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Monday, April 22nd, 2019

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Amendment to the technology transfer regulations in China

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The Chinese government issued the State Council decree No.709, to amend a total of 49 regulations, including the Technology Import and Export Regulations (“TIER”) and the Regulations for the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures (“JV Regulations”).

The amendments will impact particularly those companies who have entered into JV agreements with Chinese companies and/or for whom technology transfer/IP is an important consideration when investing in the China market.

Third party infringement claims

TIER applies to the transfer of foreign technology into China,1 among other things, and it includes several mandatory provisions on technology import contracts. Among those, the latest amendment deleted Article 24.32 which mandated the foreign technology transferor to indemnify the Chinese transferee for third party infringement claims. This leaves the general provisions of the Contract Law to govern both technology import and other technology transfers alike, under which the parties are free to negotiate the allocation of infringement liabilities to third parties.

Although the amendment does not address contracts that were entered into under the old TIER, it does restore leverage to the foreign licensor in its further negotiation with the Chinese domestic licensee.