Friday, August 31, 2007

Anheuser-Busch: How Good Does a Slam Dunk in Chinese Court Feel?

Anheuser-Busch, the world’s largest brewer, recently won a trademark infringement lawsuit against a Chinese infringer, obtaining substantial damages and an injunction.

The opinion of this case has not been reported in China, or at least I have not been able to find it on the Internet after substantial searching efforts. So, the facts of the case are based on a news report in Chinese (if any part of the facts is inaccurate, please kindly inform me by leaving a comment.).

The lawsuit involved Anheuser-Busch’s registered trademark, Budweiser, which in Chinese is “百威.” And in pinyin, it is pronounced “Baiwei.” In addition to the character, Anheuser-Busch also registered two other related marks in symbols. One of them is the “Wheat + Sash” graphic; and another is a combination of the graphic and the Chinese characters “百威.”

Around April of 2006, Anheuser-Busch began to see an infringing type of beer brewed by a Chinese company named Putian Golden Key Company (“PGKC”). What Anheuser-Busch found was a product titled “New Generation Beer,” bearing the very “Wheat + Sash” graphic. What is more, PGKC packaged its beer with boxes with large font Chinese characters—“American Budweiser International Beer Group, Ltd.” (“美國百威啤酒國際集團有限公司”). This type of beer was being sold in Shanghai, Jiangsu Province, and Jiangxi Province. Anheuser-Busch was not alone in discovering these copycat activities; in fact local branches of the Bureau of Industrial and Commerce fined four companies that distributed the beer made by PGKC.

Then, Anheuser-Busch went after PGKC and the afore-mentioned four distributing companies, suing PGKC for trademark infringement in the Shanghai First Intermediate People’s Court. Anheuser-Busch also sought an injunction against PGKC for manufacturing the infringing product in addition to damages in the amount of 500,000 Yuan. Further, it asked the Court to prohibit the four distributing companies from selling the “infringing beer.”

The plaintiff’s victory did not come as a surprise for a number of reasons. First, Anheuser-Busch registered its flagship trademark “Budweiser” in China in Chinese properly in 1998, and it even registered marks related to the “Budweiser” mark. Second, Anheuser-Busch signed a trademark use agreement with Wuhan Budweiser Co., making the latter the only party in China with permission to use its registered trademarks (I assume that the trademark license agreement was appropriately recorded with relevant government agencies). Third, the plaintiff had a very strong case from the beginning given the ample evidence of infringement, such as the similarity between the infringer’s “trademark” and that of Anheuser-Busch. And quite significantly, PGKC did not appear in Court even upon proper service of process by the Court (in China, courts have the authority to serve defendants), thus basically handing Anheuser-Busch a default judgment.

Besides the relative ease of the plaintiff’s ability to obtain the win, another element of this legal dispute seems significant to me. The Court took special notice of the misleading packaging used by PGKC, which, in the Court’s view, evidenced infringement with obvious malice. As a result, the Court imposed a civil penalty on PGKC.

Civil penalties are not commonly handed down in most civil cases. Normally, in a trademark infringement case, Article 59 of the Trademark Law of China controls in terms of damages and penalties:

Where any party uses, without the authorization from the trademark registrant, a trademark identical with a registered trademark, and the case is so serious as to constitute a crime, he shall be prosecuted, according to law, for his criminal liabilities in addition to his compensation for the damages suffered by the infringed party.

As one may notice, nothing in the language of the statute mentions civil penalties in a trademark infringement case. However, the absence of a court’s power to impose civil penalties in the Trademark Law does not mean that a court does not ever have the authority to do so. Because a trademark infringement action is a civil action, the General Principles of Civil Law of China (1986) (also referred to as the “Civil Code”) is also operative in the adjudication of such a case. Pursuant to Article 134 of the Civil Code, a people’s court has the discretion to “impose fines or detentions as stipulated by law” while at the same time awarding civil damages and granting injunctions. Thus, the imposition of civil fines and penalties, although unspecified in the Trademark Law, is strictly within a court’s discretional power as granted by the Civil Code.

Naturally, the Court’s decision to fine PGKC 10,000 Yuan begs the question—why did the court go out of its way to exercise the discretional power? In my opinion, it just demonstrates the overall judicial trend, especially in economically more developed areas of China, to step up intellectual rights protection. And civil fines may operate as another deterrent to infringement.

Friday, August 24, 2007

Ramen Noodles, Price Fixing, and Beyond

After a month-long investigation into complaints of price fixing, the National Development and Reform Commission of China (“NDRC”) delivered its verdict for the China Ramen Noodle Association (“Association”)—guilty (report in Chinese only).


Governmental investigations revealed that the Association organized three meetings in a span of about 6 months (from 2006 to 2007). During the meetings, the Association and its members strategized on uniform price increases across the Ramen noodle industry in response to price hikes in raw materials, such as oil and flour. Of particular importance in the investigation was that the Association published minutes of its meetings in its industry magazine, and the news of price increase caused a panic among consumers who rushed to buy large quantities of Ramen noodles.

The NDRC acknowledged that higher production cost could lead to an increase in price in Ramen noodles, but price fixing by an industry association violates the Price Law of China, specifically Article 7, 14, and 17.

Current Law on Price Collusion:

Article 14 of the Price Law of P.R.China [full text of the law in English] provides:

Business operators must not act whatsoever in the following ways to effect abnormal price behaviors:

1. To work collaboratively with others to control market prices to great detriments to the lawful rights and interests of other business operators or consumers;

3. To fabricate and spread price rise information for pushing up the prices to
excessively high level;

6. To disguisely raise or lower prices at irrational ranges by artificially raising or lowering grades of merchandises or services;

7. To seek exorbitant profits in violation of laws and regulations; and

8. To effect other illicit price behaviors that are forbidden by law or administrative decrees

Furthermore, the NDRC charged that the Association breached Article 4 of the Interim Provisions on Preventing the Acts of Price Monopoly (Text in Chinese; subscription required for English text) which states:

Business operators shall not fix, maintain, or modify prices through agreement, resolution, coordination or any other means of collusion.

Agency Order:

Since the NDRC found the Association guilty of violating the law (and price regulations), it ordered the Association to immediately “change its wrongful ways, make public notices to rectify negative impact of the price fixing, and to delete from its minutes contents regarding collective price increases…”

While at it, the NDRC sent a warning to other industry associations too, admonishing them to enhance their “sense of the rule of law.”

Other Remedies:

Curiously enough, no consumers sued either the Association or Ramen noodle companies that colluded in price fixing. Article 41 of the Price Law provides a private right of action to injured consumers, to wit:
Whereas business operators have caused overpayment by consumers or other business operators in violation of price law, the part in excess of the due payment shall be returned. If damages are done, the business operators shall undertake to compensate for the losses.

If a suit were to be filed, a plaintiff could invoke the NDRC’s administrative order as evidence of wrongdoing. Upon a showing of actual damages, victory in such a suit would be reachable. But lawsuits in China are costly, as are in the United States. Chinese consumers, however, could turn to class action as a way to pool their resources in order to seek their justice and redress for damages. See Class Action Litigation As a Means of Enacting Social Change in China, 75 UMKC L. Rev. 227 (2006); Class Action Litigation in China, 111 Harvard Law Review 1523 (1998).

In the present situation, class action does not seem to be a viable option for probably two reasons: 1) the damages are not great enough; 2) Chinese courts’ unwillingness to hand out large amounts in damages.

Tuesday, August 14, 2007

Anti-Cybersquatting in China: A Judicial Overview

For trademark owners, it is important to know that China does not have a comprehensive law (by the National People’s Congress) or regulation (by the State Council) regarding cybersquatting. Rather, the China Internet Network Information Center (“CNNIC”) and the Ministry of Information Industry (“MII”) both issued rules and measures on the topic of domain name. Among these rules and measures, the most prominent is the Regulations of Internet Domain Name Administration in China (“Domain Name Regulations”) by the MII. In accordance with the Domain Name Regulations, the CNNIC compiled the Detailed Rules of Registration for Domain Names, the Domain Name Dispute Resolution Policy, and the Procedure Rules for CNNIC Domain Name Dispute Resolution Policy.

For a detailed account of the above-mentioned rules and measures, please refer to Professor Mo Zhang’s article on SSRN. The content of this post is attributable to his excellent research and scholarship.

Besides detailing the regulatory framework of domain name registration and dispute resolution thereof, Professor highlighted the judicial standards as set by the Supreme People’s Court of China.

Litigants, seeking to protect their trademark rights in China against cybersquatters, should pay special attention to the Supreme People’s Court’s Explanations to Several Questions on Application of Law in Civil Actions Concerning Internet Domain Names (“Explanations”). The Explanations serves as judicial guidance to all levels of people’s courts in China adjudicating domain-name related disputes.


Only intermediate level courts have jurisdiction to domain name disputes, and suits should be brought in courts where the defendant is domiciled. Where the defendant’s domicile cannot be ascertained, the court where the infringing equipment (computer terminal) is located shall have the proper jurisdiction.

Causes of Action

According to Professor Zhang’s article, two most common causes of action for trademark rights are under the Chinese law are trademark infringement and unfair competition.

Legal Test for Infringement or Unfair Competition

Based on the Explanations, if the legal test requirements are met, the plaintiff can plead in the alternative for Trademark Infringement and Unfair Competition.

The determining factors in the legal test are:
1. the plaintiff must have valid and legitimate rights to the interests for which the legal action is being initiated. (in other words, if you are want to protect your trademark rights, make sure your trademark is registered under your name in China, unless your mark is deemed legally famous elsewhere.)

2. the defendant’s domain name must “be found to be either a copy, imitation, translation, or transliteration of the plaintiff’s well-known trademark”, or it must be same or similar to the plaintiff’s “registered trademark” so as to cause confusion to the consuming public. (this is the confusion prong of the test)

3. the defendant does not have a legitimate right or interest to the registered domain name, nor does it have “reasonable grounds for its registration or use of the domain name. (this factor balances the right of the plaintiff against that of the defendant)

4. the court must determine whether there was bad faith on the part of the defendant in its registration of the domain name. (black mailing the plaintiff using the domain name, offering to sell the domain name, registering the domain name using other’s famous marks for commercial purposes are all evidence for bad faith.)

5. in case involving famous trademarks, the likelihood of confusion prong of the test is eliminated because famous trademarks deserve special protection. (this further demonstrates China’s fulfillment to its TRIPS commitment over IP protection)

6. in terms of remedies, people’s courts can only grant damages of cancellation of the infringing domain name, which means transfer of the infringing domain name is not a remedy. (obviously, a trademark owner needs to register the domain name ASAP.)

Granted, a combination of agency level rules and judicial opinions do make the scene of anti-cybersquatting law in China complicated. However, the growing popularity of e-commerce in China makes it imperative for foreign trademark owners to register domain names with their trademarks. The cost of registration is a nano-fraction of what it would cost in a lawsuit against an unscrupulous Chinese cybersquatter. In the same vein, consideration should be given for registration in other commercially significant jurisdictions to which the trademark owners are likely to expand. In order to achieve that, a coordinated and calculated approach to IP protection becomes necessary. It is called IP Strategy. Mr. Godfrey Firth has an excellent article out on this very topic of developing an IP strategy for China, and I think some of his ideas are good for anywhere.

Read Professor Zhang's full article at SSRN.

Friday, August 10, 2007

Trademark Owners Beware: Anti-Cybersquatting in China

Let’s push aside the academic debate about the nature of domain rights, namely, whether the right to register a domain name is an independent form of intellectual property right or just an extension of exclusive rights inherent in the ownership of a trademark. Rather, let’s focus on the practical question of what a trademark owner or domain name holder can do to protect his legitimate rights accordingly in China.

First off, what is cybersquatting? It arises in the unique context of a conflict between a domain name holder and trademark owner. If a domain name, containing a recognized trademark, is registered in bad faith for the purpose of infringing on the rights of a mark owner, the holder of the domain name is considered to be a cybersquatter. Four types of squatters exist out there, and a detailed discussion of them is the topic of a law review article. Here, let’s make it almost black and white for ease of discussion—a squatter that purposefully registered the name associated with a trademark with the intention to cause confusion or blackmailing the mark owner; and a suspected squatter whose registration of the a domain name, which having the same name as a recognized brand, was in good faith and does not in essence infringe IP right of the mark’ owner (i.e. the domain name was registered way before the trademark was registered or in use).

In the international arena, pursuant to the Uniform Dispute Resolution Policy (“UDR” Policy) put forth by the Internet Corporation for Assigned Names and Numbers (“ICANN”), a trademark owner can file a complaint against suspected cybersquatters who registered top level domain names in violation of the owner’s trademark rights. Top level domain names (“TLD”) can be exemplified as: .com, .org, .net, etc. Since TLD registrants are bound by the UDR Policy, a plaintiff can file an arbitration complaint thereunder. A favorite venue for such arbitration is National Arbitration Forum. The World Intellectual Property Organization (“WIPO”) also offers arbitration proceedings through which a trademark owner could seek the cancellation or transfer of infringing domain names. Therefore, a trademark owner has two venues to seek redress for a TLD infringer—UDR arbitration or WIPO arbitration, of course in addition litigation in proper jurisdictions.

As to litigation, a trademark owner can sue under the Anti-Cybersquatting Consumer Protection Act or the Federal Anti-Dilution Act, assuming that proper jurisdiction over defendants can be had.

What if a trademark owner finds out that a sub-TLD domain name has already been registered in China, and the domain name used the mark owner’s trademark? Obviously, UDR arbitration is not available since the domain name is not a TLD. Neither is the WIPO arbitration for the same reason. And if the trademark owner happens to be in a country without a judicial treaty with China to enforce judgments against a Chinese defendant, the plaintiff’s right of action in its own jurisdiction is practically meaningless (both the China Law Blog and Korea Law Blog addresed this general topic). With that, a trademark owner’s option is limited to seeking redress in China. And seeking rightful redress and protection in China is fraught with pitfalls due to the fragmented nature of the Chinese law on anti-cybersquatting as China currently does not have a comprehensive law/regulation on point.

Wednesday, August 8, 2007

Franchising Regulations in Macau (III)

IV. The Franchise Contract

A franchise contract must be in writing, and its term should be no shorter than 3 years if a term is fixed. Absent an agreed term, the contract is presumed to last for an undetermined period of time. And no cooling off period is available for a franchisee, which means that once the contract is signed, a franchisee cannot back out of it without a material breach by the franchisor.

As a general principle, the MCC recognizes a contractual duty of good faith and fair dealing. Thus, the franchisor must:

1. allow the franchisee to use its intellectual property associated with the franchise;
2. allow quiet and peaceful enjoyment of such IP;
3. update the know-how and technology associated with franchise system to ensure its competitiveness;
4. provide adequate training to the franchisee and its associates;
5. conduct advertising of the franchise system at the international and regional level;
6. supply requisite goods or products for the operation of a franchise;
7. compensate the franchisee for a post contract NDA;
8. not compete with the franchisee in the agreed territory absent express agreement to the contrary;
9. inform the franchisee of any changes, modifications that are material to the operation of a franchise.
10. not engage in tying arrangements with respect to the operation of a franchise unless the use of certain goods and equipment are strictly for maintaining the industrial and intellectual property rights of the franchisor; and
11. to the extent such goods and equipment are required, provide warranty for such goods and equipment (critical point for franchisors to consider b/c of liability)

Similarly, a franchisee is also obligated by contract to perform its duties and obligations in good faith, to wit:
1. pay royalties to the franchisor;
2. use the intellectual property of the franchisor in a manner consistent with the rights conferred upon the franchisee;
3. maintain the quality of goods and services in a uniform fashion as required in the franchise system;
4. obtain permission from the franchisor prior to changing the premise of the franchise unit;
5. furnish information that may be requested by the franchisor concerning the operation of the franchised unit;
6. comply with the recommended price for goods and /or services as recommended by the franchisor;
7. allow the franchisor and /or its agents to inspect the premise;
8. attend training sessions as required by the franchisor;
9. grant and authorize the franchisor the right to use any improvement know-how gained in the course of operating the franchised unit;
10. submit all adverting material to the franchisor for pre-approval;
11. keep confidential the information related to the operation of a franchised unit;
12. report to the franchisor any breach or misuse of the intellectual property of the franchisor; and
13. maintain minimum volume of sale as required by the franchisor in the contract.

(note: the above are all based on the MCC)

V. Registration

As far as I know, there is no administrative registration requirement to franchise in Macau.

Tuesday, August 7, 2007

Franchising Regulations in Macau, SAR (II)

III. Mandatory Pre-sale Disclosure

Pre-sale disclosure by a franchisor to prospective franchisees is mandatory. As is the norm in many franchise regulations in the world, a franchisor must deliver a written disclosure document detailing the franchised business in accordance with Article 680 of the MCC. A franchisor, however, must note that the MCC does not stipulate a bright-line rule on how many days the disclosure must predate the execution of a franchise contract. The code only requires “adequate advance” disclosure. In comparison with a bright-line 30-day rule in China’s franchise regulation, the flexibility inherent in this rule could potentially cause trouble for a franchisor because a franchisee could always allege that disclosure was not adequately advance. Therefore, a franchisor should keep detailed records of the date when initial negotiations for a franchise, the date of delivery of disclosure, and of course the date of contract. In fact, for those franchisors used to the old FTC Rule (with a tricky trigger disclosure requirement), this MCC requirement should not be difficult to keep up with.

Information disclosure under Macau’s franchise regulation, to a certain extent, resembles that of the disclosure requirements under the Chinese franchise Disclosure Guidelines. The MCC does not prescribe a rigid format for disclosure, such as the Uniform Franchise Offering Circular ("UFOC") in the United States new FTC Rule; rather, it only stipulates a few categories of information to be provided in a truthful manner to prospective franchisees. Here they are:

a) the identification of the franchiser;
b) the franchiser's annual accounts of the last two accounting periods;
c) any judicial proceedings in which the franchiser, the holders of trademarks, patents and other industrial or intellectual property rights related to the franchise are or have been involved, as well as their sub-franchisers, which may directly or indirectly come to affect or render impossible the functioning of the franchise;
d) a detailed description of the franchise;
e) the profile of the ideal franchisee regarding previous experience, level of education and other characteristics that compulsorily or preferably he must have;
f) the necessity and extent of the franchisee's personal and direct participation in the exercise of the franchise;
g) the specifications as to the estimated sum of the initial investment needed for acquisition, installation and entry into functioning of the franchise;
h) the value of the periodic payments and other amounts to be paid by the franchisee to the franchiser or to third parties indicated by him, specifying the respective bases of calculation and what these remunerate, or the purpose for which they are destined;
i) the composition of the franchise network, lists of franchisees, sub-franchisees and sub-franchisers of the network, as well as of those who have left the network in the last 12 months;
j) the profitability of the franchisees' enterprises and the incidence of bankruptcies;
l) the professional experience gained, his know-how and entrepreneurial methods;
m) any services that the franchiser obliges himself to render to the franchisee for the duration of the contract.
See Article 680 (1).

In addition, a franchisor should also provide a sample contract (including relevant addendum) to a prospective franchisee in connection with the disclosure document. A failure to disclose information required in this article constitutes breach by the franchisor of the commercial code, which entitles a franchisee to annulment of the franchise contract. See Article 680 (3).

Relatively speaking, information disclosure as required in Article 680 is by no means expansive in comparison with disclosure in the United States and China. (A detailed comparison is beyond the scope of this post.)

--to be continued...

Monday, August 6, 2007

Franchising Regulations in Macau, SAR

Rivaling Las Vegas in grandeur, Macau is poised to be a major tourist attraction in Asia for those eager to try their fortune. Critical to the formation of a tourist hot spot is the growth of complementary service industry, and a proven method of growth in the service industry is franchising. I want to introduce the basics of franchising regulations in Macau in a few posts.

I. Introduction

Franchising is permissible in Macau, and an entire Title in the Macau Commercial Code (“MCC”) is devoted to the regulation of franchising. (Title VIII). Compared to franchise regulations in mainland China and other Asian countries, such as South Korea and Malaysia, Macau’s regulation seems pretty straight forward. The regulation can be roughly divided into three sections: franchisor disclosure, franchise contract, and franchisor-franchisee relationship.

II. Definition of Franchising

Franchising in Macau, in essence, is a form of expansion through a contract, and, under the MCC, a franchise contract is defined as:

A franchising contract is that by which one of the parties, against a direct or indirect payment, grants to the other, in a certain zone and in a stable manner, the right to produce and or to sell certain goods or services under his entrepreneurial image, according to his know-how, with his technical assistance, and subject to his control. See Article 679

A commercial franchise contract bears three basic features, a grant to use intellectual property of the franchisor, control by the franchisor, and a fee element. From the above definition, one can easily spot the IP and control elements (“entrepreneurial image”, “know-how”, “subject to his control”). Article 692 provides the fee element, as it states: “A franchiser is obliged to adequately compensate the franchisee for new experience gained, in accordance with article 697, in the running of the franchise.”

III. Mandatory Pre-sale Disclosure

(to be continued…)

Friday, August 3, 2007

China Anti-Monopoly Law Research Paper

If you have not read Professor ELEANOR M. FOX 's resent paper on China's Anti-Monopoly Law, I highly recommend you read it.

Her paper focuses on administrative monopoly in China, and she puts the topic in the context of how the U.S., Europe, and the WTO dealt with it. Truly illuminating. Without further compromising her superb scholarship, I'd direct you to read the full article.

An Anti-Monopoly Law for China – Scaling the Walls of Protectionist Government Restraints

Thursday, August 2, 2007

Wahaha v. Danone: My Arbitration is Better Than Yours (II)

Remember that Danone joined Wahaha’s chief Zong Qinghou personally as a defendant in the Stockholm arbitration (in May 2007)?

Remember that Wahaha filed for arbitration in Hangzhou Arbitration Commission in June 2007?

Have you been wandering how exactly Zong Qinghou can file a parallel arbitration in China while the original joint venture contract between Wahaha and Danone designated Stockholm as the venue for mandatory arbitration?

Apparently, Zong Qinghou, through the Chinese media, is shedding some light on his lawyer’s strategies behind this legal maneuver. His legal team points out a possibly lethal defense to Danone’s Stockholm arbitration against Zong personally.

As most American lawyers know, the first line of defense is through procedural challenge: jurisdiction or venue. And that is exactly what Zong’s lawyers are doing. They claim that the alleged breach of non-compete and non-disclosure agreements by Mr. Zong falls within the purview of the Chinese labor law, not commercial law since Mr. Zong was in a employment relationship with the Wahaha-Donone joint venture.

They further claim that the Chinese Labor law controls when labor disputes between parties within the boundaries of the P.R.China. See Article 2:

This Law applies to all enterprises and individual economic organizations (hereinafter referred to as employing units) within the boundary of the People's Republic of China and laborers who form a labor relationship therewith.
Upon establishing the proper law to be applied in the dispute between Danone and Zong personally, Zong’s lawyers employed their sharp weapon—arbitration arising under a labor dispute should be inside China pursuant to Article 79:
Where a labor dispute takes place, the parties involved may apply to the labor dispute mediation committee of their unit for mediation; if the mediation fails and one of the parties requests for arbitration, that party may apply to the labor dispute arbitration committee for arbitration. Either party may also directly apply to the labor dispute arbitration committee for arbitration. If one of the parties is not satisfied with the adjudication of arbitration, the party may bring the case to a people's court.

How about that?! Stockholm arbitration suddenly sounds irrelevant with respect to claims against Zong personally.

So what is Danone’s response to that? They countered, according to the report (Chinese only), that the non-compete and non-disclosure agreements were supported by nifty consideration and they should be enforceable. (note: this really makes no sense. Maybe the reporter did not understand Danone’s argument. Let’s assume that Danone did not respond.)

What are its possible responses?
--get around the employment relationship argument
--argue that Zong’s role in the joint venture was multi-faceted and being an employee was a minor part (weak)
--argue that even if the labor law applies, the parties’ original intent was to arbitrate all disputes in Stockholm

Anything else, folks?

Wednesday, August 1, 2007

Giddy up Partner: One More Way to Strike Gold in China

Soon, foreign investors would be able to invest in the form of partnership in China.

Currently, an investor can form a joint venture company (equity or cooperative), wholly foreign owned company, or representative office. With the impending promulgation of the 《外商投资合伙企业管理办法》(Foreign Investment Partnership Measures), a foreigner, either natural person or entity, can form a investment partnership with a local Chinese partner (Draft of the law in Chinese, here).

Chine Economic Review put out a nice article on some of the details of the law. It states:

The draft law reduces initial investment capital in comparison with forming a Joint venture or wholly foreign-owned Co.;

The draft law applies to “general partnerships and limited partnerships”;

Foreign-invested partnership has unlimited liability for partners;

Tax wise, foreign-invested partnership is a pass-through entity, where the partnership is not taxed, but the partners are taxed individually in accordance with individual tax law;

To invest in sectors inaccessible to a wholly-foreign owned Co., a foreign investor need to partner up with at least one Chinese party who has more than 50% in stake;

Foreign partners can contribute IP, cash, or reap property rights;

In terms of currency repatriation, no funds can leave China before the liquidation of the partnership (does this make sense?);

Distribution of profits and losses can be agreed upon in the partnership agreement as long as such distribution is reasonable.

In terms of the significance of this new law, the article wraps up by saying:

The creation of a new category of foreign investment in China is not an everyday occurrence. While certain restrictions that apply to foreign investors do not apply to domestic Chinese investors, draft rules such as the FIPL signal a significant change in China’s attitude towards business.

I agree that this law reflects a big step towards opening up more to foreign investors, but to those who want to partner up with a local entity or person (required), you probably want to stay clear of the sectors where foreign partners can only hold a minor stake. Without control, you are subject to the mercy of your Chinese partner(s), which can be a very bumpy ride to riches.

Full article here.