The Chinese government regulates technology transactions through several laws and regulations. The key laws and regulations include the following.
Transfer of technology
The Contract Law, 1 October 1999
This law defines ‘technology transfer agreements’ to include patent transfer agreements, patent application right transfer agreements, know-how transfer agreements and patent licence agreements. The law sets out rights and obligations of the transferor and transferee under technology transfer agreements, as well as the liabilities for breach of contract. For example, the law provides that the transferor shall guarantee that it is the legal owner of the technology to be transferred, and that such technology be complete, accurate, valid and able to achieve the goals agreed to by the parties.
Pursuant to this law, the transferee must keep confidential the ‘secret’ part of the technology to be transferred within the agreed scope and term. If the transferor fails to transfer the technology as agreed, it must return part or all of the royalties it received for the transfer and will be liable for breach of contract. If the transferee fails to pay royalties as agreed, it will have to pay the liquidated damages set forth in the agreement. If the transferee fails to do so, it must terminate using the patents or know-how, return relevant technical materials and be liable for breach of contract.
In addition, the law provides that any technology contract that illegally monopolises technology (see below), impairs technological development (see below) or infringes a third party’s technology, is invalid.
The Interpretation of the Supreme People’s Court concerning Some Issues on Application of Law for the Trial of Cases on Disputes over Technology Contracts, 1 January 2005
This interpretation further explained the meaning of ‘illegally monopolises technology’ and ‘impairs technological development’ in the Contract Law described above. Applicable situations include:
- restricting the other party’s technology development based on the transferred technology or use of any improved technology;
- prohibiting the other party from obtaining similar or competing technology from third parties;
- restricting the other party from reasonable implementation of the technology;
- forcing the other party to accept additional conditions for the purpose of implementing the technology;
- unreasonably restricting sources of raw materials, accessories or equipment of the other party; or
- prohibiting the other party from questioning the validity of the technology.
The Patent Law, 1 April 1985
According to this law, patent and patent application rights can be transferred. To transfer the patent or the patent application rights, parties needs to enter into a written contract and apply with the China National Intellectual Property Administration (CNIPA) for registration. The transfer will be effective on the date of registration.
The Copyright Law, 1 June 1991
According to this law, copyrights, other than rights of publication, authorship, alteration and integrity, may be transferred. To transfer copyrights, the parties must enter into a written contract, and they may choose to file such contract with the National Copyright Administration or its local branch.
The Trademark Law, 1 March 1983
The law provides that, to transfer registered trademarks, parties need to enter into a transfer agreement and apply to the Trademark Office of the CNIPA (the Trademark Office) for approval. The Trademark Office will make a public announcement once it approves the transfer and the transferee will have title to the registered trademark on the date of the announcement.
The Computers Software Protection Regulation, 1 January 2002, and the Computer Software Copyright Registration Measures, 20 February 2002
According to these two regulations, to transfer computer software the parties must enter into a written contract, and they may choose to register said contract with the China Copyright Protection Centre.
The Integrated Circuit Layout Design Protection Regulations, 1 October 2001
According to the regulation and its implementing rules, to transfer an integrated circuit layout design, the parties must enter into a written contract and register such contract with the CNIPA. The transfer will be effective upon the date of registration. In addition, if a Chinese entity intends to transfer its layout design to a foreign person, it shall submit such transfer to relevant governmental authorities for approval when applying for the transfer contract registration.
Cross-border transfer of technology
The Special Management Measures (Negative List) for the Access of Foreign Investment, 30 July 2019
The Negative List sets out industries that are restricted or prohibited from receiving foreign investment. Foreign persons may not invest in certain industries where the Chinese government does not wish to disclose relevant technologies or sensitive information, such as the development and production of precious plant or animal species, production of traditional Chinese medicine, genetic diagnosis and therapy, and nuclear ore and fuel production.
The Notice of the General Office of the State Council on the Establishment of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, 3 February 2011 (the National Security Review Notice)
This notice provides that the government may conduct a national security review of a foreign investor’s acquisition of domestic enterprises that have key technologies, important energy and resources, or produce material equipment that may have national security concerns. If the government considers that the acquisition may have material adverse impact on Chinese national security, the Ministry of Commerce (MOFCOM) and other relevant authorities have the right to terminate the transaction or ask the acquirer to dispose relevant equity interests or assets to eliminate relevant adverse effects.
The Foreign Trade Law, 1 July 1994
According to this law, the Chinese government divides technologies into three categories: (i) technology that may be freely imported or exported, (ii) technology that is restricted from import or export, and (iii) technology that is prohibited from import or export. Companies that import or export technologies in category (i) must register the import or export contract with MOFCOM or its designated department. Companies that import or export restricted technologies in category (ii) must obtain permits from MOFCOM or other relevant authorities. In addition, the state may restrict or prohibit the import or export of certain technology due to other reasons including the protection of national security, social public interest, or human health or safety; exhausted natural resources; and maintaining the state’s international financial status or balance of international payments. The law further provides that the state may adopt any measure to regulate the import to export of technology relating to nuclear, weapons and other military supplies or for the purpose of maintaining international peace and security during wartime.
Regulations on Administration of Import and Export of Technologies, 1 January 2002
This regulation provides that MOFCOM will categorise technologies that are restricted or prohibited from import or export, which categories MOFCOM may revise from time to time. Contracts for importing or exporting restricted technologies may only take effect when the import or export permit is issued, while contracts for importing or exporting unrestricted technologies may take effect upon signing.
The Implementing Rules of the PRC Sino-Foreign Equity Joint Ventures Law, 20 September 1983
These rules regulate technologies that may be contributed by foreign investors into joint ventures and technologies that joint ventures may obtain from their shareholders or third parties. The rules require that imported technology be advanced and competitive such that it improves functionality and quality of the joint venture’s products, and increase production efficiency or save energy. Further, the technology transfer agreement entered into by the joint venture must meet specific requirements, including:
- the royalties must be fair and reasonable;
- unless otherwise agreed to by the parties, the transferor cannot restrict the area, amount and price at which the transferee exports its products;
- the conditions for each party to exchange improved technology must be equal;
- the transferee shall have the right to purchase equipment, devices, parts and raw materials using resources as they think fit; and
- the agreement cannot contain any unreasonable restrictions that Chinese law prohibits.
Laws and regulations on the transfer of technology in certain industries
In addition to the general technology transfer regulations mentioned above, the Chinese government has enacted special rules regulating the transfer of technologies in certain industries, including in the areas of medical, aviation, health food, chemicals, biological products, nuclear and military technology.
For technology transfers subject to governmental approval, parties usually include obtaining relevant approval as a condition precedent to the closing of the transaction.
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