Category Archives: Structuring

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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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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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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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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Does Wind’s Sale of Tonghuashun’s Stock Constitute Insider Trading?

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Previously, we posted “Tonghuashun VS. Wind and the Judgment Standards for Software Copyright Infringement in China” to introduce the copyright dispute between Wind and Tonghuashun. According to a recent report, two lawyers based in Beijing filed a complaint to the China Security Regulatory Commission (“CSRC”) accusing Wind and its affiliated company of insider trading, which has made the dispute more complicated.

As shown by the currently available information, from the second quarter of 2011 to the third quarter of 2012, Wind’s affiliated company was a shareholder of Tonghuashun. When the rumor emerged that Wind would sue Tonghuashun, Tonghuashun’s shares experienced several major trades. As indicated in the report issued in the third quarter of 2012, Wind sold all the Tonghuashun shares it had held. Wind explained this situation by stating that its investment in Tonghuanshun was to use its rights as a shareholder to persuade Tonghuashun to cease infringement. Today’s post will provide analysis on this issue.

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Should Employer Give Notice to Trade Union before Terminate Employment in China?

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 (By Albert Chen) The dispute over employment termination is quite common in labor conflicts, and whether the employer shall send a notice to the trade union before the termination is commonly seen in such disputes. What then, are the regulations regarding this aspect in China?

I. What is the function of trade union in China?

The role of the trade union is specified in Article 2 of Trade Union Law of PRC (the “Trade Union Law”):

“Trade unions are mass organizations formed by the working classes of their own free will.

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What Financial Support and Tax Preferential Policies can be enjoyed for Patent Application?

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Nowadays, the State and local governments have issued serious financial support and tax preferential policies to encourage innovation of patents.

I. Financial Support Policies

Firstly, from the perspective of the State, the Chinese applicants applying to the State Intellectual Property Office (SIPO) for patents can enjoy the policy of reduction or postponement of the payment of the patent fee. The relevant expenses include the application fee (excluding printing expense and surcharge), substantive examination fee of the invention and 3 years’ annual fees from the year when the patent right is granted. On the other hand, for the Chinese applicants applying for patents overseas, they can obtain the financial support to the extent of certain amount, which includes the official fee of application for foreign patent, retrieval expense paid to patent retrieval organization, service expenses paid to the agency and so forth.

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Guiding Case by China Supreme Court: JV’s Minority Shareholders May Undertake All Company’s Debt

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By You Yunting

By judicial practices in China, in case the Sino-foreign invested company, which however is operated under the management of Chinese shareholder, is trapped in the insolvency, the foreign investors could be judged to take all the debt of the company, not subject to the total amount of its investment, when Chinese partner chooses to disappear or refuse to clear the debt. And in recent, as per the latest 3rd guiding cases by China Supreme People’s Court, by a decision indicated in it, the non controlling shareholder shall be liable to the joint liability to the non-settled debt of the company, that obviously aggravates the burden of the company shareholder. Then, what is the fair way to avoid such risks? We put forward our answer to it in today’s post.

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Risk and Its Prevention for Dormant Investment in China

By Luo Yanjie

Recently, Shanghai Huangpu People’s Court issued white paper about cases involved Non-State-Invested Units. The white paper disclosed that the dormant investment is ubiquitous in Non-State-Invested Units during the process of their establishment, and that not only makes investors’ rights and interests unguaranteed, but also cause a serious threat to the commercial good-faith. As introduced, some actual investor would not like to establish the company in their own names considering various factors, but registered the company in others’ name. It results lots of disputes. Now we would like to discuss the risk of “dormant investment” and introduce how to reduce the risk as follows:

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The Validity of Foreign Investor’s Share Holding In the Name of Chinese Dormant Citizens

By Luo Yanjie

As reported, 24quan.com, a Chinese daily-deal website, is undergoing a contentious conflict (note: the link is in Chinese) between its operation team and investors. Berjaya Corporation Bhd (Berjaya), the biggest investor of the website and registered in Malaysia, accused the operation team of withholding  RMB 2 million yuan with no authorization, yet the team responded by saying that the investor was unilaterally deducing the share held by the team from 40% to 3%. Currently, the website and the company is under the control of the team, who has dismissed the staffs appointed by the investor, and in retaliation, the investor announce that their funding cease.

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Why Shenzhen Proview Will Not Be Bankrupt Immediately?

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According to the report from the Beijing News (note: the link is in Chinese), Shenzhen Proview, the company battling against Apple in the iPad trademark dispute has been applied for bankruptcy clearance by its debtor Taiwan Fubon Insurance (Fubon), who first applied for the bankruptcy to Shenzhen Intermediate Court in June of 2011 and sent the written notice to urge the acceptation on 20th February, 2012.

According to the Enterprise Bankruptcy Law, “where an enterprise legal person fails to pay off its debts, and that if its assets are not enough to pay off all the debts or if it is obviously incapable of paying off its debts, its debts shall be liquidated in accordance with the provisions of the present Law.” That is to say the bankruptcy could only be applicable when the company’s assets are not enough to pay off its debts or it’s obviously incapable to pay off its debts. In the case, it’s arguable to say Shenzhen Proview is under such situations. For one hand, Fubon claims Shenzhen Proview has not made the payment on its debt and seems to be incapable to make the payment, while on the other hand, Shenzhen Proview disclaimed the accusation and insisted the iPad trademark is valuable enough to clear all the debt once it could be realized, and therefore it shall not be liquidated under the bankruptcy procedure.

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Shall It be Companies’ Obligation to Pay Employees Confidentiality Remuneration by China Laws?

Recently, Bridge IP Law Commentary is consulted by some clients about whether it is necessary for an enterprise to pay its employees, who is subject to confidentiality obligation, the confidentiality fee. Today, we will answer such questions combining with the current laws and regulations as well as the practices. (the image above is the cover of the Guidelines of Trade Secret to Companies by DeBund Law Offices)

I. There only regulates the payment for the competition restriction but no fees for confidentiality  

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MCC Released the New Foreign Investment Industry Guide Catalog of 2012 Version


The Ministry of Commerce of China (the “MCC”) has recently revised the Foreign Investment Industry Guidance Catalog (the “Catalog”) recently, which will come into effect on 30th, January, 2012.

The Catalog is the important industry policy on guiding the foreign investment, and before this modification, it has been modified forth in 1997, 2001, 2002, 2004 and 2007 since the promulgation in 1995. And this post is the conclusion on the newly revised Catalog by Bridge IP Law Commentary.

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The Introduction on the Chinese Laws and Regulations concerning the Withholding Tax

Highlight: to introduce you the regulations concerning the withholding tax in China, including the scope and the calculation base of the tax.

Recently a reader consult our website for the relevant legal problems regarding the withholding tax in China. The withholding tax is a usually encountered question in foreign exchange payment for those foreign companies having cooperation with Chinese enterprises in intellectual property right. Ms. Chen Danhong, the attorney of our website replied the question as follows:

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