The document summarizes key differences between conducting business and resolving disputes in China versus other countries like the United States. It discusses how China's legal system is based on civil law rather than common law and notes concerns with using Chinese courts for international disputes due to potential favoritism and lack of transparency. The document also outlines options for resolving disputes, including courts outside of China, international arbitration, and Chinese administrative remedies. It provides advice on negotiating arbitration clauses and considerations for choosing venues and governing laws.

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BEYOND LEGAL:
MAKING SENSE OF CHINA
DLA Piper, Silicon Valley
Thursday, October 19, 2017
Qiang Li – Co-Regional Managing Partner, Asia; Co-Country
Managing Partner, China
*This presentation is offered for informational purposes only, and the content should not be
construed as legal advice on any matter.

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1 How different is China and why? 2
2 Why and how to give China special treatment? 11
3 How to monetize foreign technology in China? 16
4 About the firm 21
Contents

3. 1 How different is China
and why?

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 Highly regulated – approval based (not disclosure based) capital market
designed to protect retail investors for social stability purposes (“similar to Hong
Kong”)
 Regime worked well in the early days to deliver limited liquidity to strategic
industries
 Extensive liberalization expected under the Xi administration's 2nd term?
How to explain the prominent absence of public
M&A in China

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 In the age of high liquidity, regime is causing massive inefficiencies in capital
allocation as evidenced by:
– high price-earning ratios (industry-blind) (sometimes used as benchmark by sellers in
private deals)
– rampant speculation
– enormous backlog of private companies queuing for IPO
– corruption in IPO approval
– rampant insider-trading
– follow-on offerings as challenging as initial IPO offerings
– public M&A close to impossible without government support and intervention
– no penalty on poor management or failed public companies
– limited role of professionals leading to poor quality of disclosures
– prominent Chinese high-growth companies opt for offshore listings (and delistings):
Alibaba, Tencent, etc.
How to explain the prominent absence of public
M&A in China (cont’d)

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 Much less regulated than public M&A – national approval threshold now as high
as US$300 million
 MOFCOM’s role is somewhat on the decline
 Role of professionals less subdued
 Merger control regime
 Add to watch list – Chinese "CFIUS" (national
security review)?
 M&A as major form of exit until Chinese stock
markets get their acts together
Why do we have thriving private M&A in China?

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 “China is a partnership with a general partner (GP) called the Communist Party
and everyone else is a limited partner (LP)…”
Source: http://www.ft.com/cms/s/0/cbd89828-4c44-11e0-82df-00144feab49a.html#axzz2S1NDLd4Z
How is China so “different?”
GP
LP
LP
LP
LP

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 Diverse country governed
centrally
– how is diversity celebrated?
 Case in point: the relative decline
of Shanghai under the prior Hu-
Wen administration
– Shanghai and other more
developed areas largely governed
in the same way as remote areas
controlled by “local tribes”
How is China so “different?” (cont’d)

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 It charges a lot of “carried interest…”
 Nevertheless, it has been delivering results since 1949
How would you rate the performance of the “GP?”

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 Has China developed its own
jurisprudence while “crossing the river by
feeling the stones?”
 Domineering role of government directly
results in high compliance costs for
multinationals
China’s existing legal system introduced by the
“GP” – the “Great Patchwork” in China’s half-baked
market economy

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 Role of lawyers
 The highly inefficient financial system
 The judicial system and its lack of
independence
 Corporate governance, fiduciary duty,
due diligence, supervisors of LLCs,
etc.
 Anti-commercial bribery rules
The Great Patchwork - examples

12. 2 Why and how to give
China special treatment?

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Shareholding structure of IMAX China
IMAX China (Hong
Kong), Limited
IMAX Shanghai Mulimedia Co.,
Ltd.
爱麦克斯（上海）多媒体技术有限公
司
100%
100%
Offshore
Onshore
Equity
ownership
*
* Reported Chinese Investors of IMAX China:
1.China Media Capital （华人文化产业投资基金）
2.Fountainvest Partners （方源资本）
IMAX China Holding,
Inc.
(Cayman Islands)
100%
IMAX Shanghai Service Co., Ltd.
爱麦克斯（上海）影院技术服务有限
公司

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Shareholding structure of GLP China
GLP China
(e.g. Lowa China Offshore
Holdings (Hong Kong) Limited)
Subsidiaries
e.g. 普洛斯投资管理（中国
）有限公司
100%
100%
Offshore
Onshore
Equity
ownership
Global Logistic Properties
Limited
(Singapore)
China Consortium
*
Reported Chinese Investors of GLP China:
1.China Life Insurance （中国人寿保险）
2.China Development Bank （国家开发银行）
3.Bank of China Group Investment （中银集团投资）
4.China Post （中国邮政）
5.HOPU Funds （厚朴基金）
CLF I 中国物流基金一
期
CLF II 中国物流基金二
期
China JVs
其他中国合资企业
56% ~58%

15. 3 How to monetize foreign
technology in China?

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Option 1: HK JV – WFOE subsidiary structure
Tech Inc.
Tech SPV
(Cayman)
JV
(Hong
Kong)
Chinese
investors
WFOE
(China)
100%
50%50%
100%
Offshore
China
VIE
(China)
Contractual
Control
Nominees
game development
(foreign ownership
allowed)
game publishing &
operations (foreign
ownership
prohibited)

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Option 2/3: onshore EJV/CJV (China)
Tech Inc.
Tech SPV
(Cayman)
Chinese
investors
EJV/CJV
(China)
100%
50%50%
Offshore
China
VIE
(China)
Contractual
Control
Nominees
game development
(foreign ownership
allowed)
game publishing &
operations (foreign
ownership prohibited)

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Option 4: IP license
Tech Inc.
Tech SPV
(Cayman)
100%
Offshore
China
OpCo
(China)
IP license
Chinese
investors
game development /
publishing &
operations

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 Flexibility of IPO options
 Flexibility of license of IP as capital contribution
 Tax benefits
 Corporate governance
 ESOP
 PRC "outbound" approval required?
 Re option 1, how to create offshore JV structure with a local partner who is not
able to move funds offshore?
Considerations for the various options

20. 4 About the firm

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Global Coverage
Australia
Austria
Bahrain
Belgium
Brazil
Canada
China
Czech Republic
Denmark
Finland
France
Germany
Hungary
Italy
Japan
Kuwait
Luxembourg
Mexico
Morocco
Netherlands
New Zealand
Norway
Oman
Poland
Portugal
Qatar
Romania
Russia
Saudi Arabia
Singapore
Slovak Republic
South Africa
South Korea
Spain
Sweden
Thailand
Ukraine
United Arab Emirates
United Kingdom
United States
DLA PIPER OFFICES RELATIONSHIP FIRMS

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 Qiang Li is a Partner in the Corporate team, based in DLA Piper's Shanghai office. Qiang has been practicing law in
Hong Kong and Shanghai since 1997. His practice covers mergers and acquisitions, private equity investment and
corporate finance. He advises multinational and Chinese corporate and fund clients on their cross-border M&A and
direct investments projects.
 Qiang frequently counsels international investors on China’s foreign investment laws and has served as Counsel to
the Board of The American Chamber of Commerce in Shanghai. He is a leading authority on China’s myriad legal
reforms in the areas of market access, corporate finance, corporate governance and general corporate matters.
 Qiang has significant experience in representing Chinese airline companies in aviation matters. He is also the
founding board member of the Aviation Law Society of Shanghai Law Society.
Qiang Li
Partner
co-Regional Managing Partner, Asia
O: +86 21 3852 2168
E: qiang.li@dlapiper.com

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DLA Piper, Silicon Valley
Thursday, October 19, 2017
*This presentation is offered for informational purposes only, and the content
should not be construed as legal advice on any matter.
PATH TO SUCCESS IN CHINA
DISPUTE RESOLUTION OPTIONS
WHEN CONDUCTING BUSINESS IN CHINA
Cedric Chao
DLA Piper LLP (US)
555 Mission St., Suite 2400
San Francisco, CA 94105
Tel: (415) 615-6008
Email: cedric.chao@dlapiper.com

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China is the Wild East – no laws and anything goes!
Chinese law is increasingly similar to US law – we can
just use our US law forms and concepts
We should be fine if we just read up on the regulations
Three dangerous misconceptions

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Chinese courts
Courts outside of China
International arbitration
Chinese administrative remedies
Dispute resolution options

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Comparing US and Chinese courts
US China
Legal system Common law Civil law
Legal issues Case precedent Statute-based
Fact finder Jury Judge
Pretrial discovery Yes No
Evidence
More credence to oral
testimony
More credence to written
evidence
Consequential damages Larger Smaller
Punitive damages
Available for business
torts
Unheard of

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Favoritism towards the local Chinese party
Lack of transparency, especially in the remote provinces
Chinese court’s lack of experience with complex international
commercial and IP disputes
Proceedings in Mandarin
Unfamiliar court procedures
Enforcement issues
Concerns about the Chinese courts

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One large US technology company requires its Chinese vendors and
customers to bring disputes to local Chinese courts
 Reasoning
 Its factory is one of the largest employers in
the province
 It enjoys good relations with local officials
 Disputes are not company-threatening
 Availability of attachment procedures
 Requires close supervision of local counsel
 Clearly the minority view
Some US companies favor Chinese courts

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Chinese law recognizes foreign court
judgments only from countries with
which China has an international treaty
or a reciprocal relationship
US court judgments are unlikely to
be enforced because no treaty or
reciprocal relationship exists between
the United States and China
US courts?

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Control risk
Minimize favoritism toward local party
Ability to select arbitrator – fairness, expertise
Mechanism for enforcement of final award
International arbitration: advantages

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Arbitration (and mediation) commonly used in China
Foreign arbitral awards recognized and enforceable
 Arbitration must be mandatory to avoid judicial resolution in
China
China is a signatory to the UN Convention on Recognition and
Enforcement of Arbitral Awards (New York Convention), which
requires enforcement of foreign arbitration awards
 However, the New York Convention has a public policy
exception which is sometimes used to shield China parties
International arbitration

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Once the parties accept arbitration as the dispute resolution
mechanism, the details must be ironed out
Arbitration can vary greatly depending upon what clauses are
included in the contract documents
Negotiating ADR provisions

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Institution: CIETAC or HKIAC, SIAC,
ICC, ICDR
–Emergence of new PRC regional
arbitration charters
Venue: China, United States or third
country
Governing law: Chinese law, US law,
or third country law
Language: English or Mandarin
Arbitrator selection
–Chinese or non-Chinese
–Subject matter expertise
Negotiating ADR provisions

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Three arbitrator tribunal, not single arbitrator
–Reason: risk mitigation
Provide that each party can nominate one arbitrator, and that the
parties nominate the chair by agreement absent which the
institution appoints
Provide that chair be of a nationality other than that of the parties
–Reason: avoid having two PRC arbitrators
Incorporate “IBA Rules on Taking Evidence in International
Arbitration”
–Reason: IBA rules provide limited discovery and witness
evidence which otherwise may be unavailable in PRC
arbitrations
Negotiating ADR provisions

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Arbitration laws of the seat of the arbitration govern arbitration
procedure
Local courts have supervisory jurisdiction over the arbitration, will
enforce those laws, and will hear actions to vacate the award
Non-Chinese parties with sufficient bargaining leverage typically
seek a venue in a neutral third country
Chinese parties are comfortable with Hong Kong and Singapore
as venues
US parties sometimes question whether Hong Kong is a neutral
seat when it is part of China
Our view: Hong Kong has an autonomous legal system and
sophisticated arbitrators who are familiar with common law
systems
International arbitration: venue in China?

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Chinese law prohibits parties from agreeing to arbitrate outside
China unless the dispute is “foreign related”
If foreign party is a foreign investment vehicle incorporated and
operating in China, it may be considered a “domestic” company
and thus cannot agree to an offshore seat with another Chinese
incorporated company
Chinese law may bar enforcement of the resulting award in
China
Foreign-owned companies incorporated and operating in China
should agree to arbitration in China
International arbitration: venue in China?

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Key concern: will the Chinese courts enforce an arbitral award
against a PRC company?
Anecdotal stories of prevailing foreign parties unable to obtain
enforcement, notwithstanding New York Convention
Improved record: new reporting system requires Supreme
People's Court to review any lower court decision declining to
enforce an award that is foreign related
Special arrangements to facilitate enforcement of awards made
in Hong Kong
Heightened risk: seek commercial protections in contract
International arbitration:
Will awards be enforced against Chinese companies?

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 Foreign related IP civil cases, as a share of
total cases dropped from 1.9% (2013), to
1.8% (2014), to 1.2% (2015)
 Central government aims to transform
China into one of the world’s most
innovative countries by 2020 → more IP
litigation
 Some foreign companies are reluctant to
sue PRC infringers
 Risk/reward ratio: perceived difficulty in
proving liability, statutory damages limit,
bad publicity
 By contrast, total administrative cases in
2015 were 10,926, of which 4,928 were
foreign (about 45%)
IP litigation in Chinese courts

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China’s dual-track system: parties can enforce IP through judicial
or administrative means
The three main PRC bodies responsible for conducting
administrative enforcement are:
 State Administration for Industry and Commerce (AIC) –
trademark, trade secrets and unfair competition matters
 State Intellectual Property Office (IPO) – patent issues
 State Copyright Office – copyright infringement
Each administrative body has state and local offices
PRC administrative enforcement

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Advantages of administrative enforcement:
Proceedings are usually quick and inexpensive
Proceedings can be useful means of obtaining evidence
for use in subsequent civil litigation
IPO and Copyright Office actions, particularly in more
advanced cities, can be effective means of enforcement
In areas with a high level of foreign investment, Chinese
authorities may be more willing to take action to
encourage further foreign investment
PRC administrative enforcement

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 Cedric Chao is a trial partner and co-head of the global international arbitration practice of DLA Piper, a global firm of
4,200 lawyers. Cedric, a former federal prosecutor, has a unique skill set, having first-chaired numerous high-stakes
U.S. jury and court trials (business and criminal), as well as international arbitration disputes. He has represented
clients, as first chair, in five business disputes where the amount in controversy exceeded $1 billion, and in multiple
others where the amount in controversy was in the hundreds of millions of dollars. His clients have spanned many
industries and countries.
 Cedric has appeared in U.S. District Courts in a number of federal judicial districts and in the trial courts throughout
California. He has argued thirteen times before the Ninth Circuit Court of Appeals, including once to an en banc
panel, once before the U.S. Supreme Court, and four times before the California State Court of Appeal. He has
second-chaired four additional arguments before the Ninth Circuit and one additional argument in the U.S. Supreme
Court. Cedric has led teams in international arbitration proceedings under the rules of the ICC, ICDR, LCIA,
UNCITRAL, AAA, and JAMS, and has represented parties in court proceedings to enforce or set aside arbitral
awards. Cedric has sat as an arbitrator under the rules of the ICC and SIAC.
 Cedric is a U.S. member of the ICC Arbitration Commission, and serves on the Governing Council of the American
Arbitration Association. He is one of 31 Advisors to the American Law Institute project to draft the Restatement of the
U.S. Law of International Commercial Arbitration. Cedric is a former chair of the U.S. Magistrate Judge Screening
Committee of the Northern District of California and of the California State Bar Litigation Section.
 Cedric is listed in Best Lawyers in America (for arbitration, mediation, and business litigation), and has been named
by that publication as “2018 San Francisco Arbitration Lawyer of the Year.” He is named a leading lawyer by
Chambers USA and Chambers Global, among other rating publications.
Cedric C. Chao
Partner
O: +1 415 615 6008
E: cedric.chao@dlapiper.com

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DLA PIPER PRESENTS:
DOING BUSINESS IN CHINA
DLA Piper, Silicon Valley
Thursday, October 19, 2017
*This presentation is offered for informational purposes only, and the content should not be
construed as legal advice on any matter.

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Onshore JV
JV
(PRC)
HoldCo
(HK)
PRC
customers
Sales
50%50%
RMB fund
(PRC)
PRC IP
IP HoldCo
(Cayman)
ROW IP
US parent
(US)
US IP
Offshore
Onshore

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Offshore JV
JV
(Cayman)
IP HoldCo
(Cayman)
ROW IP
Sales
50%50%
HoldCo
(HK)
USD Fund
(US)
US parent
(US)
US IP
OpCo
(PRC)
PRC
customers
PRC IP
Offshore
Onshore

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 Peng Tao is a Partner with DLA Piper's Hong Kong office. He focuses his practice on China tax, transfer pricing,
mergers and acquisitions, foreign direct investment, and general corporate and commercial issues concerning
operations in China, offshore investment from China and other cross-border transactions.
 Peng also has experience in working across DLA Piper's offices in Shanghai, Silicon Valley, and New York, where he
was the Head of the China Desk for Tax.
 Prior to joining DLA Piper, he also worked in the Palo Alto and Beijing offices of two other leading international law
firms.
 Before entering private practice, Peng worked at the Fiscal and Financial Department with the Bureau of Legislative
Affairs of the State Council of the People’s Republic of China from 1992 to 1997. He had drafted and reviewed
banking and tax laws and regulations that were applicable nationwide in China including the Provisional Regulations
on Value Added Tax, the Law on People's Bank of China and the Law on Commercial Banks.
 Peng has published numerous articles and spoken on China tax and transfer pricing issues.
Peng Tao
Partner
O: +852 2103 0511
E: peng.tao@dlapiper.com

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DLA Piper, Silicon Valley
Thursday, October 19, 2017
CHINA / ASIA CYBERSECURITY
AND DATA LAW UPDATE
*This presentation is offered for informational purposes only, and the content should not be
construed as legal advice on any matter.

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ASIA PACIFIC CYBER AND DATA REGIMES
AT-A-GLANCE 2011 VS 2017

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China's new CyberSecurity Law
Most comprehensive privacy and cyber law in the world?
 Privacy / Internet sovereignty / Data security driven?
 Regulates:
 Network operators
 Key information infrastructure operators ("KIIOs")
 Providers of network technology
 "Personal data" and "Important data"
 Data localization is a key requirement:
 Absolute offshore transfer prohibition for certain data sets and for all KIIOs
 Security assessments and data subject consents otherwise required
 Mandatory breach notifications
 Provision of system access for Chinese authorities

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What does this mean for US businesses operating
in China?
 Data localization is also driven by legal, commercial and
operational needs:
– "Personal data and “important data" may be legally
required to remain in China
– The "Great Firewall" of China
– China customers demanding in country solutions
 PRC based infrastructure brings practical challenges:
– Local ICP, ISP and IDC licensing requirements
– China hosting partners
– .CN domain name ownership concerns
– Fragmentation of global data pooling strategies
– Expensive duplicate / segmented systems

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Recent Data security Enforcement Trends
Fines, Civil claims, PR damage and Prisons
China, 5 years of inaction; and since June 1, 2017:
 22 US technology company employees detained
 7 US content companies shut down
 Baidu, Tencent and Sina allegedly fined RMB 500,000
Hong Kong: First ever privacy related jail sentence
South Korea: Privacy Law used to shut down credit
card issuers following cyber event
Singapore : Dozens fined for inadequate data security

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DLA Piper CyberCert

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Scott Thiel
Partner
Location Head
O: +852 2103 0519
E: scott.thiel@dlapiper.com
 Scott Thiel's background in engineering and dual qualifications in both intellectual property law and
computer science provide him with a unique opportunity to understand the technical aspects of client's
ICT and outsourcing projects. An understanding of the issues faced by both sides of a transaction enables
Scott to seek innovative solutions to resolve negotiation deadlocks and deliver completed deals for his
clients.
 He advises both users and suppliers of IT outsourcing services on all aspects of the procurement process.
He also advises on complex technology transactions. His work usually involves him on business critical
projects frequently valued in the tens or hundreds of millions of dollars. He advises clients across a range
of sectors including technology, banking, transport, energy and sport.

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DLA PIPER & KPMG PRESENT:
DOING BUSINESS IN CHINA
DLA Piper, Palo Alto
*This presentation is offered for informational purposes only, and the content
should not be construed as legal advice on any matter.

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 Panel 1 Topic: China Joint Ventures and Alliances
– Moderator: Paul Chen (Partner, DLA Piper)
– Panellists: Li Qiang (LQ) (Partner and Co-Regional Managing Partner, DLA Piper, Asia), Nathan (Nate) Bush (Partner and
Head of Investigations and Antitrust & Competition, DLA Piper, Asia) Cedric Chao (Partner and Co-Head, International
Arbitration, DLA Piper) and Peng Tao (Partner, DLA Piper)
 Panel 2 Topic: Tech Transfer, Antitrust and Regulatory issues in China JVs
– Moderator: Sherman Chu (Partner, DLA Piper)
– Panellists: Scott Thiel (Partner and Head of Technology & Telecoms practice, DLA Piper, Asia) and William (Skip) Fisher
(Partner and Head of Patents, DLA Piper, Asia)
AGENDA

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CROSS-BORDER LICENSING AND
TECHNOLOGY TRANSFER WITH
CHINESE CHARACTERISTICS
William (Skip) Fisher, Partner, DLA Piper, Shanghai
October 2017

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Business Is Booming!
 PRESSURE – for foreign companies to commercialize IP, for Chinese companies to innovate and globalize
 CONFIDENCE – in China's business and legal environment (foreign companies), in themselves (Chinese companies)
 NECESSARY – for foreign companies to enter/succeed in China market, for Chinese companies to compete
 US-China licensing and tech transfer is big business, but still lopsided in favor of inbound – China is a huge net tech importer!
 WHY will upward the trend continue (with increasing levels of tech export)?
– China wishes to increase value of technology contracts from $130 billion in 2013 to $330 billion in 2020
– China wishes to increase licensing export revenue from $1.36 billion in 2013 to $8 billion in 2020
– More foreign R&D in China and more JVs and other technology collaborations

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Licensing/Tech Transfer Cycle
US Co has
background IP/tech
US Co
licenses/transfers
background IP/tech
to PRC Co
PRC Co makes
improvement on
background IP/tech
or independently
innovates
PRC Co
licenses/transfers
foreground IP/tech
to US Co

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 Structuring considerations
 Tax implications
 Compliance with US-PRC technology import/export regulations
 Ownership of improvements and other technical achievements
 Fair and reasonable royalty rates
 Effectiveness of IPR enforcement mechanisms
 Employee-inventor remuneration requirement
 State secrecy examination for foreign patent filings
 Trade secret protection
Cross-Border Licensing/Tech Transfer Issues

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JV /Third-party Licensee Structure
Technology/IP

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WFOE Structure
Technology/IP

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Early Tax Advice Is Crucial!

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PRC Technology Import & Export Regulations
 Regulations of the PRC on the Administration of Technology Import
and Export (effective 1 January 2002)
– Technology transferred from outside China into China or vice
versa by way of trade, investment, or cooperation
– Assignment and licensing of patent rights
– Assignment and licensing technical know-how
– Provision of technical services
– Catch-all: “transfer of technology by other means”
 Classification of technology?
 Requirements for technology import contracts?

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Classification of Technology
Prohibited
technologies
No import/export under any
circumstances
Restricted
technologies
Approval by MOFCOM
Permitted
technologies
Registration with MOFCOM

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Licensor Liability for Third-Party Infringement
 Where the assignee to a technology import contract is accused of
infringement by a third party for using the technology supplied by the
assignor in accordance with the contract, the assignee shall
immediately notify the assignor; the assignor, upon receipt of such
notification, shall assist the assignee in removing the impediment.
Where the assignee to a technology import contract infringes upon
another party's lawful rights and interests by using the technology
supplied by the assignor in accordance with the contract, the assignor
shall bear the liability therefore. (Technology I/E Regulations, Article 24)
 Where the assignee infringes the lawful rights and interests of another
party by exploiting a patent or using technological secrets in
accordance with the provisions of the contract, the assignor shall
assume liability, except where the parties have agreed otherwise.
(Contract Law, Article 353)
 Conflict between Technology Import Regulations and Contract Law?

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Licensor Warranty of Technology Quality
 The assignor to a technology import contract shall ensure the
technology it supplies is complete, accurate, effective and capable of
achieving the agreed technical objective. (Technology I/E Regulations,
Article 25)
 The assignor to a contract for the assignment of technology shall
guarantee that it is the lawful owner of the technology which it
provides, and guarantee that such technology is complete, accurate,
effective, and capable of achieving the agreed objectives. (Contract
Law, Article 349)

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Licensor Restrictions on Improvements
 Contract invalid if restricting licensee's making or use of
improvements
 Terms not equitable if:
– Grant back of improvement without compensation
– Non-reciprocal transfer of improvement
–Sole or joint ownership of improvement without compensation
(Technology I/E Regulations, Articles 27 & 29(3);
Contract Law, Article 354)

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License Royalties – Freedom to Contract?
 Earlier MOFCOM policy of unofficial cap of 5% net sales
 MOFCOM policy repealed, but often applied in practice
 Higher royalty may be challenged by MOFCOM
 5% cap vs. freedom to contract vs. "fair and reasonable"?
 Different treatment for restricted vs. unrestricted technology?

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IP Enforcement in China Is Improving!
The American Chamber of Commerce in Shanghai,
2015 China Business Report
 Survey: In the last year, China's enforcement of IPR has …

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IP Enforcement in China Can Be Effective!
The American Chamber of Commerce in the PRC,
2016 China Business Climate Survey Report
 Survey: Rate the effectiveness of China's enforcement of IPR laws and regulations

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 Lack of IPR protection & enforcement is a "serious hindrance" (18%) or
"some hindrance" (46%) to business in China
 75% of respondents identify "better IPR protection & enforcement" as
the top three drivers for improving innovation in China
 54% of respondents identify "improved IPR protection" as the top three
reforms important to business growth in China
Source: 2017 China Business Report, AmCham Shanghai
But Improvement Is Still Needed!

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 Obtaining evidence: Parties generally are not compelled to produce information they don't want to produce, and evidence
preservation by courts can be ineffective. This makes proving infringement and damages difficult for the plaintiff in many cases,
though the situation is improving.
 Submitting foreign evidence: Chinese courts require foreign-sourced evidence to comply with certain formalities, including
notarization by notary public, legalization by Chinese embassy/consulate, and translation to Chinese. The process is time
consuming and expensive, and must be considered as part of litigation strategy.
 Explaining complex technical issues: Though many courts have IP tribunals for hearing IP cases, most judges have no technical
background. Technical issues are addressed via judicial technical appraisals and/or party technical expert witnesses. It is crucial
for counsel to be able to "teach" the technology.
IP Litigation Challenges

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 Receiving reasonable damages: Nearly all patent damage awards are based on statutory damages (upper limit of RMB 1 million,
or EURO 140,000). Actual awards are generally low and insufficient to compensate the plaintiff for actual loss, and don't act to
deter infringement. Plaintiffs in China should base damages on lost profits or illegal profits as much as possible.
 Enforcing judgments: Many defendants fail to comply voluntarily with judgments against them, especially paying damages.
Plaintiffs in China must be prepared to apply to court for enforcement of judgment.
 Facing local bias: While local bias/protectionism still exists in Chinese courts, the problem likely is overstated. In most cases,
depending on the court and situation, the plaintiff will receive fair hearing under Chinese law. However, foreign plaintiffs must be
aware of the possibility of bias and develop a litigation strategy accordingly.
IP Litigation Challenges

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Employee-Inventor Remuneration
 Both the PRC Contract Law and PRC Patent Law stipulate that
employers must reward employees who develop technology on the
employer’s behalf, and upon exploitation of the technology, allocate a
reasonable proportion from the proceeds derived from the use or
transfer of the technology as remuneration.
– Article 76 of the Implementing Rules of the Patent Law expressly allows employers
to reach agreement with employees regarding the form and amount of rewards and
remuneration required under Article 16 of the PRC Patent Law, and Articles 77 and
78 provide default rules when there is no agreement.
– Default minimum rewards – RMB3,000 for invention patents, RMB1,000 for
utility model & design patents
– Default minimum remuneration – 2% operating profit for invention & utility model
patents; 0.2% operating profit for design patents; 10% royalties
– Recommendation: Companies should implement a reward and remuneration
system for inventions in a policy and/or by agreement to avoid the onerous default
rules.

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Secrecy examination requirement for inventions made in China
 Secrecy examination is required prior to an entity/individual's
application for a patent overseas on any invention or utility model
made in China. Failure to do so can result in refusal to grant the patent
in China.
– Option 1: File first in China, together with request for secrecy examination – process
can take up to 6 months (normally much less)
– Option 2: File international application with SIPO as receiving office – deemed to
simultaneously request secrecy examination, notification of secrecy decision within 3
months
– Option 3: File request for secrecy examination in order to file first in foreign country –
priority date might be delayed, but is good option if both PRC and US first-filing rules
apply

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Trade Secrets under PRC Anti-Unfair Competition Law
Technical
information
Not known to the public
Confidentiality measures
Economic value and
practical utility
Operationa
l
information

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Protection of Trade Secrets
Company
trade
secrets
Employees
CustomersSuppliers

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Protection of Trade Secrets
HR
Vet employees
before/after they
join
Training on what
can/cannot be
disclosed
Conduct exit
interviews
Facilities
Control access to
areas
Sign in, sign out,
wear badges
Keep clean desk
policies, shred
documents
Documents
Mark confidential
and individually
watermark
Prohibit unapproved
forwarding of
company
documents
Sign NDAs, NCAs
IT
Use stand alone
computers for highly
confidential data
Change passwords
regularly, secure
company emails
Control access to
rooms

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 William (Skip) Fisher has practiced IP law in the U.S., China and internationally for 20 years. His practice focuses on
counselling, licensing, and enforcement/litigation in all areas of intellectual property, with a particular emphasis on
patents, trade secrets and international IP and technology-related transactions.
 He works with clients to establish and implement strategies for procuring, protecting, commercializing and enforcing their
IP rights and for minimizing risk to their IP assets in China, the U.S. and globally. He also counsels clients on U.S.,
Chinese and international IP law, practice and strategy; represents them in challenging, high-stakes patent, trade secret
and other IP litigation and enforcement actions; and assists them in negotiating and drafting IP licenses, collaboration and
development contracts and other commercial agreements.
 Skip advises clients in a wide range of technologies and industries, including computer hardware and software, computer
networks, mobile devices and applications, telecommunications, Internet and e-commerce, pharmaceutical,
biotechnology, chemical, medical devices, mechanical and industrial products, aerospace, automotive, and
manufacturing.
 Skip is the China Head of Patents within the Intellectual Property and Technology (IPT) team, based in DLA Piper's
Shanghai office.
William Fisher
Partner
Head of Patents
O: +862138522198
E: William.Fisher@dlapiper.com

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CHINA JOINT VENTURES:
ANTITRUST & ANTIBRIBERY
DLA Piper, Silicon Valley
Thursday, October 19, 2017
*This presentation is offered for informational purposes only, and the content should not be
construed as legal advice on any matter.

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 Risks: legal, reputational and Commercial  Watch the exits!
 "Risk based" diligence on (1) partners and (2) contributed entities, businesses,
key personnel
 Extraterritoriality: consider compliance risks from third-country activities
– Antitrust/competition
– Antibribery/anticorruption (ABAC)
– Official corruption
– Commercial bribery
– Overseas bribery
– Sanctions and export controls
– Sectoral regulations, environmental, labor, etc.
 Document compliance diligence and findings
 TRAP: Insufficient control during transitional periods
 TRAP: divergent risk appetites and risk assessments
Compliance dimensions of China JV strategy

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 "Although the FCPA’s accounting requirements are directed at
‘issuers,’ an issuer’s books and records include those of its
consolidated subsidiaries and affiliates. An issuer’s responsibility thus
extends to ensuring that subsidiaries or affiliates under its control,
including foreign subsidiaries and joint ventures, comply with the
accounting provisions."
 "Companies may not be able to exercise the same level of control
over a minority-owned subsidiary or affiliate as they do over a majority
or wholly owned entity. Therefore, if a parent company owns 50% or
less of a subsidiary or affiliate, the parent is only required to use good
faith efforts to cause the minority-owned subsidiary or affiliate to
devise and maintain a system of internal accounting controls
consistent with the issuer’s own obligations under the FCPA."
 "In evaluating an issuer’s good faith efforts, all the circumstances—
including “the relative degree of the issuer’s ownership of the
domestic or foreign firm and the laws and practices governing the
business operations of the country in which such firm is located”—are
taken into account."
DOJ and SEC: FCPA guidance

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 Policies & procedures addressing
key corruption risks:
– gifts
– hospitality, entertainment and
expenses
– customer travel
– political contributions
– charitable donations and
sponsorships
– facilitation payments
– solicitation and extortion
 Third party relationships:
Managing risks from agents and
intermediaries
Elements of effective compliance programs
(from US Settlement Agreements)
 High level commitment
 Internal controls
 Proper oversight a independence
 Training guidance
 Internal reporting and investigation
 Enforcement and discipline
 Mergers acquisitions
 Monitoring and testing
 Periodic risk-based review
 Industry risk
 Country risk
 Operational/business model risk

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 Reps and warranties
– Covered actors: JV, JV partner, subsidiaries, officers; employees, agents, and
Shareholders
– Covered misconduct: elements vs offenses
– Nexus to JV
 Corporate governance
– Compliance programs: specifications and models, adoption and amendment
– Appointment and oversight of compliance, audit, legal functions and high-risk
commercial functions
– Procedures: triggering events, escalation, investigation and remediation
 Remedies and compliance impasse?
Negotiating compliance provisions

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 Antimonopoly Law (AML) establishes a mandatory, suspensive merger review
regime modelled on EU practice
 "Concentrations" must be reported in advance to Antimonopoly Bureau (AMB)
of Ministry of Commerce (MOFCOM) for clearance on competition grounds
under the AML if the transaction parties' global and China revenues satisfy
notification thresholds
 Penalties for failure to file and gun jumping
China: mandatory merger notification system
Current
Thresholds
Either And
(1) All parties' combined global turnover > RMB 10
billion (US$1.61 billion, Y121.6 billion)
OR
At least two
parties' China
turnover > RMB
400 million
(US$65 million)
(2) All parties combined China turnover > RMB 2.0
billion (US$323 million, Y24.3 billion)

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 Formation of "greenfield" JV or conversion of existing business to JV may
qualify as a reportable "concentration" in many antitrust jurisdictions
– EU Model:
– Joint control where multiple parties hold rights (and vetoes) conferring
"possibility of exercising decisive influence" over JV
– JV must perform "on a lasting basis all the functions of an autonomous
economic entity" to be treated as "concentration"
– MOFCOM largely follows EU on joint control, but has not adopted full
functionality test  pending amendments follow EU
 In many jurisdictions (including EU and China), revenues of the two parent
groups can trigger notification even if the JV will only operate elsewhere
– Simple case/short form procedures may be available
 As Chinese companies "globalize," JVs with Chinese parties increasingly
trigger notifications in China and other jurisdictions
Merger review of China JVs

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Process
 Pre-notification consultation
 Intake: is filing complete?
– "Preview:" clock does not start until
filing deemed complete
 Phase 1 initial review (30 Days)
 Phase 2 full review (90 Days)
 Phase 3 extension (60 Days)
– Notification may be withdrawn and
refiled to "restart clock" in
controversial case
 Approve/block/remedies
Timing effects: PRC merger review process
 Of the 917 unconditional clearances
from 2015-2017, 208 involved JVs
 "Simplified procedure" alleviated
bottleneck, but low headcount and
turnover makes China a gating item,
even for uncontroversial transactions
 In 2016, MOFCOM cleared 82% of all
cases and 98.6% of all fast-track
cases within 30 days of initiation
1 August 2008 –
10 October 2017
Result
Cleared 1881
Conditions 31
Blocked 2

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 AML sets low bar for remedies
 Low combined market shares can
trigger remedies, especially in
sensitive sectors
 Comfortable with behavioural
remedies, "permanent hold separate"
against international practice
 Industrial policy may taint decisions
– National champions, controls on
price/supply, famous brands
 Pretext, error or innovation? Sparse
decisions & controversial foreign
precedents for remedies or theories
 Conditions: not just antitrust
 Implicit welfare standards:
– Consumer welfare vs total welfare
– Domestic welfare vs global welfare
– Politically-weighted domestic total
welfare
 JVs with China partners
– "Win-win" narratives
– Benefits of domestic allies
– Not all policy objections can be
neutralized
– AML uniquely reaches offshore
transactions
 Political risk assessments in multiple
jurisdictions
MOFCOM's substantive decision making

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 Nathan (Nate) Bush is a partner in DLA Piper's Litigation and Regulatory
Department. He advises clients in internal investigations, government
enforcement actions, regulatory proceedings, and commercial disputes in
Asia.
 He was based in Beijing from 2004 through 2012, and has covered the region
from Singapore since 2013. Nate was a pioneer of antitrust practice in China,
and guides clients through anti-bribery and anticorruption (ABAC) risks in
Asia's dynamic markets.
 Nate served as general counsel of the American Chamber of Commerce in
China from 2009 to 2011, and now co-chairs the IP & Legal Committee of the
American Chamber of Commerce in Singapore.
 Nate is graduate of Harvard Law School and the University of Virginia. He
clerked for the Hon. Leonie M. Brinkema in the U.S. District Court for the
Eastern District of Virginia.
Nathan Bush
Partner
O: +65 6512 6065
E: nathan.bush@dlapiper.com