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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:

Specific actions may include:

Companies need experienced legal advice when negotiating contracts or partnership agreements in China.

Basic framework

Technology import and export

Key issues

Ownership

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.

Contract validity

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:

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. 

Reverse engineering

It is essential to protect trade secrets with a contractual agreement, since reverse engineering does not count as IP infringement.

Confidentiality

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.

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