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26 Fordham Intell. Prop. Media & Ent. L.J. 741
Note by Xiaoqiong Liu*
echnology transfer occurs when the owner of a technology grants access to that technology to another party.1 Today, companies consider technologies—as opposed to physical assets—the most important business assets that are directly tied to their products’ competitiveness.2 Intellectual property (“IP”) law protects those technologies.
One type of technology transfer is contract manufacturing, where foreign companies employ Chinese companies to manufacture products for the Chinese markets.3 Contract manufacturing is beneficial to foreign companies because it saves them shipping costs and time.4 To facilitate contract manufacturing in China, however, foreign companies—often the owners of the technologies—must authorize Chinese companies access to their proprietary technologies.5 Another type of technology transfer—foreign direct investment (“FDI”)—involves foreign companies setting up business entities in China, either as joint venture partners with Chinese companies or as wholly-owned subsidiaries.6 Under FDI, foreign companies maintain a lasting ownership and control over their proprietary technologies.7 For FDI to operate successfully, foreign companies must transfer their proprietary technologies to their business entities in China.8
In 2002, China implemented a provision in the People’s Republic of China (“PRC”) Regulations on Administration of Technology Import and Export (“2002 Technology Regulations”),9 mandating that licensees10 own the improvements they make to proprietary technologies to which the licensees receive authorized access11 (hereinafter referred to as the “prohibition on grant-back clauses”). Often, foreign licensors include grant-back clauses in their licensing agreements, providing that the foreign licensors own any improvements to the technology made by the Chinese licensees. Notably, however, the 2002 Technology Regulations prohibit such grant-back clauses imposed by foreign licensors.12
China’s grant-back regime is outdated and should be updated with the following proposed policy changes: China should (1) continue to prohibit grant-back clauses on severable improvements, which can be used without using the original licensed patent; (2) make grant-back clauses on non-severable improvements non-mandatory, and subject potential abuse of non-mandatory grant-back clauses to the rule of reason under antitrust law; (3) apply its grant-back rule to domestic and foreign companies equally and fairly; and (4) reform its grant-back regime now, rather than later.
Prior to reaching these solutions, this Note first discusses how China’s prohibition on grant-back clauses affects its technology transfer, with an emphasis on empirical data. Then, this Note examines China’s current grant-back regulations and compares them with China’s regulatory regimes in other related areas, as well as grant-back regimes in the United States and the European Union.
* Notes and Articles Editor, Fordham Intellectual Property, Media & Entertainment Law Journal, Volume XXVI; J.D. Candidate, Fordham University School of Law, May 2016; B.A., Chemistry, Franklin and Marshall College, 2010. I would like to thank Professor Mark Cohen for his insightful feedback in developing this Note and the IPLJ Editorial Board and Staff for their efforts throughout the editorial process. I would like to extend special thanks to my parents for their constant, unconditional love.
See Daniel C.K. Chow, A Comparison of EU and China Competition Laws That Apply to Technology Transfer Agreements, 9 I/S: J.L. & Pol’y for Info. Soc’y 497, 497 (2014).↩
See id. at 500.↩
See id. at 501.↩
See id. at 502.↩
Regulations on Administration of Import and Export of Technologies (promulgated by the St. Council, Dec. 10, 2001, effective Jan. 1, 2002), CLI.2.38107(EN) (Lawinfochina), art. 27 [hereinafter 2002 Technology Regulations].↩
A licensee is one to whom a license is granted. Licensee, Black’s Law Dictionary (10th ed. 2014). In this Note, a licensee refers to the party to which access to a technology is granted.↩
See Chow, supra note 1, at 518–19.↩
See id. at 519; 2002 Technology Regulations, supra note 9.↩