Technology Transfer Agreements With China - EU SME Guidelines

Transfer of state-of-the-art technology to China is one of the pillars of present Chinese development towards becoming an innovation-based economy. Such transfer is subject to a special regulatory framework in China that qualifies technology as prohibited, restricted or encouraged. If a technology is qualified as restricted, the technology company must first secure an import licence before the technology agreement is legally valid. Royalty fees and technical service fees cannot be remitted abroad if the technology agreements are not properly registered with the relevant Chinese government agencies.

European companies are advised to first develop a transfer strategy and protect themselves against losing control and ownership. Several transfer models are discussed in this guide. Apart from sale and transfer of technology ownership or providing a licence for technology usage, technology can also be contributed as registered capital of Chinese enterprises. If technology is contributed as registered capital, exclusive ownership is attributed, and the transferor loses ownership.

Technology transfer agreements should be in writing. Certain contract clauses are prohibited by Chinese law and render the agreements invalid. In addition, particular attention should be given to legal arrangements of ownership to any improvements made by the Chinese party to the transferred technology, as well as the rights to the transferred technology after the transfer agreement terminates.

Sino–foreign joint research and innovation agreements have increased dramatically in recent years. Ownership models, research results in commissioned development contracts and cooperative development contracts are all discussed in this guide.

Reverse engineering is allowed in China, but trade secrets are protected by law. Transferring technology that can easily be reverse-engineered and is not secured by a Chinese patent is subject to potential legal copying by Chinese competitors.

EU SME Centre has published a guideline on Technology Transfer Agreements with China, written by Buren partner Jan Holthuis and counsel Li Jiao. Find the publication here. 

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