Transcript James Ng, Principal at JN Legal Consulting

Common Legal Issues
Due Diligence,
Supply Contracts and IPRs
James Ng
Principal, JN Legal Consulting
Consultant, Wragge & Co LLP, Guangzhou Representative Office
Name of Speaker, Position
18 June 2013
James Ng
“Go compare”
Population 1.35 billion (1st)
GDP (2012) US$8.2 trillion
(2nd )
Population 63million (22nd)
GDP (2012) US$2.4 trillion
(6th)
Name of Speaker, Position
18 June 2013
James Ng
Due Diligence
 Publicly available information e.g. Companies Registrar or in
China, AIC (Administration for Industry and Commerce)
 Visit potential suppliers
 Use a consulting company especially in China and India
 Covert investigation
Name of Speaker, Position
18 June 2013
James Ng
Due Diligence
 About the company – properly set up and solvent? What is its
business scope?
 Reliability – references and other international customers
 Track record – managing IPRs
 Will subcontractor(s) be used? How many?
 Location of factory – counterfeit ‘hotspot’?
 Factory’s processes, procedures and quality control?
Name of Speaker, Position
18 June 2013
James Ng
Supply Contracts
 Are they worth the paper? Yes, common law countries (Hong
Kong, Singapore, Malaysia, India). China?
 What type of Agreement? Will standard T&Cs attached to POs
do?
– Ongoing or a one-off sourcing order?
– Simple “off-the-shelf” goods with brand attached or highly
technical products?
– Simply manufacturing? Additional services such as design or
packaging?
 Recommended approach – start with international standard
agreement and adapt it taking local advice
Name of Speaker, Position
18 June 2013
James Ng
Supply Contracts
 Ownership of IPR, use of IPR and protection of IPR and confidential
information
 Subcontracting/assignment
 Ownership of tooling
 Destruction of waste or substandard products
 Insurance
 Audit rights
 Non-compete clauses
 Indemnity
 Product recalls
Name of Speaker, Position
18 June 2013
James Ng
Important State Authorities
 MOFCOM : Ministry of Commerce
 BOFTEC : Bureau of Foreign Trade and Economic Commission
 PSB : Public Security Bureau
 SAIC : State Administration of Industry and Commerce
 FESCO : Foreign Enterprise Human Resource Service Company
 TSB : Technical Supervision Bureau

SAFE : State Administration of Foreign Exchange
Name of Speaker, Position
Representative office
 “…to conduct such activities as market research and
surveys, promotional activities, and liaising with local
manufacturers, suppliers, distributors, the foreign
office…”
 Relatively easier to set up, little direct investment
 Application process start to finish – ONE month
 No restriction on location (Note: foreign business
tenancies)
 Can be easily closed down
Name of Speaker, Position
WOFE
 WOFE is a limited liability company with NO local Chinese
investment.
 Freedom to operate without a local Chinese partner
 Only permitted to conduct the business that the Chinese
government has agreed it can conduct – BUSINESS SCOPE
 Extremely important to get the BUSINESS SCOPE right. Can
submit for approval a business scope that the approval
authorities will ultimately scale down or redefine
 3 broad categories (1) service WOFEs (2) manufacturing WOFEs
(3) trading and manufacturing WOFEs
Name of Speaker, Position
FIE Business names
 Must have a Chinese name. Four requirements
(1) Trade name (2) City (3) Industry (4) Co. Ltd.
e.g. James Ng Engineering Plastics (Guangzhou) Co. Ltd
 To use the word “China” – a minimum registered capital of
USD6.5 million
 Choosing not to have an industry indication – a minimum
registered capital of USD13 million
Name of Speaker, Position
Planning Paper
 Location
 Capital contributions
 Technology and IP Contributions
 Approval Procedures and Time Frames
 Staffing
 Negotiation and confidentiality
Name of Speaker, Position
Conclusion
 Local partner? Need connections? Local market experience?
 What is your industry?
 Are you bringing technology?
 Conducting business in Asia or testing the water?
 How much control do you want?
 What due diligence have you conducted on your other
options/partners?
Name of Speaker, Position
IPR System in China
 Trade Mark Law (2001, amendment proposed in the next two
years)
 Patent Law (2009, third amendment)
 Copyright Law (2001)
 Anti-Unfair Competition Law (2007)
 Other IP-related Laws: Product Quality Law, Internet Copyright,
Computer Software Regulations, Plant Varieties, Integrated
Circuits, Technology Transfer, Food & Drug Administration, AntiTrust Law…)
 Very Young: Only about 20-25 years old
 Up to International Standard: Compliant with TRIPS and WTO in
most areas
Name of Speaker, Position
18 June 2013
James Ng
Enforcement of IPRs in China
There are three main enforcement options:
 administrative route
 civil litigation route
 criminal route
Also, customs protection
Name of Speaker, Position
18 June 2013
James Ng
Enforcement Strategy
Factors to consider:
 Nature of your business
 Remedies
 Source of infringement or market clean-up
 Scale of infringement
 Evidence - extent and strength
 Budget
 Time pressure
Name of Speaker, Position
18 June 2013
James Ng
Conclusion

Prevention better than cure.

Do your homework:
– Effective IP registration programme
– due diligence on business partners/supply chain
– ensuring contracts are in place and getting good translations
– scheduled and unscheduled visits to your operations in China
– build up contacts with local government authorities (importance
of “guanxi” e.g. in China) and educate them about your
products/IPRs
Name of Speaker, Position
18 June 2013
James Ng