New Labor Contract Law

On June 29, 2007 the Standing Committee of the NPC issued the PRC Labor Contract Law, which will take effect on January 1, 2008. The law attempts to increase protection of employees' rights, and increase the costs of human resource management. The law is significant in that it encourages employers to follow strict procedures while formulating, amending or deciding bylaws relating to the interests of employees. It is also significant because it has added that serious penalties will be imposed if an employer fails to conclude written labor contracts with employees. The new PRC Labor Contract Law also recognizes that parties may agree on non-disclosure and non-competing terms, and sets a maximum term of 2 years for non-competition periods. Furthermore, such restraint may only be applied to senior managing staff, senior technical staff and other staff with confidential information. Another provision is that failure to renew a labor contract will be treated as termination, and will incur severance pay. Therefore, an employee will get severance pay no matter whether the contract is terminated or expired. Another important development is that an employee should compensate an employer for training fees if he/she breaches the terms of service period in a labor contract.

Wipo Treaties

On June 9, 2007, both the WIPO Copyright Treaty and the WIPO Treaty on Performance and Recording Products came into effect in China. The purpose of the WIPO Copyright Treaty is to protect a copyright owner's interest in the information technology field, especially as it pertains to the Internet. Similarly, the purpose of WIPO Treaty of Performance and Recording Products is to protect the rights of performers and recording producers in the digital, especially Internet, fields.

As of October 13, 2006, 60 countries have acceded to the WIPO Copyright Treaty, and 58 have acceded to the WIPO Treaty of Performance and Recording Products.

New Version Of Anti-Trust Law

On June 25, 2007 the Standing Committee of NPC deliberated for the second time on the draft anti-trust law, which resulted in six new additions. The first addition is that the state will formulate and implement competition rules that are adaptable to the socialist economy, will reinforce and improve macro control, and will develop a uniform, open, competing and orderly market. Second, concentration of market power will now be allowed. This means that operators may, through fair competition and voluntary alliance, combine with each other to expand their scale and enhance market competitiveness. The third addition states that market dominating status should not be abused, and that operators with market dominating status should not abuse such status to eliminate and restrict competition. For this purpose, the draft law specifies seven abusive practices, including selling goods at an unfairly high price or purchasing goods at an unfairly low price, and selling goods at a price below costs without justified reasons. Any operators who violate the seven specified rules should cease their offending practices, pay a fine of less than 10% of their annual sales, and have their illicit income confiscated. The fourth addition of the draft law is that monopolies will be strictly supervised. This means that for those industries that are vital to the state economy and national security, and for those with legal monopoly status, the state will protect their lawful operation of commodities and services, supervise and control their operations and prices of commodities and services, in order to protect the consumers' interests and to promote technology development. The fifth addition asserts that in order to face the challenges of economic globalization, the industry associations should increase their overall strength and international competitiveness, which should be accomplished by the industrial association responsibly reinforcing self-regulation, and leading the operators to lawful competition and maintain a benign market order. The sixth and final addition states that foreign mergers and acquisitions should not endanger national security, and should be subject to inspection according to relevant state regulations. The last addition is part of a world-wide trend back towards a greater interest in protecting national economic security.

Administrative measures to Protect Trademarks

On January 9, 2007 the Ministry of Commerce released the Trial Measures on Brand Protection and Appraisement in Commerce (hereinafter referred to as the Measures) to exert "special protection" on intellectual property of brands. According to the Measures imported goods that infringe on the intellectual property of brands granted by MOFCOM and that harm foreign trade shall be prohibited by the MOFCOM. Additionally, if the enterprise with the brand granted by the MOFCOM encounters any unfair competition or domain name disputes, the MOFCOM will coordinate with related administrations for a settlement to strengthen protection on the granted brands and transfer suspect criminals to judicial organs.

China Adopts 9th Edition of International Goods Classifications

Please also be aware that as of January 1, 2007 the State Administration for Industry and Commerce (SAIC) has issued a notice that the ninth edition of International Classification of Goods and Services for the Purposes of the Registration of Marks (Nice Agreement) will come into effect. Accordingly, those who apply for trademark registration should use the new edition of the classification. As compared with the eighth edition in 2002, the new edition deleted 88 classes for goods and services, and 132 items were added in 32 classes. The new additions include temporary babysitting, lost and found services, fundraising, DNA chips, etc. Meanwhile, headings and notes of some classes were also changed. Legal services and related services were changed from class 42 to class 45. Valuable and non-valuable metals were re-classified according to their function or use. Indoor aquatic ponds were changed from class 16 to class 21. Cloth stuffing was changed from class 37 to class 40. The previous class 35 (statistic materials) and class 19 (fire-resistant materials were deleted, and class 6 (metal fire-resistant building materials) was added.

Royalties on Internet Content

The Music Copyright Society of China announced that Chinese radio and television stations are expected to pay royalties on the music they broadcast starting in 2007; however, specific methods and standards have yet to be established. The methods and standards are being drawn up by the Office of Legislative Affairs of the State Council. China does not have a system like the US' BMI to count usage and collect royalties. However, China does have a similar body named the Music Copyright Society of China, which is a music copyright collective administration organization that collects royalties on behalf of the owner of music copyrights. However, at present it is not strong enough to perform its functions well. So, recently the Society has tried to seek the support of the Ministry of Culture and National Copyright Administration.

New Guidelines on Music Websites

The Chinese Ministry of Culture issued guidelines on the development and management of "network music" (music products distributed by wired or wireless means), saying that all imported network music products distributed in China must be approved and registered by the ministry. The guidelines stipulate that cultural authorities will punish any person or organization, which distributes imported network music without approval, and ban the establishment of network entertainment films funded by foreign investors. This move will not only prevent pirate sites from obtaining a Chinese website permit, it also prevents music publishers like EMI or Warner Music from establishing legitimate Chinese music websites. Furthermore, network music businesses that are already engaged in importing and distributing music must register with the Ministry by March 1, 2007. In theory this means that numerous pirate music websites will be in violation of the Interim Provisions on the Administration of Internet Culture, which came into force on July 1, 2003. Article 8 states, whoever applies to establish an operational Internet cultural entity shall file an application to the provincial department of culture. The department will make a preliminary examination, and submit the application to the Ministry of Culture for approval.

According to Article 6 of the Annex 2 to the Guidelines, network music businesses that are already engaged in importing and distributing music must register with the Ministry of Culture by March, 2007 for content examination by March 1, 2007. The Ministry of Culture shall submit a list of the websites importing and distributing music without its approval to the MII. The MII can revoke their licenses. However, this regulation appears impractical, and may eventually be withdrawn. Ten years ago, a regulation requiring registration by users of foreign software was revoked after it proved unenforceable as people ignored the regulation while making wide use of Windows and other foreign American software products.

Elimination of De Facto Compulsory License System

The Supreme People's Court eliminated the compulsory license on website contents, and banned reproduction of website content without prior authorization of the copyright holder. Under the previous advisory opinion of 2003, websites that copied Internet material did not infringe on intellectual property rights laws as long as they identified the source of the material, and paid a royalty fee afterwards. Now, however, anyone uploading text, sound, or video recordings onto the Internet must acquire the permission of the copyright owner, as well as pay the required fee, before acting. This new regulation also sets a fine of up to 100,000 yuan ($12,500 U.S. dollars) and confiscation of the computer equipment of those who breach it.


Copyright Law Amendment

On June 14, 2007 Legislative Yuan passed an amendment to the Copyright Law for articles relating to peer-to-peer infringement on the Internet. The amendment is aimed at Internet service providers who illegally provide unauthorized music, video and other files for profit by utilizing on-line file-sharing services. This amendment states that if an enterprise does not cease its infringement activities after a criminal conviction is issued, then following the convening of a competent authority that may determine that the enterprise's activities constitute a serious infringement, and that they materially affect the rights and interests of the economic rights holder, the competent authority may order the suspension or compulsory termination of the enterprise's business if it fails to take corrective action within the prescribed period.

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