Transfer of IPRs2018-10-19

In March 2018, the Chinese State Council issued Procedures for the Transfer of Intellectual Property Rights to Foreign Countries (Trial Implementation). Toby Mak (Foreign Member) outlines how this could a< ect the operations of multinational companies, and mergers and acquisitions.

On 18 March 2018, the State Council launched the “Procedures for the Transfer of Intellectual Property Rights to Foreign Countries  (Trial Implementation)”.  These procedures formalise many of the existing procedures, including:

• Setting out the relevant technologies as those in the “List of Technologies Prohibited or Restricted from Export”, including patents, integrated circuits design layouts, and copyright in computer software. Full details can be seen at: http://www.mofcom.gov.cn/article/b/c/200809/20080905801122.shtml.

• Providing that technologies prohibited from export cannot be exported without prior permission. The application for permission must be submitted to the local Business Bureau of the assignor. This application should then be passed to the local intellectual property office – funded by the local government, but rules set by CNIPA (National Intellectual Property Administration of the People’s Republic of China) – for examination and feedback. Meanwhile, CNIPA should also be notified of this application (but CNIPA does not examine this application).

What is new in these procedures is set out below. 

Change of actual controller to IPRs and exclusivelicensing of IPRs are now covered

In addition to the change of applicant/right owner, change of actual controller of IPRs and exclusive licensing of IPRs are now also covered.

In the past, exclusive licensing was used by international companies to get around the rules. Specifically, the local Chinese branch of an international company would hold the IPR, and then grant an exclusive license to the mother international company. As the ownership of the IPR remained with a local Chinese company (the local Chinese branch of an international company), it was argued that this did not require the examination stipulated in the above procedures. Apparently, this no longer works – the Chinese government knows.

I am not sure what is the meaning of “change of actual controller of IPRs”.  This may be another measure to tackle the circumvention by international companies, including changes of company structure. I will be grateful for any comments on this. 

Merger and acquisition are now covered

In addition to the above, mergers and acquisitions are specifically covered by the procedures.  This is understandable, as after a merger or acquisition, the ownership of IPRs of the relevant parties has often changed substantively.  This could affect investment in Chinese companies. Attorneys working on M&As should watch out for this. 

Author: Toby Mak

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