Easy to miss registration steps in cross-border tech transfer

By Frank Liu and Ding Xiaodi, Shanghai Pacific Legal
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The current global economic environment may leave much to be desired but in an era of information, technological exchanges and co-operation between nations and regions, it remains of paramount importance.

In recent years, cross-border technology transfer has been subject to mounting regulatory pressure, compelling companies to be cautious about compliance requirements in order to better meet the possible risks and regulatory obstacles.

However, the authors have noticed that on the topic of the many scenarios in cross-border technology transfer that require filing, review or registration, many companies are not as aware as they should be.

Common scenarios

Frank Liu, Shanghai Pacific Legal
Frank Liu
Shanghai Pacific Legal

When it comes to cross-border technology transfer, one must first understand that the subject of transfer concerns more than just patents, but also the results of know-how (or technological secret) and technical services.

In practice, technology transfer also includes not just the transfer and licensing of patent and proprietary technological solutions, but also technical consulting, services and computer software, as well as related trademark licensing. In some cases, commissioned development, co-operative R&D, joint production and other technical services also fall under the regulatory scope of cross-border technology.

Another important matter is that the definition of “cross-border” is not contained to the “territorial” sense, as in a transfer between jurisdictions. Where a Chinese citizen, legal person or unincorporated organisation transfers technology with a foreign person or entity, the same rules would apply.

In either case, the parties must keep in mind China’s policies and regulations on technology imports and exports. Even when dealing with a Chinese company under the control of a foreign entity or person, a compliance review on technology imports and exports should also be considered to fully prepare for compliance risks.

Furthermore, special attention should be given to the transfer of sets of equipment or key equipment, especially if they were jointly or co-operatively produced, as well as those involved in the production line. As long as there are elements of technology transfer in the transaction, the parties should consider whether relevant filing or registration is necessary.

In view of the above-mentioned, companies partaking in such transactions must prudently examine and identify any “cross-border” and “technology transfer” elements. Other than patent review, they should also apply for a permit from, or register with, the commerce authority corresponding to the technology type in question in order to avoid any compliance risks.

Easily missed spots

Ding Xiaodi, Shanghai Pacific Legal
Ding Xiaodi
Shanghai Pacific Legal

In practice, technology transfer is a common part of the establishment, operation and withdrawal of foreign-invested entities. When the transferer and transferee both belong to the same group, the parties often forget that review and registration may still be required.

Holding of technological assets during the establishment of a foreign-invested entity. When it comes to the specific model of holding technology assets, a wholly foreign-owned enterprise (WFOE) differs from a joint venture (JV). The WFOEs must mind the technological import review process in the exchanges between the domestic subsidiary and the foreign parent company, while JVs should consider an import review when the foreign party makes a technology investment or licensing.

When foreign companies set up wholly-owned subsidiaries in China, they often allow the subsidiaries to access their proprietary technologies by way of licensing or transfer, but neglect the necessity to make a filing/registration for the import and export. As the parent company is a foreign entity, when it licenses technologies to the subsidiary, a domestic legal entity, such a filing/registration is indispensable.

In the case of JVs, both technology investment and licensing require an import filing/registration. Likewise, when the foreign company gains the relevant licence according to the investment agreement, an export filing/registration must also be completed. Of particular note is that in technology investments, the timing of an import filing/registration can be critical.

If the technology can be imported freely, registration may be completed after the execution of the investment agreement. However, if the technology were subject to import restrictions, the parties should consider filing an application to the commerce authority after the basic intention and terms have been determined, and regard the obtaining of the necessary permit as a condition for subsequent advancement.

Flow of technological assets in the operation of foreign-invested enterprises. In practice, many foreign investors prefer to have the parent company take charge of all technological assets developed by the subsidiaries, and then redistribute them to the subsidiaries by way of licensing, which is another scenario where a filing/registration can be easily but wrongfully be neglected.

Without the necessary certificate of registration or permit for imports and exports, when the parent company wishes to charge the subsidiary for licence or transfer fees, or vice versa, the parties may find themselves unable to transfer the funds in the form of technology licensing/transfer fees.

Disposal of technological assets when the foreign investor withdraws. Certain foreign investment companies may wish to withdraw from the Chinese market due to industry realignments or other reasons, but in their haste to cancel the business licence and registration information related to foreign funding, technological assets are often neglected.

To transfer or dispose of patents or similar IP assets after the business licence is cancelled could be unduly burdensome to the right holders. Moreover, if the foreign parent company wishes to recover technological assets before withdrawing from China, they should likewise process the export filing/registration in advance.

Frank Liu is a partner and Ding Xiaodi is a senior associate at Shanghai Pacific Legal

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1266 Nanjing Road West
Shanghai 200040, China
Tel: +86 21 6086 0199
Fax: +86 21 6086 0111



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