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06 May 2019
On 2 March 2019 the State Council promulgated a decree which amended 49 administrative regulations, including the Regulations on the Administration of Technology Import and Export. The decree entered into force on the same date.
The revision of the Regulations on the Administration of Technology Import and Export and the promulgation of the new Foreign Investment Law are widely believed to be the result of the recent trade negotiations between China and the United States.
The previous regulations, which had been in force since 1 January 2002, contained provisions pertaining to patented technologies and technological secrets which directly contradicted the Contract Law 1999. As such, they had been the subject of numerous complaints from the foreign business community.
Article 24.3 of the previous regulations provided that parties that transferred patented technologies to Chinese transferees had to imperatively bear the civil liability for any infringement of the transferee's exclusive use of the technology. Contrary to Article 353 of the Contract Law, it was impossible to stipulate otherwise in a contract. In practice, this article caused significant concern for foreign investors which considered that transferors and transferees should be allowed to agree which party would be liable in certain circumstances.
Further, Article 27, which provided that any improvement in technology belonged to the party that made the improvement, made the sharing of such improvements impossible. In business practice, in order to facilitate the conclusion of a technology transfer contract, it is not unusual for the transferor and the transferee to wish to share the ownership of technological improvements on a reciprocal basis. This is expressly provided for in Article 354 of the Contract Law.
In addition, Article 29 included a list of restrictive clauses which could not be included in technology transfer contracts. The intention was to protect transferees from having to accept unfair terms imposed by a transferor. However, the prohibition of these clauses was perceived as unfair for transferors. Article 329 of the Contract Law provides, in general terms, that parties cannot:
This has been considered sufficient for protecting the interests of transferees.
The table below shows the articles of the regulations that have been deleted and the articles of the Contract Law which address the same issues.
Articles deleted from the regulations
Contradicting provisions in Contract Law
Where a transferee infringes another person's legitimate rights and interests for using the technology supplied by the transferor in accordance with a contract for technology import concluded between the two parties, the transferor shall bear the liability. (Emphasis added.)
Where, in accordance with the contract, the exploitation of the patent or the use of the technical secret by the transferee infringes on the legitimate interests of any other person, the liability shall be borne by the transferor, except otherwise agreed by the parties. (Emphasis added.)
Within the period of validity of a contract for technology import, any improvement to the technology concerned belongs to the party making the improvement. (Emphasis added.)
The parties may, according to principle of reciprocity, agree in the contract for technology import for the method of sharing any subsequent technological improvement resulting from the exploitation of the patent or use of the technical secret. Where there is no agreement or the agreement is not clear in respect of such method, and such method cannot be determined in accordance with Article 61 of the Law, any technological improvement made by one party cannot be shared by any other parties. (Emphasis added.)
A contract for technology import shall not contain any of the restrictive clauses below:
(1) requiring the transferee to accept any additional condition that is not indispensable to the technology import, including purchasing any unnecessary technology, raw material, product, equipment or service;
(2) requiring the transferee to pay royalties for a patented technology the period of validity of which has expired or a patented technology the patent right of which has been invalidated, or requiring the transferee to undertake other relevant obligations;
(3) restricting the transferee from improving the technology supplied by the transferor, or restricting the transferee from using the improved technology;
(4) restricting the transferee from obtaining a competing technology or from obtaining technology similar to that supplied by the transferor from other sources;
(5) unreasonably restricting the transferee from purchasing raw material, parts and components, products or equipment from other channels or sources;
(6) unreasonably restricting the quantity, variety, or sales price of the products the transferee produces; or
(7) unreasonably restricting the transferee from utilizing the channel for exporting products manufactured using the imported technology.
A technology contract which illegally monopolizes technology, impedes technological advancement or infringes on the technology of a third person is invalid.
For further information on this topic please contact Nan Jiang or Paul Ranjard at Wanhuida Peksung by telephone (+86 10 6892 1000) or email (email@example.com or firstname.lastname@example.org). The Wanhuida Peksung website can be accessed at www.wanhuida.com and www.peksung.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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