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On March 29, 2018, the Chinese State Council released Measures for the Overseas Transfers of Intellectual Property Rights (Measures) for trial implementation. The Measures regulate overseas intellectual property (IP) transfers from the People’s Republic of China by imposing heightened scrutiny over the potential impact to national security and China’s technology innovation capabilities. Under the Measures, the Ministry of Commerce and various state departments are empowered to conduct a security assessment of certain overseas IP transfers. Although there is no indication as to how long the “trial implementation” period will last, the release of the Measures clearly represents a stepping up in China’s technology export regulations. This gear upshift may have a ripple effect on multinational businesses that are parties to IP licensing transactions or those that have research and development (R&D) activities in China.

The rationale

According to an official announcement, the new Measures purport to “improve the national security, protect public interest, and regulate overseas IP transfers.” In particular, the Measures are associated with China’s objective to transition its economy from the reliance on low-cost labor to high-tech innovation. In 2017, the royalties collected from China’s IP abroad exceeded US$4 billion, according to Zhang Zhicheng, director of the State Intellectual Property Office of China (SIPO). “If China fails to scrutinize such IP transfers, our indigenous innovation capabilities on core technologies will suffer, and we will incur huge economic losses, and impair our ability to compete internationally.”

While commentators expressed concerns about the chilling effect the Measures may have on foreign investment, Zhang clarified that “to establish and perfect the review mechanism for IP transfers overseas is not intended to upset foreign investors,” and that “the guideline has provided rather concrete measures to secure a better business environment.”