TMT changes require strategy rethink

This article is from the TMT chapter of the 2015 Annual Review and is available for download here.


Ben Qi of Jin Mao Partners explains how foreign investors should prepare for the Cybersecurity Law, National Security Law and other key developments in TMT and e-commerce in China

1. What are the latest regulatory updates affecting foreign investment and shareholding in the telecommunications, media and technology sectors?

National Security Law

The PRC National Security Law (NSL) issued on July 1 2015 calls for a “national security review” of the technology industry — including network and other products and services — and foreign investment. The NSL also calls for technology that supports crucial sectors to be “secure and controllable,” a catchphrase that multinationals and industry groups say could be used to force companies to build so-called back doors allowing third-party access to systems, provide encryption keys or even hand over source code. The fundamental goal of the NSL is to respect and maintain China's cyber-sovereignty and allow China to enact whatever laws are necessary to manage the internet and information technology within its borders. Raising the idea of “safeguarding national cyber-sovereignty” in the NSL is a response to the needs of the developing internet.

Draft Cybersecurity Law

The Standing Committee of the National People's Congress released the draft PRC Network Security Law (Cybersecurity Law) on July 6 2015 to solicit public comments before August 5 2015. The draft is closely related to the NSL, which provides for “safeguarding the national cyberspace sovereignty” and adds cyber and information security as an important part of national security. The NSL further requires the state to establish a national security review system to evaluate activities that have or could have an impact on national security, including those related to network information technology products and services. The draft Cybersecurity Law further pushes the national cyberspace sovereignty principle, and, for that purpose, it includes provisions on, inter alia, the strategy, plan and promotion of cyber security, network operation security, network information security and alarm and emergency response systems.

E-commerce developments

To further stimulate the development of China's e-commerce industry, the State Council released its decision regarding the development of e-commerce on May 7 2015, which removed the restriction on the ratio of foreign equity for foreign-invested e-commerce companies, reduced administrative pre-approvals and simplified registration procedures for registered capital.

2. Has investment access to TMT been opened up in the Free Trade Zones? How can foreign investors enter the market in these areas?

The Special Administrative Measures for Foreign Investment Access in Pilot Free Trade Zones (Negative List), promulgated by the General Office of the State Council on April 8 2015, sets a cap of 50% foreign equity for value-added telecom services (other than e-commerce) and a 49% cap for basic telecom services (other than sectors that have been liberalised due to WTO commitments), prohibits foreign investors from investing in online news services, publications, audiovisual programmes and culture operations (other than music sections), operating internet cafés, internet public broadcasting, map creation or publishing (other than sectors that have been liberalised due to WTO commitments) and subjects any cooperation relating to online news between a domestic entity and a foreign investor to a security review by the government.

It should be noted that, while TMT sectors were conditionally opened to foreign investment within the Free Trade Zones (FTZs) under the Negative List, the Trial Measures for National Security Review of the Foreign Investment in Pilot Free Trade Zones issued on April 8 2015 placed a new restriction, requiring foreign investors to undergo national security reviews of their investments in the zones.

3. What legal developments in e-commerce and internet technology are worth noting?

On June 19 2015, the Ministry of Industry and Information Technology (MIIT) issued Notice 2015(196) to remove the foreign investment restriction in online data processing and transactions (e-commerce), which is classified and regulated as value-added telecom services. This is the first telecom services sector to open up to 100% foreign ownership and provides an opportunity for e-commerce businesses to set up their direct operating entities in China, which is not possible unless via a variable interest entity (VIE) structure. How this new rule will be implemented remains to be seem.

Cloud computing and services are also developing in China. In January 2015, the State Council issued an opinion on how to promote and develop Chinese cloud computing, which provided some incentive policies to support the industry in China. Data privacy and security remain the key concerns in cloud computing services.

4. What sort of technology investments have Chinese companies been making overseas?

In October 2014, Lenovo Group completed its US$2.9 billion acquisition of iconic mobile maker Motorola Mobility Holdings' handset unit, which made Lenovo the third largest smartphone producer. According to Lenovo's release, the deal involved US$1.41 billion paid at close, comprising US$660 million in cash and US$750 million in Lenovo ordinary shares. The remaining US$1.5 billion will be paid in the form of a three-year promissory note.

Lenovo also acquired IBM's low-end server business (x86) for US$2.3 billion last year after it bought IBM's ThinkPad PC business in 2005 for US$1.75 billion. Lenovo settled the transaction with US$2 billion in cash and the balance with its own Hong Kong-listed shares. About 7,500 IBM employees in the US, Shanghai, Shenzhen and Taipei were transferred to Lenovo.

On July 13 2015, Chinese technology group Huawei made its first acquisition in Ireland with the purchase of a Dublin-based telecom network management business from developer Amartus. Huawei has agreed to buy the Amartus software and team that specialises in software-defined networking, a means of controlling telecom virtually and reducing the need for engineers to physically work with the equipment. The deal showed Huawei's commitment to expanding its research and development investment across Europe.

5. What are the main takeaways from the Qualcomm case? What does it tell us about IP licensing?

The Qualcomm case provides some useful reference on the following areas:

(1) Market definition: the National Development and Reform Commission (NDRC)'s application of a narrow definition of chip products is also in line with what MOFCOM has showed in its merger control reviews;

(2) Assessment of dominance: “the higher average price of Qualcomm is also an indicator of certain market dominance”;

(3) Determination of abuse: the abusive behaviours of Qualcomm as found by the NDRC include charging unreasonably high royalty fees in the standard essential patent (SEP) markets and tying the SEPs with the non-SEPs and imposing unfair trading conditions in the baseband chip market; and

(4) Imposition of penalties: the NDRC has calculated the fines on the basis of Qualcomm's total turnover in China in 2013, which appears different from other NDRC cases. Previously, its basis for calculating fines was a company's turnover of the relevant products in the China market for the last fiscal year.

On August 1 2015, the SAIC obtained the authority to investigate abuse of intellectual property (IP) rights to eliminate or restrict competition. The Provisions for the Prohibition of Acts of Abusing Intellectual Property Rights to Eliminate or Restrict Competition define the relevant technology market, as well as limiting safe harbours, such as the combined market share ratio in the relevant market. The Provisions require SEP holders to license on fair, reasonable and non-discriminatory (FRAND) terms. The PRC Anti-monopoly Law and its application shall strike a delicate balance between SEPs and FRAND.

6. What are the biggest changes to the Advertising Law? How does this affect businesses' marketing strategies?

The new PRC Advertising Law took effect on September 1 2015. The most note-worthy changes include:

(1) Regulation of advertisement endorsers. Ad endorsers will no longer be allowed in advertisements for medical treatment, drugs, medical devices and health foods.

(2) Certain advertising restrictions concerning minors. Ads aimed at minors under 14 years of age must not contain any components that are expressly prohibited under the law. Advertising in schools and kindergartens is forbidden, as well as in textbooks, exercise books, school uniforms and school buses.

(3) Internet advertising is newly regulated. The 2015 Advertising Law expressly declares its governance on online advertising. The specific provision requires advertising such as pop-ups and the likes to have a notable option to close and enable users to opt out with one click.

(4) Higher penalty. In general, the penalties imposed by the 2015 Advertising Law are heavier.

7. Should foreign investors be worried about China's initiatives to limit foreign technology in the domestic market?

Indeed, the NSL and the recent draft Cybersecurity Law cause concern among foreign investors regarding China's intention to limit foreign technology in the domestic market. Fairly speaking, the recent legislatures (including the security review over foreign investment in the FTZs, NSL, draft Cybersecurity Law, as well as the proposed new Anti-terrorism Law) truly reflect on Chinese government's intention to safeguard the country's “core interests”, which are defined as three fundamental rights of the nation: maintaining the political system with unquestioned rule by the Communist Party; defending sovereignty claims and territorial integrity; and economic development.

It is foreseeable that the government will place more and more limits on foreign technology in crucial sectors (e.g. financial, basic communications, transportation, such as civil aviation and railway, and energy, such as oil and natural gas). As the NSL expressly provides, the technology supporting those sectors is required to be “secure and controllable”, which is necessary to safeguard China's economic security and stable growth. Foreign companies are concerned that such a supervisory body will favour local companies and push multinationals to do more to help Chinese companies develop more advanced capabilities. It is particularly unclear how the “secure and controllable” standard will be implemented. Finding a Chinese partner and making some technology available to the local partner by licensing or other arrangements will be an option for foreign investors who want to maintain their position in China's markets.

8. What legal developments are in the pipeline? Will TMT regulations be relaxed or tightened towards foreign investors?

The most important legal development affecting the TMT sectors is the new draft Cybersecurity Law. China already has one of the world's tightest internet restrictions, and this new law will reinforce the government's control over the online world – the internet – to “safeguard the national cyberspace sovereignty”. This new law will authorise broad powers to control the flow of online information. Foreign investors' businesses in the TMT sectors will be directly impacted by certain provisions of this law, for instance, it requires the procurement of internet products or services for key information infrastructure operators to be subject to strict security review by the national cyber and information office and other ministries; the personal data collected or generated in the business must be stored within China, and if the data needs to be stored out of China or to be provided to foreign entities and individuals, they are also subject to security review by the authorities. Such requirements may lead to difficulties for foreign investors to run internet-related businesses in China.

In conclusion, although the TMT regulation for foreign investors in areas such as e-commerce will be further relaxed to promote the industry, meanwhile, some TMT regulations, especially those relating to crucial sectors (financial and basic communications), as well as media ratings and ideology, will be tightened towards foreign investors as they gradually evolve. It is recommended that foreign investors in these sectors pay close attention to the legal developments, re-define their strategy and change their business plans in a timely manner. Proper legal advice on these areas should be sought before making any investment decisions.


Author biography

Ben Qi
Partner

Bin (Ben) Qi is a partner at Jin Mao Partners based in the Beijing office. Ben has rich experience in telecommunications, media and technology, M&A, antitrust, capital markets, private equity, venture capital and cross-border transactions.
Ben represents many Fortune 500 clients in their China business developments and operation-related legal issues, including M&A activities in China. He also represents many domestic clients in complex cross-border investment deals and advises many Chinese start-up companies in their fundraising and pre-IPO financing arrangements. Ben is also an expert in structuring and advising cross-border IP deals.
Prior to entering private practice at Jin Mao Partners, Ben was a senior legal counsel for IBM Greater China since 2003. He was the lead lawyer for IBM's corporate development and M&A activities in the Greater China region, and the chief counsel for IBM China Investment Fund. Prior to IBM, he was the Asia Pacific general counsel for Peak Pacific Investment Company and senior counsel for Siemens China. His more than 10 years in-house experiences in Fortune 500 companies provide him valuable insight when advising clients on complex deals.
He received his LLB from East China Politics and Law Institute in Shanghai, his LLM from Renmin University Law School in Beijing and his SJD from the School of Law, University of British Columbia in Canada.
Ben is fluent in both Mandarin and English.

金茂凯德律师事务所的齐斌律师阐述了外国投资者应如何应对《网络安全法》、《国家安全法》及TMT和电子商务的其他主要改变

1. 最近有什么新的监管规定影响到电信、传媒及科技行业（TMT）的外国投资和外资持股？

《国家安全法》及其影响

2015年7月1日发布的《国家安全法》（《国安法》）要求对技术产业—包括网络及其他产品和服务—以及外商投资进行“国家安全审查”。《国安法》还要求支撑关键领域的技术“安全可控”，这个流行词在跨国公司和行业集团看来，会被用来强迫公司建立所谓的后门，即允许第三方进入其系统，或要求其提供加密钥匙，甚至交出源代码。《国安法》的基本目的是，中国的网络空间主权要得到尊重和维护，中国应可以颁布任何必要的法律来管理中国境内的互联网和信息技术。在《国安法》里提出“维护国家网络空间主权”是对中国互联网发展需求的反应。

中国网络安全法草案

全国人民代表大会在2015年7月6日公布了网络安全法草案（简称《网安法》），向公众征求意见，8月5日截至。草案与《国安法》密切相关。《国安法》首次规定了“维护国家网络空间安全”，将网络空间和信息安全作为国家安全的一个重要部分。《国安法》进一步要求国家建立国家安全审查制度，对影响或者可能影响国家安全的活动，包括与网络信息技术产品和服务有关的活动，进行评估。《网安法》草案进一步推进“维护国家网络空间主权”的原则，并为此目的对网络空间安全、网络运行安全、网络信息安全以及预警与应急处置制度的战略、规划和促进等方面作出了规定。

电子商务的发展

为进一步刺激中国电子商务行业的发展，国务院在2015年5月7日公布了关于发展电子商务的决定。国务院决定撤销对外商投资电子商务公司的外资股权比例限制，减少行政审批事项，简化注册资本的登记制度。

2. 在自由贸易区，TMT行业是否已对外开放？外国投资者如何才能进入这些行业的市场？

国务院办公厅于2015年4月8日发布的《自由贸易试验区外商投资准入特别管理措施（负面清单）》（《负面清单》）对增值电信业务（电子商务除外）限制外商投资比例不超过50%，对基础电信业务（入世承诺中已开放的除外）限制外商投资比例不超过49%，禁止外国投资者投资互联网新闻服务、网络出版服务、网络视听节目服务、网络文化经营（音乐除外）、网吧经营、互联网公众广播或互联网地图编制或出版活动（入世承诺中已开放的除外），并规定国内实体与外国投资者之间涉及互联网新闻信息服务的业务合作要报经中国政府进行安全审查。

但要注意，根据《负面清单》，TMT行业在自贸区内是有条件地对外国投资开放了。然而，2015年4月8日发布的《自由贸易试验区外国投资国家安全审查试行办法》加入了一项新限制，规定对自贸区的外国投资进行安全审查。

3. 在电子商务和互联网技术方面有什么法律动向值得注意？

2015年6月19日，工信部发布了一份通知（工信部通[2015]196号），放开了在线数据处理与交易处理业务（经营类电子商务）的外商投资股份限制。此类电子商务是按增值电信业务分类和监管的。这是首个允许外商全资控股的电信业务，为电子商务企业提供了在中国设立直接营运实体的机会，而本来只有通过可变利益实体结构（VIE）才可参与此业务。至于这个新规定会如何实施，还需拭目以待。

中国的云计算和云服务也在发展。2015年1月，国务院发布了关于如何促进和发展中国云计算产业的意见，提供了若干激励措施扶持中国的云计算业务。数据隐私和数据安全仍然是云计算业务中的主要备受关注问题。

4. 中国企业在境外进行着什么类型的技术投资

2014年10月，联想集团完成了对标志性移动电信巨头摩托罗拉移动控股公司手机业务的29亿美元收购交易，晋身世界第三大智能手机生产商。根据联想的公告，收购价其中14.1亿美元在交易完成时支付，包括6.6亿美元现金和7.5亿美元联想普通股。其余15亿美元将以三年期本票的方式支付。

继2005年以17.5亿美元收购IBM的ThinkPad个人电脑业务之后，联想又在2014年以23亿美元收购了IBM的低端服务器业务（X86）。联想在这次交易中支付了20亿美元现金，其余代价以其香港上市股份支付。分布在美国、上海、深圳和台北的7,500名IBM雇员转到了联想。

2015年7月13日，中国科技公司华为进行了它在爱尔兰的第一笔收购，从软件开发公司Amartus购买了该公司在都柏林的电信网络管理业务。华为已同意收购Amartus专注于软件定义网络（SDN）的软件和团队。SDN是一种电信虚拟控制技术，能够减少工程师现场操作设备的需要。这笔交易体现了华为致力于在欧洲各地扩大研发投资。

5. 从高通案件中可以得到什么主要教训？案件告诉了我们有关知识产权许可的什么事情？

高通案件在下述方面提供了一些有用的参考：

(1) 市场定义：国家发改委对芯片产品狭义界定的做法与商务部在并购控制审查中的表现是一致的；

(2) 支配地位的评估：“高通的较高平均价格也是一定市场支配地位的一个指标”；

(3) 滥用行为的认定：发改委认定的高通滥用行为包括在标准必要专利（SEP）市场收取不公平的高价特许权使用费，捆绑SEP和非SEP，在基带芯片市场施加不公平销售条件；

(4) 处罚：发改委根据高通2013年在中国的总营业额计算处罚金额，此举看来与发改委处理的其他案件不同。此前，发改委计算处罚金额的依据是公司有关产品上一个财务年度在中国市场的营业额。

从2015年8月1日起，国家工商总局有权调查滥用知识产权排除或限制竞争的案件。《关于禁止滥用知识产权排除、限制竞争行为的规定》界定有关的技术市场，以及对安全港设限制，例如在有关市场里的合并市场份额。对于标准必要专利（SEP），规定要求SEP持有人在作出许可时制定公平、合理和非歧视的（FRAND）条件。我们认为中国的《反垄断法》和应用应在SEP和FRAND之间取得一个仔细的平衡点。

6. 中国《广告法》最重大的修改是什么？对企业的市场营销策略有什么影响？

中国新的《广告法》于2015年9月1日生效，下述修改最值得注意：

(1) 对广告代言人的规范。不允许广告代言人代言医疗、药品、医疗器械和保健食品。

(2) 为未成年人考虑的某些广告限制。针对14岁以下未成年人的广告不得含有法律明文禁止的任何成份。禁止在学校和幼儿园做广告，也不准在教材、练习册、校服和校车上发布广告。

(3) 互联网广告首次被规范。2015年广告法明文宣布对互联网广告有管辖权。具体规定包括弹窗广告及类似广告应当有明显关闭标志，确保一键关闭。

(4) 提高处罚。总体而言，2015年广告法规定的处罚更为严厉。

7. 外国投资者是否应该担心中国在国内市场限制外国技术的措施？

的确，新颁布的《国安法》和最近发布的《网安法》草案引起外国投资者担心中国意图在国内市场对外国技术的限制。公平地说，最近的这些立法（包括在自由贸易区外国投资安全审查制度、《国安法》、《网安法》草案以及已提议的新反恐法）真实地反映了中国政府维护国家“核心利益”的意向，“核心利益”被定义为三大神圣不可侵犯的国家权利：保持政治体制，维护共产党不可置疑的统治地位；捍卫主权和领土完整；以及经济发展。

对于与关键产业（例如金融业、基础通信业、民航铁路等运输业、石油天然气等能源业）有关的技术，可预见到政府趋于对那些产业的外国技术设置越来越多的限制。《国安法》明确规定，支撑那些产业的技术必须“安全可控”。这个要求是保障中国的经济安全和稳定成长所必须的。外国公司担心，这样的监管机构会偏向本地公司，迫使跨国企业更努力地帮助中国公司开发更先进的技术能力。尤其是“安全可控”标准如何实施，似乎尚未清楚。寻找一个中方合作者，通过许可或其他安排向其提供一些技术，这将是外国投资者维持其在中国国内市场地位的一个选择方案。

8. 有什么法规新动向正在酝酿中？TMT的监管法规会对外国投资者放松还是收紧？

影响TMT产业的最重要法规动向将是《网安法》草案。中国是互联网管制最严厉的国家之一，这个新的《网安法》将加强政府对互联网这个虚拟世界的控制，以维护“国家网络空间主权”。这部新法律将授予政府广泛的权力来控制互联网上的信息流动。对于在TMT领域的外国投资者，他们的业务将受到《网安法》某些条款的直接影响。例如，这部新法要求关键信息基础设施营运者的网络产品或服务采购要通过国家网信等部门严格的安全审查；业务中收集或产生的个人信息必须存储在中国境内，确需在境外存储或向境外实体或个人提供的，应经过有关部门的安全审查。这些要求可能导致外国投资者难以在中国营运互联网相关业务。

总之，虽然适用于外国投资者的TMT监管条例中某些方面将会进一步放松，例如在电子商务方面，但是，与此同时，某些TMT监管条例，特别是与关键产业（金融和基础通信业）有关的和涉及到传媒和意识形态的，将随逐步对外国投资者收紧。我们建议在有关行业的外国投资者密切注意这些法律动向，重新制订策略，及时修改业务规划。在作出任何投资决策之前，应该在这些方面寻求适当的法律意见。


作者简历

齐斌
合伙人

齐斌律师是金茂凯德律师事务所北京办公室合伙人。他在电信、传媒及科技、并购、反垄断法、资本市场、私募股权投资、风险投资及跨国交易领域具有丰富的经验。
齐律师代表很多《财富500》客户处理它们的中国业务发展和营运的法律问题，包括在中国的并购活动。他还代表很多中国国内客户处理一些复杂的跨境投资交易。他是很多中国创业公司的筹资和上市前融资安排的法律顾问。齐律师也是跨境交易的结构设计和法律问题专家。
加入金茂凯德之前，从2003年起，齐律师是IBM大中华区的资深法律顾问。他是IBM在大中华区的战略发展和并购活动的主要律师，IBM中国投资基金的首席律师。加入IBM之前，齐律师是Peak Pacific投资公司亚太区法律总监和西门子中国公司资深法律顾问。他在《财富500》公司里有超过十年的法律顾问经验，这使他在为客户的复杂交易提供法律意见时有具备非常有价值的洞察力和经验。
齐律师在华东政法学院取得法学学士学位，在中国人民大学法学院取得法学硕士学位，在加拿大不列颠哥伦比亚大学法学院取得法学博士学位。
齐律师的中英文皆流利。