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China’s Merger Control Rules Changing: MOFCOM Publishes New Draft Regulations on Remedies and Simple Cases

by Henry Chen, Frank Schoneveld and Alex An

China’s Ministry of Commerce recently issued two new draft regulations.  The first provides a wider range of potential remedies to obtain the clearance of a concentration (e.g., a merger, acquisition, joint venture, etc.); the other defines the standards for “simple” merger cases that are eligible for a “fast-track” clearance procedure.

To read the full article, click here.




Distribution in China – Legal Issues

Contact: Frank Schoneveld, Kevin Qian, John Huang and Winston Zhao

McDermott Will & Emery is pleased to offer “Distribution in China – Legal Issues*,” a one-stop resource covering distribution in China, including:

  • The business models and legal structures most commonly used for distribution in China
  • Important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities
  • Pre-contract matters of which negotiators of distribution agreements for China should be aware
  • The main issues parties should take into account when drafting a distribution contract for use in China, including pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights

*This publication originally appeared as a four-part White Paper series.

To read the full article, click here




Abuse of IP Rights Under China’s Antitrust Rules: Recent Cases Have a Potentially Serious Impact

by Frank Schoneveld

Corporations doing business in China, based on their intellectual property (IP) rights, need to be aware of the potentially serious impact of China’s Anti-Monopoly Law and other antitrust rules.  China’s Anti-Monopoly Law prohibits the holder of IP rights from abusing those rights when it has a dominant market position.  Such dominance can be achieved under Chinese law with a market share as low as 10 percent.  Two recent cases demonstrate the greater reliance of Chinese companies on the antitrust rules, particularly when bargaining for lower royalties and license fees.

Interdigital v. Huawei

The Shenzhen Intermediate Court recently decided that Interdigital abused its patent rights by requiring Huawei to pay “excessive” royalties for essential patents for mobile telephone technology.  The license terms proposed by Interdigital to Huawei reportedly complied with the European Telecommunications Standards Institute’s policy as Fair, Reasonable and Non-Discriminatory (FRAND) terms.  However, the court found that the terms of the proposed license were not a FRAND complaint, and even if the offered licenses were a FRAND compliant, the royalties to be paid by Huawei should not exceed 0.019 percent of the sale price of each Huawei product using the patents.  This was significantly less than what Interdigital was prepared to accept (and reportedly less than that agreed upon in Europe for the same license).  In effect, Interdigital must now give Huawei a compulsory license at the lower royalty rate as fixed by the Chinese Court.  Interdigital has indicated it will appeal the decision. 

While the judgment has not been published, it is reported that other findings of the Shenzhen Intermediate Court include that Interdigital had also abused its IP rights by:

  • Tying the licensing of essential patents to the licensing of non-essential patents
  • requiring that Huawei provide a grant-back of certain patent rights

Microsoft v. Guangzhou Kam Hing

Another recent IP abuse case involves Microsoft, who reported Guangzhou Kam Hing to the Chinese local authorities in 2010 for using pirated Microsoft software.  This resulted in Guangzhou Kam Hing being fined by the Chinese authorities.  Subsequently, Microsoft filed a complaint to a local (Nansha) court claiming damages of RMB 4.7 million and requiring that Guangzhou Kam Hing purchase a specified quantity of genuine Microsoft software at a certain price.  Guangzhou Kam Hing has now brought proceedings in the Guangzhou Intermediate Court accusing Microsoft of abusing its IP rights by allegedly:

  • Applying quantity restrictions to reinforce its dominant position
  • Charging excessive prices thereby gaining “monopoly” profits

There was also a claim of discrimination in its pricing of software licenses based on differential pricing in Hong Kong and Mainland China for the same product.  It is unclear whether the claim of discriminatory pricing is being pursued.  The decision in this case is still pending.




Distribution in China – Legal Issues, Part IV. Drafting the Distribution Contract

Contact: Frank Schoneveld, Kevin Qian, John Huang and Winston Zhao

“Distribution in China – Legal Issues” is a four-part series.  Part I discussed the business models and legal structures most commonly used for distribution in China.  Part II looked at important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities.  Part III dealt with pre-contract matters of which negotiators of distribution agreements for China should be aware.  Part IV outlines the main issues parties should take into account when drafting a distribution contract for use in China.  These include pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights.

Read the full article here.




Distribution in China – Legal Issues, Part III. Pre-Contract Matters

Contact: Frank Schoneveld, Kevin Qian, John Huang and Winston Zhao

“Distribution in China – Legal Issues” is a four-part series.  Part I discussed the business models and legal structures most commonly used for distribution in China.  Part II looked at important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities.  Part III deals with pre-contract matters of which negotiators of distribution agreements for China should be aware.  Part IV will outline the main issues parties should take into account when drafting a distribution contract for use in China.  These include pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights.

To read the full article, click here.




China Fines Liquor Producers Over US$70 million for Fixing Minimum Resale Prices

by Frank Schoneveld

Last week one of China’s antitrust regulators, the National Development and Reform Commission (NDRC), imposed fines of RMB419 million (+/- US$72 million) on two of the most famous producers of Chinese liquor, Moutai and WuLiangye.  The fines were imposed for restricting the minimum price at which their distributors could resell the liquor. This was found to be illegal resale price maintenance. The fines are unprecedented in China and signal major new antitrust enforcement activity in the distribution of goods and in the alcoholic beverages sector in particular.

The fines imposed are at the lower end of the possible range of fines between 1% and 10% of each company’s annual revenues.  It remains to be seen whether any of these companies’ customers or distributors will now start private actions in the Chinese courts to recover damages for breach of the antitrust rules.  So far there have been over 60 private cases in Chinese courts against both foreign and domestic corporations for alleged breach of the antitrust rules. 

Both the liquor companies are State Owned Enterprises (SOE) unlike the six Korean and Taiwanese companies who were fined by the NDRC in January the equivalent of some US $56 million for a price fixing cartel in the Liquid Crystal Display (LCD) market. 

In general, foreign companies have largely ignored China’s antitrust rules as enforcement has been weak or non-existent and local subsidiaries of multinationals have down-played the risks.  Clearly however, antitrust law in China can no longer be ignored.  Many corporations with businesses in China are now scrambling to complete a China antitrust audit and put in place a robust compliance program to address questionable conduct.  Those who don’t do so face the now very real risk of significant fines by the Chinese antitrust authorities. 




Distribution in China – Legal Issues, Part II. Distribution System Design

Contact: Frank Schoneveld, Kevin Qian, John Huang and Winston Zhao

“Distribution in China – Legal Issues” is a four-part series.  Part I discussed the business models and legal structures most commonly used for distribution in China.  Part II looks at important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities.  Part III will deal with pre-contract matters of which negotiators of distribution agreements for China should be aware.  Part IV will outline the main issues parties should take into account when drafting a distribution contract for use in China.  These include pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights.

To read the full article, click here.




Distribution in China – Legal Issues, Part I. Business Models and Structures

For more information, please contact Frank Schoneveld, Kevin Qian, John Huang or Winston Zhao.

“Distribution in China – Legal Issues” is a four-part series.  Part I discusses the business models and legal structures most commonly used for distribution in China.  Part II will look at important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities.  Part III will deal with pre-contract matters of which negotiators of distribution agreements for China should be aware.  Part IV will outline the main issues parties should take into account when drafting a distribution contract for use in China.  These include pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights.

To read the full article, click here.




China’s Ministry of Commerce Announces Investigations into Failures to Notify a Concentration, Introduces New Transparency Measures

by Henry L.T. Chen, Frank Schoneveld, Jared Nelson and Sean Pan

China’s Ministry of Commerce recently announced that it opened four investigations during 2012 into suspected non-compliance with China’s merger control notification procedures.  The outcomes of the investigations are still uncertain, but the actions clearly show increased efforts to ensure compliance through enforcement of the law.  Although the number of investigations was fairly low in 2012, the four cases are part of a new, larger trend of enforcement that began with a 2011 announcement to prioritize these investigations and was reinforced by new interim measures aimed at specifying compliance obligations and enforcement procedures.  Multinational companies with operations in China are encouraged to increase compliance efforts in this area in order to avoid becoming targets of this new enforcement priority.

To read the full article, click here.




China’s Antitrust Authority Imposes Fines on Foreign Corporations for the First Time

by Henry L.T. Chen, Frank Schoneveld, Jared Nelson and Sean Pan

Recently China’s National Development and Reform Commission (NDRC) imposed an RMB 353 million (USD 56.7 million) penalty against an international price-fixing cartel of LCD manufacturers, the largest the NDRC has ever imposed for antitrust infringement.  The penalty is China’s first enforcement action against an international cartel and sends a strong signal to multinational corporations operating in China that enforcement actions against cartels will not be limited to Chinese entities.

To read the full article, click here.




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