Turning the Corner? Protecting Innovation and Investment ... · Protecting Innovation and Investment in China’s Rapidly Evolving Business Landscape October 27, 2009 Chicago, IL.

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©2009 Foley & Lardner LLP

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Turning the Corner? Protecting Innovation and Investment in China’s Rapidly Evolving Business Landscape

October 27, 2009Chicago, IL

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Discuss Agenda

Patent Reform and Other Recent Developments in China’s IP Landscape – Protection, Enforcement, and Other Considerations

China’s Changing Landscape —Josh Timberlake, Deloitte Consulting

LLP

Discussions about Chinese Tax Issues —Sarah Winters, Deloitte Tax LLP

Strengthening a Company’s Business and IP Assets in China Through Effective Agreements with Employees, Internal Controls and Favorable Governmental Policies —Ken Duck, Foley & Lardner LLP

Changing China: Current Trends in China’s IP Landscape —Jon Dudas, Foley & Lardner LLP

Enforcing Intellectual Property in China —Catherine Sun, Foley & Lardner LLP

Intellectual Property Considerations for Companies Doing Business in ChinaJ. Bruce Schelkopf, Cummins Inc.

Strengthening a Company’s Business and IP Assets Under China’s Current Regulatory Environment


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Patent Reform and Other Recent Developments in China’s IP

Landscape – Protection, Enforcement, and Other Considerations

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Changing China: Current Trends in China’s IP Landscape

Jon Dudas, PartnerFoley & Lardner LLP

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China and the IP Dichotomy

China receives more patent applications than any other nation and is the third largest recipient of utility (invention) applications.China has the most trademark filings of any nation.China was the source of 81% of the total value of counterfeit goods seized by US Customs in 2008. IPR seizures of goods from China rose 40% by value in FY 2008.

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Brief History of IP in China

1980--Patent Office created1982--Trademark Office created1985--Copyright Office createdDecember 2001—China joins the WTO and signs the TRIPS agreementJune 2008--Publication of the National Intellectual Property Strategy

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Shifting Attitude in China

2001-2004Focus on laws, less than robust enforcementDefensive international postureTension within the government agencies in China

2004-2007More attention paid to enforcementUS files a WTO case against China

2007-PresentFocus on Innovation in ChinaMove from “Made in China” to “Invented in China”National Intellectual Property Strategy is Adopted

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National IP Strategy

Goal: China to become a world leader in innovation by 2020Coordination: 33 Departments in the Chinese Government were involved in the negotiation of the StrategyArchitects: Vice Minister Wu Yi (retired) and Tian Lipu, Commissioner of the State Intellectual Property Office

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China-US Cooperation

IP is addressed at the highest political levels and working levels—President, Premier, Vice Premiers, Ministers, Vice Ministers and Directors—in diverse agencies

October 2008—Memoranda of Understanding Signed between the USPTO and SIPO (patents), SAIC (trademarks) and GAPP (copyrights)

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China-US Cooperation(continued)

China is a full participant of the IP5—5 largest patent offices in the worldChina is an observer in the Trademark Trilateral Meetings among the US, Japan and EuropeAnnual US-China Joint Commission on Commerce and Trade (Ministerial Level) progresses

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US Resources in China

US Patent and Trademark Office/Foreign Commercial Service IP AttachesMarket Access Compliance OfficersUS EmbassyUnited States Trade Representative

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Resources in the United States

STOP Hotline—1-866-999-HALT; www.stopfakes.gov

US Intellectual Property Enforcement Coordinator (“IP Czar”)

US Patent and Trademark Office

US Trade Representative

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China IP Strategies

File strategically, but file for IP in ChinaThere is no enforcement of IP rights without IP, a problem for companies large and small

Strategically determine whether and where to manufacture in ChinaUtilize US government resourcesHave counsel in ChinaFamiliarity and presence in China is critical

Know and visit regularly with key national and provincial Chinese government officials

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Questions & Answers

Jon DudasPartnerFoley & Lardner LLPWashington Harbour3000 K Street NWSuite 600Washington, DC Phone: 202.945.6107 Email: [email protected]


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Enforcing Intellectual Property in China

Catherine Sun, Managing PartnerFoley & Lardner LLP

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Dynamics of IP Legislation in China

Brief History of 27 years-PRC Trademark law took effect on March 1, 1983Joined World Trade Organization in 2001

Eight years of Accession

Third Amendment to the Patent Law effective on October 1, 2009Third Amendment to the Trademark Law is pending

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Enforcing Patents under the Third Amendment: Reality and Prediction

Increased maximum statutory damagesInvalidate a patent in suit based on absolute noveltyChallenge the enforceability of the patent in suit based on failure to comply with confidentiality review requirementInfringement defense based on practicing of prior artHarder to obtain pre-suit preliminary injunction

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Chint v. SchneiderA Chinese Company Suing A French Companyfor Patent Infringement

Forum shopping - Wenzhou Intermediate Court as the trial courtPatent at issue – a Chinese utility model patent expired in November 2007Damages – trial count rendered RMB 334 million in damagesIn April 2009, case settled for RMB 157.5 million, the largest settlement in Chinese patent litigation history

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How to Enforce IP in China?

NegotiationMediationArbitration

Face saving (mianzi) still dictates resolution of disputes by non-court actions

Administrative ActionsCivil actionsCriminal actions

Criminal actions mostly are applicable to trademark and copyright offenses

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Administrative Enforcement

Agency for Industry and Commerce (AIC) and Technology Supervision Bureau (TSB)

Suitable for trademark and simple design patent infringement only

Quicker & Cheaper

Evidence collection tool

No damages

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Civil Court Actions vs. Administrative Actions

Specialized IP courtsSuitable for copyright & complex patent casesRemedies include damages, injunction, and public & private apologyUnique characteristics:

rocket docketvery little discoverydamages are historically not high

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How to Resolve IP Dispute in China - Final Thoughts

Avoid litigation if possible

Do allocate decent budget in China IP protection

Carefully manage litigation expectation and exposure

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Questions & Answers

Catherine SunShanghai Managing PartnerFoley & Lardner LLPSuite 2201, Jinmao Tower88 Century BoulevardShanghai 200121, ChinaPhone: 86.21.61008900Email: [email protected]

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Intellectual Property Considerations for Companies Doing Business in

China

J. Bruce Schelkopf, Esq.Chief Patent & IP Counsel

Cummins Inc.

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Overview: Doing Business in China

Cummins’ business experience in ChinaPresence in China for 37 years Partnering with Chinese companiesChanges in landscape of technology industryShift in attitudes of Chinese manufacturers and technology ownersContinued challenges with doing business in China

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Understanding Cultural, Social, and Legal Issues in China

China is transitioning from a manufacturing society to a knowledge society

Technology is increasingly valued

Knowledge is becoming a commodity

Adapt to and adopt cultural indices

U.S. companies benefit by sharing, teaching, and educating Chinese business partners

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Strategy For Identifying & Preventing Counterfeit Goods

Identifying counterfeit goods

Marking authentic products

“On the ground” assessment/investigation

Educating employees/business partners

Process and procedures

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Strategy For Identifying & Preventing Counterfeit Goods

Partnering with Chinese Officials

Notify and investigate suspected counterfeit

goods

AIC Officials in Chinese provinces

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Counterfeit Goods Strategy (continued)

When counterfeit goods are identified. . .

Confiscate? Purchase? Destroy?

Penalties for counterfeit activity

Examples of counterfeit goods that Cummins has dealt with in China

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Counterfeit Goods Strategy (continued)

Ceremony & Publication

Highlight successes; create incentives

Benefits government officials, Chinese business partners, and Chinese provinces

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Strategies For Protecting and Enforcing IP In China

Role of Chinese manufacturers in driving enforcementConcerns with “blocking” access to Chinese suppliersWorking with Chinese business partnersWorking with local officials

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Patent Considerations & Filing Strategy

Resource Allocation – China or United States?Utility Model or Invention Patent?Where to File Priority Application?Design Patent ProtectionDefensive Patents

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Patent Considerations & Filing Strategy

Patent protection in ChinaBy 2013-2014: Issuances of Chinese patents will exceed the number of issued U.S. patentsLegal & practical implications for U.S. companies in China

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Opportunities in China BasedOn The Third Amendment

Effective October 1, 2009Changes to Patentability Standards

“Absolute novelty”

Patent Enforcement ConsiderationsAdditional administrative powersIncreased penalties availableEvidence preservationPrior art defense

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Third Amendment (continued)

Joint Ownership Issues

Joint development concerns

Collaborating with Chinese business partnersAvoid holding your Chinese supplier “hostage”

Considerations for written agreementsCultural & social issues

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Compulsory License IssuesInfringement Damages

Statutory damage ceiling increasedIncreased penalties for counterfeiting

Content Review SystemFile first outside China after content reviewApplicability to foreign enterprises?

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Inventor CompensationApplicability to foreign enterprisesPolicy or agreement can override

Design Patent ApplicationsMultiple embodiments in single applicationNo source identifiers

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J. Bruce SchelkopfChief Patent & IP CounselCummins Inc.One American Square, Suite 1800 Indianapolis, IN 46282Phone: 317.610.2462Email:[email protected]

Questions & Answers

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Discuss Agenda

Patent Reform and Other Recent Developments in China’s IP Landscape – Protection, Enforcement, and Other Considerations

China’s Changing Landscape —Josh Timberlake, Deloitte

Discussions about Chinese Tax Issues —Sarah Winters, Deloitte

Strengthening a Company’s Business and IP Assets in China Through Effective Agreements with Employees, Internal Controls and Favorable Governmental Policies —Ken Duck, Foley & Lardner

Changing China: Current Trends in China’s IP Landscape —Jon Dudas, Foley & Lardner

Enforcing Intellectual Property in China —Catherine Sun, Foley & Lardner

Intellectual Property Considerations for Companies Doing Business in ChinaJ. Bruce Schelkopf, Cummins Inc.

Strengthening a Company’s Business and IP Assets Under China’s Current Regulatory Environment

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Strengthening a Company’s Business and IP Assets Under

China’s Current Regulatory Environment


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China’s Changing Landscape

Josh Timberlake, Senior ManagerDeloitte Consulting LLP

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Before and After

Pudong - 1987 Pudong - 2007

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Why Offshore to China?

Linear Deployment Model

Customers R&D

Engineer

Sourcing

Production

Assembly

Dist’n

Reve

nue Talent

Cost

Market Builders•Target new customers

and revenue sources•Based on GDP growth,

market deregulation, trade alliances, etc.

Talent Seekers•Target locations that

offer depth of talent•Based on access to

universities, research institutions, IP protection, etc.

Cost Cutters•Pursue low-cost inputs to product or process•Low-cost inputs may include labor, utilities, raw materials, etc.

Past

Pres

ent

Futu

re

CostCutters

MarketBuilders Talent

Seekers

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Cost Cutters – on the move

China’s cost advantage has eroded substantially

Rapid cost escalation (Labor, Real Estate, etc.)Changing Tax environmentTransition to single CIT rate – 25%Declining / evolving incentivesCost cutters moving to interior, if not out of China

Shanghai Urban Average Wage

0

10,000

20,000

30,000

40,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Shanghai urban average wage (RMB/Yr)

Data: China Statistical Yearbook

Source: Shanghai Statistical Yearbook

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Cost Cutters – increasing competition

Foreign Direct Investment Trends in Traditional “Cost Cutter” Industries (2003 – 2008)

Data from fDi Intelligence by Financial Times. Includes announcements of planned capital investment in Electronic Components, Consumer Electronics,

Consumer Products, and Textiles sectors.

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Market Builders – a growing wave

Increasing attractiveness of China’s consumer market

Rising disposable income levelsProduct localization (encouraged / incented for certain industries)Improving transportation networkCoastal vs. interior income disparity remains

Disposable Income

0

5,000

10,000

15,000

20,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

urban disposable income ‐ national average(RMB/Yr)

Source: China Statistical Yearbook

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Talent Seekers – the pool deepens

Source: IMD World Competitiveness Report; Deloitte research

Annual R&D Expenditures

05,000

10,00015,00020,00025,00030,00035,00040,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

US $

M

China (Mainland) India Mexico Poland Vietnam

China’s domestic talent pool is growing increasingly competitive

Demographics – huge talent poolImproving skills – engineers, scientists, technicians, etc.Graduate repatriationPolicy-backed targeting of R&D and IP-intensive projectsIncentives

High & New Technology Enterprise

5.1 million students graduated from higher education in 2007Over 40% science or engineering majorsTechnical/vocational school enrollment doubled from 1997-2007 to roughly 20 million

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A Changing Tide

Convergence Model

CostCutters

MarketBuilders

TalentSeekers

Customers R&D

Engineer

Sourcing

Production

Assembly

Dist’n

Reve

nue Talent

Cost

Market Builders•Target new customers and

revenue sources•Based on GDP growth,

market deregulation, trade alliances, etc.

Talent Seekers•Target locations that offer

depth of talent•Based on access to

universities, research institutions, IP protection, etc.

Cost Cutters•Pursue low-cost inputs to product or process•Low-cost inputs may include labor, utilities, raw materials, etc.

•Companies increasingly trying to balance multiple deployment objectives

•China is one of the few global locations which balances all three

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Questions & Answers

Josh TimberlakeSenior ManagerDeloitte Consulting LLPPhone: 312.486.3067Email: [email protected]

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Discussions about Chinese Tax Issues

Sarah Winters, International Tax DirectorDeloitte Tax LLP

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Contents

Overview of Chinese Tax System

Enterprise Income Tax

Turnover Tax

- Value Added Tax

- Business Tax

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Income Tax

Enterprise

Resident Enterprises ( 25% beginning in 2008)

Nonresident Enterprises

Income connected to China establishment (25% beginning in 2008)

Income not connected to China establishment (withholding taxes)

Individual (5% - 45%)

Turnover Tax

Value Added Tax (0%-17%)

Business Tax (3%-20%)

Consumption Tax (5%-45%)

Other Major TaxesCustoms Duty

Stamp Duty (0.003% - 0.1%)

Land Value Appreciation Tax (30% - 60%)

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Enterprise Income Tax

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Tax Incentives under the New Chinese Enterprise Income Tax Law

China’s tax incentives moved from predominately manufacturing based and location oriented to high technology, R&D, and environmental incentives. The following are a few key incentives available under the new tax system:1. High and New Technology Enterprises2. R&D Super Deduction3. Technologically Advanced Service Enterprise4. Various incentives for certain industries specifically encouraged by

government, such as software and integrated circuitry, environmental protection, etc.

Under current economy situation, certain local authorities have provided subsidy to enterprises (modeled after incentives)

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High and New Technology Enterprises

Entitled to 15% income tax rateMajor requirements:i. Has been established in China for more than one yearii. Products / Service within the scope of the Catalogueiii. Intellectual Property (“IP”)

Enterprise has obtained the IP right of core technology in the last 3 years through self-R&D activities, transfer/purchase, donation, merger etc.; orEnterprise to secure exclusive right to use IP for period of at least 5 years

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High and New Technology Enterprises

iv. Headcount of technical staff with university degree or above to be 30% or more of total headcount of enterprise, of which 10% or more R&D staff

v. R&D expenditure for the recent 3 years should reach a prescribed percentage of the total revenue

vi. The amount of R&D expenditure incurred within China should not be less than 60% of the total R&D expenditure

vii. Income from high & new tech products / services should be >60% of the total annual income

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R&D Super Deduction

150% deduction for eligible R&D expenses; or 150% tax basis for eligible R&D expenses that have been capitalizedNo IP ownership is requiredR&D activities include:

Those activities listed in the ‘State encouraged high-new technology areas’ and the ‘Guideline of the latest key priority development areas in the high tech industry’, orActivities carried on continuously with a clear objective to obtain new knowledge of science and technology; or to substantially improve technology, production techniques or products

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R&D Super Deduction

R&D expenses include:Those direct expenses that can be specifically allocated to the R&D activitiesIf activities carried out by a third party, the consignor/principal is entitled to claim the super deductionIf activities are carried out by multiple enterprises, each member will share the costs they specifically incurred

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Technologically Advanced Service Enterprise

Qualified Technologically Advanced Service Enterprise (TASE) in 20 pilot cities are entitled with major preferential tax benefits as follows:

15% income tax rate Limit of deductible education expenses is increased to 8% of the total salary; the excess amount can be carried forward to future yearsOffshore outsourcing service income exempted from business tax Pilot cities include Beijing, Tianjin, Shanghai, Chongqing, Dalian, Shenzhen, Guangzhou, Wuhan, Haerbin, Chengdu, Nanjing, Xi’An, Jinan, Hangzhou, Hefei, Nanchang, Changsha, Daqing, Suzhou, WuxiTentatively from January 1, 2009 to December 31, 2013

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Scope of technologically advanced servicesInformation Technology Outsourcing (ITO) including software development, system hosting, system maintenance, IT development, etc.Business Process Outsourcing (BPO) including design of operational flows, business internal control, business operations management, supply chain management, etc.Knowledge Processing Outsourcing (KPO) services

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Qualification of TASE1. Engaged in one or more of the technologically advanced

outsourcing services2. Registered and operating in one of the 20 specified pilot

cities3. Being a legal entity in good standing for two years with

respect to all business administrative requirements including import, export, finance, taxation, foreign exchange, customs, etc.; and are using advanced technology or has strong R&D capabilities

4. More than 50% of total employees should have an Associate degree or higher

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Qualification of TASE (cont)

5. More than 70% of total annual income is from technologically advanced outsourcing services

6. Possesses international qualifications including the capability maturity model (CMM), CMM integration, IT service management standard, information security standard, control environment of service organization, ISO family of standards, people CMM, etc.; and enters into outsourcing contracts with overseas customers which represents 50% or more of its annual income

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Other Technology Related Tax Incentives

Holidays restored in six zones (Circular [2007] #40)“High and New-Tech Enterprises” established on or after January 1, 2008 in the five Special Economic Zones (SEZs) and Pudong New District in Shanghai can enjoy a 2-year EIT exemption followed by 3-years one-half of the statutory EIT rate (the “2-year EIT Exemption and 3-year 50% EIT Reduction”)The EIT exemption starts from the first revenue generating year

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SEZs refer to Shenzhen, Zhuhai, Shantou, Xiamen and HainanThe high-tech status will be determined based on new EIT rules (ownership of core IP is required)Companies with branch operations outside of SEZsand Pudong New District have to clearly segregate their revenues within/outside of SEZs/Pudong New District, or will be denied the tax rate reductions

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Software production enterprisesNewly set up qualified enterprises: “2+3” tax holiday

1st & 2nd years : exempt3rd to 5th years : half of the standard tax rate i.e. 12.5%

Existing qualified enterprises: reduced taxrate @10%

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Transfer Pricing Documentation Requirement

Starting from 01/01/08, all enterprises are required to prepare and maintain contemporaneous transfer pricing documentation, with the following three exceptions:

Safe Harbor Exception – related party buy/sell transactions < RMB 200 million (toll processing amount calculated based on declared import & export value to Customs) and other related party transactions < RMB 40 million (excluding amounts covered in CSA or APA) *Domestic Transaction Exception - Foreign shareholding of enterprise < 50% AND only domestic transactions (HK, Taiwan & Macao are non-domestic)APA Exception – Transactions covered under an APA

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Transfer Pricing Documentation Requirement

Shall be completed by May 31 of the following year and must be submitted within 20 days upon tax bureau’s request; Year 2008 documentation - extended to 12/31/09Documentation must be in Chinese and maintained for 10 yearsPer Circular GuoShuiHan [2009] No.363 "Circular of the State Administration of Taxation on Strengthening Supervision and Investigation of Cross-Border Related Party Transactions” recently released by the SAT, the Sale Harbor Exceptions above does not apply to single functioned enterprises incur losses

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Turnover Taxes

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Value Added Tax Reform

The changes in Value Added Tax (VAT) regulations came into effect on 1/1/2009

Transition from a production to consumption based VAT - Recovery of VAT incurred on fixed assets, such as machinery and equipment excluding yachts, motorcycles and motor vehiclesReduction of the VAT rate for small-scale taxpayers to a uniform 3%

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Value Added Tax Reform

Reduction of the threshold of VAT small-scaled taxpayers, from the current annual sales value of RMB 1 million (for the manufacturing companies) and RMB 1.8 million (for the trading companies) to RMB 0.5 million and RMB 0.8 million, respectivelyRemoval of the VAT exemption for equipment imported for processing, assembly or compensation tradeExtend deadlines of VAT returns from 10 days to 15 daysDifferent VAT treatments on sale of used goods/ fixed assetsSignificant number of VAT refund rate increases

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Relevant Value Added Tax Incentive

General VAT taxpayers sell the self-developed and self-produced software products, which is taxed at the rate of 17%, may enjoythe simultaneous levy and refund policy to ensure the actual VAT burdens not exceeding 3% during the period from June 24, 2000 to the end of 2010

For the general VAT payers, which sell self-developed and self-produced embedded software together with the computer network, computer hardware, machinery and equipment, etc. , if they could clearly separate the account and records of sales of the embedded software, computer hardware, machinery and equipment, etc., the sales of embedded software may also apply for the preferential VAT treatment above

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Business Tax Reform

Effective from 1/1/2009, change the Business Tax (BT) levying principle from where the service is performed to where the entity receiving or providing the service is located. BT would be imposed on services income if either the service provider or the servicerecipient is located in China, regardless of where the services are rendered.

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Business Tax Update

As per the circular Caishui [2009] No.112, a grandfather rule has been granted the BT tax exposure on services provided out of China

Before 31 December 2009, or when the services end, whichever is the earlier, no BT is due for services rendered under cross-year contracts when the service is provided overseas while the service recipient is located in ChinaAny overpaid BT prior to the release of this Notice can be offset against the BT payable amount in a later filing period or can be refunded to the taxpayer

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Relevant Business Tax Incentive

The income derived from the operations of technology transfers, technology development and the related technology consultation, and technology services offered by units or individuals (including enterprises with foreign investment, research and development centers invested in and established by foreign businesses, foreign enterprises, and foreign individuals) is exempt from the business tax

BT exemption for offshore outsourcing service income by the qualified TASE

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Questions & Answers

Sarah WintersInternational Tax DirectorDeloitte Tax LLP Phone: 313.396.3305Email: [email protected]


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Strengthening a Company’s Business and IP Assets in China Through

Effective Agreements with Employees, Internal Controls and Favorable

Governmental Policies Ken Duck, Senior Counsel

Foley & Lardner LLP

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Need for Internal Controls to Protect IP

Until now, much emphasis placed on protecting external IP misappropriation/theftRelative shortage of experienced skilled labor has resulted in sharp salary increases and retention strugglesWith more R&D underway in China among FIEs, comes an increased need for internal IP protection

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What Strategies Can Be Used?

Compartmentalize the manufacturing/R&D processHold technical staff to NDAsBind technical staff and senior managers with non-competesUse liquidated damage clauses

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Compartmentalization of Manufacturing Process

Merits:No single person has access to all facets of proprietary technology processRequires reverse-engineering to be a conspiracy, not just actions of a single employeeRelatively low labor cost in China may offset inherent inefficiencies of this approach

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Compartmentalization of Manufacturing Process

Demerits:Likely results in inefficiencies in manufacturing processLikely results in increased labor costsMay unintentionally stifle innovation

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Non-Disclosure Agreements

NDAs are permitted to be used to protect confidential information from unauthorized disclosure during and following termination of employmentAlthough initially difficult for employers to prevail in labor arbitration, trend now is increasingly favoring employer

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Non-Competes (1)

Historically used for employees with access to competitively harmful informationWas not codified in PRC law until passage of Labor Contract Law (effective 1/1/08)Non-competes may be used in labor contracts for up to a maximum of 2 years May only be enforced against senior management and technical personnel

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Non-Competes (2)

Special compensation must be paidLCL silent on calculation of amount of considerationCalculation still left up to local implementing regulations, many of which are also silentGood rule of thumb: in the absence of specific local rules, 4-6 months’ salary for each year of non-compete term

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Liquidated Damage Clauses

The LCL authorizes employers to include liquidated damage clauses in labor contracts for employee training expensesMeant to punish employees that leave soon after receiving special training (overseas, academic, etc.)Employers might consider special training (and such damage clauses) for technical staff as incentive to remain employed

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Drafting Effective and Enforceable Contracts

Contract Law Interpretation of May 13, 2009 by the Supreme People’s Court

Article 4 of the Interpretation says courts should consider the place of signing agreed by the parties as the place of signing in a legal sense, even if actually signed elsewhereSignificant because the place of signing generally determines which court has jurisdiction as well as the governing law of the contract – prior practice was to actually have clients travel to the desired (neutral) place to have the signing ceremony

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Drafting Effective and Enforceable Contracts (2)

SPC Contract Law InterpretationVariation in the quality and sophistication of judges from locality to locality in China can be dramaticIntent of the Interpretation is to have the parties to contracts be free to create jurisdiction based on where they want to litigateThis is likely to lead to wide spread forum shopping, which is common in the U.S.

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SPC Contract Law InterpretationA contract can be found to exist through the course of dealings between the partiesIf a party includes in a contract a standard disclaimer language excluding or limiting the party’s liabilities, the disclaimer must be highlighted through the use of font, symbols and other means, and at the request of the other party, the party including such disclaimer must explain the meaning of the disclaimer

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July 7, 2009 SPC Opinion acknowledges the significance of the economic downturn on existing commercial/contractual relationships

(Change of Circumstances) Clarifies distinction between mere “commercial risks” inherent in business and a genuine material change of circumstance, which is unforeseeable and not inherent in the market system(Liquidated Damage Clauses) Courts have ability to reduce “excessive” damage clauses, and the Opinion sets out clear principle that damages clauses are “excessive”where more than 30% higher than the actual loss

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R&D and Technology Investments in China

Changes to the Foreign Investment Industry Catalogue (effective 12/1/07)

Upgrade China’s industrial structure by encouraging investment projects that use new and high technologies and new materials;Reduce support for investment in the manufacturing sector using traditional technologies; andEnhance resource conservation.

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R&D and Technology Investments in China

“Encouraged” industries now include:Energy (power generation, grid construction and clean energy)Bio-techsElectricityAerospace (airports and satellites)Chemical (especially supporting aerospace, IT and environmental)Pharmaceutical and healthcare

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R&D and Technology Investments in China (Local Measures)

Formation of Onshore VC FundsOnly local level approval needed now (below US$100 million)Beijing, Shanghai, Shenzhen, Guangdong and Tianjin have enacted local rules to support the formation of onshore fundsThese incentives include relaxed formation procedures, tax holidays (for the funds and high level management), cash bonuses on establishment and lower capital requirements

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R&D and Technology Investments in China (Local Measures)

Government matching funds available for co-investment

Depends on fund’s focus, location of the fund in China (what investment zone, etc.) and negotiations with local funding sourcesExamples include Suzhou, Huzhou, and Zhengzhou

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Questions & Answers

Ken DuckSenior CounselFoley & Lardner LLPOne Detroit Center 500Woodward Avenue Suite 2700Detroit, MI 48226-3489Phone: 313. 234.7121Email: [email protected]


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Turning the Corner? Protecting Innovation and Investment ... · Protecting Innovation and Investment in China’s Rapidly Evolving Business Landscape October 27, 2009 Chicago, IL.

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