Database

In April 2014, China's Ministry of Commerce (MOFCOM) gave a conditional regulatory approval to Microsoft's purchase of Nokia's Devices & Services business. However, behavioural remedies have been imposed both to Microsoft and Nokia.

In particular, Microsoft shall not seek injunctions or exclusion orders against smartphones that read on the standard essential patents (SEPs) and are produced by manufacturers in China. Moreovoer, Microsoft committed to continue to licence smartphone-related SEPs under fair, reasonable and non-discriminatory (FRAND) terms.

Nokia also committed not to seek injunctions in relation to SEPs and to continue licensing its SEPs under FRAND terms.

It is reported that local patent applicants and patentees who are in difficulties to pay for the patent fees have the right to apply to the State Intellectual Property Office for reduced or postponed patent fees. The patent charge can be reduced by an amount of 70%–85%.

Non-resident foreigners must appoint an officially designated Chinese agency to act as agent in patent application processes. There are news reports of companies that have been threatened that, in case of complaint about the application process for local patents, they may not be allowed to sell in China in the future.

China’s indigenous innovation practices are a web of policies, regulations and strategies that create incentives for Chinese enterprises to create advanced technologies. Only enterprises having Chinese legal person status can apply for accreditation of a product. Moreover, in order to be accredited, a product must have been manufactured by an entity that has full ownership of intellectual property rights in China, either by creating the rights or by acquiring them. It is reported that the goal of these policies is to encourage domestic innovation, and to build and support “national champions" by providing financial incentives that favor domestic innovation.
One such policy is Directive Number 618, which is further discussed in Chapter 3.

There are no injunctions that apply today, but several dispute are ongoing. Huawei, China’s largest telecom equipment vendor, is suing ZTE over patents and trademarks in three European countries - Germany, France and Hungary. Unprecedented for Chinese firms, ZTE decided to bring the patent disputes to the courts on the Chinese Mainland. In April 2015, ZTE sued Huawei over patent infringement of their Honor X2 and P8 devices in Chinese courts.

The People's Bank of China banned individuals and organizations from raising funds through Initial Coin Offerings (ICOs), or launches of digital currencies, considering the practice to be illegal fundraising.

Licenses are required for the provision of all telecom services. The notification process is reported as especially burdensome for foreign investors providing basic and value-added services (VAS). For instance, in the case of VAS, the foreign investor must notify the relevant State Council of its activities in order to be approved.

For each VAS, an individual lincese is required. Additionally, foreign companies must obtain VAS licenses only through a joint-venture company. In this regard, the European Chamber of Commerce in China has complained about the multiple value added services licenses required, suggesting the approval of one single value added service license that allows for the provision of multiple VAS.

Regarding computer services, AMCHAM China complained that the multitude of licensing and accreditation government agencies to be engaged is problematic and excessively time consuming for foreign investors.

In additional to a general merger control regime, there is a notification and clearance regime for transactions involving sensitive/strategic sectors, which are reviewable by inter-ministerial bodies with the power to block proposed transactions on national security grounds.

To date, there is no record of transactions on the telecom or ICT marked being blocked by Ministry of Commerce of the People's Republic of China (MOFCOM). However, the agency has imposed a number on behavioral remedies as a condition to clearing the acquisition of Nokia's smarthphones business by Microsoft in 2014. According to MOFCOM, the transaction, already cleared without conditions in the US and EU, could have restricted the competition in the downstream smarthphone market in China and endager the ability of Chinese smarthphone manufactures to compete.

Furthermore, despite the MOFCOM review period can last up to a maximum of 180 days, it is reported that there have been cases where the review lasted significatly longer forcing the parties to withdraw their applications.

According to Art. 12 of the Provisions on Merger and Acquisitions, where a foreign investor intends to obtain the actual controlling rights of a domestic enterprise and if any key industry is concerned, or if it has an impact on or may have an impact on the national economic security, the parties concerned shall file an application to the Ministry of Commerce of the People's Republic of China (MOFCOM). If the parties concerned fail to apply, but the acquisition has had or may have a serious impact on the national economic security, the MOFCOM may, together with the relevant authorities, demand the parties concerned to terminate the transaction or transfer the relevant equities, assets or take other effective measures to eliminate the acquisition impact on the national economic security.

According to Art. 5 of the "Rules for the Implementation of the Law of the People's Republic of China on Foreign-Capital Enterprises", foreign-capital enterprise shall not be approved if the proposed enterprise is under any of the following circumstances:
- injuring China's sovereignty or social and public interests;
- endangering China's national security;
- in violation of Chinese laws and regulations;
- not in keeping with the requirements of China's national economic development.
However, to date there are no cases of investments in the telecom/ICT sector being blocked on national security grounds.

The Provisions on the Administration of Foreign Invested Telecommunication Enterprises provides that the joint venture's project proposal and feasibility study report shall include a business forecast and development planning, and an analysis on the return of investment.

Additionally, the "Rules for The Implementation of The Law of The People's Republic of China on Foreign-Capital Enterprises", Art. 3, provide that the foreign-capital enterprises to be established must benefit the development of China's national economy and be capable of gaining remarkable economic results.

China has a number of minimum capital requirements, some of which were reduced in 2008.

The minimum registered capital shall be RMB 1 billion (USD 150 million) (down from RMB 2 billion, or USD 305 million) for providing basic telecommunications services throughout the country or across different provinces, autonomous regions and municipalities directly under the Central Government.

The minimum registered capital shall be RMB 100 million (USD 15 million) (down from RMB 200 million, or USD 30 million) for providing basic telecommunications services within a province, an autonomous region or a municipality directly under the Central Government.

The minimum registered capital shall be RMB 10 million (USD 1.5 million) for providing value-added telecommunications services throughout the country or across different provinces, autonomous regions and municipalities directly under the Central Government.

The minimum registered capital shall be RMB 1 million (USD 150K) for providing value-added telecommunications services and computer services within a province, an autonomous region or a municipality directly under the Central Government.

China's telecom laws require all foreign firms that provide telecom services to enter a joint venture with a Chinese firm. This also applies to data centers and cloud computing operators.

In order to operate as a foreign invested telecommunications enterprise, the enterprise providing telecommunications services has to be established as joint venture between foreign and Chinese investors within the territory of China. The formation of such a joint venture must be pre-approved by the Ministry of Industry and Information Technology (MIIT) and approved by the Ministry of Commerce.

Internet news collecting, editing and publishing services are reserved for State media (or its controlled subsidiaries) and news media controlled by the Party news department. Private investment is expressly prohibited in news collecting and editing services.

The News Regulations also provide that the Government may have a “special management share” in certain internet news providers. The Cyberspace Administration of China (CAC) does not elaborate on the meaning of the special management share. It is understood that the Government could use any special management share in a Internet News Provider to retain its control over certain issues. It is not clear whether the regime would apply to all types of Internet News Providers, including those which are privately-owned.

Additionally, the Provisions on the Management of Internet News Services issued by the CAC, like the old rules, ban Sino-foreign equity joint ventures, Sino-foreign cooperative joint ventures, or wholly foreign-invested enterprises from engaging in the internet news industry.

The new provisions also broadened the definition of “internet news information services” to “services of collecting, editing, and releasing internet news information; reposting such news information; and providing a platform to spread such news information.” They also broaden the definition of “news information” to includes relevant reports and commentaries on politics, the economy, military affairs, foreign affairs, and other public affairs, as well as relevant reports and commentaries on social emergencies.