Doing Business in China: Trade Secrets, Foreign Investment, Drug Safety Regulation, Consumer Data and Other Matters…

Laws to protect trade secrets in China have been around for nearly two decades, write attorneys in Orrick’s Trade Secrets Group. Nevertheless, the best way to protect your valuable corporate information is to never let it fall into the wrong hands:

“Due to the difficulty proving and obtaining effective remedies for trade secret misappropriation, it is essential for companies to take precautionary measures to protect their trade secrets in China. It is highly recommended that international companies use internal computer and security systems to strengthen internal information management, limit internal and external access to trade secrets, pay attention to any unusual actions by their employees, be vigilant in detecting any unwelcome Internet visitors, and establish effective monitoring mechanisms of their IT and physical infrastructures. The best way for a company to protect its trade secrets is to prevent them from being misappropriated.”

For your convenience, here’s a roundup of recent commentary and analysis on this and other legal issues facing companies active in China:

Protecting Trade Secrets In China (Orrick):

“Trade secrets were first introduced into China law through the Article 10 of the “Anti-Unfair Competition Law of China” (effective Dec. 1, 1993).  This defines a “trade secret” as technological or business information that (a) is unavailable to the public; (b) creates economic benefits for its owner and is of practical utility; and (c) is subject to measures taken by its owner to maintain its secrecy.  And it defines “misappropriation” as taking place…” Read on>>

Asia: Corporate Newsletter – June 2013 (DLA Piper):

“On 11 May 2013, the State Administration of Foreign Exchange of the PRC (SAFE) released the Provisions on Foreign Exchange Administration of Inbound Direct Investment by Foreign Investors (外国投资者境内直接投资外汇管理规定), which entered into effect on 13 May 2013 (SAFE Circular 21). This is another important piece of SAFE regulation related to foreign direct investments (FDI) in China following the issuance of several circulars in this area by SAFE since late 2012. SAFE Circular 21 is regarded as a further step for SAFE to simplify and streamline the foreign exchange administration regime for foreign investors.” Read on>>

China’s MIIT Releases Long-Awaited Draft Amended Telecoms Catalogue for Public Comment (Morrison & Foerster LLP):

“The Chinese Ministry of Industry and Information Technology (‘MIIT’) issued a draft new Catalogue of Telecommunications Services 2013); the “Draft Catalogue”) for public comment on May 23, 2013. While the proposed changes are more evolutionary than revolutionary, the Draft Catalogue will have important implications for businesses operating in the China Internet and telecoms markets, particularly those involving e-commerce, content delivery and cloud computing.” Read on>>

China Renames Regulatory Agency: What’s in Store for the Cosmetics and Medical Device Industries? (White & Case LLP):

“In March 2013, the National People’s Congress of China formally changed the name of the State Food and Drug Administration to the China Food and Drug Administration (CFDA), elevating it back to a ministerial-level agency with complete authority over China’s food and drug regulatory regime. […] While largely a symbolic gesture to communicate to the public that the Chinese government takes product and food safety seriously, the move to designate CFDA as a ministerial-level agency can also be viewed as part of China’s broader strategy to improve consumer confidence, enhance product safety and better regulate these industries. Whether this reshuffling translates into immediate tangible benefits or burdens for business, particularly for the cosmetics and medical device industries, remains to be seen.” Read on>>

China’s SAFE Further Streamlines Forex Procedures for Foreign Direct Investment (Morrison & Foerster LLP):

“By systematically simplifying and integrating foreign exchange administrative procedures in connection with FDI, Circular 21 represents a welcome (if possibly modest) step towards free conversion of foreign exchange for capital account transactions, and continues the shift away from the approval-oriented foreign exchange control regime to a new registration-based foreign exchange administration regime. In addition, SAFE has further delegated specific supervisory power to banks and continued its move away from its role as a hands-on regulator. However, it remains to be seen whether FDI investors will find the relevant procedures, be they an approval or a registration, materially less burdensome.” Read on>>

China Aims to Strengthen the Protection of Consumers’ Personal Information (McDermott Will & Emery):

“The Standing Committee of the National People’s Congress recently issued a draft amendment that would update China’s 20-year-old Consumer Protection Law and reinforce the protection of personal information in the country. The current People’s Republic of China law on the protection of consumer rights and interests (the Consumer Protection Law) was promulgated in 1993 and came into effect at the beginning of 1994. After serving for nearly 20 years, some provisions of the Consumer Protection Law have become outdated due to the significant changes in the Chinese consumer market and the economy overall.” Read on>>

China SAT Releases Bulletin on CIT Treatment of Non-resident Enterprises’ Secondment Arrangement (Sheppard Mullin Richter & Hampton LLP):

“The China [State Administration of Taxation] has been developing the rules for the taxation of non-residents since the release of Corporate Income Tax Law (‘CIT Law’) with a number of circulars drafted to set out the circumstances when an employee, sent from a foreign enterprise to an enterprise in China, would form a taxable establishment or place of business in China under the Chinese domestic tax law or a Chinese permanent establishment under a Chinese double tax agreement. The determination made based the circumstances would make the Home Entity subject to the Chinese CIT regime.” Read on>>

IP Protection in China: Strategies for a New Era (Foley & Lardner LLP):

“Recently, China sought to reassure foreign investors that it would never close its doors to the outside world and was committed to making China a fairer place to conduct business. ‘We are protecting the legitimate rights of foreign enterprises according to law,’ said Chinese President Xi Jinping during a roundtable discussion with international business leaders at the Boan Forum for Asia. Xi’s comments come as U.S. investors and businesses grow increasingly wary about the investment environment amid concerns over rising costs and the protection of intellectual property. Among other costs, workers’ wages have increased much in recent years, forcing foreign businesses to balance shrinking marginal profits against risk of intellectual property loss.” Read on>>

China Enacts New Employment Law Affecting Employers Who Do Not Directly Employ Their Workers (Sheppard Mullin Richter & Hampton LLP):

“China has a new employment law. This new law significantly impacts an employer who does not directly employ its own workers, but instead uses agencies such as FESCO or third party staffing companies, also known as labor dispatching agencies. At the end of 2012, the Standing Committee of the National People’s Congress adopted the Decision on the Revision of the Labor Contract Law of the People’s Republic of China (‘Amendment’). The Amendment will take effect July 1st of this year. The intent of the Amendment is to offer better protection to workers employed by labor dispatching agencies.” Read on>>

China Clarifies Requirements for Supplementary Information for Medical Device Evaluation (Ropes & Gray LLP):

“The Center for Medical Device Evaluation (the ‘CMDE’) recently clarified its requirements on supplementary information for medical device evaluation in connection with the registration of domestic Class III medical devices and imported medical devices with the China Food and Drug Administration. Beginning June 1, 2013, when the CMDE requires supplementary information, it will notify the applicants of all requested documents in one notice. The applicants must submit all requested documents within 60 working days, unless the CMDE approves an extension.” Read on>>

China FDA Announces Key Appointments and Restructuring Plan (Ropes & Gray LLP):

“Following its recent re-elevation to the ministry level and the appointment of a new Commissioner in March, Mr. Yong Zhang, former Director of the Food Safety Office under the State Council of China, the China Food and Drug Administration published a restructuring plan on May 15, 2013 to clarify its responsibilities and internal structures.” Read on>>

China Life Sciences Health Industry Client Briefing (Reed Smith):

“The Guangdong Food and Drug Administration (‘GFDA’) recently found that Guangzhou Pharmaceutical Co. compromised the safety of a medication widely used to cure the flu in China. Specifically, the GFDA found that the production of Vitamin C Yinqiao tablets was compromised through the illegal use of non-medicinal parts of the wild honeysuckle flower.” Read on>>

Chinese Supreme Court Guidelines Make It Easier for Employers to Enforce Non-Compete Covenants (Davis Wright Tremaine LLP):

“On Jan. 18, 2013, the Supreme People’s Court of China promulgated Judicial Interpretation IV on Several Issues Concerning the Application of Law in Hearing Labor Dispute (the ‘Interpretation’). The Interpretation went into effect Feb. 1, 2013. It aims to address issues arising from labor dispute trial practices since the Labor Contract Law of PRC was implemented in 2008. It covers issues mainly relating to compensations and damages, non-compete clauses, calculation of service terms, foreigners working in China without work permits, etc.” Read on>>

Spring 2013 Eye on China Newsletter (Foley & Lardner LLP):

“Until recently, the primary risk that China’s culture of business corruption posed to multinationals was that they might run afoul of the FCPA or the UK Bribery Act. However, if one believes the current Chinese government’s stated prioritization of combating corruption, multinationals might now do well to focus on local Chinese anti-bribery enforcement as well. Various recent developments in the Chinese anti-corruption enforcement landscape suggest additional attention to anti-corruption compliance may be warranted. Not the least of these developments is the December 26, 2012 publication of a guidance and interpretation of Chinese criminal bribery law by China’s highest court.” Read on>>

Glencore’s Long March to Take Over Xstrata (White & Case LLP):

“At long last, Glencore has overcome the final regulatory hurdle and secured the approval of China’s Ministry of Commerce (MOFCOM) to acquire the 66 percent of Xstrata that it does not already own. But not before agreeing to part with one of the prized assets in Xstrata’s portfolio, the Las Bambas copper project in Peru. If no suitable buyer for Las Bambas is found by September 2014, Glencore will have to auction off one of its other copper assets of MOFCOM’s choosing.” Read on>>

Find additional updates on China at JD Supra Law News>>