With the further deepening of reform and opening to the outside world, and the steady implementation of the Belt and Road initiative, the percentage of the entire trade regime accounted for by international technology is growing larger and larger.
International technology transfer is one of the major forms of technology trade between countries. Due to the differences in legal systems, legal regimes and legal cultures of the various trade participants, lawyers are required to pay particular attention to the following issues when drafting and reviewing international technology agreements.
Differences in intellectual property law. The intellectual property legal systems of different countries vary; more specifically, there are differences in the patent and trademark registration systems, moral rights in copyright, title to jointly developed works, the scope of protection of data offered by copyright, etc. With respect to the definition of patented technology, there are certain differences between countries with regard to the term and conditions of protection.
Accordingly, when drafting or reviewing an agreement, special attention needs to be paid to the provisions that define patented technology, and the types and term of protection need to be noted, so as to avoid misunderstandings and differences of interpretation between the parties.
Export restrictions. In international technology transfers, the crossing of national borders by technology is subject to the control of import-export trade laws. The main laws controlling the import and export of technology in China are the Foreign Trade Law and the Administrative Regulations for the Import and Export of Technology. Of course, different controls also apply to different industries. Taking Sino-US nuclear power technology transfers as an example, not only do such transfers involve the above-mentioned laws and regulations, but they are also subject to the special controls on nuclear power technology. Direct transfers of such technology also involve the issue of transfer to third countries (e.g., Iran and other such countries are under special watch by the US).
When drafting or reviewing an agreement, special attention needs to be paid to the issues of the validity of the agreement and compensation that arise due to export restrictions.
Exchange control. Certain countries will, based on the issue of balancing foreign exchange payments, require that the review and administrative approval of government authorities be secured before a cross-border technology transfer agreement enters into effect. Such currency control policies may make currency exchange or cross-border payment difficult.
This issue needs to be expressly provided for in the agreement, for example specifying that the agreement enters into effect only after governmental permission or approval has been secured, and the risk arising from the failure of the agreement to enter into effect needs to be reasonably apportioned.
Another point that needs attention is that the lawyer, when drafting the payment conditions, must set the currency exchange rate and appropriately indicate the currency unit in which the payment is to be made. It should be noted that the word “dollars” could be ambiguous, and accordingly, if the client is indicating the US currency, the term “US dollars” should be used.
Tax burden. China has entered into tax agreements with numerous countries where taxes may be withheld from certain income (e.g., copyright income). Under such a circumstance, the withholding percentage usually falls between 10% and 20%. This does not sound too bad, but some licensors, particularly startup enterprises, may not be required to pay any enterprise income tax because they have yet to become profitable.
Additionally, withholding of income tax can be carried out only within a certain period of time, which will make it impossible to carry out withholding set off. In the agreement, the parties need to reasonably provide for the tax burdens, and fully consider whether reasonable shifting is possible. This does not only involve domestic taxation, but also the issue of setting off cross-border income.
Dispute resolution and governing law. The dispute resolution method in international trade is usually different. In international trade, neither party will usually be willing to provide for dispute resolution in the courts of the country where the counterparty is resident, thereby giving such party home court advantage. Furthermore, an effective court judgment may not be enforceable in another jurisdiction for a variety of reasons.
In contrast, an arbitration award can be enforced through the New York Convention, which is observed by numerous countries. Accordingly, arbitration is commonly used in international trade, with arbitration conducted in a neutral place. However, in reality, the process of enforcing an award can be long and expensive.
When drafting or reviewing an agreement, attention needs to be paid to the difference in the law governing the arbitration agreement and the law governing the master contract. Where the arbitration agreement does not expressly provide for the governing law, in general, the laws of the seat of arbitration will govern.
Language. Where the languages used by the parties differ, the agreement may be translated into a different language. The parties should indicate in the agreement which language is to prevail to avoid a situation where there is no way to make a choice. If the official language of the agreement is German, but the lawyer does not know German and is reviewing the Chinese translated version of the agreement, the client needs to engage a local lawyer to co-operate with the Chinese lawyer.
And even if the lawyer can use German to converse, generally, he may not be able to understand the nuances in the language. Such nuances are extremely important in legal agreements. Furthermore, if a dispute arises between the parties, leading to arbitration proceedings, translation expenses will also be a necessary expenditure.
In addition to presenting the issues common to all technology transfer agreements, international technology transfer agreements also present the above-mentioned differences in legal systems, export restrictions, exchange control, taxation, dispute resolution and language. When drafting or reviewing an agreement, the lawyer needs to fully take into consideration the individual differences in cross-border agreements and tailor the same in the light of the client’s requirements.
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Tan Jiacai is a partner at Dentons. He can be contacted on +86 21 5878 5888 or by email at email@example.com