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Charles Feng Took the Interview with Bloomberg Regarding a New Regulation on the Outbound Transfer of Intellectual Property Rights

The General Office of the State Council issued the Working Measures for Outbound Transfer of Intellectual Property Rights (for Trial Implementation) (hereinafter referred to as the “Measures”) on March 18, 2018, which shall come into force on the date of issuance. The essential purpose of issuing the Measures is to safeguard national security and major public interests, so as to prevent the outbound transfer of intellectual property rights from affecting China’s national security and the capabilities of innovative development of core and key technologies in important fields of China. Recently, Bloomberg, an internationally renowned information provider, interviewed Charles Feng concerning such new regulation on the outbound transfer of intellectual property rights in China.

The Measures came at a time of increasingly fierce trade dispute between China and the United States, in which intellectual property protection and transfer of technology are at the core. Moreover, in the past few years, a number of overseas M&A projects of Chinese enterprises failed due to American national security review. Under such international background, the issuance of the Measures instantly attracted extensive attention from international and domestic media, and internationally renowned enterprises. Charles Feng offered some professional comments on the content and possible impact of the Measures.

The Measures highlight the importance of national security. Compared with previous review systems of the outbound transfer of intellectual property rights, the Measures examine all future outbound transfer of intellectual property rights from a higher level. Indeed, the Regulations on the Administration of Import and Export of Technologies promulgated in 2001 and the Measures for the Administration of Technologies Prohibited or Restricted from Export promulgated in 2009 stipulate that the technical review of technologies restricted from export shall include reviewing national security, but such regulations only emphasize the legislative goal to regulate the administration of export of technologies. However, in terms of legislative goals, the newly issued Measures explicitly require to implement the overall national security concept, improve the national security system, safeguard national security and major public interests, and regulate the order of outbound transfer of intellectual property rights.

In addition, the Measures also explicitly include “mergers and acquisitions” involving the transfer of intellectual property rights to its scope of review. Whereas, the Regulations on the Administration of Import and Export of Technologies clearly stipulate that the scope of review is “assignment of patent rights or rights to apply for patents, licensing of rights to implement patents, assignment of technical know-how, technical services and otherwise”. Although the expression “otherwise” is somewhat ambiguous, in practice, the above provision generally doesn’t include “mergers and acquisitions”. Differently, Article 1 Scope of Review of the Measures clearly stipulates that “where the outbound transfer of intellectual property rights prescribed in these Measures is involved in activities such as mergers and acquisitions of domestic enterprises by foreign investors, the review thereof needs to be conducted in accordance with these Measures.” In this regard, Charles Feng believes that foreign investors undoubtedly will face stricter scrutiny in the process of acquiring domestic enterprises, especially involving the transfer of intellectual property rights of the acquired enterprises.

Finally, the “Review Mechanism” of the Measures clearly stipulates that different types of intellectual property shall be reviewed by the corresponding review institutions. To be specific, where the outbound transfer of any intellectual property right such as patent or exclusive right to layout designs of integrated circuits is involved, the local administrative department of intellectual property or the department of intellectual property of the State Council shall conduct the review thereof; where the outbound transfer of any copyright in computer software is involved, the local trade administrative department and the science and technology administrative department or the copyright department of the State Council shall conduct the review thereof; where the outbound transfer of any right to new varieties of plants is involved, the agricultural administrative department and the forestry administrative department shall conduct the review thereof. In accordance with the provisions of the Measures for the Administration of Technologies Prohibited or Restricted from Export, the review institutions shall uniformly be the local competent departments of commerce and the local competent departments of science and technical administration. In this regard, Charles Feng believes that the provisions on the review institutions in the Measures are more reasonable and efficient.

With regard to the provisions of the Measures, Charles Feng suggests that in the process of acquiring domestic enterprises, foreign investors should entrust professional lawyers to specially review the intellectual property rights of the acquired enterprises, and verify whether the outbound transfer of the target acquired enterprises’ intellectual property rights will impact China’s national security, whether the intellectual property rights are the core and key technologies in important fields of China, and whether the transfer conforms to the relevant provisions of the Measures. In the end, Charles Feng says that with the gradual perfection of China’s intellectual property protection system, and the establishment and improvement of the relevant review system of intellectual property transfer, China’s relevant departments will further clarify the review procedures, standards and timelines of the outbound transfer of intellectual property rights in the near future.

 

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Charles Feng    Partner & Lawyer

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