CHINA INFORMATION TECHNOLOGY LAW NEWSLETTER
Vol. 2, No. 5 -March 19, 2001
TOPICS THIS ISSUE:
- First Private Company to Invest in Basic Telecom Business
- People's Congress Calls for Legislation on Internet Safety
- Risky Acquisition of CNC Equity Stake by News Corp and Goldman Sachs
- 3G Licenses Postponed
- Time Will Tell: Rolex Claims Domain Name Grabbing
- Virtual Reality: NorStar signs US$ 150 Distribution Deal
First Private Company to Invest in Basic Telecom Business
Harbin-based Orient Group is on the verge of concluding a landmark equity deal with Jitong Communications despite Telecom Regulations banning domestic private firms from entering into basic telecom business in China.
Zhang Hongwei, chairman of Orient Group, a non-State trading firm, was quoted as saying that his company is in close contact with Jitong, discussing the possibility of cooperation in the telecom business. If a deal is struck, Orient will be the first domestic private firm to enter the country's telecom sector.
Zhang, also a member of the Chinese People's Political Consultative Conference (CPPCC), proposed during last year's CPPCC National Committee gathering that, prior to opening up the telecom market to foreign companies, the government should allow domestic non-state firms to establish themselves in the sector.
A year later, his proposal moved one step closed to being realized when Orient Group set up a subsidiary called Orient Satellite Network Inc., which manages satellite communications and broadband Internet services. Jitong Communications is one of China's seven basic telecom operators and focuses on Internet protocol telephony and satellite communications. Jitong and Orient have already begun cooperation in the satellite business, a Jitong spokeswoman, who preferred to remain unnamed, revealed to reporters recently. According to a report from the 21st Century Economic News, Orient is also involved in serious negotiations with Jitong over a possible purchase of equity.
(Source: Xinhua Economic News Service, March 12, 2001)
People's Congress Calls for Legislation on Internet Safety
Deputies to the Ninth National People's Congress (NPC), in session since Monday 5 March, have called for urgent legislation on Internet safety. The deputies said a law on Internet safety will provide authorities with a legal means to crack down on criminal activities on the Internet for the protection of national security and the promotion of economic and social development. Such a law will provide protection over online tax collection, insurance, contract signing, electronic payment, financial management and other services, and also set standards for Internet-related coding and decoding and the protection of privacy. Internet-related crimes in China are currently dealt with in accordance with administrative regulations on computer security and information network safety, in addition to provisions in the criminal law. Deputies said the current legal framework is outdated and often non-operable, and makes it extremely difficult to bring criminals to justice.
(Source: Xinhua News Agency, March 9, 2001)
Risky Acquisition of CNC Equity Stake by News Corp and Goldman Sachs
China Netcom Corporation (CNC) confirmed the closing of a revolutionary US $325 million private equity placement deal involving News Corp, Goldman Sachs and two Chinese Banks. After closure of this deal, these four companies now hold 12 percent of CNC's equity.
This deal is the first direct private investment by international investors in China's telecommunications industry. However, it might not be entirely legal, since China's Telecommunication Law bans foreign investment in basic telecommunication business in China. According to CNC's CEO, Edward Tian, the equity placement has received strong support from industry regulators and the government. The deal might also anticipate planned changes in China telecommunications laws. Upon its WTO accession, China will be required to gradually open the telecommunication sector to foreign investors.
(Source: China Daily, February 22, 2001)
Comments: China's Telecom Regulations prohibit foreign capital to play a role in basic telecom business. However, as of 1999, foreign investors had already set up a number of joint ventures which invested into telecommunication projects. The investors argued that joint ventures were Chinese entities and as such not affected by the ban. Late 1999 the Ministry of Information Technology ordered these so-called "Chinese -Chinese-Foreign" projects to restructure by requiring the foreign investors to withdraw. The recent CNC deal is the first attempt by foreign investors to re-enter the Chinese telecommunications market after the termination of the Chinese-Chinese-Foreign projects.
3G Licenses Postponed
China's Ministry of Information Technology has postponed its plans to issue third generation protocol (3G) mobile phone licenses in the near future. Analysts speculate about the reasons. One reason given is that the technology China intends to use for the 3G protocols is not yet mature. China will not use the standards for 3G communications developed in the US and Europe. It intends to rely on its own technology, the so-called TD-SCDMA. China hopes to sell this technology to the international market, a venture that would be threatened if the technology would be put on the market prematurely. Another reason for the delay might be a pending listing of China Telecommunications Group. However, the Ministry of Telecommunication Industry denies any linkage between the delay of the issuance of the 3G license and the planned listing.
(Source: China Online February 20th, 2001 and March 6th, 2001)
Time Will Tell: Rolex Claims Cybersquatting
Rolex Watch Co. has sued the China International Network Information Co. (CINET) in Beijing Second Intermediary Court to recover the domain name www.rolex.com.cn. Rolex alleged that CINET had violated Rolex's trademark rights and caused unfair competition by registering the disputed domain name. Rolex has held a valid trademark registration for "Rolex" since 1982. CINET claims that because Rolex had not registered the Trademark as a "Well Known Trademark" it has not violated Rolex's rights. Furthermore, it did neither sell nor try to sell the domain name, and the Trademark Law does not explicitly prohibit cybersquatting.
(Source: Chinaonline, March 13th, 2001)
Comment: Comparable cases brought in by IKEA, Procter & Gamble and Dupont against domain name squatters were decided in favor of the plaintiffs. Key factors the courts looked at were the strength of the disputed marks and, at least in IKEAs case, the attempt by the registrant to sell the domain name - a classic example of bad faith. This explains CINET's defense that it did not try to sell the domain name and that Rolex was not registered as a well known trademark. Given the length of Rolex's trademark registration in China and the reputation of Rolex in China, it is doubtful that this defense will be successful.
Virtual Reality: NorStar signs US $150 Distribution Deal
NorStar Goup Inc. recently entered into an agreement with Hangzhou Foresight to distribute NorStar's major product, the "Cybervisor" in China. The "Cybervisor" is a virtual reality Interactive Personal Display system which can display virtual reality or three-dimensional products. According to NorStar's Director of Corporate Development, NorStar plans to implement web-based virtual reality single/multiple game sites and to produce realistic digital worlds where computer generated avatars become stand-ins for actual people and surround-sound audio will emulate real-life sound.
(Source: ASIA PULSE, March 9, 2001)
Lehman Lee & Xu
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