Technology cooperation in business agreements in China – what Canadian companies need to know
Canadian companies seeking technology cooperation with Chinese partners should understand the relevant provisions in Chinese law, in order to protect their intellectual property (IP) and meet compliance requirements. Forms of cooperation include:
- technology development
- related services
Specific actions may include:
- assignment of patent rights
- assignment of patent application rights
- licensing for patent exploitation
- assignment of technical secrets
- technical services
- transfer of technology by other means
Companies need experienced legal advice when negotiating contracts or partnership agreements in China.
- The fundamental law governing both domestic and international technology cooperation is the Technology Contracts Chapter of the Civil Code (2021)
- China’s legal framework determines which party owns technology and IP rights under various forms of cooperation (such as commissioned work, joint development, or consulting services)
- It describes which rights can be shared or negotiated, and provides rules for what each party can or may be required to do under different scenarios
- As each situation is different, it is essential to obtain case-specific advice
- Trade Commissioners can refer companies to qualified law firms experienced in technology cooperation in China
Technology import and export
- For civilian technologies, China’s Ministry of Commerce maintains lists of technologies for which imports and exports are restricted or prohibited: Catalog of Technologies Prohibited or Restricted from Import (2007) (in Chinese only) and Amendments to China's Export Prohibited and Restricted Technology Catalogue (2020)(in Chinese only)
- Non-listed technologies can be freely imported and exported: two parties can sign a contract and register it with local Department of Commerce (DOFCOM)
- The registration certificate is used for dealing with foreign exchange, banking, taxation and customs issues
- For restricted technologies, the transfer deal must be approved by DOFCOM
- The contract is effective on the day when the permit is issued
- Military and dual-use technologies are covered by separate rules. Companies should evaluate cooperation plans carefully to determine whether this applies. For more information, please see “Compliance, compliance, compliance: A primer for Canadian companies” or contact us.
Technology transfer and licensing apply to rights a company legally owns in China. Companies need to confirm that any right (e.g., patent) subject to an agreement has been duly granted in China.
Grant-back of rights to technological improvements
Grant-back of rights to technological improvements are not automatically provided for in China. Instead, a grant-back or cross-licensing agreement should be reached in advance. Also, an unpaid grant-back clause could be grounds for contract invalidation.
The Supreme People’s Court has indicated that certain clauses may invalidate a contract, especially those which appear to “monopolize” technology or impede the technological progress of the other party. Some scenarios are:
- Restricting one party from making new research and development on the basis of the contractual subject technology, or restricting this party from using the improved technology, or non-reciprocal conditions on the exchange the improved technologies between the parties;
- Restricting one party from obtaining, from other sources, a technology similar to or competitive against that of the technology provider;
- Impeding one party's sufficient exploitation of the technology covered in the contract pursuant to market demand, including unreasonably restricting the quantity, varieties, price, sales channel or export market of the technology;
- Requiring the party receiving the technology to accept conditions not necessary for exploiting the technology including purchasing unnecessary technologies, raw materials, products, equipment, services or accepting unnecessary persons, etc.;
- Unreasonably restricting the channels or origins for the party receiving the technology to purchase raw materials, parts and components, products or equipment, etc.;
- Prohibiting the party receiving the technology from making objections to the effectiveness of the intellectual property of the contractual subject technology.
Courts may have considerable discretion to interpret contract provisions they deem abusive or unfair.
Responsibilities in case of infringing of third-party IP
If not otherwise stipulated in the agreement, the transferor or the licensor is liable.
It is essential to protect trade secrets with a contractual agreement, since reverse engineering does not count as IP infringement.
A well-drafted agreement that clearly specifies measures to identify and protect confidential information is important to help protect IP, especially trade secrets. Choose a jurisdiction where the agreement can be effectively enforced.
Exporting technology to an overseas office
According to the August 2020 revision of the Amendments to China's Export Prohibited and Restricted Technology Catalogue (2020) (in Chinese only), if a company located in China wants to transfer technology outside China, then technology export regulations and this list should apply. It is important to check the list before making decisions to develop technology in China with a view to subsequently exporting it.
In each of these areas, companies should seek professional counsel to analyze risk and protect their interests through well-drafted contracts.
- Date Modified: