Category Archives: Litigation

Analysis of the the Anti-monopoly Case Filed by 360 Against Tencent, I

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(By Luo Yanjie) Starting today, we will have three posts introducing the decision in China’s most closely followed anti-monopoly case. Today’s post will first introduce the facts of the case. Qihoo 360 Technology Co. Ltd. (NYSE: QIHU) (“Qihoo”) is a company whose primary business is security software. In October of 2010, Qihoo released software named “360 Privacy Protector,” which was claimed to prevent QQ, the instant messenger of Tencent Holdings Limited (SEHK: 700) (“Tencent”), from uploading the user’s personal information. Tencent issued a notice to its users, demanding that users who installed QQ not install any of Qihoo’s software. At the same time it took technical steps to check the computers for any Qihoo’s software. If any Qihoo software was found, the user was not allowed to sign in to QQ. This led to a large dispute on the Internet in China. After the Ministry of Industry and Information Technology (the “MIIT”) intervened, Qihoo recalled its 360 Privacy Protector, and Tencent revoked its regulation prohibiting QQ users from using Qihoo.

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A Dispute and Settlement involving Technology Investments

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Comments on a Shareholder’s Qualification Case Arising out of Technology Investments

(Steven Wang) Recently, the author has represented parties in a shareholder’s lawsuit, with the dispute centering on IPR investment. The court has already heard the case. The property value involved in the lawsuit totaled as high as RMB 300 million Yuan, and the laws applied in its hearing involved IPR law, contract law, and corporate law. The focus of the dispute referred to the patent, exclusive technology, contribution, revocation of shareholder qualification and the application of law when a number of conflicts arise among these different areas of the law.  These conflicts have caused a lot of discussion regarding these legal conflicts, and several conclusions have been reached regarding issues presented in the case.

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Is Apple Breaching China’s Foreign Exchange Management Rules in the App Store?

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(By You Yunting) In November of 2011, Apple Inc. began allowing its users in China to purchase app by RMB. At the time, the author believed that it means Apple would operate its AppStore in China. Yet unill now, the business concerning AppStore of Apple is still run by iTunes S.A.R.L.(the “iTunes”), the company registered in Luxembourg, a subsidiary of Apple Inc. Furthermore, according to the relevant International convention on transnational transaction, neither Apple nor iTunes is required to pay taxes for Chinese user’s purchase of the apps to the Chinese government. For Apple and iTunes, on one hand they take the payment in RMB, but on the other hand, they do not pay the taxes. This business model is achieved through the third party payment method. In this situation, the third party payment service provider would collect the payment from the Chinese users, and then transfer them to overseas. But this business model is at risk of violating the foreign currency control regulations of China. The following are the opinions of the author on this issue.

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China Supreme Court Publishes New Judicial Interpretation on Competitive Restriction Clauses

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(By Albert Chen) The system of competitive restriction is one of the major systems concerning the protection of trade secrets. In the beginning of 2013, the Supreme People’s Court of China (the “Supreme Court”) published its Interpretation IV on Several Issues concerning the Application of Law in Hearing Labor Disputes (the “Interpretation IV”). According to the new Interpretation, the rules related to the labor issue include: 1) a competitive restriction clause is valid when no article has been made regarding payment for the restriction; 2) removal of competitive competition due to delayed payment for the restriction compensation; 3) the employee may claim extra compensation when an employer terminates the restriction.

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Why No Solution to “Box Office Stealing” under the Current Laws in China?

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(By You Yunting) Abstract: the author was interviewed: is “box office stealing” mainly a result of a defect in GAPP’s legislature (the General Administration of Press and Publication) and SARFT (State Administration of Radio, Film and Television)? For this issue, the author’s opinion is that the administration and governance over the film industry is the real reason this problem arises, because there is really no way this would happen otherwise, and its unlikely those right holders would try to protect their rights, making the aggressive parties even more aggressive. Thus we would only see the bad drives out the good.

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What do the First Valuation Adjustment Mechanism (VAM) Lawsuits in China Tell Us?

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Analysis on the HF Fund’s lawsuits against Gansu Shiheng and Hong Kong Dia

(By Bai Lituan & Zhang Qianlin) In December 2012, HF Fund Management Co., Ltd. (the “HFF”) filed a lawsuit against Gansu Shiheng Nonferrous Metals Co., Ltd (the “GSNM”), and after being heard by the Supreme People’s Court, the Court stated that the valuation adjustment Mechanism (VAM) would be considered partially valid. This particular case has been seen ups and downs, and now that it has finally been heard, we would like to share our opinions on it within a framework of legal analysis, and hope that it will help clarify any issues presented in the case and thus help to reduce the risks investors typically face.

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The Shanghai Branch of CIETAC Changed Its Name

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Today, we noticed an announcement published on the website of the Shanghai Branch of the China International Economic and Trade Arbitration Commission stating that it has changed its name to the Shanghai International Economic and Trade Arbitration Commission (the “Shanghai Commission”). At the same time, it will begin to use the name of Shanghai International Arbitration Center. Additionally, starting on May 1, 2013, the Shanghai Commission will begin using new Arbitration Rules and a new arbitrator name list.

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A Case Showing the Legal Effectiveness of Property Transfer Signed on the Behalf of a Spouse

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Case Summary:

(By Zhang Fan) A and B are married. After being married, the couple established a real estate company through joint investment, by which A holds eighty percent of the shares and the owns the remaining twenty percent. C and D wish to purchase all of the company’s shares, to which both A and B agree. Additionally, both participate in the preliminary negotiation with C. Afterwards, however, negotiation was only carried out between A and C, and A signed on behalf of B on the concluded Share Transfer Contract, Shareholders Decision, and the documents prepared for the change of administration. As provided in the Share Transfer Contract, A’s eighty percent share option would be transferred to C, and B’s twenty percent share option would be transferred to D. B did not sign her name on the contract. After the payment by C to A for the share transfer, both parties went to the Administration for Industry and Commerce to register the change. Now the share holding of the company is eighty percent for C and twenty for B (B never took care of the registration transferring ownership to D).

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The Prospect and Challenge of China’s Share Transfer System for Medium and Small Sized Companies (the New Three Board)

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(Yu Zhiyuan) In September 2012, the China Securities Regulatory Commission promulgated the Supervision & Management Measures for Non-Listed Public Companies (the “Measures”), and the Measures came into effect January 1 2013. The Measures could be adopted as a fundamental regulatory rule of the OTC market of the security market in China. On January 31 2013, the overall regulatory rules for the three new boards, the Interim Management Measures for Liability Limited Companies for the Share Option Transfer of Medium and Small Sized Companies in China (the “Interim Measures”) was also published. The system construction of the OTC market has stepped into a substantial phase. Considering the large scale of the OTC market has the ability to exert great influence on the OTC market among multiple countries; it deserves people’s attention concerning its prospects and challenges in the future.

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How does the U.S. Government Guide Companies Registering IPR in China?

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(By You Yunting) This March, at the invitation of the U.S. government, Mr. You Yunting, the founder of Bridge IP Commentary began his journey to the United States. The main purpose of this visit was to better understand the system of intellectual property rights in the United States. Mr. You would like to share with our readers his experiences there in several posts here on our website. Of course, the content of the posts may not be truly comprehensive or strictly accurate; that being said, if you find any mistakes or comments that can be corrected or improved upon, please let us know. We encourage more dialogue with the IPR community and welcome all constructive commentary. The following is the first post in a series of Mr. You’s visit to the United States: 

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The Development of China Court’s Judgment over Criminal Offence of Online Game Cheating Programs, III

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Today, our website will introduce the most recent crime adopted by courts in some regions of China to combat online game cheating programs: the crime of damaging computer information systems.

III. The crime of damaging computer information systems

Although there problems with all of the crimes previously discussed for combating cheating programs, with the strengthening of legislation, the online game industry finally found a suitable crime in 2011. According to Article 286 of the Criminal Law:

“Those who violate the law by deleting, modifying, adding, or interfering with the function of computer information systems so that information systems are unable to run normally, which leads to severe consequences, may be sentenced to imprisonment of no more than five years of detention; when the consequences are especially severe, the violator may be sentenced to imprisonment of more than five years. Those who violate the law by deleting, modifying, or adding data or applicable procedures to the storage, processing, or transmission programs in computer information systems, which leads to severe consequences, may be punished as per the preceding paragraph.”

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The Development of China Court’s Judgment over Criminal Offence of Online Game Cheating Programs, II

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Today, we will introduce the second crime adopted in China to combat cheating programs in online games: criminal copyright infringement.

II. The state of criminal copyright infringement

After years of combating cheating programs using the crime of illegal operation, the judicial organs in some regions tried to use criminal copyright infringement from Article 217 of the Criminal Law to combat cheating programs. The subjective aspect of criminal copyright infringement requires the unlicensed copying and distribution of the copyrighted work of another for profit.

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The Development of China Court’s Judgment over Criminal Offence of Online Game Cheating Programs, I

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(By You Yunting) Since Shanda imported the massively popular online game, MIR, from South Korea in 2001, the online game industry has gradually become one of the most profitable businesses in China, and has made a fortune for tycoons such as Chen Tianqiao and Ding Lei. On the other hand, all kinds of illicit activities have arisen with the development of the online game business, among which cheating programs to assist players is the most troublesome for the game companies.

According to information acquired by the writer while working in a game company, cheating programs are software that run with the game software, thus giving them their name as game cheating programs. Cheating programs have several harms. First, they incur Gresham’s Law (bad money chases out good money), which makes rules-obeying players easily defeated and thereby damages the fairness of the game. Second they put more burden on the server and force the operator to purchase more servers and the bandwidth, which undoubtedly increases costs and decreases the stability of the server. Third, they enable players to fulfill game objective more quickly, which abnormally speeds up the progress of the game and could force the game company invest more human resources into developing new game content or elements. Although it is possible that some cheating programs are used to make up for the defects in the game, most have harmed the gaming experience, added costs of the company’s development and operation, and could jeopardize stable running of the game.

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Conditions for Dormant Investment Compliance in China

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(By Lear Gong) Regulation No.3 on Several Issues Concerning the Application of the Company Law issued by the Supreme People’s Court (“Corporation Interpretation III”), which was promulgated and came into effect on January 27, 2011, contains specific regulation on application of law with respect to dormant investment. Regulation No.1 on Several Issues Concerning the Hearing of Disputes Involving Foreign Invested Companies by Supreme People’s Court (“Foreign Investment Interpretation I”) also contains detailed regulation on dormant investment in companies.

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The Court Ultimately Supported Guangzhou Pharmaceutical Holding Company’s Application for an Injunction

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(BY Albert Chen  ) Guangzhou Pharmaceutical Holding Company (“GPHC”) is the holder of the王老吉 (the “Wang Lao Ji”) trademark in mainland China. In 2000, it licensed Hongdao Group, a Hong Kong admitted company, to use the trademark. After Hongdao Group used the trademark and caused it to develop a definite business reputation, however, a dispute broke out between the two parties over the right to use the Wang Lao Ji trademark.

In the first round of the fighting between the parties, GPHC used arbitration with CIETAC to cancel the supplementary agreements signed between two parties in 2002 and 2003 based upon the fact that the agreements were executed under commercial bribery. This website has discussed the implementation problems arising in that case. After that, the subsidiary of Hongdao Group that had sold Wang Lao Ji, Jia Duo Bao (“JDB”) began to sell its herbal tea under the brand name 加多宝(the “JDB”) Additionally, JDB used disputed slogans, such as “Wang Lao Ji now calls itself JDB,” “China’s top selling red can herbal tea now call itself JDB.” Claiming that such slogans constituted false advertising or unfair competition GPHC filed for an injunction with the Guangzhou Intermediate People’s Court and demanded an immediate halt to such advertisements.

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