In the News: SAMR Accepts VIE; IP Protection Guideline; and Medical Equipment Easing

First seen in 2000, the VIE structure is used as a way to circumvent China's foreign investment restrictions to allow offshore financing of local businesses. Traditionally, China's merger review regulators have not accepted nor approved any filings involving VIE structures despite there being no clear legal basis for refusing such filings, write Morrison & Foerster's Hong Kong-based partner Marcia Ellis and global partner Rony Gerrits. They add that PRC counsel have advised that such filings are rejected because the regulators do not want to be seen as giving a stamp of approval to the VIE structure, which suggests that the acceptance of the first such filing "signifies that the existence of VIE arrangements may no longer constitute an obstacle to the making of [JV] Filings."

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Supreme Court issues guideline to strengthen IP protection

China will strengthen intellectual property (IP) protection in various ways, including handing out larger compensations for victims of serious violations of IP rights. On Apr. 21, the Supreme People's Court (SPC) issued a 26-item guideline on the strengthening of judicial protection for IP rights, including measures to lower the cost and length of lawsuits and relaxing evidence requirements. The guideline does not say when measures will be implemented.

The guideline also highlights efforts to stop "dishonest" litigation pursued in bad faith, including the proposal to record "malicious" prosecutions in the national credit information system. Jiang Bixin, vice president of the SPC, said at a press conference that the guideline emphasizes equal protection for the IP rights of different entities with different ownership structures.

The SPC guideline is part of a host of IP-related announcements made by the authorities in the run-up to the World Intellectual Property Day on Apr. 26, which was first proposed by China and Algeria in 2000. On Apr. 25, the Supreme People's Procuratorate published its annual list of the top example cases of IP rights infringement in the past year, with detailed explanations of the background and rulings made for each case. Earlier in April, the American footwear manufacturer New Balance prevailed in its copyright infringement case against local company New Barlun, who has been ordered to pay 10.8 million yuan ($1.54 million) in damages. The World Intellectual Property Organization recently revealed that China has overtaken the United States as the biggest source of international patents, with 59,000 applications filed in 2019.

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China looks to ease medical export certification process 

China will make it easier for producers of medical products to secure export approval. A notice issued on Apr. 25 by the Ministry of Commerce, the General Administration of Customs and the State Administration for Market Regulation removed an earlier rule introduced in late March requiring exporters of medical goods to be certified by the authorities. Local producers have complained that the rule was too strict and time-consuming.

Under the new rule, exporters no longer have to be licensed to sell their products domestically. They can now seek approval for their exports from an industry association, the China Chamber of Commerce for Import and Export of Medicines and Health Products. Moreover, the authorities issued a separate notice requiring exporters and importers of masks for non-medical use to sign declarations that the masks are compliant with either the quality standards of China or the export destination country.

The COVID-19 pandemic has brought into stark relief the world's reliance on personal protective equipment produced in China. Over 40% of the world's imports of face masks, protective garments, mouth-nose-protection equipment, gloves, and goggles in 2018 were produced in China according to the Peterson Institute for International Economics. Earlier in April, China tightened customs checks for medical equipment exports following complaints about their quality in recipient countries. However, the previous rule requiring exporters also be licensed to sell their products domestically has been blamed for bottlenecks in shipments abroad, highlighting the dilemma facing the Chinese authorities of ensuring the speed of exports without relaxing quality control. 

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