On December 30, 2020, the Investment Commission, the Ministry of Economic Affairs (the “ Investment Commission” ) promulgated the amendments to Article 5 of the Regulations Governing the Approval of Investment in or Technical Collaborations in the People’ s Republic of China (PRC) (the “ Approval Rules” ) and Article 4 of the Regulations Governing the Review Criteria of Investment in or Technical Collaborations in the PRC (the “ Review Criteria” ) to further prevent any direct or indirect transfer or license of Taiwanese proprietary technologies or intellectual property rights to individuals and/or corporations of the PRC without approval. The key points of the amendments are as follows:

Under the pre-amendment Approval Rules, “ technical collaborations in the PRC” refers to the “ license” of Taiwanese proprietary technologies or intellectual property rights to the PRC entities by Taiwanese nationals in exchange for compensation other than equities, while the “ transfer” of such technologies and intellectual property rights to the PRC entities, and the transfer or license of such technologies and intellectual property rights “ indirectly through a third-area company” were not covered under the Approval Rules. Nevertheless, under the newly amended Approval Rules, all the above-referenced scenarios of transfer and license are subject to regulatory approval, i.e., all future transfer and license of Taiwanese technologies and intellectual property rights to the PRC entities either directly or indirectly through a third-area company will fall within the scope of technical collaborations that are covered by the Approval Rules and therefore subject to the prior approval of the Investment Commission.

Under the pre-amendment Review Criteria, “ investment in the PRC” and “ technical collaborations in the PRC” are subject to the same review procedure. Considering that, unlike investment in the PRC, technical collaborations in the PRC can only be implemented with prior approval and, in practice, the review procedure thereof is not divided into simplified and standard procedure based on the technical value of such collaborations, the newly amended Article 4 of the Review Criteria sets forth a separate review procedure (without the distinction between simplified or standard) specifically for the applications of technical collaborations in the PRC.  Under such review procedure, the review of such applications will take into consideration of factors such as the collaboration’ s impact on the core competitiveness of Taiwanese companies, Taiwan’ s research and development roadmaps in the relevant industries, and any potential infringement on the intellectual property rights of any entities in Taiwan. The application may also be further reviewed at the Commissioners’ Meeting held by the Investment Commission where a special circumstances necessitates a closer scrutiny.

As this round of amendments aim to strengthen the control on the technical collaborations in the PRC and to avoid unapproved transfer or license of Taiwanese technologies and intellectual property rights, corporations shall conduct careful evaluation on their PRC activities that involve Taiwanese proprietary technologies or intellectual property rights so as to prevent any inadvertent violation of the laws or unnecessary legal risks. If your company has any questions about the Approval Rules or the Review Criteria, or would like to obtain more information thereon, please feel free to contact Lee and Li’ s Corporate and Investment Practice Group.