Legal Update on The Specific Internet Advertisement Regulation in China ————Part 1: Overview and Summary

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Following the new and most restrictive Chinese Advertisement Law taking effect on 1 September, 2015, which has reshaped the lives of so many brand legal lawyers, the State Administration for Industry and Commerce (“SAIC”) released the Interim Measures for Internet Advertising Supervision and Management (“IAD Measures ”) on July 8, 2016 with a view to regulating the specific area filled with countless issues: the internet advertisement. This time, after September 1, 2016 when the IAD Measures is taken effect, the lives of so many e-commerce industries which ultimately feed on advertisement will also be changed again

Chinese “Deep Rock” Subordination of Shareholder Loan?

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On 31 March, the PRC Supreme People’s Court (“SPC”) published 4 precedent cases with binding effect. Among others, the enforcement objection case between Shagang and Kaitian was considered the first PRC case borrowing the “Deep Rock Doctrine”, a U.S. equitable subordination doctrine well established in the Taylor v Standard Gas & Electric Company (1939) case holding that claims, as creditors, upon an insolvent subsidiary company by controlling shareholders or other insiders (such as managers or directors) shall be deemed to receive the same treatment as shares of stock owned by the said insider, and thus shall be subordinated to the claims of all other creditors.

Are Buyers’ Sourcing Agreements Free From Anti-Trust Concern?

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The strength of anti-trust enforcement of Chinese government (Chinese Development and Reform Committee (“NDRC”) in particular) against price fixing arrangement with distributors has become unprecedented. The amount of penalties has reached hundreds of millions of RMB, not to mention the scary process of investigation such as dawn raid and the corresponding interruption to business.

Legal Caveat on Joining Trade Associations II

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Following the article about the general position regarding the legal positon about joining trade associations, we appreciate that the reality that most small or medium size enterprise may not have the necessary resources to follow our tips that decisions regarding joining trade association should be referred to senior legal in-house counsel.

Therefore, we would like to supplement the following list do-and-don’t as the preliminary roadmap for reference:

Legal Caveat on Joining Trade Associations I

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In our ever changing regulatory environment driving by the emergency of new technology that change our lives overnight, it is indeed critical for the government to hear the voices of the industry. It has been a long while joining trade associations in various forms to fulfil such purpose, by way of the platform provided by such trade associations to carry out research, raising common concerns, pointing out joint issues and sharing best industrial practice.

What Can “Life Time Guaranteed” Advertisement Claim Legally Guarantee?

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When you open your television, walk by a bus station or come across any other media, it is more than often to see advertisement pop up to claim that their product or service are “life time guaranteed” in certain respects. This is especially the case when the products are pretty long lasting such as renovation / decoration products or white household electronic products.

In most cases, alongside the eye catching advertisement claim slogan, there will be some explanations / disclaimer printed in a way much smaller font (probably because the advertisement claim is reviewed by the in house legal department before issuance?)

Chinese Recent Efforts to Lower Labour-Related Cost

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Chinese economics is unprecedentedly slowing down and what incurs most anxiety is the failure of previously effective policy to stimulate market demands. In response to such uncertainties from the demand end, how to improve the other end of the economic circle, namely the production end, has become one of the hottest terminology politically and academically. Simply put, if no one is buying your products, you will have to lower your costs if you want to survive the difficult instead of simply winding up your entrepreneurship.

Management of Accrued and Carried Forwarded Annual Leave

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Chinese people are reputable for ““work hard, save hard“ and barely take leaves. Therefore, even though most foreign companies offered way more generous annual leaves entitlements to the Chinese staff beyond the statutory annual entitlements, it is very common that such contractual annual leave entitlements will not be taken in whole during a calendar year.

Most foreign companies in China will have internal policy about such accrued but untaken annual leaves. The routine approach is to provide through internal policy that such untaken annual leaves cannot be carried forward and will be considered forfeited otherwise.

New Safe Harbors for Fixed Re-Sale Price Arrangement under NDRC Guidance of Automobile Anti-Monopoly?

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Since 2014, continuous anti-monopoly enforcement by the Chinese Development and Reform Committee (“NDRC”) in the scale of hundreds of million RMB has raised serious compliance concern among foreign investors, particularly those in the area of trading and distribution. Among others, the landmark enforcement against Mercedes Benz reached the unprecedented amount of RMB 350 million.

Most of such enforcement targeted the very common commercial arrangement that fix or restrict the minimum re-sell price of the distributor to a third party (“Vertical Pricing Restriction”). Vertical Pricing Restriction is explicitly prohibited under Article 14 of PRC Anti-Monopoly Law, unless the exemptions exemptions under Article 15 of PRC Anti-Monopoly Law may apply (“Article 15 Exemptions”).

A Common Misunderstanding About Choice of Governing Law Under PRC Law

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During the negotiation of a cross border transaction between a Chinese party and a People’s Republic of China (“PRC”) subsidiary of a foreign company, it is very common that the foreign company will insist in that the transaction shall be subject to foreign law such as UK law, HK law or US law. Or at least, the foreign company will inquire with their lawyers as to whether foreign law can be chosen as the governing law of the contract. Such request is understandable from a commercial perspective as the foreign law seems to show the foreign party’s commitment to the “well recognized international standard” or “the right thing to do”.

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