By Xun Yang

The General Office of China's State Council (the “General Office”) adopted on 18 March 2018 the Measure for Transferring Intellectual Property Rights to Foreigners (Provisional) (the “IP Transfer Measure”), which measure has been publicly released yesterday.  The IP Transfer Measure provides for a mission for relevant government agencies to administer outbound intellectual property transfers from national security and public interest aspects.

The IP Transfer Measure, together with the draft measure for security assessment on data transfer, demonstrates the government’s efforts to protect national interest in the commercial regime.  It may also be a fight-back against Trump’s launch of 301 investigations against China.

The IP Transfer Measure governs a wide range of intellectual property rights.  With respect to the content of intellectual property rights, it captures patents, software copyrights, layout designs, new plant species, and their applications.  With respect to the forms of transfer, it attempts to regulate assignments, licenses, and change of control through equity acquisitions.

The IP Transfer Measure requires that relevant government agencies examine the impact on national security and public interest when examining applications for intellectual property transfers.  In particular, the IP Transfer Measure urges that commercial department work closely with relevant intellectual property administrations (e.g., the intellectual property bureau, the copyright administration, and the agriculture and forestry administration) to administer intellectual property transfers.  On one hand, the commercial department is required to consult with the relevant intellectual property administrations in approving intellectual property transfers.  On the other, relevant intellectual property administrations are required not to register or file the intellectual property transfer pending approvals granted by the commercial department.

Note, however, the General Office is not a ministry nor is it the State Council itself.  The General Office does not have authority to issue rules binding private business operators nor has it the power to  impose addition licensing requirements.  Most likely, these security examination requirements will be embedded in existing approval or filing procedures with respect to intellectual property transfers.

These security examination requirements obviously bring uncertainty to intellectual property transfers and may delay the implementation of intellectual property transfers.  Companies which contemplate outbound intellectual property transfers are advisable to prepare good commercial reasons to justify the transfers.  They may also consider adopting alternative business models, such as R&D collaborations and offshore acquisitions.

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