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Briefing on the New Draft Legislation on Exporting Data out of China

On 30 June 2022, the Cyberspace Administration of China (the “CAC“) released the draft of Provisions on Standard Contracts for Cross-border Transfers of Personal Information (the “Provision“) for seeking public comments until 29 July 2022. This Provision contains an appendix of a sample template of standard contractual clauses (the “SCC“) for businesses to integrate into their commercial contracts entered into with other data handlers.

Since the Provision is drafted in accordance with the Personal Information Protection Law (the “PIPL“), the definitions formulated by the PIPL will be inherited by the Provision and consistent with the PIPL.

As per Article 38 of the PIPL, there are four scenarios for data exporters to transfer personal information outside of China legitimately, that is:

  1. The relevant security assessment organised by the CAC has been passed in accordance with Article 40 of the PIPL;
  2. The relevant certification of personal information protection issued by a professional institution according to the regulations of the CAC has been obtained;
  3. The contract in compliance with the standard contract terms provided by the CAC has been signed with the overseas personal information recipient; or
  4. Other conditions prescribed by the laws, regulations or the CAC.

The release of the Provision is to address the scenario (c) above and provide detailed guidance. According to Article 2 of the Provision, a data handler who intends to export personal information based on the scenario (c), shall enter into the SCC to establish the rights and obligations of both the exporter of personal information in China (the “Exporter“) and the overseas recipient (the “Importer“).

Most Exporters shall proceed with transferring personal information out of China by signing the SCC with Importers, instead of passing a security assessment or obtaining the certification. According to Article 4 of the Provision, a personal information handler (i.e. the Exporter in this case) shall meet all of the following conditions if it wants to export the personal information to the Importer:

  1. It should not be a critical information infrastructure operator (the “CIIO“);
  2. It handles personal information of less than 1,000,000 data subjects;
  3. It has provided personal information of less than 100,000 data subjects in aggregate to the Importer since 1 January of the previous year; and
  4. It has provided sensitive personal information of less than 10,000 data subjects in aggregate to the Importer since 1 January of the previous year.

In other words, CIIOs or personal information handlers who go beyond either of the above thresholds will not be able to legally transfer personal information out of China by signing the SCC. They would either carry out a security assessment organised by the CAC, obtain a certification of personal information protection issued by a professional institution, or follow any other condition prescribed by laws and regulations in the future as the case may be.

Other than signing the SCC, the Provision still requires Exporters to carry out a Personal Information Protection Impact Assessment (“Impact Assessment“) before transferring personal information out of China.

The Impact Assessment shall focus on i) the legal basis and necessity of transfer; ii) the scope and volume of data involved, the potential risks of such transfer; iii) Recipients’ warranties on safeguarding the personal information transferred; iv) the potential remedies for protecting the personal information for data subjects to deploy; and v) the impact of personal information protection policies and regulations in the country or region where Importers are located and governed, on the enforcement of the SCC. In sum, this Impact Assessment is equivalent to the TIA (Transfer Impact Assessment) under the General Data Protection Regulation (GDPR) as one would usually hear.

Once the SCC is signed and the Impact Assessment is completed, within 10 working days from the effective date of the SCC, the Exporter shall file the SCC and the Impact Assessment report with the CAC at the provincial level where it is located (“Cross Border Filing“).

It is worthwhile to note that the above filing is not a once-and-for-all process. Should there be any changes of circumstances that may affect data subjects’ rights and interests on their personal information, the Exporters shall amend, resign and redo the Cross Border Filing. The language of the circumstances of redoing the Cross Border Filing is rather ambiguous, i.e., the regulator may have a large room to interpret what can be deemed a change at its own discretion.

Failing to do, or redo, the Cross Border Filing with the CAC or filing false materials will cause administrative orders to rectify, to cease transfer and/or other administrative punishments according to the PIPL. If the violation is sufficiently serious to constitute a crime, Exporters may bear criminal liability as well.

The Provision is still a draft legislation, but once promulgated, it will definitely have an impact on companies with international data flows. We will follow this very closely and update our clients on the progress. We recommend companies start to review their data flows accordingly to be ahead of the legislative procedures.

Our lawyers are here to help answering queries in this regard. For more information, please speak to Le Rong and Nelson Tian.

 

Gadens Strengthens its Brisbane Property and Construction Group with a Team of Three Planning and Environment Lawyers

Gadens has strengthened its Planning and Environment offering in Brisbane, attracting a team of three into the Property and Construction Group. Gerard Timbs (Partner), Amelia Prokuda (Director), and Mitchell Osborne (Special Counsel) have joined in the last month from Holding Redlich.

Gerard, Amelia and Mitchell’s appointments follow the recent announcement that Paul Calvert (Partner) has returned to Gadens from Multiplex to advise on projects and construction.

Natasha Hood, joint lead of the Property and Construction Group said,

“The appointment of Gerard, Amelia and Mitchell is an excellent addition to our already thriving practice and will enable us to further expand the breadth and depth of planning and environment advice to our clients in an area that is so crucial to the success of projects and transactions in this space.”

Commenting on his decision to join Gadens, Gerard said,

“With significant infrastructure and development planned for South-East Queensland over the coming years, joining Gadens provides an immense opportunity to be part of a leading practice to work closely with top-tier developers, local and state government to provide advice on the plethora of planning and environment issues for their developments.”

Highly regarded in the industry having been recognised in both Best Lawyers and Doyle’s, Gerard brings over two decades of experience in both contentious and non-contentious planning and environment matters. His experience has included the delivery of major renewable energy, master-planned residential and commercial developments as well as local, state and federal government work.

Amelia brings town planning, development and environmental law experience to Gadens as well as experience in land acquisition and compensation matters, and appeals, applications and enforcement proceedings in the Planning and Environment Court, Land Court and Magistrates Court.

An experienced lawyer and qualified town planner Mitchell provides front-end and back-end advice to developers, landowners, local and state governments on planning, environmental, infrastructure and property matters.

John Nicolas, joint lead of the Property and Construction group said,

“These key appointments support the continued growth of our group into key areas where we expect strong demand from our clients. Gerard, Amelia and Mitchell are all highly regarded practitioners. Their capabilities and experience will strongly complement our offering, further enhancing our firm’s ‘fire-power’. We are extremely pleased they have joined Gadens and look forward to the valuable contributions they will make for our clients.”

Rossana Chu Joins Leaders In Law As The Exclusive M&A Law Member In Hong Kong

Leaders in Law, the leading platform in its field, is delighted to welcome Rossana Chu as our exclusively recommended & endorsed M&A Law expert in Hong Kong.

Rossana Chu is known for her expertise across mergers and acquisitions, capital market transactions and corporate finance. She also advises on corporate restructuring, wealth management, insolvency and debt restructuring, private equity/venture capital investments with Mainland China and Hong Kong elements, as well as on legal and regulatory compliance matters in relation to Hong Kong-listed companies.

As a thought leader in the legal industry, Rossana has been recognised as a #Lexology Legal Influencer (Individual Expert) respectively in “Future of legal services – Cross-border” and “Corporate – Asia-Pacific” for Q1 2021, “Employment – Asia Pacific” for Q2 2021, and “Infrastructure – Asia-Pacific” for Q1 2022.

The Role Of Women In The World Of Work

Despite some progress in guaranteeing the presence of women at various levels, including top positions of economic and financial institutions, the overall situation is still highly unsatisfactory.

On 28 February 2022, in the context of the International Women’s day 2022, European Committee on Economic and Monetary Affairs (ECON) and Committee on Women’s Rights and Gender Equality (FEMM) are holding a joint event on ‘Women in Economics and Finance: Debate on the next challenges in the EU’.

The purpose of this high-level event is therefore to provide an opportunity to address gender equality in the fields of economic, monetary and financial affairs with key EU and international decision-makers.

The event will be webstreamed.

It will be another important step towards a necessary goal

Up close and personal: why Kook Hee Lee is the ‘go to’ guy in Korea

Then how could Kook Hee Lee provide such brilliantly fruitful service for foreign companies?

Lee has been forming Company Formation, Accounting, and Tax Service a TRINITY among numerous kinds of services that he is providing. That is, combination of these three core factors brought forth fruitful result consistently and reciprocally.

Firstly in forming the company Lee made it a customary practice to (1) communicate with potential clients, regarding business plans of the Korean companies, business activities for attaining the business goal, and suitable tax strategy and (2) present them on legal documents for court registration of the company formation and for Tax ID application for preventing any tax dispute afterwards.

Lee says it goes without saying that foreign clients are trying to search for faithful and competent CPA firms, and the potential clients can have confidence in him that they can be benefited from his services through the communications. That was why Lee could win new clients by 75% in average.

Second in Accounting Service we focus our attention on  (1) fair presentation of financial position and operating result on the financial reporting through thorough examination of accounting supporting data and reasonable account classification together with making NOTES of specific or unusual accounting transactions, if any, for attracting attention of the management from the respect of financial accounting.  (2) At the same time, we provide managerial accounting information for the managements to utilize them in controlling business and managerial activities, and enhancing operating result through the business growth

Third, in tax service we make thorough review of respective vouchers and supporting documents from the respect of their influence on taxation and preventing future tax disputes. At the same time, we strictly observe withholding liability of income tax on payroll and other service fees and filing VAT and Income tax return fairly and clearly. Besides, Lee advises the clients to maintain a minimum level of taxable income expected by NTS. NTS makes it a rule to take tax examination once every five years. But in case meeting with aforesaid requirements NTS does not take tax examination even passing over five years. Lee stresses that there was no tax examination among any of his foreign clients for over 30 years by the preventive measures as mentioned in the above.

The potential clients can have confidence in him that they can be benefited from his services through the communications. That was why Lee could win new clients by 75% in average. ( ordinary winning rate is said 25%-30%)

Then, lets see how Lee practiced CPA career: as a ‘Go to’ guy’ in Korea

Lee started his career in working for the Korea Electric Power Company on budget and cost control and established Standard Cost Accounting System for the whole business operation of the Company. This system was essential in cost control of the company. Lee says. “While I was with the company, I obtained my CPA accreditation”

Secondly Lee worked for Honam Oil Refinery Co. a joint venture with Caltex, as an internal auditor. Through this function Lee learned how internal audit improves the business operation of the companies.

Following his stint for a few years at a local accounting firm, Lee joined Anjin Accounting, a member of Ernst & Whinney, as international tax partner. During 1980s Lee learned international taxation thanks to positive and willingly support by Ministry of Finance (MOF) and NTS and it proved invaluable for his career, consulting on large contracts with customers such as Coca Cola, Reebok International, and Reynolds Tobacco, to name a few.

(1) Lee recalls: “One big US computer company, Seagate Technology, had business plan to set up a Korean subsidiary hiring 4,000 workers. So, I contacted MOF for obtaining approval of their investment and got their venture signed off by the Minister together with a five-year tax holiday. The CEO and CFO of Seagate were delighted that I’d been able to do that for them and so quickly”.

(2) Lee helped Reebok International importing shoes from Korea: “Reebok was a big business partner of South Korea in 1980s, with export value of $3 billion, one tenth of the whole export in those days. Lee withheld payroll income tax of its expatriates for 1.5 years by explaining the reason for withholding tax to the Director who was ignorant of the tax liability.

Besides, Lee participated in the joint study with two leading international law firms on forming a business entity favorable both to Korea and US of Reebok International. The study continued for over three months “I worked really hard on that account, submitting four-five pages every two-three days, working till 4 O’clock in the morning on a typewriter, as there were no computers. After a few months the Law firm advised an idea to set up a Korean subsidiary for exempting expatriates’ payroll income tax. The director of Reebok who was so much encouraged with the idea that he could not notice Lee’s mail denying the applicability of the idea.

Lee was embarrassed to see the disappointment of the director upon his finding uselessness of the advice at joint meeting with the Law firm. The director said to Lee “How can I give my thanks to you for the right advice. If not, I shall have to waste valuable time unlimitedly.

(3) Lee has set up a 100%-owned Korean subsidiary of R.J.Reynolds Tobacco for the first-time allowing distribution of foreign tobacco in Korea. Regardless of a law firm’s denial of Lee’s advice allowing foreign investment in tobacco sales in Korea the Legal Counsel and a few managements flew to Korea from UK and supported Lee in forming its Korean subsidiary. It goes without saying how much they were satisfied with and appreciated Lee’s correct information and service.

(4) Coca Cola Korea was another example: “At 1998 Olympic Games in Korea many companies paid large sums of money to IOC for promoting successful Games and Coca Cola was one of them. NTS said it was going to decline their donation because of perceived irregularities “Lee eventually succeeded in persuading in-charge director that it was a perfectly legal donation. Coca Cola was so much delighted and asked Lee advices afterwards on tax and business-related legal issues for longer than five years even after leaving Ernst & Whinney in 1990s.

Lee moved on again to Samhwa Accounting in middle of 1990s, arranged correspondent firm of Moore Stephens in1998 and changed its status as a member firm in 2000 and worked as international tax partner. During 2002 -2012 Lee set up numerous foreign companies mostly from the US and partly from Europe, Asia and Middle East and provided outsourcing services covering accounting, payroll and tax, and provided consulting on international taxation for member firms of Moore Stephens and their world-wide clients .

(5) Lee set up Korean subsidiary of Novo Nordisk, a famous Denmark pharmaceutical company producing medicine for diabetes and having world market share by 40% and provided accounting and tax advices. But the subsidiary was taken tax examination on Transfer Pricing, most dreadful to the taxpayers. But the examination was closed shortly in two weeks earlier than the planned period of one month and without paying tax even a Penny based on fair accounting records and maintaining a certain level of taxable income supported by Lee’s advices. Lee says It is not forgettable that the Australian president of Korean subsidiary at that time was so much excited with the unexpected satisfactory result of TP examination.

Lee says he has had many other interesting stories contributed himself to enhancing the benefits of foreign clients.

I am also joining AmCham, German, Finnish, and Israeli chamber of commerce in Korea for increasing more referral opportunities.

Now, Let’s summarize the strategic core factors brought forth successful CPA carreer to Kook Hee Lee.

In short, Lee could have achieved brilliant and successful CPA career based on (a) his excellent professional expertise, (b) support of university alumni, (c) freely contacting with, and willingly support by, the Government officials, and (d) personal talent to make close friends with strangers meeting in proceeding his tasks (given by grace of God in his understanding)

Lee also is enthusiastic in (1) studying world history, Korean, Chinese, Japanese, USA, UK, German history and some of Middle East countries and (2) reading diverse materials in order to be accustomed to changing trends of world economy and politics as well as science and technology ,the basis of the 4th Industrial Revolution. Samhwa Accounting is ranking No.10 in Korea and now growing by about 20% per year, which I’m very proud about.”

“I am also joining AmCham, German, Finnish, and Israeli chamber of commerce in Korea for increasing more referral opportunities. Elsewhere, until 2020 Lee was attending conferences across the globe as part of his ifa membership network and Moore Stephens. These have taken Lee to countries as far apart as the USA, Japan, Denmark, Italy, UK, Germany, Australia , South Africa ,Argentina and other countries “I love travelling and my wife always comes along. She is a well-known opera singer among the members of Moore Global. In Argentina, for example, she even sang at the Gala Dinner following the world conference in September 2012 responding to the request by the Conference President. it was a great success.”

I love travelling and my wife always comes along. She is a well-known opera singer among the members of Moore Global.

Lee and his wife wish to attend world conference of IR Global in October 2021. but worry if it would be possible because of COVID 19.

Topic III. Advantages of multinational clients expected from our company formation and outsourcing service

We , Samhwa Accounting, have been benefiting multinational clients remarkably based on our prominent expertise and long experiences over 30 years, and they have had strong conviction in our competent services.

Then how does Samhwa Accounting provide such prominent service ?

We are making (a) Company Formation, (b) Accounting, and (3)Tax Service, three core factors in our outsourcing services, as a TRINITY among numerous kinds of services that we are providing. That is, reasonable and systematic combination or harmonization of these three core factors of our service brought forth fruitful result consistently and remarkably for the benefits of our clints.

Firstly, in forming the company we ae making it a customary practice to (1) communicate with potential clients in detail for having full and correct understanding of business plans of their Korean companies, business activities for attaining the business goal, vendors of purchasing goods and / or services and distribution markets of the goods and services. Based on this fundamental information we are designing followings”.

  1. Correct presentation of business purpose and business  transacting channel on legal documents for company formation and application for tax ID for preventing any disputes afterwards from legal and tax respects.
  2. Designing tax strategies applicable to the specific business of Koran legal entities and communicating with the clients to agree with them
  3. Designing ideal accounting system and practice based on IFRS or K-IFRS and contrasting with existing accounting system of the company, and adjusting the designed systems and practice based on communication with the clients.

Secondly in providing accounting services

(1) Firstly,  financial report shall be prepared in a way to present  FAIRLY financial position and operating result of the Company and we focus our attention to protection of the company assets, prevention of tax disputes, and provision of analytical financial information for improvement of business operation

We are providing following services for attaining such goals

(1)       We are contributing to protection of company assets by focusing on reliability and reasonableness of accounting supporting data in their review in terms of internal control.

(2)       We prepare financial repot fairly  in terms of financial position and operating result of the company through reasonable classification of account titles

We  further correct undersanding of the readers and reviewers of financial report by preparing schedule of important accounts and making notes on them

(3)       Review of accounting supporting data, preparation of vouchers, book-keeping , and preparation of financial report  are performed by accounting staffs having long time experience in international services and affluent knowledge

under the continuous supervision and support of  the same partner fully knowledgeable in international services over the long period of time  and  particularly familiar with business operation of the Client

(4)       We contribute  to improvement of management of the company  by regular analysis of  specific accounts , being index in business operation and management such as gross sales margin ratio of goods sold, accounts receivable – trade,   inventories ,etc.

(5)       We are seeking correct interpretation of specific accounts based on IFRS and K-IFRS in the preparation of financial report and prevent distortion of financial report by removing personal prejudice

Third, in tax service we are making it a first goal to prevent tax disputes and tax examination by (a) advance thorough review of respective vouchers and supporting documents from the respect of their influence on taxation, (b) preparation of fair and clear VAT and income tax return supported by fair and concrete financial report, and (3) strictly observation of withholding tax liability on payroll and other service fee income. Besides, we advise the clients to maintain a minimum comparable level of taxable income expected by NTS in comparison to other companies in the same industries.

Korea NTS (IRS) makes it a rule to take tax examination once every five years. But in case meeting with aforesaid requirements NTS does not take tax examination even though passing over five years. We are stressing that there was no tax examination among any of our foreign clients for over 30 years except for one Danish company by taking such preventive measures in advance as mentioned in the above.  Korean subsidiary of a Danish pharmaceutical company was taken tax examination for transfer pricing , but the examination was finished far earlier than planned period of one month and without paying any penny of tax because of fair accounting practice and intentional maintaining some level of taxable income

It goes without saying that multinational companies are trying to search for faithful and competent CPA firms for their outsourcing services.  Our international tax service team leader ( partner )  Kook Hee Lee , stresses  that Samhwa Accounting can assure  multinational companies  of perfect company formation and faithful and competent  outsourcing services  and the foreign clients have proven the trustworthy of the assurance by enjoying great benefits and satisfaction from our services during last over 30 years

Contact information ‘

Kook Hee Lee , Partner, International taxation

Khlee30@samhwacpa.com

Mobile:  82-10—5338-6960

Office :  82,2,554,6960 / 2

Kook Hee Lee

Partner CPA, Samhwa Accounting

 

Squire Patton Boggs (US) LLP

We combine sound legal counsel with a deep knowledge of our clients’ businesses to resolve their legal challenges. We care about the quality of our services, the success of our clients and the relationships that are forged through those successes.

Breadth and Depth 

The client base of our global legal practice spans every type of business, both private and public, worldwide. We advise a diverse mix of clients, from Fortune 100 and FTSE 100 corporations to emerging companies and from individuals to local and national governments. In the private sector, we provide a full range of legal advice required to implement practical strategies and resolve disputes. In the public sector, we counsel governments on privatization of whole industries and on the establishment of regulatory systems under which new private businesses can compete. We also serve the regional needs of the countries and cities we call home.

Whatever is needed, we are able to deliver the seamless cross-practice, cross-border and industry-specific support that clients require for success in today’s competitive markets.

Client Focus

Clients expect knowledge of their business, as well as high-quality legal skills from their law firms. Our combination of legal and industry experience allows us to better analyze client requirements and develop the right approach for the matter at hand. Clients receive tested insight and guidance from a team that understands their needs and is able to offer tailored solutions.

We are dedicated to our clients’ success, and their satisfaction shows it. We continue to advise successor organizations of clients that we represented at our formation some 120 years ago.

 

UAE Supreme Court: First Tax Evasion Criminal Case

Case brief

In May 2021, the UAE Federal Supreme Court ruled on the first tax evasion criminal case ordering payment of five times the amount of the evaded tax, amounting to almost 4.2 million Dirhams.

At a hearing in October 2020, the Federal Primary Court ordered the taxpayer to pay five times the tax evaded. The Primary Court had relied on an expert report to confirm the quantum of the evaded tax.

The taxpayer appealed this sentence and at a hearing in March 2021, the Federal Appeals Court ruled accepting the appeal procedurally but rejected the taxpayer’s defenses and upheld the Primary Court sentence.

Subsequent to this, the taxpayer challenged the Federal Appeals Court judgment before the Federal Supreme Court. The Federal Supreme Court upheld the sentence rendering it the first recorded Supreme Court case on tax evasion.

Previous address by the Supreme Court on tax evasion

Tax evasion was addressed by a court for the first time during civil proceedings in October 2020 when the Federal Supreme Court addressed tax evasion obiter dicta (in passing) in judgment number 227/2020 related to voluntary disclosures.

The Federal Supreme Court took the position that where a person discovers an error, they must disclose and correct the error (within twenty weekdays) — or be found to have committed tax evasion, as follows:

“That is due to the fact that the voluntary disclosure along with tax differences it contained is not only a guarantee for the State Treasury but also a means of rectifying the taxpayer’s error as such in the declaration – or the result of the tax assessment – therefore, the aforementioned had to, in all cases, correct the errors in his declaration for the purpose of maintaining the dues of the State; otherwise, he would have faced the tax evasion offense, which requires his penalization.”

Tax evasion in law

Articles 1 of both the Tax Procedures Law and the Excise Tax Law defines ‘tax evasion’ as the “…use of illegal means, resulting in the reduction of the amount of the due tax, non-payment thereof or a refund of a tax that the Person did not have the right to have refunded…”.

Article 26 of the Tax Procedures Law sets out the penalties for tax evasion as imprisonment and/or a penalty of up to five times the amount of the evaded tax

Federal Tax Authority powers

Article 50 of the Tax Procedures Law grants the Director-General, and tax auditors appointed by a decision of the Minister of Justice, the capacity of judicial officers for tax violations.

Under Article 30 of the Criminal Procedures Law, judicial officers have the power to inquire about crimes, search for their perpetrators and collect the necessary information and evidence for investigation and indictment.

Article 45 of the Criminal Procedures Law grants judicial officers the power to order the arrest of the accused, present and against whom there is enough evidence that they committed a crime.

Criminal complaints accusing a taxpayer of tax evasion are generally investigated by the State Funds department of the Federal Public Prosecution.

Please contact us for more details or assistance in this matter.

Author: Mahmoud Abuwasel

Italian Freezing Of Redundancies: The Never Ending Story

Italian “Fiscal Decree” extends again the prohibition of dismissal until 31 December 2021 (Article 11, Legislative Decree 146/2021).

Not generalized but intended only for companies that use the social bumpers provided and only for the relevant period:

  • Employers who access ordinary and ‘cassa in deroga’ check (Maximum thirteen weeks; No additional contribution);
  • Employers with ATECO code 13, 14 and 15 (Maximum nine weeks; No additional contribution).

In any case, while the block is in effect, it is always possible to terminate the employment relationship in the following cases:

  • corporate collective agreement;
  • expansion contract;
  • reinstatement for change of contract;
  • bankruptcy;
  • definitive termination of the company’s business (which does not involve the transfer of a company or one of its branches);
  • just-cause dismissal;
  • dismissal for disciplinary reasons;
  • dismissal for exceeding the grant period of illness;
  • dismissal for failure to pass the probationary period;
  • dismissal for reaching age for the use of the old-age pension;
  • dismissal for unfitness for duties;
  • dismissal of the domestic worker;
  • dismissal of the manager (even if a recent jurisprudential orientation is contrary);
  • the termination of the apprenticeship at its expiration date;
  • consensual employment terminations and resignations for just cause.

 

Article by

 

Cross-class Protection of Well-known Trademarks Should Match Their Reputation

Innovation leads development and protection of intellectual property rights is just protection of innovation. In 2020, China was ranked number one in the world for nine consecutive years in the quantity of invention patent applications and it was ranked number 14 in the Global Innovation Index with its 27.414 million pieces of effective trademark registrations up to the end of June 2020. In 2020, China further intensified IP protection and introduced the punitive compensation system to deter intentional IP infringement by increasing the cost of infringement.

In judicial practice, however, there exist disputes about how protection of well-known trademarks matches their reputation and to what extent they should be protected across classes. Here I would like to share my thought on cross-class protection of well-known trademarks through a case I have handled.

In June 2018, market monitor showed that a company by the name of Yaboo International Furniture Trading Center Ltd. (“Yaboo”) in Shenzhen, a major city in South China’s Guangdong Province, was heavily using the logos  and  in their Wechat official platform, PC APP, and posters, and even in exhibitions. See figure below.

Nestle believed that Yaboo infringed their exclusive right to their well-known trademarks “Nestle in Chinese characters” and “Nestle” with respect to “coffee” products in Class 30. In July 2018, Nestle brought legal proceedings before Guangzhou Intellectual Property Court, requesting the court to determine the trademarks “Nestle in Chinese characters” and “Nestle” with respect to “coffee” products as well-known ones and order that Yaboo stop its infringing act, be prohibited from using the infringing logos at issue in any sense of trademark, issue a statement in China Intellectual Property News to eliminate ill effects, and pay CNY 3 million (USD 462,000) in damages and the costs of trademark protection.

This case has 3 centers of dispute.

Dispute 1: Whether it is necessary to determine the trademarks “Nestle in Chinese characters” and “Nestle” as well-known

The court held that in spite of the fact that the plaintiff’s trademarks are registered with respect to “coffee” and “infant foods” and the defendant used them for the service of sale of“household goods”and there is a real difference between goods and services, the defendant had express bad faith in that it used the logos at issue in the full knowledge of the reputation of the plaintiff’s trademarks.  It is thus necessary to take account of the reputation of the plaintiff’s trademarks in this case to stop the defendant’s infringing act.

The court further held that the ample evidence Nestle presented in the case for the use of their marks during 2015-2017 is sufficient to prove that at the time of infringement the marks “Nestle in Chinese characters” and “Nestle” , with a long time of use and publicity, have had a great reputation, are generally known to the relevant section of public, and have achieved the status of well-known trademarks so as to be determined as well-known.

Disputes 2: Whether the use of the alleged infringing logos constitutes an infringement of the plaintiff’s exclusive right to their registered trademarks involved

The court held the alleged infringing logos constituted an imitation of Nestle’s well-known trademarks. Meanwhile, considering the high reputation of Nestle’s marks, the use of the alleged infringing logos for the services of wholesale and retail of household goods would “mislead the public and harm the interests of the well-known trademarks’ owner”. Therefore, Yaboo’s use of the infringing logos is an act of “causing other harms” to Nestle’s exclusive right to their registered trademarks.

Dispute 3: How the defendant shall accept its legal liability in the event of infringement

The court ruled that Yaboo should stop infringing act forthwith when the judgment is effective and pay Nestle CNY one million (USD 150,000) in damages within 10 days from the date when the judgment is effective.

After Guangzhou Intellectual Property Court passed the judgment of first instance, Yaboo was dissatisfied with it and appealed to Guangdong Provincial Higher People’s Court. In January 2021, Guangdong Provincial Higher People’s Court gave the judgment of second instance, dismissing Yaboo’s appeal and upholding the judgment of first instance.

The court of second instance ruled that Yaboo’s heavy use of the logos “ ”, “ ”, “Nestle Life in Chinese characters” and “Nestle Life in Chinese characters + Nestle” in their Wechat official platform and publicity campaigns and on the signboards of their chain stores was liable to mislead the relevant section of public into thinking its act was authorized by Nestle or it was associated somehow with Nestle, leading to confusion over the origin of the infringing goods or services, “the use of the infringing logos at issue tarnished the distinctiveness and goodwill of Nestle’s two registered trademarks as well-known ones and harmed Nestle’s interests,” and Yaboo had express bad faith as it continued using the infringing logos even after its application for registration of the mark “Nestle Life in Chinese characters” was refused.

Article 14 of the Trademark Law of the PRC: A well-known trademark, at the parties’ request, should be determined as a fact that needs to be ascertained in the handling of a case involving the mark. Account shall be taken of the following factors in determination of a well-known mark: (l) reputation of the mark to the relevant public;(2) the duration in which the mark is used; (3) the duration, extent and geographical area in which the mark is promoted; (4) the record of protection of the mark as a well-known one; and (5) any other factors relevant to the well-known reputation of the mark.

In hearing cases of trademark infringement, the determination of well-known status of the mark(s) concerned is necessary when the general rules do not work. Only by determining the mark(s) as well-known can cross-class protection of well-known trademarks be provided under the trademark law. “Cross-class protection” means the scope of protection goes beyond elimination of “the likelihood of confusion”. From the angle of legislation, cross-class protection should be limited to a proper extent. It cannot cover all fields; instead, it should be applied on the grounds that confusion among consumers over the supplier and origin of goods or services is created or some association is formed. In trying cases of this kind, the court should consider the reputation and distinctiveness of the trademark(s) concerned and the misleading effect of infringing act. At the same time, in defending their right, the trademark owner should provide evidence for his/her trademark(s)’s reputation and well-known status. In the event of significantly different classes of goods or services, the trademark owner must convince the judge by sound, persuasive and logical arguments that the defendant has bad faith subjectively and the infringing act is liable to cause “confusion” over the origin of goods or services among the public objectively so much as that relation between the trademark(s) and its (their) owner are weakened or diluted and then the reputation and goodwill of the trademark(s) are damaged, thus enhancing the chances of winning the case and protecting his/her IP rights and interests.

Résumés

Mr. Zhenkun Fu

Senior Partner; Trademark & Litigation Attorney

Zhenkun is a leading intellectual property law practitioner with more than 20 years’ experience in prosecuting trademark and patent infringement, unfair competition, and anti-counterfeiting cases. His work with Fortune 500 companies has resulted in the recovery of millions of dollars in damages. As a leading IP litigator, having managed thousands of lawsuits, Zhenkun’s groundwork and strategic insight, coupled with his exceptional relationships with AIC, BQS and PSB at national and local levels, makes him a key leader in intellectual property enforcement in China.

 

 

 

Legal Process: Document Review Basics

Document review is integral in law practice. It offers attorneys a chance to critically look into the merits of their cases and those of their opposing counsel, come up with actionable and practical solutions, and adequately advise their clients. Document review is also a form of due diligence. Failure to conduct it may expose an attorney to a negligence claim, primarily where a dispute arises when the client loses a case.

Some of the resources that aid in document review include case laws, legislation, facts, and evidence of the case. In conducting a document review, it is essential to:

Know the purpose of the review to enable you to narrow down the relevant materials

It is easy to feel overwhelmed by the volume of relevant materials before starting your document review. The planning phase is vital since it allows you to sift through the necessary and unnecessary workload and the workload begins to look manageable by allocating resources such as ediscovery software and human resources to ease the process.

Compile relevant materials

It is important to note that not all collected information will be relevant, e.g., some may be outdated, biased, unreliable, privileged, or confidential. Relevant information will include information for and against your case attained through various means such as discovery;  this information should then be organized and used to develop the relevant evidence-based research highlighted below.k

Use the evidence-based research 

An attorney can now decide which documents they may rely on, witnesses to call, and documents that will be subject to production. The evidence-based research will lead to a compelling case strategy, thus safeguarding your client’s interest as well as your interest from a possible negligence suit; it should therefore not be overlooked in any case.

Additional review support

For expert document review support services to help your law firm or in-house counsel through the review process, contact Baer Reed today.

Article By: Catherine Tyler, CEO