In an era where facial recognition technology is increasingly embedded in daily life, from unlocking smartphones to streamlining payments, China has introduced robust regulations to ensure its responsible use. On March 21, 2025, the Cyberspace Administration of China (CAC) and the Ministry of Public Security (MPS) released the Security Management Measures for the Application of Facial Recognition Technology, effective from June 1, 2025. These measures, supplemented by a clarifying notice from the CAC on March 30, 2025, mandate registration for companies processing facial data of over 100,000 individuals and provide a clear framework for compliance. For British businesses operating in or entering the Chinese market, understanding and adhering to these rules is essential to safeguard operations and protect personal data.

The New Regulatory Landscape

China’s facial recognition regulations are part of a broader effort to strengthen data protection under the Personal Information Protection Law (PIPL), enacted in 2021. The Security Management Measures aim to balance innovation with the protection of individual privacy, addressing concerns about the misuse of sensitive biometric data. The rules apply to any organisation, domestic or foreign, processing facial recognition data in China, with a particular focus on those handling large datasets. According to the CAC, companies storing facial data of more than 100,000 individuals must register with their provincial-level cyberspace administration within 30 working days of reaching this threshold.

Recognising the compliance burden, the CAC introduced a grace period for companies that hit this threshold before June 1, 2025, allowing them until July 14, 2025, to complete registration. This transitional measure reflects China’s pragmatic approach to implementation, ensuring businesses have time to adapt without immediate disruption. Additionally, the CAC issued detailed ‘Instructions for Filling in the Facial Recognition Technology Application Filing System (First Edition)’, accessible via the Personal Information Protection Business System or the National Cyberspace Administration Government Affairs Hall on the CAC’s website. These guidelines outline the registration process, required documentation, and compliance expectations, making it easier for companies to navigate the system.

Why Compliance Matters

Facial recognition technology is widely used in China across sectors like retail, finance and security, but its rapid adoption has raised concerns about privacy and data security. China’s facial recognition market is projected to reach £7.2 billion by 2027, driven by applications in smart cities and public safety. However, high-profile cases, such as the 2021 fine imposed on a Hangzhou zoo for collecting facial data without consent, underscore the risks of non-compliance. The zoo was ordered to delete the data and issue a public apology, highlighting China’s growing emphasis on enforcement.

For British businesses, compliance is not just about avoiding penalties; it’s about building trust in a market where data protection is increasingly scrutinised. Robust cybersecurity measures, including compliance with data laws, are critical for protecting investments in China. Failure to register or properly handle facial data could result in fines, operational restrictions, or reputational damage, particularly for companies in sectors like technology, retail, or hospitality that rely on facial recognition for customer engagement.

How to Register: A Step-by-Step Guide

The registration process is designed to be straightforward, with all steps completed online via the Personal Information Protection Business System. Companies must first create an account on the platform before uploading the required documents, which include:

• A Basic Information Form of Personal Information Processor, detailing the company’s operations and data processing activities.
• A Facial Recognition Technology Application Record Form, outlining the scope and purpose of facial data use.
• A Personal Information Protection Impact Assessment (PIPIA), assessing the legality, necessity, and risks of data processing.
• Scanned copies of the Unified Social Credit Code Certificate, legal representative’s ID, agent’s ID, Power of Attorney, and Letter of Commitment, all stamped with the company’s official seal.

The CAC reviews submissions within 15 working days, updating the application status to “Filing Completed,” “Returned for Improvement,” or “Review Failed.” If supplementary materials are required, companies have 10 working days to provide them, or the process is terminated. The CBBC advises seeking professional support, such as from its Information Systems team, to ensure compliance with China’s data laws and to localise global systems effectively.

Conducting a Personal Information Protection Impact Assessment (PIPIA)

A cornerstone of the new regulations is the requirement to conduct a PIPIA, as mandated by the PIPL. This assessment evaluates the legality, legitimacy, and necessity of facial data processing, alongside the potential impact on individual rights and the effectiveness of protective measures. The Filing Instructions provide a tailored template for facial recognition, requiring companies to disclose technical specifications, data collection and storage methods, standard operating procedures, and the ethical basis for data use. For example, companies must clarify whether facial data is used for automated decision-making, such as targeted advertising, and detail the infrastructure and technology providers involved.

The PIPIA process encourages transparency and accountability, aligning with international best practices. The PIPIA requirement has driven companies to adopt more robust data governance frameworks, enhancing trust among consumers and regulators alike.

Easing the Transition

The CAC’s notice reflects a pragmatic approach to regulation, balancing enforcement with flexibility. The grace period for pre-June 2025 data processors and the detailed Filing Instructions demonstrate China’s commitment to supporting businesses during this transition. For British companies, this is an opportunity to align with China’s evolving data protection regime while leveraging tools like the CBBC’s Business Guides, which offer insights into regulatory compliance and market navigation.

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Understanding China’s IP Framework

China’s IP system has undergone transformative reforms since joining the World Trade Organisation (WTO) in 2001, aligning more closely with international standards such as the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Key milestones include the establishment of the first Trademark Law in 1982, the Patent Law in 1984, and the Copyright Law in 1990, all of which have been amended multiple times to enhance protection and enforcement. The China National Intellectual Property Administration (CNIPA) oversees patents, trademarks, and geographical indications, while the National Copyright Administration of China (NCAC) manages copyright matters.

In 2021, China introduced the “Outline for Building a Strong Intellectual Property Nation 2021-2035,” a 15-year plan aimed at strengthening IP protection, improving market value, and boosting brand competitiveness. By 2026, the outline targets a 13% contribution from patent-intensive industries to GDP and an increase in high-value patents per 10,000 people to 12. Recent data highlights China’s progress: in 2022, the country recorded 4.21 million valid patents (up 17.1% year-on-year) and 42.67 million valid trademarks (up 14.6%), underscoring its commitment to fostering innovation.

Despite these advancements, foreign businesses must remain vigilant. China’s first-to-file system for trademarks and patents means that the first entity to register IP rights typically secures them, even if they are not the original creator. This system, combined with historical issues like bad-faith registrations, necessitates proactive strategies to protect IP effectively.

Key Steps to Protect Your IP in China

1. Register Your IP Early

China operates a first-to-file system, making early registration critical to securing IP rights. Trademarks, patents, and copyrights must be registered with the CNIPA or NCAC, as IP protection in other countries does not automatically extend to China. For trademarks, consider registering in both English and Chinese (including transliterations) to prevent bad-faith registrations, where third parties register similar marks to extort foreign companies. The CBBC advises seeking professional assistance due to the complexities of the Chinese IP system, particularly for trademarks, which require a comprehensive understanding of local regulations.

Patents in China include invention patents (20 years), utility models (10 years), and design patents (15 years). Design patents, crucial for creative industries, protect the aesthetic aspects of products but must be registered before public disclosure to maintain eligibility. Copyrights are automatically protected under the Berne Convention, but voluntary registration with the NCAC provides presumptive evidence of ownership, simplifying enforcement. For creative sectors like architecture, design, and media, registering copyrights and design patents is strongly recommended to safeguard against infringement.

2. Use Contracts and Agreements

Contracts are a vital tool for protecting IP internally and externally. Non-Disclosure, Non-Use, Non-Circumvention (NNN) agreements, tailored to Chinese law, are more effective than standard Non-Disclosure Agreements (NDAs) in preventing suppliers, partners or employees from misusing IP. These agreements should be bilingual (Chinese and English) and governed by Chinese law to ensure enforceability. Including IP protection clauses in contracts with employees, clients, and partners further strengthens safeguards.

For creative businesses, contracts can delineate ownership and usage rights for collaborative projects. Clear agreements are key in industries like film and design, where IP disputes can arise from ambiguous partnerships.

3. Leverage Trade Secrets Protection

Trade secrets, encompassing confidential business information like manufacturing processes or client lists, are protected under China’s Anti-Unfair Competition Law, amended in 2019 to enhance safeguards. To qualify as a trade secret, information must be non-public, commercially valuable, and subject to confidentiality measures. Businesses should implement internal controls, such as limiting employee access to sensitive data, providing IP training, and incorporating security into facility design. Monitoring for potential leaks at trade shows or online platforms is also essential.

4. Monitor and Enforce IP Rights

Proactive monitoring is crucial to detect and address IP infringements promptly. Businesses should regularly check trademark and patent databases, industry publications, and e-commerce platforms for unauthorised use. The CBBC’s partnerships with platforms like Alibaba and Tencent facilitate dialogue and enforcement, helping British companies tackle online infringement.

Enforcement options in China include administrative action, civil litigation, criminal enforcement, and customs seizures. Administrative actions, handled by local authorities, are effective for straightforward trademark or counterfeiting cases. Civil litigation, increasingly successful for foreign firms, offers the potential for damages and public deterrence. Specialised IP courts in cities like Beijing, Shanghai, and Guangzhou, established since 2014, have improved judicial expertise and consistency.

5. Utilise Technological Tools

China’s adoption of technology to enhance IP protection is noteworthy. In 2024, the Copyright AI Intelligent Review Tool was introduced to streamline the assessment of copyright infringement cases, particularly for images. By automating analysis, the tool reduces human error and accelerates rulings, empowering creators to combat infringement effectively. Businesses should stay informed about such innovations, as they may expand to cover broader IP categories in the future.

6. Collaborate with Strategic Partners

The CBBC’s network of strategic partners, including the Alibaba Anti-Counterfeiting Alliance (AACA) and the Quality Brands Protection Committee (QBPC), provides valuable support for UK businesses. These partnerships facilitate collaboration with Chinese authorities and platforms, enhancing IP protection and enforcement. Engaging with CBBC’s IP team can also provide access to tailored advice and professional networks.

Addressing Challenges

Despite progress, challenges remain. Bad-faith trademark registrations continue to hinder foreign companies, requiring costly legal action to cancel or invalidate. The perception that “you cannot do anything if someone copies you” in China is outdated but persists among some businesses, underscoring the need for education. Additionally, cultural differences and varying levels of public awareness about IP rights can complicate enforcement.

Businesses, particularly in creative sectors, may hesitate to enter China due to infringement fears. However, by leveraging China’s robust IP system and taking proactive steps, these risks can be mitigated. Success stories, such as eOne’s recognition of Peppa Pig as a well-known trademark, demonstrate that persistence and strategic litigation can yield positive outcomes.

Looking Ahead

China’s IP environment is poised for further improvement, driven by domestic innovation and international pressure. The 2024 Patent Law amendments, introducing patent term extensions for pharmaceuticals and reinforcing good-faith principles, reflect China’s commitment to a stronger IP regime. By 2025, over 2,000 IP support agencies nationwide are expected to assist businesses, processing 71,000 applications annually.

For British businesses, protecting IP in China requires a proactive, multi-faceted approach: early registration, robust contracts, vigilant monitoring, and strategic partnerships. By staying informed and leveraging resources like the CBBC, companies can navigate China’s IP landscape with confidence, fostering innovation and growth in one of the world’s most dynamic markets.

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What’s the AFSL all about?

The AFSL is China’s way of responding to what it sees as unfair economic measures, like sanctions or trade restrictions, from other countries targeting Chinese companies or citizens. It’s largely a reaction to actions from places like the US or EU, especially since trade tensions have ramped up in recent years. For British businesses with a presence in China, whether in tech, manufacturing, or education, the law matters because it could affect how you manage compliance across different markets. The new regulations spell out who might be targeted, what measures could apply, and how you can respond if needed, giving UK firms a clearer picture to work with.

Who might the AFSL affect?

Under Article 3 of the AFSL, China can take “countermeasures” against individuals or organisations involved in what it considers “discriminatory or restrictive measures” against Chinese interests. The new rules clarify this could include:

• People or companies directly involved in creating or enforcing foreign sanctions.
• Senior managers or controllers of those organisations.
• Businesses linked to or controlled by those on the “countermeasure list.”

If you’re on this list, you might face things like visa restrictions, limits on working with Chinese partners, or having assets in China frozen. For a British firm, this could mean a pause on collaborations with local suppliers or restricted access to funds in China. However, there’s a process to appeal, and the regulations suggest decisions aren’t made lightly.

What happens if you don’t follow the rules?

The AFSL asks companies in China to align with its countermeasures, like not enforcing foreign sanctions against Chinese entities. If you don’t comply, you could face restrictions on doing business in China or, in some cases, lawsuits from Chinese companies or individuals who feel impacted. The law’s a bit vague on whether it applies only to actions in China, so there’s a chance that complying with UK sanctions could raise questions under the AFSL. For British businesses with global operations, this means you’ll need to think carefully about how to balance compliance across jurisdictions, but it’s manageable with the right planning.

What’s new in the 2025 regulations?

The State Council’s latest rules give more detail on how the AFSL works, which is helpful for British firms looking to stay compliant. Here’s what you need to know:

Thoughtful assessments

Before applying countermeasures, the State Council must investigate and assess whether they’re necessary. This means decisions should be well-considered, giving UK businesses some reassurance that measures won’t come out of the blue. You can also apply to have measures lifted if you show you’re compliant.

What can be affected?

The rules clarify that “property” includes things like cash, intellectual property, or bank deposits in China. For a British company with assets like patents or investments in China, it’s worth keeping this in mind when planning.

Broader business activities

Countermeasures might touch sectors like education, technology or tourism. If you’re a UK university with partnerships in China or a tech firm with local operations, it’s a good idea to check how your activities align with the AFSL.

Options for resolution

If a Chinese entity believes your actions support foreign sanctions, it could file a lawsuit seeking compensation. But you can also appeal countermeasures by showing you’ve addressed any issues, like through compliance training or internal audits. This gives British firms a way to resolve disputes constructively.

How has the AFSL been used?

China has applied the AFSL a few times already. In July 2021, it targeted US individuals, like former Commerce Secretary Wilbur Ross, over sanctions related to Hong Kong. More recently, in October and December 2024, it hit US defence firms with measures like asset freezes over arms sales to Taiwan. While no British companies have been named yet, these examples show the law is in play, especially for firms in sensitive sectors like tech or defence. For UK businesses, it’s a signal to stay informed, but not a reason to panic.

How can British businesses stay prepared?

The updated AFSL regulations highlight the need for British companies to be proactive, but they also offer clarity and options for staying compliant. The key is to plan smartly without getting overwhelmed. Here’s how:

• Check your operations to see if UK or international sanctions might overlap with the AFSL.
• Work with experts to understand the law’s nuances.
• Run compliance audits to ensure your business aligns with Chinese regulations.
• Stay updated on changes to the AFSL, as its scope might evolve.

For instance, a British retailer sourcing goods from China while following UK trade rules should review whether those rules could be seen as “discriminatory” in China. A quick compliance check can keep things running smoothly.

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China’s new patent extensions: A game-changer for innovators

Exclusivity for pharmaceuticals in China has taken a giant leap forward with the introduction of new patent term extension (PTE), a concept that originated in the US with the Hatch-Waxman Act of 1984. This move, part of an economic agreement with the US in January 2020, became effective with the new Chinese Patent Law and detailed guidelines published in January 2024.

The law allows for up to five years additional term for patents covering new drugs, with the total effective term not exceeding 14 years from the drug’s marketing approval date. The new PTE provisions apply to product patents, preparation method patents, and medical use patents of an active pharmaceutical ingredient in a “new drug”.

To qualify for PTE, the patent must be valid, not previously extended, and include drug-related technical solutions. Only one patent term can be extended per drug. The China National Intellectual Property Administration (CNIPA) examines PTE requests, allowing for observations or amendments before making a decision, which can be challenged.

The protection scope of PTE is narrower than the original patent, limited to the new drug for an approved indication. A new indication can support a new PTE but will only cover the new indication underlying the PTE.

China’s AI tool revolutionises copyright protection

China has unveiled the Copyright AI Intelligent Review Tool (版权AI智审), a groundbreaking advancement in IP law. This innovative system uses artificial intelligence to assist in the review and protection of copyrighted works, offering a robust digital solution to the challenges faced by courts and legal professionals. The tool streamlines the process of assessing originality, innovation, and potential copyright infringement.

One of the tool’s standout features is its advanced image recognition capability, which performs “image-to-image” searches to trace the origins of visual works and identify original creators, essential for establishing copyright ownership. Additionally, it evaluates the degree of innovation in a work and quantitatively assesses the similarity between images, aiding in potential copyright infringement determinations. Integrated within court management platforms, the tool provides judges with analytical resources during proceedings, enhancing decision-making and streamlining case resolutions with a high success rate in identifying similar designs.

The tool offers several benefits, including ease of use and cost efficiency. Its user-friendly interface is easy for judges and court staff to navigate, reducing the need for extensive training and lowering litigation costs by streamlining the evidence-gathering process. By automating the analysis of copyright cases, the tool significantly reduces the time required for assessments and minimises human error, leading to more precise rulings. Furthermore, it strengthens copyright law enforcement, empowering legal professionals to protect creators’ rights and combat infringement effectively.

In conclusion, the Copyright AI Intelligent Review Tool emerges as a vital resource for enhancing copyright litigation processes in today’s landscape where technology converges with law. Currently focused on image copyright infringement cases, it is anticipated that the tool will expand into broader applications in the future.

CNIPA’s good faith rule: Ensuring fair play in patents and trade marks

Revised Rules for the Implementation of the Patent Law came into effect on 20 January 2024. Article 11 of these Rules provides that “The patent application shall be made in accordance with the good-faith principle”. This principle, introduced to ensure ethical behaviour in intellectual property applications, aims to prevent the abuse of patent and trademark rights.

In patent examination, the principle, effective since June 2021, requires genuine invention activities and prohibits falsified applications or those intended to harm public interests. The 2024 implementation rules further emphasise adherence to good faith.

For trademarks, the principle has been in place since 2013 to prevent dishonest behaviours such as registering trademarks without intent to use or imitating well-known trademarks. Specific provisions published in 2019 detail behaviours that violate this principle.

The CNIPA can reject applications violating the good faith principle, maintaining a fair and transparent IP system in China. This helps promote ethical practices and strengthens the integrity of patent and trademark examinations.

CNIPA unveils new guidelines on trade mark license recordal procedure

On October 29, 2024, the China Intellectual Property Administration (CNIPA) released the Guidelines on Trade Mark License Recordal Procedure to help entities understand the law provisions and procedures related to the trade mark license recordal, and to clarify the validity of trade mark licenses.

A trade mark license is an agreement where the licensor (the trade mark owner) allows another party (the licensee) to use their registered trade mark under certain conditions.

According to the Guidelines, the licensor shall report the license to the CNIPA for recordal.  A trade mark license not filed for recordal shall not be used against a third party in good faith. The CNIPA shall announce the recordal of trade mark licenses that meet relevant regulations, and the public can search for specific information at https://sbj.cnipa.gov.cn/sbj/index.html.

Moreover, the two parties of a license may expressly stipulate in the trade mark license on the following matters, including, but not limited to: the basic information of the trade mark, information on the items of goods or services, form of license, term of license, type and restriction of license, goods quality guarantee, and contract breach liabilities.

PPH improvement initiative: A boost for patent processing

In a bid to further enhance the user experience of the Patent Prosecution Highway (PPH), April 2024 saw the China National Intellectual Property Administration (CNIPA) join the “PPH Improvement Initiative”, which involves cooperation between the world’s five leading IP offices in China, the United States, Europe, Japan and the Republic of Korea.

The objective of this initiative is for patent offices to strive for an average response time from examiner to applicant to be three months (including from grant of a PPH request to the first official action), thereby providing PPH users with a more predictable examination cycle.

The Patent Prosecution Highway (PPH) Improvement Initiative offers several benefits for businesses and applicants. It aims to expedite patent processing, reducing the average duration for PPH requests to about three months, and provides a more predictable examination cycle. Enhanced cooperation between leading IP offices, including those in Europe and the UK, and work sharing between patent offices can streamline and make the patent application process more efficient. This initiative ultimately helps applicants by making patent applications in China and other jurisdictions involved faster, more predictable, and more efficient.

Lydia Topping is a trainee patent attorney and Peter Mumford is a senior associate with Potter Clarkson LLP, a full-service European intellectual property law firm.

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Protecting your trade mark and the distinctive signs and external appearance of your products in China should be one of the first and most crucial steps taken by any company aiming to develop its business or sell its products in China.

Unfortunately, the protection and registration of those assets are often overlooked by foreign companies when facing the Chinese market, who proceed unaware of how a lack of proper legal protection of their distinctive signs may define the success or failure of their business.

A strong trade mark can be instrumental in winning new customers when establishing a brand in China. You invest time and money into building the reputation of your company, so it would be very damaging to your business if someone else began using your name and/or brand to sell their own products or services.

How to register your trademark or other intellectual property rights in China

In China, a trademark can be registered through the ‘national’ or ‘international’ system and can only be effectively protected in China once it has been registered. Due to the particularities of the Chinese intellectual property system, it is advised to register a trademark in China following the national system, i.e., filing an application to register your trademark in China directly before the China Intellectual Property Administration (CNIPA).

Many entities, including CBBC, offer information about protecting and registering your IPR in China. However, when it comes to registering your trademark in China, it is highly advised to obtain professional assistance. There are certain technical details and particularities for which a comprehensive understanding of the Chinese intellectual property system is required, so professional advice from a law firm or intellectual property agency is essential to protect your assets and rights.

Bad-faith trademark registrations can limit a foreign company’s freedom to operate by restricting its ability to enter the Chinese market

Nevertheless, in certain scenarios, trademark registration may not be enough to protect the features that characterise your product or services. It may be the case that certain technical details of your product are unique and represent its main value, or perhaps your product has gained some of its reputation and recognition in the market due to certain specific details of its external appearance.

All those aspects need to be taken into account and can also be protected by means of intellectual property protection tools, such as patents, designs or trade secrets. For that reason, a case-by-case preliminary analysis is essential to define a comprehensive protection strategy for the main aspects of your product or service.

Common obstacles and potential scenarios when protecting your IPR in China

Once you have decided to start the process of registering a trademark in China, it is common to come across similar or identical trademarks already registered by other companies.

As China uses a first-to-file system, many SMEs are caught out because they fail to register their trademark in China, and then when they want to do business here, they find that their trademark has already been granted to a Chinese company. Very often, the Chinese company, in these cases, registers the mark with the intention of selling it back to the foreign company at an inflated price. These tactical trademark registrations are commonly called bad-faith registrations. They can limit a foreign company’s freedom to operate by restricting its ability to enter the Chinese market, or even to source goods from China because the Chinese trademark holder is able to intercept goods bearing the trademark at Chinese customs.

The only tried and tested way to prevent this from happening is to anticipate bad faith applications by protecting (registering) your trademark in China as soon as possible. Nevertheless, if your company is confronted with a situation in which somebody else has already registered your desired trademark in China, there may still be ways to contend it. In that case, it may be necessary to initiate additional specific actions with the China Intellectual Property Office with the aim of either cancelling or invalidating the preemptive registration or negotiating with the registrant.

How to defend and enforce your IPR once registered in China

Finally, once your trademark or other IPR are successfully registered in China and you are using them in the market to promote your products or services, there may also be third companies who, in an attempt to take advantage of the popularity or recognition of the trademark, copy it or use it to commercialise the same or similar products.

These behaviours may cause confusion in the market, casting doubt on the origin and authenticity of both your goods and the third party’s goods. This situation usually represents an infringement of the rights of the trademark holder, harming its interests. Consequently, it is important to tackle infringing activities as soon as possible and enforce the trademark holder’s rights by means of the legal tools provided by intellectual property regulations.

This potential scenario of the infringement of trademark rights is usually mistakenly perceived by foreign companies as one in which you cannot do anything to protect your products and your rights in the market. This myth is enshrined in the expression, “in China, you cannot do anything if someone copies you”, which is still very present in many foreign companies’ mindsets while, in fact, that perception is far away from reality and the actual actions that can be taken to tackle those infringing activities and the infringers itself are numerous.

The professional advice is to analyse and define a strategy on how to act against IPR infringers. However, in previous cases, if you are solid and persistent in enforcing your rights and defending the authenticity of your products, market opportunities can also grow proportionally, and that often comes accompanied by increased recognition and popularity of the brand and products among the consumers.

This article is part of a series on exporting to China. See all the articles in the series below.

Part 1: How to conduct market research
Part 2: Protecting your trade mark

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In April 2024, a Shanghai court handed a RMB 600 million (£66.5 million) fine to a company for criminal copyright infringement of Lego products and sentenced two key members of the business, brothers Chen XX and Chen YY, to eight and nine years in prison, respectively.

According to China IP Law Update, which translated a notice from Shanghai No. 3 Intermediate People’s Court, between 2016 and 2022, the company set up design, engineering, and production departments to exactly replicate the Lego bricks and packaging, having purchased authentic Lego products as a reference.

This case is the latest in a series of brushes with copyright infringement in China for Lego. The brand won its first copyright case in 2017, and in 2020, the people behind Lego clone Lepin were handed fines and jail terms.

As China IP Law Update pointed out, Shanghai is becoming somewhat of a “preferred venue for foreign rights holders for enforcement of criminal IP laws.” Also in April, the Shanghai No. 3 Intermediate People’s Court upheld a judgement sentencing a counterfeiter to five years in jail and a RMB 2 million fine.

And stronger IP enforcement is not just limited to Shanghai. Over the past year, courts across China have intensified efforts to crack down on counterfeiting. According to China Daily, punitive damages were applied in 319 IP cases in 2023, an increase of 117% compared to 2022.

Are you concerned that your brand’s rights are being infringed in China? CBBC’s new IP Monitoring Service can help. CBBC’s intellectual property team will conduct a thorough search of the major Chinese e-commerce platforms to provide in-depth research into your trademark to see if infringers are selling your goods in China. Click here to find out more.

Photo: Brickset, Flickr

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Four Supporting Regulations Issued for the Anti-monopoly Law

Effective from 15 April 2023, China’s State Administration for Market Regulation (SAMR) issued four supporting regulations aligning with the amended Anti-monopoly Law.

The new regulations target:

1. Clarification of Anti-monopoly Law provisions, specifying subjects in horizontal monopoly agreements.
2. Optimisation of regulatory procedures, including suspension and termination procedures during investigations of monopoly agreements and market position abuses.
3. Strengthening legal liabilities, particularly for notifiers of undertakings concentrations, and their agents.

These regulations aim to enhance competition, streamline enforcement, and ensure compliance with anti-monopoly regulations in China’s market landscape.

Provisions on Prohibiting Abuses of Intellectual Property Rights Issued

Staying with the SAMR, revised Provisions on Abuses of Intellectual Property Rights have been published and became effective on 1 August 2023.  The revisions address recent developments in antitrust enforcement and focus on three aspects:

1. A broader scope of “abuses of intellectual property rights to exclude or restrict competition” to cover three primary forms of monopolistic practices – monopoly agreements, abuse of dominant market position, and concentration of undertakings.
2. Enhanced rules for identifying monopolistic practices related to the exercise of intellectual property rights, providing clarity on factors and conditions for identifying relevant markets, dominant market positions, relevant monopolistic practices, and the review of undertakings’ concentrations.
3. Strengthened regulation of typical and special monopolistic practices involving intellectual property, such as prohibiting entities from engaging in monopolistic practices through the exploitation of ‘patent pools’ and forbidding the misuse of standard essential patents by dominant market players.

These new provisions should give users of China’s intellectual property system confidence that rights will be used in a fair and equitable manner.

Scotch Whisky Association Receives a Certification Trade Mark in Hong Kong

Scotch fans and whisky brand owners were able to raise a glass as the Scotch Whisky Association (SWA) successfully completed its registration of Scotch whisky as a certification trade mark in Hong Kong.

A certification trade mark signifies that the goods (or services) in connection with which the mark is used are certified by the owner of the mark in respect of origin, material, mode of manufacture of goods or performance of services, quality, accuracy or other characteristics.

Completion of the registration of Scotch whisky is expected to bolster consumer confidence and facilitate enforcement for whisky brand owners.

The Apostille Convention Officially Takes Effect in China

Foreign companies can now enjoy the simplified use of foreign documents in China as the Apostille Convention officially took effect from 7 November 2023.

The Convention abolishes the lengthy, and often costly, legalisation process and allows for the acceptance of documents that have been certified by a Competent Authority in the country of origin.  Specific changes include:

1. Chinese Embassies and Consulates in member countries have stopped accepting legalisation service applications.
2. Chinese courts will recognise documents with Apostille certification, and legalisation is no longer required.
3. Notarisation remains necessary for non-official documents (e.g. a Power of Attorney), allowing for them to be certified by an Apostille for official use.

Court Rules that AI-Generated Content is Eligible for Copyright Protection in China

As AI-generated content continues to take the world by storm, the Beijing Internet Court’s decision marks a shift in AI jurisprudence by highlighting the need to examine the copyright eligibility of AI-generated content and the level of human involvement in its creation.

To briefly summarise, an AI-generated portrait was used without the plaintiff’s authorisation, with the defendant arguing that AI-generated content is not eligible for copyright protection.

The court found in the plaintiff’s favour, deciding that AI-generated content is eligible for copyright protection provided that it reflects human intellectual input. More specifically, despite AI’s role in generating the portrait in question, the court recognised the plaintiff’s creative choices in conceptualising and refining the image, establishing them as the copyright holder. The court also confirmed that AI itself could not be an author, and the author is instead considered the person who directly made the relevant settings to the AI model according to its needs and choices.

Foreign Geographical Indications Regulations Take Effect in China

Towards the end of 2023, the China National IP Administration (CNIPA) issued new regulations regarding the registration, administration, and protection of geographical indications (GIs). The new regulations took effect from 1 February this year and feature parallel regulations – a regulation for the “Registration and Administration of Collective and Certification Trademarks”, and a regulation regarding GI products.

The regulations cover new application, examination, protection, modification, and supervision procedures. Importantly, the regulations stipulate that geographical indication products must exhibit authenticity, regional characteristics, specificity, and association, and specify circumstances in which they will not be recognised.

Once a product receives GI protection, the owner is required to oversee the use of GI product names and special marks, as well as the products’ distinctive features and quality under the geographical indication.

The revised resolutions strengthen the provisions for both owners and users, including proving basic obligations and rights to each, which can only be good news for users of the systems. Additionally, it seems that progress is being made towards harmonising GI protection in China.

Revised Rules for Implementation of the Patent Law in China

December 2023 saw the publication of revised Rules for Implementation of the Patent Law in China, which came into effect on 20 January 2024. The key points for businesses and practitioners appear to be:

1. The revised Rules expand provisions concerning the novelty grace period. In addition to a first disclosure at ‘academic conferences or technical conferences organised by relevant departments of the State Council or national academic organisations’, the Rules now allow for first disclosure at ‘academic conferences or technical conferences organised by international organisations recognised by the relevant departments of the State Council’. How this will be effectively examined by the CNIPA remains to be seen.
2. Patent applicants are now required to adhere to the principle of good faith, and the revised Rules especially crack down on irregular patent applications, e.g., applications where the right to apply for a patent or designation of inventor is improper.
3. A system allowing deferred examination has been introduced. Previously, the applicant must request substantive examination within three years of the filing date, and failure to do so would be deemed withdrawal of the application. Under the deferred examination system, applicants may defer examination for one, two, or three years enabling them to continue the patent examination process based on relevant commercial circumstances.

With China’s continuing efforts to evolve its intellectual property system, it appears that businesses, both in China and those looking to enter the Chinese market, should look forward to the rest of 2024 with confidence.

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China’s revised Company Law, which will come into effect on 1 July 2024, has 266 articles, about a third of which have been added or substantially modified. Of these, a number relate to the rights and obligations of shareholders.

This article describes the new provisions of the Company Law that will have a significant impact on the officers (legal representatives, directors and supervisors) and senior managers of LLCs, with, as with parts one and two of this series, a particular regard to foreign-invested enterprises (FIEs).

Legal representatives

The new Company Law will create a significant change, from a practical point of view, in relation to the choice of the legal representative of LLCs, particularly FIEs. While the law currently provides that only the chairman or the general manager of an LLC can be appointed legal representative, under the new Company Law this position may be held by a director or a manager who “represents the company in executing company affairs”.

On the one hand, this gives shareholders a wider choice, but, on the other hand, it must fall onto a person who is actually involved in the management of the company’s activities. For foreign-invested LLCs, this may mean the end of the commonly adopted practice of appointing an individual overseas as a legal representative (just to fill in the position) without such a person being actually involved with the decision-making process of the company.

The new Company Law also states that the resignation of the legal representative from the position of director or manager will also determine the end of their office as legal representative.

Under the provisions currently in force, a legal representative would remain in office until a successor is appointed. This rule sometimes gives rise to situations where a person, having resigned as director or manager, would still be formally the company’s legal representative. The new provisions now require that a successor be appointed within 30 days. However, they do not describe what happens if the appointment of a replacement does not occur within the prescribed term.

Directors

As far as directors are concerned, the new Company Law also introduces a few significant changes.

From 1 July 2024, the board of directors of an LLC should have at least three directors, and there will no longer be an upper limit to the number of directors (currently capped at 13). As in the law currently in force, smaller-scale companies or companies with a small number of shareholders will still have the possibility to appoint a sole director (instead of a board of directors).

The new Company Law also states that if a company has at least 300 employees and there is no employee representative on the board of supervisors, at least one employee representative is required to sit on the board of directors.

This is a significant change, and for relatively large foreign-invested companies, this provision will require adjustments to be made to their organisation and governance structure, especially where the composition of the board of directors has been originally designed to specifically reflect the influence of the shareholders on the company (as is usual for joint venture companies).

The presence of an employee director on the board may also raise concerns about the confidentiality of certain issues dealt with by the directors that may relate to or affect the company’s employees.

It could, therefore, be expected that companies will opt to have employee representatives sitting on the board of supervisors and avoid having one appointed as director.

The new law has also slightly amended the distribution of functions and powers between the shareholders’ meeting and the board of directors. Unlike in the law currently in force, the function and power of “deliberating and approving annual financial budget plans and final account plans of the company” is not listed as an item of the functions and powers attributed to the shareholders’ meeting (thus – by exclusion – attributing the same to the board of directors).

Such an exclusion may be seen as surprising because many corporate legal systems actually consider the power to decide over the budget and approve the financials of the company as a prerogative of the shareholders. The articles of association of the company can, of course, provide for otherwise.

Such a provision consistently goes in the direction that seems to be followed by the new law, that is giving more powers (and a higher level of liability associated with such powers) to the directors.

In this same direction, the new law now considers the directors liable

• (i) for any loss caused to the company for not complying with their duty to call for payment of the subscribed capital by the shareholders and to send a notice of forfeiture of the shareholders’ rights to the defaulting shareholders that have not remedied their default within the grace period assigned to them;
• (ii) for losses caused by not calling the payment of the capital subscription ahead of the agreed term in the event of insolvency of the company;
• (iii) for losses caused to the company as a consequence of providing financial assistance for others to acquire shares in the company;
• (iv) for losses that are caused to the company or its creditors in a liquidation procedure where the directors appointed as liquidators have not fulfilled their duties in a timely manner;
• (v) for losses caused to the company by an illegitimate reduction of capital.

Most of these provisions stating liabilities onto the directors are also applicable to the supervisors and senior managers of an LLC.

The officers and senior personnel of a company should, therefore, start familiarising themselves with the latest requirements relating to the liability assigned to them by the new Company Law.

In this regard, the new law expressly mentions the possibility that a company takes up insurance for the liability of its directors. So called “D&O policies” (i.e. directors and officers insurance coverage) are likely to become more and more commonly used and popular products once the new law comes into force.

The post Exploring China’s New Company Law: Impact on Officers appeared first on Focus - China Britain Business Council.

China’s revised Company Law, which will come into effect on 1 July 2024, has 266 articles, about a third of which have been added or substantially modified. Of these, a number relate to the rights and obligations of shareholders.

The new Company Law will most certainly require LLCs to amend their articles of association or adjust their corporate or governance structure so as to comply with the new provisions, which will be easier in LLCs with a sole shareholder (or multiple foreign shareholders that are somehow connected, coordinated, or otherwise sharing the same objectives and interests regarding their investment in China).

However, these adjustments could prove complicated where the collaboration and consent of one or more Chinese shareholders are necessary (like in the case of joint venture companies), as adaptation could give a pretext for renegotiating some elements of the existing agreements between shareholders.

At this stage, shareholders, directors, supervisors or senior managers in Chinese companies are advised to start becoming familiar with the new provisions of the Company Law so as to be ready to implement the necessary adjustments when the implementation provisions are issued to supplement and clarify the new regulations.

Obligations of shareholders in case of share transfer

If a shareholder transfers their shares without the corresponding share capital being fully paid in, the buyer of the shares is liable for paying the unpaid share capital. In the event that the new shareholder defaults, the new regulations stipulate that the selling shareholder has a secondary (and not a joint and several) liability to pay in the unpaid share capital (that is, a claim against the selling shareholder may be brought forward only after enforcement against the acquiring shareholder is unsuccessful).

If, on the other hand, the shareholder transferring its shares is already in breach of the capital payment obligation at the time of the share transfer (i.e., payment has not occurred within the specified terms, has been made for a lesser amount, or assets of lesser value have been contributed), the selling shareholder and the acquiring shareholder are both jointly and severally liable for the amount of unpaid capital.

The acquiring shareholder can avoid such liability only by proving that they were unaware, and ought not to have been aware, of the circumstances regarding the insufficient capital payment (which is difficult to verify and even more difficult to demonstrate).

Right of withdrawal of minority shareholders

Under the new regulations, in the event a controlling shareholder abuses its rights and seriously harms the interests of the company or the other shareholders, minority shareholders have the right to have their shares purchased back by the company at a reasonable price.

The new rules for payment of share capital aim to ensure that companies are capitalised in line with the stated scope of business, thereby guaranteeing a sufficient and consistent contribution of financial resources. At the same time, the new provisions offer a higher level of protection to the rights and expectations of creditors, as opposed to the rights of shareholders, which appear now to be relatively diminished.

Also, the reformed regulations imply that the shareholders control the situation of the share capital payments of the other shareholders, so as not to risk being held responsible for the defaults of others.

In addition, the new rules on share capital payment assign stronger duties of verification to the directors, who may find themselves in situations of opposition or actual conflicts of interest with the shareholders when called to perform their duties.

Although a separation and sometimes opposition of roles is in line with other legal systems, it is important to keep in mind such increased distinction of roles and distribution of responsibilities in the Chinese company legal system, especially with regard to those small foreign-invested companies where the management body (often a sole director) is a direct emanation of the shareholders (or, often, the sole shareholder) and has a close contact and relationship with the ownership.

In this regard, particular attention should be paid to the provisions of the articles of association where a detailed regulation of the roles and responsibilities of shareholders and directors should be included to avoid any potential conflict.

Finally, depending on circumstances, some situations can also be adequately dealt with in shareholders’ agreements, the contents of which are binding only between the parties to the same and prevail over the provisions of the articles of association (that, instead, are meant to be applicable to all current and future shareholders).

Prohibition of financial assistance

The new Company Law introduces basic rules regarding the prohibition of financial assistance, like in many other legal systems. This prohibition intends to prevent or limit the possibility of a company providing loans or guarantees aimed at facilitating the acquisition of its own shares (or shares of its controlling company), primarily to protect the minority shareholders and creditors of the company.

The prohibition is not absolute: financial assistance is still allowed if it is finalised towards the implementation of a plan promoting the purchase of shares by employees of the company or is in the interest of the company.

However, the total amount of financial assistance cannot exceed 10% of the issued share capital.

Exceptions to the limited liability of shareholders

In Chinese LLCs – as in many other legal systems – the shareholders are not personally liable for the company’s debts and obligations, even if they have acted on behalf of the company.

Therefore, in principle, an LLC is liable for its debts and obligations only with its own assets, and its shareholders generally benefit from a liability that is limited to what they had committed to contribute.

The Company Law sets forth exceptions to the principle of limited liability of shareholders by establishing that if a shareholder abuses its rights and prevents the company from paying its debts and, in doing so, causes substantial damage to the company’s creditors, the abusing shareholder is jointly and severally liable for the debts of the company.

The regulations consider not only the abuse by the shareholder of the advantages of the limited liability relating to the company of which it is a shareholder (so-called “vertical” abuse), but also situations where the abuse involves other companies controlled by the same shareholder (so-called “horizontal” abuse).

Liability of the controlling shareholder and actual controller of a company

The new Company Law contains some provisions for those subjects that control a company and interfere or exercise influence on the management of the company.

Controlling subjects are defined by the company law (both in the current version and in the reformed one) in two categories:

(i) controlling shareholders, who hold at least 50% of the share capital or, if a lower percentage, have sufficient voting rights to exercise a significant influence on the shareholders’ resolutions, and;

(ii) actual controllers, who are subjects (not necessarily shareholders) capable of exercising effective control over the company through investment relationships, contracts, or other arrangements.

The new regulations establish that a controlling shareholder or an actual controller who, although not appointed as a director of the company, effectively carries out activities on behalf of the company, is then obliged to abide by the duties of loyalty and diligence towards the company (similarly to a director, supervisor, or other senior manager) and, consequently, assume the responsibilities for any breach of such duties.

Likewise, if a controlling shareholder or the actual controller gives instructions to a director or a senior manager to engage in behaviours that damage the company or its shareholders, the controlling shareholder or actual controller will be considered jointly and severally liable together with the involved director or manager.

The provisions regarding the controlling shareholder add to those mentioned above concerning the abuse of such a position and the consequent granting of a right of withdrawal to the minority shareholders that have been damaged.

The post Exploring China’s new Company Law: Shareholders appeared first on Focus - China Britain Business Council.

After a long revision process, on 29 December 2023, the Standing Committee of the National People’s Congress issued the new Company Law, 30 years after the first company law was enacted.

The new Company Law will come into effect on 1 July 2024, introducing numerous changes and innovations. The new law consists of 266 articles, of which about one-third have been added or substantially modified.

This new series from HFG focuses primarily on the provisions applicable to Chinese limited liability companies (LLCs), as this is the corporate type most often adopted for foreign investments in China. Of course, the new law also touches upon provisions applicable to the other commonly used corporate type, joint stock companies.

This first article focuses on the most significant change to the Company Law: the introduction of the general obligation for the shareholders to pay in the subscribed capital within five years from the establishment of the company.

How capital contribution obligations will change under the new Company Law

Under the current provisions, there is no general obligation to pay capital within a specified period, nor does a general minimum capitalisation requirement generally exist. The amount of the social capital and the terms and conditions of its payment are left to the free determination of the shareholders, as expressed in the company’s articles of association.

However, from 1 July of this year, the rules will change: whether upon establishment or capital increase of a company, the subscribed share capital must be paid in within the maximum period prescribed by the law (or within the specified terms if a payment by instalments has been agreed to).

LLCs will also be obliged to publish not only their registered share capital, but also the amount of share capital actually paid in (as well as the terms and conditions of contribution) in the National Enterprise Credit Information Publicity System.

At present, the only existing transitory provision of the Company Law states that companies already established at the time of the entry into force of the new law are required to make gradual adjustments to comply with the new terms set by the law. The Company Law then expressly indicates that the State Council will issue implementation regulations in this regard.

The new regulations have codified a previous judicial practice, and now prescribe that if a shareholder does not contribute the subscribed capital within the specified term and for the specified amount, in addition to the liability of such defaulting shareholder towards the company for any damages caused by such default, there is also a joint liability of the other founding shareholders for the portion of capital not contributed by the defaulting shareholder.

This means that an unsatisfied creditor could seek compensation not only against a shareholder that has not fully or punctually  contributed its share capital, but also against the other founding shareholders within the limit of the amount not contributed.

It is now expressly provided for that it is the responsibility of the directors to call, by way of a written request, for the defaulting shareholders to pay in the subscribed capital. The regulations in this regard make the directors liable to the company for any losses caused by their failure to fulfil this obligation to call for the contribution of the subscribed capital.

In the written call to defaulting shareholders, the directors may establish a “grace period” (not shorter than 60 days) within which the defaulting shareholders must remedy.

After the grace period expires without remedy, the company may, by resolution of the board of directors, send a written notice of forfeiture of the shareholder’s rights regarding the portion of the unpaid share capital, meaning that there will be either a transfer of such shares or their cancellation (and, consequently, a reduction of the company’s share capital).

If the portion of the share corresponding to the unpaid capital is not transferred or cancelled within six months from when the forfeiture notice is sent out, the law says that the other shareholders will be obliged to contribute the missing capital in proportion to their respective shares.

A note on accelerated payment

The new regulations also provide for a case of accelerated payment of share capital (compared to the term initially agreed to). Where the company is insolvent before the deadline for the contribution of the share capital, the company itself or its creditors may request the shareholders to pay the subscribed capital before the expiry of the term indicated in the articles of association.

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