2007 Review: A Year of Hard Hitting Legislations

As 2007 winds down to its last hours, Chinese lawmakers have made this year one of hard hitting legislations. Within this year, multiple pieces of significant laws and regulations came into being, impacting many facets of the Chinese society. This post aims to highlight a few legislations with huge influence on foreign investments.

1. Regulations on the Administration of Commercial Franchise (商业特许经营管理条例)
Promulgated and adopted by the State Council on February 6, 2007, the Regulations modified and improved upon its predecessor, rendering commercial franchising a registration-only commercial activity (instead of an “approval” activity). And as a result of the Regulations, off-shore direct commercial franchising to China is now allowed as long as the franchisor has two units in operation for more than one year. Pursuant to the Regulations, the Information Disclosure Measures and the Registration Measures were adopted to provide detailed directions on franchising in China. For more, read my three-part comments on franchising in China here, here, and here.

2. Property Law of the People’s Republic of China (中华人民共和国物权法)
After more than a decade of discussions and political compromises, the National People’s Congress finally adopted the Property Law on March 16, 2007, making it one of the most significant pieces of laws in modern China’s history (if not the most significant). Regardless of its differences from the western concept of private property law, the Chinese Property Law is a landmark legislation in that it defines for first time the rights and obligations of private property ownership. China Law Blog has an excellent series on this topic, and I posted a piece on a dispute involving this law.

3. Corporate Taxation Law (中华人民共和国企业所得税)
For better or worse (depending on your perspective), the National People’s Congress adopted this law on March 16, 2007, thus ending years of a bifurcated taxation practice where foreign and domestic corporations were taxed at different rates. This law provides a uniform base tax rate of 25% for all corporations, while giving significant tax incentives to high-tech and environmentally-friendly projects. Fearing a backlash of foreign taxpayers, the drafters included a five-year phase-in provision. For more, read this.

4. Labor Contract Law (中华人民共和国劳动合同法)
Employment Enhancement Law (中华人民共和国就业促进法)
Labor Dispute Mediation & Arbitration Act (中华人民共和国劳动争议调解仲裁法)

The Chinese legislators, in the National People’s Congress and its Standing Committee, went on a coordinated and lasting mission to tackle labor/employment relations in China in 2007. They came up with three pieces of legislation, of which the Labor Contract Law garnered the most attention and interest. The New York Times characterized the Labor Contract Law as “sweeping.” Sweeping indeed! It redefines the employment relationship by imposing the restrictive terms, among others, that an employer can stipulate in a labor contract. As far as commentators go, nobody has been as diligent and thorough on this law than our Dan Harris at China Law Blog.

5. Anti-Monopoly Law (中华人民共和国反垄断法)
On August 30, 2007, the Standing Committee of the National People’s Congress put an end to ad hoc anti-competition regulations in China. It adopted China’s first ever comprehensive competition law—the Anti-Monopoly Law (to be effective on August 1, 2008). As China’s economy continues to expand, as foreign investors keep pumping capital into certain sectors into China, and as Chinese companies grow larger in scale and influence, the Anti-Monopoly Law came at a very good time. Referred to as the “economic constitution”, will the Anti-Monopoly Law be a bliss or a curse to interested parties? Will it end (to a certain degree) local protectionism? Keep your eyes peeled on new developments on this law.

6. Law on Lawyers (Amendments) (中华人民共和国律师法)
Amendments were adopted by the Standing Committee on August 30 to address growing concerns on the legal profession. Since the promulgation of the Lawyer’s Law in 1996, the legal profession has experienced exponential growth, in terms of the importance of the profession and lawyers in the society. These amendments were meant to make lawyers’ lives better, especially criminal lawyers by giving them access to gov’t documents, access to clients without interference, and immunity for arguments and comments made in courtrooms while representing clients. Legal ethics is one of my favorite topics in law school, and read my posts on this topic here.

7. Civil Procedure Law (Amendments) (全国人大常委会关于修改《民事诉讼法》的决定)
These amendments mainly address some persistent issues in civil litigation in China—enforcement of civil judgments. By virtue of the amendments, those who refuse to execute a civil court ruling -- fines climb from 1,000 yuan to 10,000 yuan (1300 U.S. dollars) for individual offenders, and from 30,000 yuan to 300,000 yuan (39,000 U.S. dollars) for companies. The law also provides that those who refuse to cooperate with civil courts in making sure a ruling is executed may be detained.

8. National Holidays Schedule Modified (国务院关于修改《全国年节及纪念日放假办法》的决定
Golden holidays for the Labor Day and “Independence Day” will no longer be holidays of disaster. Prior to the change, holidays in China were mostly for commemorating political events, and they provided two longest holidays in China when the entire country basically went on vacation. That brought immeasurable opportunities and hardship to the transportation, tourism and service industries. The new holiday schedule adds three traditional holidays (Grave Sweeping Day, Dragon Boat Festival and the Moon Festival); correspondingly, the Labor Day and Independence Day holidays are shortened to one day and three days respectively.

I included this in the review because I thought that this change not only makes sense but also reflects the wishes of the people. In addition, the change gives traditional/cultural holidays a higher status, which is a very good thing for the dying traditions in China. Cheers to traditions!

As we wait for the ball to drop (bell to ring, or whatever way you celebrate) to usher in the year of the Rat, 2007 will be remembered as a year of hard-hitting legislations. Let’s see what 2008 has in store for the China law blogosphere.

For a complete of all the legislations adopted in 2007, visit here (in Chinese only).

Blogroll Addition: Experience Not Logic

Though there is an abundance of China related blogs out there, same is not true for blogs on China law and business written by current law students. My friend, Will Lewis, has a new blog named Experience Not Logic. Will Lewis, like me, is still in law school, and here is how he describes his blog:

The purpose of this blog is to explore the business and legal culture of China. In 1881 Oliver Wendell Holmes, Jr. wrote, "The life of the law has not been logic; it has been experience." Each time I read a US court decision, Holmes' quote flashes through my mind. In China, the rule is the same, but the experience is different. Here's to broadening the experience...

In just about a month, he has put up some amazing posts:

Liebman on Restricted Reform in China Courts
China IP Litigation Data: What Does it Mean?
Chinese Scholars Examine New US Patent Law

Check out this very cool blog.

Death of a Migrant, Pregnant Woman

Ms. Liyun Li (李丽云), a migrant worker from Hunan Province, met her boyfriend Zhijun Xiao (肖志军) in Beijing and had dated him for three year. Like so many other young Chinese ladies, she went to Beijing in search of better paying jobs and a future. Unfortunately, her pursuit of happiness ended abruptly in November 2007, along with her short hopeful life and her unborn child.

She felt under the weather for two weeks in early November, and probably for lack of funds, she avoided expensive doctors in hospitals. Instead, she went a private clinic where she was treated for a common cold. But, her health deteriorated afterwards and her boyfriend had to send her to the Beijing Chaoyang District Hospital (West District), where doctors found her to be in a dire medical emergency—her heart was failing in addition to a host of other symptoms. In order to avert a disaster, she must undergo a C-section and other emergency care immediately.

She did not have a penny on her; nor did her boyfriend. But, the hospital staff offered to operate first on credit, which rarely happens in China.

Money was not the issue on that day when she died. It did not matter; what mattered, what would have mattered was her boyfriend’s signature on an agreement for the hospital to operate and do what it needed to do to save her and her baby’s life. Before any medical operation, the hospital had to have informed consent, by law, in the form of a signature from Ms. Liyun Li, her family member, or persons related to her. But her boyfriend, the only person who could have given the consent refused, repeatedly.

As the clock ticked on, her breath grew fainter; as hours vanished together with the precious heart beat of the baby in her womb, doctors, nurses, administrators begged for his signature. But he still wouldn’t do it. In stead of signing his signature on the consent form, he wrote: “I refuse the C-section, and I shall be responsible for all consequences.” With that, the emergency care staff, in despair, witnessed the death of Ms. Liyun Li and her unborn baby, in a span of about three hours.

That sums up the griping story of Ms. Liyun Li’s death in a Beijing hospital on November 21, 2007.

Bad things happen every day, everywhere; tragedies occur all the time in China, many of which go unreported. But, Ms. Li’s story is different—it bothered me and it still does. I cannot help but think about other possible outcome to her emergency visit to the hospital. What would have happened had her boyfriend just signed the damn consent form? What if there had been no legal requirement for the consent of a boyfriend under that kind of medical emergency? And what if the hospital took matters into its own hands and operated without his consent? And what might have been had her boyfriend simply been absent from the entire situation in the hospital?

Unpleasant as it might be, death often awakens social conscience and engenders action. Ms. Liyun Li’s death was no exception. Her death has sparked a flurry of debate in the medical and legal communities in China. They are asking the same “what if” questions; they want to know whom to hold responsible for the tragic loss of two lives, one of whom never had a chance to behold the wonders of the world. They want to avoid any repetition of such a gut-wrenching tragedy.

(Please check back later for the legal issues in and possible ramifications of this story.)

Wahaha Wins Suit Against Danone Board of Director Case

Here is yet another update on the Danone v. Wahaha dispute---"Wahaha Wins Suit Against Danone Director for Conflict". In China, of course.

“China Trademark Update: Has Your Distributor (Representative, Manufacturer) in China Registered your Mark?”

Mr. Paul Jones, an international lawyer based in Toronto, recently wrote a piece on Chinese Trademark Law. Basing his analysis on a trademark registration/opposition case that went all the way to the Supreme Court of China, he posits that foreign companies that “are doing, or planning on doing, business in China, the best solution is to register lots of your early on.” Because I am in my final exams, I have obtained permission from Paul to post his writing in its entirety, without my personal comments.

Unfortunately many foreign companies do not register their trademarks in China promptly. Sometimes they do not register them even after they have commenced selling goods in China through a sales representative. More than one sales representative or distributor has noticed this and registered the mark for themselves. China is a “first-to-file” jurisdiction.

Article 15 of China’s Trademark Law (中华人民共和国商标法) provides that:“第十五条 未经授权，代理人或者代表人以自己的名义将被代理人或者被代表 的商标进行注册，被代理人或者被代表人提出异议的，不予注册并禁止使用.”

“Article 15 Where any agent or representative registers, in its or his own name, the trademark of a person for whom it or he acts as the agent or representative without authorization therefrom, and the latter raises opposition, the trademark shall be rejected for registration and prohibited from use.”

The Chinese terms 代理人 (dai li ren - agent) or 代表人 (dai biao ren -representative) have been interpreted narrowly to mean someone who has an obligation to a principal. In the case of重庆正通药业有限公司 诉国家工商行政管理总局商标评审委员会 和四川华蜀动物药业有限公司 ( Chongqing Zhengtong Pharmaceuticals Ltd. v. State Administration for Industry & Commerce Trademark Review Board and Sichuan Animal Pharmaceutical Ltd) 最高人民法院, (2007）行提字第2号, 二○○七年八月三十一日, Sichuan Animal had entered into a sales agreement with Zhengtong Pharmaceutical with respect to certain veterinary medicines. Shortly afterward it applied to register the trademark under which the goods would be sold. Two years later the agreement was terminated but Sichuan Animal continued using the mark that it had registered, presumably by obtaining its products from another source.

Zhengtong Pharmaceuticals brought an administrative action under Article 15 to have the registration of Sichuan Animal expunged. They won in the Trademarks Review Board, and in the Beijing No. 1 Intermediate People’s Court based on what was considered to be a principal-agent relationship between Zhengtong Pharmaceutical as principal and Sichuan Animal as agent.

But in the Beijing Higher People’s Court Sichuan Animal argued that there was no principal-agent relationship, rather simply a co-operative sales agreement. Therefore the exemption to the “first-to-file” rule in Article 15 did not apply. Finally Sichuan Animal won at this level.

Normally there is no appeal from the decision of a Higher People’s Court, but in this case Zhengtong Pharmaceutical managed to obtain leave to appeal to the Supreme People’s Court (“SPC”). Unlike the supreme courts in common law systems, China’s Supreme Court rarely hears cases and primarily influences the development of the law and the legal system through written interpretations. However the SPC wanted to make a statement here.

In a decision dated August 31, 2007, and released in mid-September, the SPC looked at the record of the legislative intent and the provisions of the relevant international treaties to determine the meaning. It read the wording of Article 15 as representing China’s obligations under Article 6 septies of the Paris Convention. Although this Section uses the words “agent or representative” the international practice is to interpret these words broadly to include distributors and sales agents and similar people. The SPC took note of this international practice and also took into account the growing phenomenon in China of the practice of distributors and others registering the marks of foreign companies. Finally the manufacturer, Zhengtong Pharmaceutical, prevailed.

Link to the decision in Chinese: https://webmail.smu.edu/exchweb/bin/redir.asp?URL=http://ipr.chinacourt.org/public/detail_sfws.php?id=11423

It should be noted however that the SPC required the relationship to be one of “special sales agent” or exclusive distributor. And there is no mention of original equipment manufacturers, who have also been known to register the trademarks associated with the company for whom they are manufacturing the export goods.

If you are doing, or planning on doing, business in China, the best solution is to register lots of your early on. In November I was part of a panel in a seminar put on by the U.S. Department of Commerce on developing a brand protection strategy in China. The case study that the Department of Commerce prepared for our discussion involved just this scenario. In was helpful to point out this recent decision by the Supreme People’s Court.

Judicial Committees Reformed for Fairer Rulings

Judicial reform has been a pretty hot topic these days on the Chinese judges’ mind. When Grand Justice Wang Erxiang last visited the United Stated to deliver his speech at a function organized by the Organization of American States, he detailed past reforms to the Chinese judiciary, and sketched out a blueprint for future reform targets. At the U.S.-China Rule of Law Forum held at SMU Dedman School of Law this month, the topic also surfaced during the program.

And just a few days ago, Chief Justice of the Supreme People’s Court of China, Xiao Yang, announced some more reforms to the judiciary. Changes introduced by the reforms focus on how judicial committees in each court conduct their business. Judicial committees are “the highest decision-making bodies in the Chinese judicial system.” From now on, judicial committee members must cease to make their rulings behind the curtains, and must “join the bench to hear or try cases themselves.” With respect to decisions, the judges of judicial committees will cast secret ballots to reach agreements (assuming that majority vote controls).

If these changes do occur in the first instance courts (trial courts), it is hopeful that quality of judicial decisions might improve. After all, judicial committees used to rule on cases without sitting on the bench. I understand that a heavy portion of trials is about written advocacy and examining real evidence, but it is quite baffling to have trial judges making final rulings on cases without taking a single look at the parties involved. Maybe, forcing decision-making judges to be present on the bench will have a positive impact on the overall quality of rulings. At least, they will have a better picture/understanding of cases by hearing or trying them on the bench, rather than in their chambers.

Well, for whatever its worth is, here is the report on this out of the Supreme People’s Court.