Awareness issues for the international technology trade

By Tan Jiacai, Dentons
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International technology trade is a larger part of the entire trade system than it has ever been. To deal with it, lawyers should pay attention to the following issues in the business process of international technology trade.

Tan Jiacai Dentons technology trade
Tan Jiacai
Partner
Dentons

Technology licensing and transfer

Technology licensing and transfer are important forms of technology trade. In practice, the key to distinguish between licensing and transfer is whether the ownership of technology changes. Generally, there is no change in ownership when a technology licence is obtained. In the process of transaction, the parties will make a choice according to their business model. It should be emphasized that there are significant differences in the ownership of new technologies arising from technology transfer and licensing.

If technology is obtained by transfer, there is no argument that new technology generated on the basis of the former technology belongs to the transferee. It is very difficult to define the ownership of new technologies obtained through licensing in the case of no clear agreement in the contract. In practice, it is necessary to pay more attention to the new technology ownership clause generated by the practice activities of the licensee after obtaining a technology licence.

Equity merger and acquisition

It has become an important mode of technology trade to acquire the technology required by the development of the company through equity merger and acquisition (M&A). In an M&A transaction, professional lawyers should not only take care with the technology investment control from the host country, but also take note of the legal status of the required technology, such as whether it is legal and valid, and whether there is any defect in the right status.

In addition, conducting due diligence on the company’s human resources situation is necessary, with particular attention to the contract duration, and confidentiality and non-competition agreements of core staff. If the M&A target is a startup technology company, in addition to focusing on the technology itself, background investigation should be conducted on core staff and actual controllers.

Foreign investment restrictions in the host country

If technology trade is carried on through investment, professional lawyers should be familiar with the local national investment legal framework in the host country where the technology is invested, including whether a foreign investment could be permitted in the host country, the administration of foreign investors, and the incentive measures for foreign investors.

Taking infrastructure, energy and telecommunication technology as examples, examination is needed as to whether a specific investment is allowed when choosing which country to invest. Furthermore, determining the investment mode is needed if it can be invested. It should be noted that nuclear energy investment in the energy sector is particularly special. In general, host countries impose special restrictions on nuclear energy investment on the grounds of national security. Therefore, it is necessary to be more cautious in the process of this kind of special investment.

Export control and sanctions

When technology is transferred across national boundaries in international technology trade, it shall be supervised by import and export trade law. In this regard, China put technology import and export under surveillance, mainly depending on the Law on Foreign Trade and the Regulations on Technology Import and Export Administration. The Export Control Law (Second Review Draft) is also under consultation for the time being.

It can be observed from the content of the draft that export control will be more refined and regulations in this field will be more normalized. Of course, when involving different industries, there are also differences among corresponding regulations. For example, the China-US nuclear power technology trade not only involves the above-mentioned laws and regulations, but also is subject to special control of nuclear power technology.

The EU and the US recently further made a revision to their export control regimes to strengthen management and control of foreign technology trade, especially technology trade with China. Corresponding to export control, countries take sanctions to a certain extent against other countries, enterprises or individuals for the sake of foreign policy and national security interests,such as UN sanctions, US sanctions and EU sanctions.

Sanction measures mainly adopt trade embargoes or impose restrictions on economic activities of targeted individuals or entities. In terms of export control and sanctions, exporters and related foreign trade enterprises, especially those engaged in technology trade, should strengthen internal regulatory compliance controls, focusing on the control and sanctions compliance requirements of countries involved in the technology trade.

Information security and data exportation

Data has become the main wealth of the new economy. In this regard it has been compared to “digital oil”, and some regard it as the lifeblood of the new economic area. Information or data are dominant carriers of the international technology trade. To ensure information security and protect data security, the State Security Law, Cybersecurity Law and Civil Code have all been enacted in China. The Personal Information Protection Law and Data Security Law will also be promulgated soon.

Other important economies also have their own information security and data protection laws, such as the General Data Protection Regulations from the EU and the California Consumer Privacy Act of the US. For data exportation, all countries have or will formulate corresponding laws and regulations, or even normative documents such as the Information Security Technology – Guidelines for Data Cross-Border Transfer Security Assessment of the People’s Republic of China (Draft for Comment).

In principle, in order to fulfil international obligations and safeguard national security and cyberspace sovereignty, all countries actively promote the cross-border flow of data, but control the exit of technology data, national development strategy data and private data. Consequently, in the process of international technology trade, it is necessary to carefully assess the feasibility of technology data exportation. Especially in the technology trade, business activities for technology backflow, and the possibility of technology returning from the country where the technology is located to China, should be highly considered.

Except for the common problems of the international technology trade, there are differences in the above-mentioned trade forms, investment restrictions of host countries, export controls and sanctions, information security and data exportation. It follows that lawyers should fully consider the individual differences of various technologies in the process of dealing with international technology trade affairs.

Tan Jiacai is a partner at Dentons

Tan Jiacai Dentons technology tradeDentons
16th/22nd Floor, 5 Corporate Avenue,
No. 150 Hubin Road, Huangpu District
Shanghai 200021
Tel: +86 21 5878 5888
Fax: +86 21 5878 6866
E-mail:

jiacai.tan@dentons.cn

www.dentons.com

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