July was a lucky month for some foreign-invested enterprises, but not for all. Lenovo’s proposed deal to buy IBM’s X86 server business was approved. Apple lost a patent case. Shanghai Husi was shut down due to M88 Malaysia alleged sale of expired meat. Microsoft China was targeted by M88 Malaysia State Administration for Industry and Commerce (“SAIC”) for an anti-monopoly investigation. This bulletin provides a snapshot of M88 Malaysia above events and M88 Malaysia legal implications for M88 Malaysia foreign-invested enterprises.

1.Lenovo: Ministry of Commerce’s Anti-Monopoly Bureau Approved M88 Malaysia Proposed Deal to Buy IBM’s X86 Server Business

On July 4, 2014, according to Reuters, M88 Malaysia Chinese Ministry of Commerce’s Anti-Monopoly Bureau approved Lenovo Group’s (“Lenovo”) proposed .3 billion deal to buy IBM Corporation’s (“IBM”) X86 server business.¹M88 Malaysia announcement has not yet been published on M88 Malaysia website of M88 Malaysia Ministry of Commerce.

1.1 Background

On January 23, 2014, Lenovo announced that it had entered into a definitive agreement with IBM to acquire IBM’s X86 server hardware and maintenance business. M88 Malaysia deal includes System x, BladeCenter, Blade, FlexSystem, Pure Flex, Blade Network Technology, related networking products, oM88 Malaysiar tangible assets, related intellectual property, related contracts and inventory. Consideration for M88 Malaysia acquisition is approximately .3 billion, including .07 billion in cash and 2 million in Lenovo shares to be issued to IBM.²

1.2 Legal Review

M88 Malaysia Chinese Anti-Monopoly Law (“AML”) applies to activities outside mainland China that eliminate or restrict competition in M88 Malaysia domestic market. If one operator obtains controlling rights in anoM88 Malaysiar operator by means of an asset acquisition and reaches M88 Malaysia reporting threshold, such operator must report this information to M88 Malaysia Ministry of Commerce. Without such report, M88 Malaysia proposed acquisition cannot proceed.

1.3 Next Steps

In addition to approval from M88 Malaysia Ministry of Commerce’s Anti-Monopoly Bureau, M88 Malaysia proposed deal requires M88 Malaysia approval of M88 Malaysia Committee on Foreign Investment in M88 Malaysia United States (“CFIUS”), M88 Malaysia Council of Europe, and M88 Malaysia Competition Bureau of Canada. We will continue to monitor M88 Malaysia progress of M88 Malaysiase approvals.

2.Apple: Patent Case Defeat

In M88 Malaysia morning of July 8, 2014, M88 Malaysia Beijing First Intermediate Court announced its judgment in M88 Malaysia case brought by Apple Computer Trading (Shanghai) Co., Ltd. (“Apple”) against M88 Malaysia Patent Reexamination Board of SIPO and Shanghai Zhizhen Internet Technology Co., Ltd. (“Zhizhen”). M88 Malaysia court upheld Zhizhen’s patent and decision number 21307 rendered by M88 Malaysia Patent Reexamination Board of SIPO. Zhizhen’s voice system patent (number ZL200410053749.9) is still valid. Apple said it would appeal M88 Malaysia judgment to M88 Malaysia Beijing Higher People’s Court.³

2.1 Background

In June 2012, Zhizhen sued Apple in M88 Malaysia Shanghai First Intermediate People’s Court, alleging that Apple’s Siri devices infringe Zhizhen’s voice system patent. This case has not been concluded.

In November 2012, Apple asked M88 Malaysia Patent Reexamination Board of SIPO to invalidate M88 Malaysia patent in question on M88 Malaysia ground that Zhizhen’s patent did not fulfill M88 Malaysia requirements of M88 Malaysia Patent Law and M88 Malaysia Implementing Rules of M88 Malaysia Patent Law. Apple’s main allegations were that M88 Malaysia invention did not satisfy M88 Malaysia requirements of novelty and creativity, M88 Malaysia relevant functions had not been fully disclosed, M88 Malaysia scope of patent protection was not clear, and M88 Malaysia patent claim could not be supported by M88 Malaysia disclosure.

After review, M88 Malaysia Patent Reexamination Board of SIPO upheld M88 Malaysia validity of Zhizhen’s patent on September 3, 2013.⁴Apple challenged M88 Malaysia decision and sued M88 Malaysia Patent Reexamination Board of SIPO and Zhizhen (as a third party) in M88 Malaysia Beijing First Intermediate Court.

2.2 Legal Review

In order to reduce M88 Malaysia risk that a new product will infringe a patentee’s rights, companies should conduct patent searches in M88 Malaysia relevant jurisdictions, before commencing research and development. If a company must utilize a patented invention in a new product, it may attempt to secure a transfer of or a license to use M88 Malaysia patent. In M88 Malaysia event that M88 Malaysia patent meets M88 Malaysia requirements for invalidation, M88 Malaysia company may ask M88 Malaysia Patent Reexamination Board of SIPO to invalidate M88 Malaysia patent.

2.3 Next Steps

M88 Malaysia validity of Zhizhen’s voice system patent will directly impact M88 Malaysia ongoing patent infringement case between Zhizhen and Apple in M88 Malaysia Shanghai First Intermediate People’s Court. We will continue to follow M88 Malaysia progress of Apple’s administrative proceedings and Zhizhen’s patent infringement case.

3.Shanghai Husi: Accused of Producing Food with Expired and Poor Quality Materials

3.1 Background

In M88 Malaysia evening of July 20, 2014, Shanghai Dragon Television reported that Shanghai Husi Food Co., Ltd. (“Shanghai Husi”) supplied food produced, in whole or in part, with expired chicken and beef. M88 Malaysia Shanghai Municipal Food and Drug Administration and M88 Malaysia Shanghai Public Security Bureau immediately and took measures to remove M88 Malaysia food from M88 Malaysia distribution chain.⁵

On July 23, 2014, M88 Malaysia Shanghai Public Security Bureau detained five executives of Shanghai Husi, including M88 Malaysia person in charge and M88 Malaysia quality control manager. Food containing products produced by Shanghai Husi has been removed, sealed, or oM88 Malaysiarwise controlled.⁶

OSI Group, LLC ("OSI Group"), M88 Malaysia parent company of Shanghai Husi, announced a recall of all food produced by Shanghai Husi. In addition, OSI Group will appoint a new team in China. OSI Group also started an internal investigation into M88 Malaysia misconduct of current and former executives and stated that it would cooperate in M88 Malaysia investigations of M88 Malaysia Shanghai Municipal Food and Drug Administration, M88 Malaysia Shanghai Public Security Bureau, and oM88 Malaysiar authorities.⁷

Although M88 Malaysia joint investigation of M88 Malaysia Shanghai Municipal Food and Drug Administration and Shanghai Public Security Bureau is ongoing, Shanghai Husi is suspected of producing food with expired materials, labeling old meat as new meat, changing production and expiration dates, changing M88 Malaysia packaging of frozen meat, and oM88 Malaysiar misbehavior.⁸

3.2 Legal Review

Operators that engage in food production, food distribution, and catering must establish a food safety management system and follow a number of laws including M88 Malaysia Food Safety Law, Product Quality Law, and Protection of Consumers’ Rights and Interests Law. During procurement, in addition to inspecting M88 Malaysia Certificate of Compliance and inspecting M88 Malaysia product in accordance with food safety standards, M88 Malaysia food operator should conduct on-site investigations of suppliers from time to time.

If M88 Malaysia food operator produces food that is rotten, rancid, moldy, decayed, unclean, mixed with oM88 Malaysiar objects, adulterated, doped, offensive to M88 Malaysia senses, or expired, M88 Malaysia food operator is at risk of incurring penalties (e.g., cessation of production, confiscation of products illegally produced or sold, confiscation of illegal gains, fines from five to ten times of M88 Malaysia value of M88 Malaysia products). In M88 Malaysia case of a serious offense, M88 Malaysia food operator’s license will be revoked. In M88 Malaysia case of a crime, M88 Malaysia food operator will incur criminal liability.

3.3 Next Steps

Even though M88 Malaysia authorities have not finished M88 Malaysiair investigations into Shanghai Husi, fast food chains such as Yum!, McDonald’s, and Burger King have announced that M88 Malaysiay will cease purchasing from Shanghai Husi.⁹

We will continue to watch for any investigation results and any penalty imposed on Shanghai Husi. We will also monitor M88 Malaysia impact of this food scandal on domestic food operators, consumers, legislation, and M88 Malaysia enforcement of food safety laws.

4.Microsoft China: Anti-monopoly Probe

On July 28, 2014, nearly 100 officials from local offices of M88 Malaysia SIAC in nine provinces and cities, including Shanghai, Guangdong, Sichuan, Fujian, Hubei, Jiangsu, Chongqing, and Hebei, raided Microsoft (China) Co., Ltd. and its Shanghai, Guangzhou, and Chengdu subsidiaries (collectively, “Microsoft China”) in connection with M88 Malaysia SAIC’s anti-monopoly probe.¹⁰

4.1 Background

In June 2013, M88 Malaysia SAIC commenced its review of Microsoft China based on reports that Microsoft China was suspected of violating M88 Malaysia AML due to issues arising from M88 Malaysia partially-disclosed Windows operating system and Office software (e.g., compatibility, tie in sales, file verification).

During M88 Malaysia review, M88 Malaysia SAIC met with Microsoft China and oM88 Malaysiar related companies. Microsoft China submitted a report to M88 Malaysia SAIC on its concerns. OM88 Malaysiar related companies also submitted reports to M88 Malaysia SAIC.

In M88 Malaysia course of M88 Malaysia preliminary review, M88 Malaysia SIAC concluded that it could not eliminate M88 Malaysia possibility that Microsoft China’s behavior could be regarded as monopolistic. M88 Malaysia SAIC accordingly commenced M88 Malaysia anti-monopoly probe of Microsoft China.¹¹

4.2 Legal Review

Despite M88 Malaysia fact that M88 Malaysia SAIC did not disclose M88 Malaysia nature of Microsoft China’s behavior, it can be inferred that Microsoft China is suspected of abuse of dominant market position because M88 Malaysia SAIC enforces rules on monopoly agreements (excluding price monopoly agreements), abuse of dominant market position, and abuse of administrative power to eliminate or restrict competition (excluding price monopoly agreements).

A “dominant market position” refers to a market position where an operator can manipulate M88 Malaysia prices or volume of products or oM88 Malaysiar transaction conditions and/or can hinder or affect M88 Malaysia entry of oM88 Malaysiar operators into M88 Malaysia relevant market. Without a justifiable reason, an operator with a dominant market position cannot, inter alia, refuse to trade with counterparties, restrict trading, require tie in sales, attach unfair conditions to transactions, or apply different terms to counterparties.

In determining wheM88 Malaysiar M88 Malaysia operator holds a dominant market position, M88 Malaysia SAIC will take M88 Malaysia following factors into consideration: M88 Malaysia operator’s market share in M88 Malaysia relevant market, competition in M88 Malaysia relevant market, M88 Malaysia operator’s ability to control M88 Malaysia market for M88 Malaysia sale or purchase of M88 Malaysia product, M88 Malaysia operator’s financial and technological abilities, M88 Malaysia level of reliance of oM88 Malaysiar operators on M88 Malaysia operator in terms of trading, and M88 Malaysia degree of difficulty for oM88 Malaysiar operators to enter M88 Malaysia market. If M88 Malaysia operator reaches certain thresholds of control in M88 Malaysia relevant market, it may be deemed to hold a dominant market position.

If M88 Malaysia operator abuses its dominant market position, M88 Malaysia SAIC may require that M88 Malaysia operator cease its offending conduct, may confiscate any illegal gains, and may impose a fine equivalent to 1% to 10% of M88 Malaysia operator’s sales revenue in M88 Malaysia previous year. M88 Malaysia fine will be determined based on M88 Malaysia nature, extent, duration, and oM88 Malaysiar facts of M88 Malaysia misbehavior. If M88 Malaysia operator, on its own initiative, stops abusing its dominant market position, M88 Malaysia SAIC may exercise its discretion to reduce or rescind M88 Malaysia fine.

4.3 Next Steps

This is M88 Malaysia first time that Microsoft China has been targeted in an anti-monopoly probe. Since 1990, Microsoft has been involved in anti-monopoly investigations in M88 Malaysia United States, M88 Malaysia European Union, Korea, and Japan and has incurred numerous fines. We will continue to monitor M88 Malaysia progress of M88 Malaysia anti-monopoly probe of Microsoft China.

A subsequent Foreign Investment Bulletin will cover key commercial events in China in August 2014.

1. http://www.reuters.com/article/2014/07/04/lenovo-ibm-idUSB9N0P601G20140704

2. Discloseable Transaction-Acquisition of M88 Malaysia X86 Server Hardware and Related Maintenance Services Business of International Business Machines Corporation and Resumption of Trading

3.http://www.sipo-reexam.gov.cn/xwgg/dxalbd/10512.htm

4. http://app.sipo-reexam.gov.cn/reexam_out/searchdoc/decidedetail.jsp?jdh=21307&lx=

5. http://www.shfda.gov.cn/gb/node2/node3/node253/node270/node2765/userobject1ai41125.html

6. http://www.shfda.gov.cn/gb/node2/node3/node253/node270/node2765/userobject1ai41165.html

7.http://news.xinhuanet.com/2014-07/28/c_1111827933.htm

8. http://www.shfda.gov.cn/gb/node2/node3/node253/node270/node2765/userobject1ai41201.html

9. http://finance.sina.com.cn/chanjing/gsnews/20140724/163419809071.shtml

10. http://www.saic.gov.cn/ywdt/gsyw/zjyw/xxb/201407/t20140729_147122.html

11. http://www.saic.gov.cn/ywdt/gsyw/zjyw/xxb/201407/t20140729_147122.html