products refer to both tangible and intangible products. The law applies to e-commerce activities within the territory of China and cross-border as well.

E-Commerce Operators and Third-Party Platform

The Draft expressly states the distinction between E-Commerce Vendor (“Vendor”) and E-Commerce Third-Party Platform (“Platform”) and stipulates their respective obligations.

For vendors, the Draft Law clearly provides obligations they should undertake. For example they must show their business licenses in visible places on their homepages. They are not allowed to charge consumers an express logistics service fee higher than what is offered by the professional express logistics service providers, or to restrict consumers from choosing their preferred express logistics service providers.

For Platforms, the Draft expressly mandates that Platforms should be obliged to review the Vendors on their platforms, and provide them with stable and safe services. Platforms are also required to formulate open and transparent transaction rules, make public important information, and record transaction logs.

E-commerce Transaction Safeguard

  • Intellectual property rights protection: Not only Vendors but also Platforms are obliged to protect intellectual property rights. Platforms must take necessary measures in accordance with laws and regulations upon intellectual property rights holder’s notice. These positive elements are then weakened by such provisions that rights holder must shoulder civil liabilities of wrongful accusations IP infringement. And once the accused Vendor submits a statement to the platform guaranteeing that no infringement has taken place, the platform should terminate the measures in a timely manner and inform the rights holder so it can seek remedies through administrative or judicial ways. Although the most severe penalty for Platforms fail to fulfill their IPR protection obligations could be the suspension of business license, the penalty is generally not sufficiently biting as there are no corresponding enforcement measures provided in the Draft.
  • Personal information protection: The Draft provides that e-commerce business entities can collect personal information of the consumers only against lawful, justifiable and necessary need, and with the consent of the consumers. Platforms must set up a mechanism to guard against leakage, loss, damage or destruction of consumers’ personal information.
  • Protection of fair competition: Acts of unfair competition are expressly prohibited by the Draft, including domain name abuse, fake and misleading links, attacks or invasions to other company’s network, unauthorized use of electronic signs to mislead people, and inappropriate restricting transactions.
  • Prohibition of illegal credit rating: the Draft clearly prohibits acts disrupting e-commerce credit rating including enhancing one’s reputations through fictitious transaction, deleting adverse evaluations, making compensations or other conditions in exchange for favorable evaluations, forcing the other party to the transaction to make, modify, and delete evaluations against its wills, and publishing untruthful credit rating information.
  • Consumer protection: the Draft emphasizes the protection of consumer rights by such requirements as authenticity of product information, product and service quality guarantee, transaction rules, standard rules, consumer rights protection deposits, as well as online dispute settlement mechanism.

Cross-border e-commerce

The Draft encourages cross-border e-commerce by claiming to set up a supervising and regulatory mechanism adaptable to e-commerce with electronic customs clearance, duty collection, commodity inspection and quarantine.

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The long-awaited Supreme Court’s trademark judicial interpretation -“Provisions of the SPC on Certain Issues Related to Trials of Administrative Cases Involving the Grant and Confirmation of Trademark Rights” (“Provisions”) – has been just published in January 2017 and will enter into force on March 1st , 2017. The new Provisions address the outstanding challenges and issues in relation to trademark registration and enforcement, including bad faith trademark registration, well-known mark, and mechanizing rights. The Provisions contain some articles favorable to trademark owners’ future enforcement actions.

The highlights include:

Ex officio review of defects in TRAB’s decisions by the court:

  • Art. 2 of the Provisions clarify that in principle, the court should only review the claims raised by the plaintiff. But if there are obvious defects in a TRAB decision, the court may adjudicate on the issues ex officio, after hearing the opinions from both parties.

Criteria for the distinctiveness of 3-D trademarks:

  • The threshold for registering 3-D trademark seems to be raised a bit higher. Art. 9 of the Provisions stipulates that “Even the shape of the 3-D trademark is originally designed or first used, it does not necessarily create inherent distinctness.” The long-lasting and broad use seem to be a must for registering the shape of the products as a 3-D trademark. The wording is consistent with our understanding of the current rules.

Extended scope of prohibiting trademark agents and representatives from hijacking trademarks

  • Art. 15 and 16 of the Provisions offer broader applications of Article 15(2) of the Trademark Law, e.g., listing 5 types of situations which fall into the definitions of “agents and representatives”. If the applicants are relatives of the agents and representatives, bad faith would be presumed.

Presumption of the ownership of copyright

  • Article 19 of the Provisions provides practical means of proving the ownership of copyright. The design drafts, manuscripts, consignment contracts etc. could be used for presuming the existence of existing copyright. The prior trademark gazette or certificates could also be seen as initial evidence.

Protection of titles of copyright works as well as names and images of fictional characters

  • Article 22 of the draft Provisions offers protection to the titles of copyright works as well as names and images of fictional characters, under the condition of “notoriety” and likelihood of association. The rules may contribute to clarification of the scope of “mechanizing rights” protection.

Protection of personal names

  • Article 20 of the Provisions defines the conditions for protecting personal names, which requires the stable “association” between the person and the names. This is consistent with SPC’s opinion reflected in the “Jordan” case. Also, the Provision extends the protection of personal names to nicknames, pen names, translated name and the like.

Criteria for defining “bad faith” of well-known trademarks

  • Article 25 of the Provisions further defines the conditions to identify “bad faith registration” of well-known trademarks.

Procedural issues are also touched upon in the Provisions.

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Alibaba is trying to prove its continuing efforts in fighting counterfeits, as it has been put back to the Notorious Market List. Brand owners may evaluate the effectiveness of the “Big Data Anti-Counterfeiting Alliance” and see if it benefits their online enforcement programs.

On 16th January, Alibaba Group announced the establishment of “Big Data Anti-Counterfeiting Alliance” with 20 international brands including Louis Vuitton, Huawei, Samsung, and Mars. The Alliance aims to leverage big data technologies to strengthen the global fight against counterfeits.

From September 2015 to August 2016, the law enforcement agencies in China have shut down 675 counterfeit manufacturing and sales spots thanks to the Alibaba Big data technologies, which identify suspected fake merchandise sold online by evaluating unit price and purchase frequency. Alibaba work with the brands to verify the authenticity, and report counterfeit information to the police to locate the infringers.

According to Jessie Zheng, Alibaba Chief Platform Governance Officer, Alibaba will prioritize technical support to alliance members and involve them in the rulemaking process, as well as implementation and evaluation of the anti-fake campaigns. Through the Alliance, member companies can also coordinate directly with the police, the quality inspection, and industry and commerce authorities.

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 Authored by Michael Gu (michaelgu@anjielaw.com) and Sun Sihui (sunsihui@anjielaw.com) at AnJie Law Firm

Background

After a long wait, the Film Industry Promotion Law of the People’s Republic of China (“Film Industry Promotion Law”) was finally adopted by the Standing Committee of the National People’s Congress (NPC Standing Committee) on November 7, 2016. It will enter into force on March 1, 2017. The Film Industry Promotion Law will form a fundamental legal foundation for the film industry. Therefore, its promulgation has more than simply symbolic significance. Preparation for the law began as early as the 1980s. Nonetheless, the first draft for soliciting opinions was released on December 15, 2011. The past five years witnessed three rounds of deliberation by the NPC Standing Committee. The Film Industry Promotion Law encompasses all manner of production in the film industry, from film creation, to production, through distribution, and finally to movie screening. With the rapid development of its film industry, China has become the second largest film market in the world. However, China’s film industry still faces particular problems, including unitary themes, a deficit of originality, mediocre quality, lackluster production values, and even box office fraud. The Film Industry Promotion Law streamlines administration so as to stimulate creativity in the film market. It also aims to strengthen regulations prohibiting irregular practices in the film industry and provide powerful legal protections for film development. As the first law of China directly covering the cultural sector, the Film Industry Promotion Law will have long-term and profound influences on the development of cultural industries.  This article will summarize and interpret eight highlights of the Film Industry Promotion Law with close relation to practitioners of the film industry from a practical point of view. 

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  Authored by Simon Li (lixiameng@anjielaw.com) and Bo Hu (hubo@anjielaw.com) at AnJie Law Firm

Over the Year 2016, the Chinese government has overhauled its regime of administration over foreign direct investment (“FDI”) by promulgating a series of amendments to laws and new regulations to introduce a record-filing process to replace the pre-approval process, and to shift its focus from pre-approval to post-filing supervision. The new FDI administration regime simplifies administrative formalities and establishes a more efficient system for FDI. It will certainly bring significant and positive influences on foreign investors who plan to invest in China as well as those who are now operating businesses in China through foreign invested enterprises (“FIE”). This article will review those noteworthy changes brought by the new FDI administration regime.   

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Authored by Michael Gu (michaelgu@anjielaw.com) and Sun Sihui (sunsihui@anjielaw.com) at AnJie Law Firm

Introduction

On November 9 2016, after a nearly five-year investigation, the State Administration for Industry and Commerce (SAIC) finally concluded the Tetra Pak case. The SAIC’s landmark decision:

  • imposed a Rmb667,724,176.88 (approximately $97 million) penalty on Tetra Pak – equivalent to 7% of the Swiss packaging giant’s 2011 China sales – for its abuse of a dominant position in China; and
  • ordered Tetra Pak to cease its illegal conduct.

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 Authored by Arthur Dong (dongxiao@anjielaw.com) and Darren Mayberry (darren.mayberry@anjielaw.com) at AnJie Law Firm  

On January 10, 2017, Singapore enacted yet another landmark legal reform, renewing its status as a leading seat for international arbitration. Singapore has completely abolished the torts of maintenance and champerty. This will allow parties to international arbitration to engage attorneys on a contingency fee basis. In addition, Singapore has expressly declared that third-party funding agreements are neither illegal nor contrary to public policy. Third-party funding arrangements allow parties to borrow money from certified lenders to pay their lawyers or experts in advance, but at the cost of a significant portion of the expected recovery. Once the reform comes into effect, the changes will further solidify its status as international arbitration hub. 

Here we restate the objectives of Singapore’s Civil Law Amendment Bill, after which we examine the effect of the bill on contingency fee arrangements. We explore comparisons with other jurisdictions throughout. We will also address the most remarkable effect of the Civil Law Bill, Singapore’s resounding affirmation of third-party funding. We then examine the framework under which the Civil Law Act will soon delegate its regulation of third-party funding to the Ministry of Law.  

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