Snapshot: mental property for style items in China

By Last updated Apr 2, 2021

Market spotlight

State of the market

What is the current state of the luxury fashion market in your jurisdiction?

According to ‘The State of Fashion 2019’, jointly presented by The Business of Fashion and McKinsey & Company, Greater China will for the first time overtake the United States as the world’s largest fashion market. According to McKinsey & Company’s ‘China Luxury Report 2019’, Chinese consumers at home and abroad spent 770 billion yuan on luxury items in 2018 – equivalent to a third of the global spend. China delivered more than 50 per cent of the global growth in luxury spending between 2012 to 2018 and is expected to deliver 65 per cent of the world’s additional spending heading into 2025, according to research based on UnionPay transaction data for the 2019 McKinsey China Luxury Report. Meanwhile, according to Bain & Company’s research, as the driving force for global luxury spending in 2019, China made a 26 per cent year-on-year increase in luxury spending in the domestic market, with €30 billion spent on luxury items, by 2025. Chinese consumers are expected to account for 46 per cent of the global market, and are expected to make half of those purchases at home in China. In both the McKinsey Report and Bain research, young luxury consumers are described as the key driving force to power China’s luxury market. According to the McKinsey 2019 Report, 71 per cent of total number of luxury consumers are Post-’80s (born in the 1980s) and Post-’90s (born in the 1990s), and 79 per cent of the annual luxury spending were made by Post-’80s and Post-’90s, while the Bains research found that Millennials (aged between 23 and 38) are the main luxury consumers in China.

Manufacture and distribution

Manufacture and supply chain

What legal framework governs the development, manufacture and supply chain for fashion goods? What are the usual contractual arrangements for these relationships?

There is no specialised legal framework governing the development, manufacture and supply chain for fashion goods in China. The legal framework seems not significantly different from that for other kinds of consumer products, which includes legislation, enforcement and jurisdiction applicable for the fashion industry, with a diversified combination of intellectual properties (including trademark, copyright, patent, trade secrets, etc) contracts, distribution, franchise, advertisement and marketing, labour and employment, dispute resolution, consumer protection, product liability and regulatory compliance such as labels and marks, customs, tax, etc. Being a lightly regulated industry, most business relationships in the fashion industry are created and managed through various types of contracts and agreements, such as distribution and agency in the sales field.

Distribution and agency agreements

What legal framework governs distribution and agency agreements for fashion goods?

In China, there is no specific distribution law or agency law governing the fashion industry. In general, agency and distribution business relationships are established and regulated mainly according to the contract law, with the possible involvement of characteristics of sales contracts, commission contracts, brokerage contracts, intermediate contracts or contracts for works, in the form of distribution agreements or agency agreements entered into between the parties.

What are the most commonly used distribution and agency structures for fashion goods, and what contractual terms and provisions usually apply?

For fashion brands using distribution or agency as business models, distributors or agents are developed, selected and managed mainly according to the geographic territory at provincial level or municipal level. Unlike 15 to 20 years ago, agency or distribution is no longer the most preferred business model in China for the fashion industry, instead, multi-channel retailing and omni-channel retailing have become more and more important for the industry.

In a typical distribution agreement, the following are the most important terms and provisions: definitions and interpretation, appointment of the distributor, rights and obligations of the parties (distributor and brand owner), supply of fashion goods, orders, delivery, payment, pricing and invoicing, title and transfer of the title, stock levels, intellectual property rights, advertising and promotion, confidentiality, term and termination, data privacy, claims and consumer protection, liability and liquidated damages, choice of law and dispute resolution.

Import and export

Do any special import and export rules and restrictions apply to fashion goods?

No, there are no specifically applicable import and export rules and restrictions for fashion goods. The following are the major laws and regulations applicable to general products:

Administrative Regulations of the People’s Republic of China on the Import and Export of Goods (effective from 1 January 2002);
Law of the People’s Republic of China on Imported and Exported Commodities Inspection (revised in December 2018) and the Implementing Regulations of it (revised in 2019);
Regulations of the People’s Republic of China on Import and Export Duties (revised in 2017);
Administrative Measures of the Customs of the People’s Republic of China for the Levying of Duties on Imported and Exported Goods (revised in 2018); and
Regulations of the People’s Republic of China on Origin of Imported and Exported Goods (revised in 2019).

If food, cosmetics, gold, gold products or any other regulated product is involved in fashion goods, the specific relevant legislation shall be referred to and complied with, such as:

the Administrative Measures for the Safety of Imported and Exported Food;
the Measures for the Inspection, Quarantine, Supervision and Administration of Import and Export of Cosmetics (revised in November 2018);
the Administrative Measures for the Import and Export of Gold and Gold Products (effective from 1 April 2015); and
the Regulation of the People’s Republic of China on the Administration of the Import and Export of Endangered Wild Animals and Plants (revised in November 2019).

Corporate social responsibility and sustainability

What are the requirements and disclosure obligations in relation to corporate social responsibility and sustainability for fashion and luxury brands in your jurisdiction? What due diligence in this regard is advised or required?

There is no legally obligatory requirement and disclosure obligation for fashion and luxury brands in respect of corporate social responsibility and sustainability. If a due diligence is desired on this this topic, we would suggest: (1) providing the brand with a questionnaire with questions to be addressed in as much detail as possible, with supporting documents of information; (2) interviewing key persons from the brand and its business partners such as its management team members, suppliers and distributors; and (3) carrying out independent searches with the available resources. If necessary, a third-party, independent expert report may be ordered for this purpose.

Aside from corporate social responsibility or sustainability, consumers in China are entitled by right to know the true information regarding goods purchased, or services received.

What occupational health and safety laws should fashion companies be aware of across their supply chains?

The occupational health and safety laws and regulations that fashion companies should be aware of and compliant with across their supply chains in general are no different from those applicable to most of the other industries, the legal requirements of which can be mainly found in the following laws and regulations:

the Labour Law of the People’s Republic of China (revised in 2018);
the Labor Contract Law of the People’s Republic of China (revised in 2012) and its Implementing Regulations of the Labor Contract Law of the People’s Republic of China (effective from 18 September 2008);
the Law of the People’s Republic of China on the Prevention and Control of Occupational Diseases (Revised in 2018); and
the Special Provisions on Labour Protection of Female Employees (effective from 28 April 2012) and the other ancillary legislations.

Taking into consideration the special characteristics of the fashion industry, special attention shall be paid to protection of female employees, especially those who are pregnant, have recently given birth or are nursing, as well as child labour, excessive overtime and other incompliant high risks that need to be made aware of and avoided.

Online retail

Launch

What legal framework governs the launch of an online fashion marketplace or store?

In China, the E-commerce Law of the People’s Republic of China (effective from 1 January 2019) (E-commerce Law) governs the e-commerce activities conducted within the territory of China that shall include the launch and operation of an online fashion marketplace or store. As defined by this Law, ‘e-commerce’ refers to business activities conducted on an information network such as the internet to sell goods or provide services.

Sourcing and distribution

How does e-commerce implicate retailers’ sourcing and distribution arrangements (or other contractual arrangements) in your jurisdiction?

A retailer operating through e-commerce is defined as an ‘operator on a platform’, which sells goods or offers services on e-commerce platforms. Together with the ‘e-commerce platform operators’ as defined below, the ‘operators on platforms’ are called ‘e-commerce operators’, according to the E-commerce Law of the People’s Republic of China (effective from 1 January 2019).

In order to be eligible for e-commerce, the e-commerce operator shall first of all register itself as an e-commerce market subject, unless he or she is an individual selling home-made agricultural or ancillary products, and transactions and revenues relating to those sales and services are trivial. Where the business activities conducted by an e-commerce operator are subject to the relevant administrative approval according to law, the administrative licence shall be obtained first in accordance with the law. In respect of sourcing, there is no specific legal requirement or limitation for the e-commerce retailer (ie, the operator on a platform), and for retail, there are detailed and specific legal requirements that the retailer needs to comply with, mainly pursuant to the above-mentioned E-commerce Law, such as consumer protection, data privacy, antitrust, anti-unfair competition, e-commerce contracts, online payment, delivery, e-commerce dispute resolution, import and export control regulatory compliance, etc. In addition, other applicable laws and regulations shall also be complied with, such as: (1) the General Rules of the Civil Law of the People’s Republic of China; (2) the Contract Law of the People’s Republic of China; and (3) the Law of the People’s Republic of China on Electronic Signatures and others that relate to the conclusion or performance of e-commerce contracts.

Terms and conditions

What special considerations would you take into account when drafting online terms and conditions for customers when launching an e-commerce website in your jurisdiction?

According to the E-commerce Law, ‘an e-commerce platform operator’ refers to a legal person or an unincorporated association that provides services in respect of online business sites, trading matchmaking and information release for two or more parties involved in deals to facilitate their efforts to conduct trading activities independently, which means launch and operation of the e-commerce website. Together with the ‘operators on platforms’, the ‘e-commerce platform operators’ are collectively called ‘e-commerce operators’. Therefore, the legal and compliance requirements for e-commerce operators shall be taken into consideration while online terms and conditions are being drafted for the e-commerce platform operator client, especially such as consumer protection, data privacy, antitrust, anti-unfair competition, e-commerce contracts, online payment, delivery, e-commerce dispute resolution, import and export control regulatory compliance, as well as other applicable laws and regulations like the General Rules of the Civil Law of the People’s Republic of China, the Contract Law of the People’s Republic of China, and the Law of the People’s Republic of China on Electronic Signatures. According to the E-Commerce Law, there are specific legal obligations for the operators of e-commerce platforms, such as:

conducting due diligence and managing the operators on the platforms;
drafting platform service agreement and designing e-commerce transaction rules in line with the principles of openness, fairness and justice;
specifying rights and obligations in respect of entry into and exit from the platform;
building up the operators’ files and reporting the same to the market regulatory authorities;
reporting their tax-related information to the tax authorities;
taking cyber security protection measures;
preparing emergency plans;
recording and saving information about transactions on their platforms for no less than three years;
managing products and services quality control;
protecting consumers’ rights and data privacy;
building and improving the credit rating system; and
establishing rules on protection of intellectual property rights, etc.

Tax

Are online sales taxed differently than sales in retail stores in your jurisdiction?

No, online sales are taxed at the same rate, in the same manner as sales in retail stores.

Intellectual property

Design protection

Which IP rights are applicable to fashion designs? What rules and procedures apply to obtaining protection?

In China, copyright, trademark and patent (design) are major intellectual property rights that may be applicable to fashion designs, subject to the legal requirements being satisfied. For one fashion design, it is possible to be protected with copyright, trademark and patent (design) at the same time, so long as the requested conditions are met. According to the Copyright Law of the People’s Republic of China (revised in 2010), whether published or not, works of citizens, legal entities or other organisations of the People’s Republic of China enjoy copyright protection.

Copyright enjoyed by non-Chinese nationals or stateless persons in their works pursuant to an agreement between their home country or country of habitual residence and China, or under an international treaty to which both countries are parties, is also protected. Works of non-Chinese nationals or stateless persons that were first published in the territory of China enjoy copyright protection in China too. Works of authors who are nationals of a country that has not entered into an agreement with China or is not a party to an international treaty to which China is a party, or who are stateless persons, are also protected if they were first published in a country that is a party to an international treaty to which China is a party, or simultaneously in a country which is a party to such a treaty and a country outside such a treaty.

In general, the copyright in the works shall be owned by its author – the person who created the works. For work created to the will and under the responsibility of a legal entity or other organisation, the legal entity or other organisation shall be deemed the author. The copyright in the works jointly created by two or more co-authors shall be jointly owned by the co-authors. The copyright in the works made for hire shall be owned by the employer if the works were created with resources provided by the employer, unless otherwise provided by the Copyright Law. For commissioned works, the ownership of copyright shall be subject to the agreement entered into between the commissioning party and the commissioned party. Where there is no expressive agreement on that, the copyright shall be owned by the commissioned party. In practice, it is difficult to grant copyright protection to fashion design unless it is recognised by the court as works of fine art. According to the Trademark Law of the People’s Republic of China (revised in 2019), in general only the registrants of trademarks registered in China may enjoy the exclusive right and be protected, unless the trademarks are recognised as well-known trademarks that may also enjoy protection.

To seek registered trademark protection, any sign that distinguishes the goods of a natural person, legal entity or other organisations from those of others, including any word, device, letter, number, three-dimensional sign, color combination, sound and combination thereof may be applied for registration as a trademark. Besides application by a single party, two or more natural persons, legal entities or other organisations may jointly file one application and jointly enjoy the right. According to the Patent Law of the People’s Republic of China (revised in 2008), for the design patent right, the scope of protection shall be confined to the design of the product as shown in the pictures or photographs, and the brief description may be used to explain the said design as shown in the pictures or photographs. According to the Patent Law, for the invention-creation (including design) jointly created by two or more individuals or legal entities in collaboration, the right to apply for patent shall be jointly enjoyed by such legal entities and individuals, unless there is different agreement reached among parties. When the application is approved, the legal entities or individuals that file the application are the patentees.

What difficulties arise in obtaining IP protection for fashion goods?

There are different challenges for fashion goods to gain protection under intellectual property protection. Comparatively speaking, in general it is more advisable to seek registered trademark protection if, strategically speaking, the fashion brand is planning to be developed. In addition, if designs of the fashion goods are those wishing to be protected, copyright protection is more suitable; however, the fashion designs need to be proved to be works of fine art to be protected under copyright. If patent (design) is desired, the whole patent filing procedure needs to be gone through and usually it will cost more money and take a longer time, which thus is rarely considered by the fashion industry.

Brand protection

How are luxury and fashion brands legally protected in your jurisdiction?

From a brand protection perspective, luxury and fashion brands can be protected through the following ways: (1) registered trademarks; (2) unregistered trademarks; (3) domain names; and (4) unfair competition, among which registered trademarks is more advisable, as all trademarks registered with the Trademark Office of the People’s Republic of China will be protected.

If unregistered trademarks can be recognised as well-known trademarks, they will get protection, too. However, in practice it is not easy to get recognition. While determining whether one trademark is well-known or not, the following factors will be considered by the Trademark Office: (1) the degree of popularity of the trademark in its trading areas; (2) the time period the trademark has been in use; (3) the duration, extent and geographical range of advertising and publicity of the trademark; (4) the records on the protection of the trademark as a well-known trademark; and (5) other reasons for the reputation of the trademark.

Domain name protection is also an alternative; however, it is not a very strong type of protection, and if a domain name is desired, the names both in Chinese and foreign languages shall be considered and decided. Besides intellectual property rights, anti-unfair competition has become more and more important in luxury and fashion brand protection practice, sometimes being used together with the intellectual protection measures. According to the Anti-Unfair Competition Law of the People’s Republic of China (revised in 2019), the following misleading acts are prohibited, which may confuse or mislead people into thinking that products are the products of someone else or there exists certain relationship between such products and the products of someone else:

unauthorised use of a mark that is identical or similar to the name, packaging or decoration of another business’ goods that has influence to a certain extent;
unauthorised use of another business’ corporate name (including its shortened name, trade name, etc), the name of a social group (including its shortened name, etc) or the name of an individual (including his or her pen name, stage name, translated name, etc) that has influence to a certain extent;
unauthorised use of the main domain name, website name or webpage that has influence to a certain extent; or
other misleading or confusing acts that are sufficient to lead people to think products are someone else’s products or there exists certain relations between products and someone else.

Therefore, if, with evidence, the luxury or fashion brand owner may claim against the infringing party based on the Anti-Unfair Competition Law, the punishments provided by the Law are variable depending on the seriousness of the proved misconduct, including civil liability, administrative liability – even criminal liability, and the utmost civil liability for indemnification can be as high as 5 million yuan, in addition to confiscation of the illegal gain from the misconduct.

Licensing

What rules, restrictions and best practices apply to IP licensing in the fashion industry?

There is no specific law or regulation governing IP licensing in the fashion industry. In practice, taking into consideration the industry’s characteristics and Chinese market practice, it is advisable to take the following into consideration and into action:

conducting necessary due diligence prior to licensing;
negotiating for and concluding a definitive licence agreement, with clear definitions, terms and conditions such as licensed properties, exclusivity, whether or not sub-licensing is permitted, territory, licensing fees, licensed commodities, right to audit, prior approval requirements, breach of contract, liquidated damages, governing laws, jurisdictions and dispute resolution, etc;
carrying out licensing management such as quality control, prior approval management, taking disciplinary and corrective actions, IP protection and enforcement; and
post-licensing management either upon expiry or because of earlier termination, especially management of intellectual properties protection, post-licence clearance.

In addition, regulatory compliance shall be taken into serious consideration especially that which is relevant to customs clearance, product liability and consumer protection, as well as industry-specific regulatory compliance requirements if fashion goods are relevant to cosmetics and healthcare, food and beverage, electronic and telecommunication products.

Enforcement

What options do rights holders have when enforcing their IP rights? Are there options for protecting IP rights through enforcement at the borders of your jurisdiction?

Depending on the facts and the evidences available, in general, the rights holders may consider and decide whether to take actions against infringing parties for copyright infringement, trademark infringement, patent (design) infringement, or unfair competition, and where there is a contractual relationship between the right holder and the infringing party, it is also advisable to claim for breach of contract. To enforce such intellectual property rights, the rights holders may choose to chase the infringing parties for administrative liabilities through reporting the infringement cases to the competent administrative authorities, to file lawsuits at the court to claim for civil liabilities, or to report the cases to the public security bureau to claim for criminal liabilities subject to certain conditions being met. If the infringement is found cross-border, the rights holders may apply for customs injunction. The details such as major requirements to be met and procedures to be followed can be found in article 60 and 61 of the Trademark Law of the PRC, and article 12 of the Regulations of the PRC on the Customs Protection of Intellectual Property Rights. In practice, the customs injunction is very helpful for the trademark rights holders, who may apply to the customs office for impoundment of the infringing goods if it is discovered that the suspected infringing goods are about to be exported and to leave China.

Data privacy and security

Legislation

What data privacy and security laws are most relevant to fashion and luxury companies?

There is no data privacy or security law specifically applicable for the fashion and luxury industry. The general legislation on data privacy and security as follows shall be relevant:

the Cyber Security Law of the People’s Republic of China (effective from 1 June 2017);
the E-commerce Law of the People’s Republic of China (effective from 1 January 2019);
the Guideline for Internet Personal Information Security Protection (effective from 10 April 2019);
the Provisions on Protection of Personal Information of Telecommunication and Internet Users (effective from 1 September 2013);
the Standards on Information Technology Security and Personal Information Security (GB/T35273-2017);
the Basic Requirements on Information Security Technology and Information System Security Multi-Level Protection (GB/T22239-2008, to be finalised); and
the Administrative Measures for Internet Information Services (revised in 2011).

Compliance challenges

What challenges do data privacy and security laws present to luxury and fashion companies and their business models?

Taking into consideration the significant booming growth of e-commerce in the luxury and fashion industry, the popularity of cross-border transactions as well as the fact that turnover in the industry is high, with personnel of all seniority levels frequently moved to each other, the challenges of keeping confidentiality, seeking balance between data collecting and data privacy and cyber security become more and more critical and difficult. According to the relevant laws and regulations, consumers’ privacy protection, right to know, right to delete, right to correct, right to literal consent, right to visit, right to deregister, and right to cancel shall be well protected. Failing in this regard may cause the luxury and fashion companies to be triggered for being in violation of the legal and regulatory compliance requirements.

Innovative technologies

What data privacy and security concerns must luxury and fashion retailers consider when deploying innovative technologies in association with the marketing of goods and services to consumers?

Legal and regulatory compliance requirements shall be seriously taken into consideration by luxury and fashion industry players while marketing the goods or services to consumers, especially when technology is deployed for such purpose, like facial recognition or other artificial intelligence technologies. To be compliant, the laws, regulations and standards shall be fully understood and complied with. In particular, the following points shall be borne in mind prior to handling any private data or personal information:

personal information and private data that is obligatory to be protected include but are not limited to:
- all kinds of information recorded by electronic or other means that can be used to independently identify or be combined with other information to identify a natural person’s personal information including but not limited to the person’s name, dates of birth, ID numbers, biologically identified personal information, addresses and telephone numbers, etc., as well as communication and contact means, records and content of the communications, account numbers and pin numbers, assets information, credit information, travel and visit records, residence address, health and physiological information, transaction records, etc;
collection of the personal information or private data shall be subject to prior written consent given by the individual who owns such information and data – the relevant agreement shall be signed between the collector and the owner, and the purpose, method and scope of information collection shall be made very clear in it, known and agreed by the owner prior to collection. No information or data exceeding the scope may be collected, no collection shall be conducted through the way of ‘tie-in’ sale or service, no sensitive information or data such as ethnicity, nationality, political views or religious belief shall be collected and no original biological information shall be collected. In addition, the collection process shall be ensured with security and safety;
storage of the collected personal information and private data shall be strictly in compliance with the legal requirements, with the necessary encrypted storage method, for a certain time period, with necessary copies and within the territory of China unless it is legitimately approved to be transmitted cross-border;
usage of the collected personal information and private data shall be in line with all of the legal requirements and within the scope as agreed in the agreement between the collector and the owner. The owner shall enjoy the right to control the collected information or data and the right to revise or delete the information or data collected, and appropriate access authority shall be established to protect the owner. Besides, necessary measures shall be taken to make the information or data displayed on the media not recognisable. In addition, if there is a persona created automatically, for the purpose of targeted marketing, search engines, personalised news alerts and targeted advertisements, it is permitted to not obtain the owner’s consent in advance; however, the owner shall be entitled by right to refuse or decline. If usage involves credit rankings, judicial decisions or similar, which may cause legal impact to the owner, or if the usage is cross platform, then the owner’s consent shall be obtained in advance;
sharing and transfer of the collected information or data in general is not allowed, unless certain conditions are satisfied, such as legality and necessity is assessed and supported, the consent from the owner is obtained etc;
public disclosure of the collected personal information and private data is in general not allowed, unless certain conditions are met; and
a crisis management mechanism shall be established, which shall include immediate reaction process and process of immediate reporting to the government authorities in case of any crisis, as well as responding and handling the crisis.

In addition, if operated via e-commerce, the operators are prohibited to disclose, revise or destroy the collected personal information or private data and shall take all necessary action to ensure their confidentiality and security. In case of any risk or potential risk of disclosing, destroying or losing any of the collected information or data, the operator involved shall take immediate action and keep the owner informed and keep reporting to the government authority. The owner is entitled by right to request the e-commerce operator to delete his or her personal information if collection or usage of such information or data is found in violation of the legislation or agreement reached between the collector and the owner. Last but not least, because of strong and strict protection of juveniles, it is advisable to not collect personal information or private data in respect of or arising from juveniles.

Content personalisation and targeted advertising

What legal and regulatory challenges must luxury and fashion companies address to support personalisation of online content and targeted advertising based on data-driven inferences regarding consumer behaviour?

Considering the fact that personalisation of online content and targeted advertising are mainly developed based on information and data collected from consumers as well as the analysis made and programme created thereon, which unavoidably include sensitive personal information and private data, as a result, luxury and fashion companies shall be fully compliant with all legal and compliance requirements in relation to and arising from such personal information and private data, whether or not they are directly or indirectly involved in collecting, storing, using, sharing or transferring or disclosing any of these. For advertisement compliance and consumer protection purposes, refer to the following legal and compliance requirements:

the right to privacy is explicitly defined as part of the ‘civil rights and interests’, which are legitimate rights and interests enjoyed by civil parties and protected by the Tort Law of the People’s Republic of China (effective from 1 July 2010);
no advertisement shall involve any circumstance that damages personal or property safety, or reveals personal privacy, according to the Advertising Law of the People’s Republic of China (revised in 2018); and
while collecting or using any consumer information, the business operator shall fully follow the principles of acting in a legitimate, justifiable and necessary way and shall expressly indicate the purpose, method and scope of collection or use of the information and must obtain the consent from the concerned consumer, the collecting and using rules shall be made clear to the consumer and shall fully comply with legal requirements under the laws and regulations as well as the agreement reached between the consumer and the business operator.

The collected information shall be strictly kept confidential, and shall in no case be disclosed, sold or provided to any third party. Necessary measures shall be taken as protection. If there is no consent or request from the consumer, or if expressly declined or refused by the consumer, the business operator shall not send any marketing information to the consumer, according to the Law of the People’s Republic of China on the Protection of Consumer Rights and Interests (revised in 2013).

Advertising and marketing

Law and regulation

What laws, regulations and industry codes are applicable to advertising and marketing communications by luxury and fashion companies?

The laws, regulations applicable to advertising and marketing communications by luxury and fashion companies are not different from those for other industries, which mainly include the following:

the Advertising Law of the People’s Republic of China (revised in 2018);
the Interim Measures for the Administration of Internet Advertising (effective from 1 September 2016);
the Regulations on Control of Advertisement (effective from 1 December 1987);
the Interim Measures for Promotion and Administration of Public Interest Advertising (effective from 1 March 2016);
the E-commerce Law of the People’s Republic of China (effective from 1 January 2019);
the Anti-Unfair Competition Law of the People’s Republic of China (revised in 2019); and
the Law of the People’s Republic of China on the Protection of Consumer Rights and Interests (revised in 2013).

For food, functional food, healthcare and medical, cosmetics and beauty goods and services, special examination and approval shall be obtained prior to marketing and promotion. In addition, as there are local legislations, it is also advisable to check local legal requirements and practice in advance.

Online marketing and social media

What particular rules and regulations govern online marketing activities and how are such rules enforced?

The Interim Measures for the Administration of Internet Advertising (effective from 1 September 2016) is the most relevant regulation governing online advertisement activities. Although, when certain content is triggered, other laws or regulations may also be relevant, such as the Anti-Unfair Competition Law of the People’s Republic of China (revised in 2019), which explicitly list the misleading and confusing acts that in practice are frequently used by the infringing parties to mislead or confuse consumers in China via illegally using the luxury and fashion brand owners’ marks, packaging, corporate names, domain names, websites, apps, social media accounts or such similar to the original. In practice, this measure has been strictly enforced by the State Administration for Market Regulation and the local branches of it at different levels throughout China. According to statistics from the State Administration for Market Regulation, in 2018, there were 23,102 cases being investigated and closed with administrative punishment because of violation of the aforesaid Interim Measures for the Administration of Internet Advertising. The total amount of the confiscated money was 334.51 million yuan, which represented 55.9 per cent of the total advertisement violation cases, and 44.1 per cent of the total amount of the confiscated money, the year-on-year increase of internet advertisement cases was 55 per cent and the year-on-year increase of total amount of the confiscated money was 37.4 per cent. Generally speaking, it was wildly accepted that such changes were mainly because of the booming growth of mobile terminal applications usage in addition to internet applications.

Product regulation and consumer protection

Product safety rules and standards

What product safety rules and standards apply to luxury and fashion goods?

There is no product safety law, regulation, rule or standards specifically applicable to the luxury or fashion industry in China, which means the general product safety related laws and regulations shall apply, which mainly include: (1) the Product Quality Law of the People’s Republic of China (revised in 2018); (2) the Tort Law of the People’s Republic of China (effective from 1 July 2010); (3) the Contract Law of the People’s Republic of China (effective from 1 October 1999); and (4) the Law of the People’s Republic of China on the Protection of Consumer Rights and Interests (revised in 2013). When import or export is involved, the Law of the People’s Republic of China on Imported and Exported Commodities Inspection (revised in April 2018) will become relevant. In addition, there are some goods, services or industry-specific safety legal requirements or standards, which, if triggered, shall be fully complied with by luxury and fashion industry players, such as automobiles and parts, electronic products, telecommunication products, glasses, sunglasses, healthcare and medical, cosmetics and beauty, food (including functional food) and beverages.

Product liability

What regime governs product liability for luxury and fashion goods? Has there been any notable recent product liability litigation or enforcement action in the sector?

There is no regime specifically governing product liability for luxury and fashion goods; thus, general product liability legislation shall apply. According to the Product Quality Law of the People’s Republic of China (revised in 2018), both manufacturers and sellers shall be responsible for product quality (ie, product liability in accordance with the Law), and each of them shall establish and improve their respective internal product quality management systems and have them rigorously implemented, and from a government administration perspective, the people’s governments at all levels shall ensure the implementation of the aforesaid Law and urge the manufacturers and sellers to reinforce the product quality management. The market regulation department under the State Council is responsible for nationwide product quality supervision, and the other relevant departments under the State Council are in charge of product quality supervision according to their respective responsibilities. The local market regulation departments at or above the county level are responsible for product quality supervision within their own administrative areas. In case of finding any violation of the aforesaid Law such as power abusing, negligence, malpractice for personal gain, covering-up in respect of any violation, any legal entity or individual knowing the finding is entitled to report any of such violations to the market regulation departments or other relevant departments. The market regulation departments and relevant departments shall keep confidential the whistle blower and award it, him or her for it.

In practice, the state adopts a supervision and inspection system with random inspection from time to time as a major measure to monitor product quality. More detailed information and procedures can be referred to the abovementioned Law. At the same time, the China Consumers Association and its branch offices at different local levels are frequently involved when the product liability issue is reported or claimed by a consumer. In reality, most of the product liability cases were finally closed through settlement between the luxury or fashion companies and the consumers without going through legal procedures, which was mainly because the brand owners normally tried to avoid making the cases wildly known to the public, so as to avoid reputational risk and media crisis. To the extent of the cases and actions being available for public access, no significant notable product liability litigation or enforcement was found.

M&A and competition issues

M&A and joint ventures

Are there any special considerations for M&A or joint venture transactions that companies should bear in mind when preparing, negotiating or entering into a deal in the luxury fashion industry?

There are various considerations that need to be considered when there is a M&A or joint venture deal being planned. If it is an inbound investment, first of all, accessibility for foreign investment needs to be assessed and cleared. In luxury and fashion industry, in general there is no obligatory local ownership requirement, which means in most cases the business can be wholly owned by a foreign investor, whether in the field of design, manufacture, distribution, retail or most relevant services. However, if the luxury or fashion related service or business falls into any of the following categories, foreign investment is prohibited:

internet news services;
online publishing services;
online audiovisual programme services;
internet culture operation (excluding music) and internet public-oriented information release services (excluding that as permitted under China’s World Trade Organization accession commitments);
news agencies (including but not limited to press agencies);
editing, publishing and production of books, newspapers, periodicals, audio-visual products and electronic publications;
all levels of broadcasting stations, television stations, radio and television channel and frequency, radio and television and engagement in the video on demand business of radio and TV and in the provision of services of installation of the ground receiving facilities for satellite television broadcasting;
radio and television programme production and operation (including introduction);
film production, distribution, cinema and the introduction of films services; and
selling cultural relics by auction, cultural relics stores, state-owned cultural relic museums and cultural and artistic performance groups.

Aside from those prohibited for foreign investment, certain business or services are restricted for foreign investment: such as for printing of luxury or fashion publications, the controlling interest shall be held by a Chinese party, and for an automobile manufacturer – with or without luxury or fashion related, at least 50 per cent of its shares shall be owned by Chinese parties, unless being categorised as a special vehicle or renewable-energy vehicle manufacturer. And for luxury or fashion-related market survey companies, there must be a Chinese shareholder and the cooperation shall be in the form of equity joint venture or cooperation joint venture. If broadcasting or television listening and rating surveys are involved, the controlling interest shall be held by a Chinese party, and in no case would social surveys be permitted for foreign investment.

In the education sector, higher education in luxury or fashion fields is only allowable in the form of Sino-foreign joint cooperation, which is obligatorily managed and directed by the Chinese party (ie, the highest leader or management team member shall be a Chinese national), and in the administrative council, board of directors or joint administration committee, at least 50 per cent of the members shall be Chinese nationals. In addition, if project verification and record-filing is obligatory for a foreign investment project or if a special licence is obligatory, the foreign investor shall accomplish and complete accordingly. Furthermore, it is advisable to understand and assess the key legal and compliance requirements in the project planning process, especially employment and labour, environment, health and safety, tax and customs duty, foreign exchange, and import and export, on the basis of business planning such as business module and operation planning. If it is an outbound investment, firstly, the project needs to be assessed, so as to decide whether it will be triggered as a ‘sensitive project’, which then will be subject to National Development and Reform Commission (NDRC) examination and approval, although by nature luxury or fashion is not defined as ‘sensitive’. However, if it is luxury or fashion-related news media, real estate, hospitality, cinemas or sports clubs, or if it is relating to equity investment funds or investment platforms that established overseas without specific industrial projects, it is sensitive and restricted and shall be subject to strict review and approval, and if the project investment by the Chinese investor exceeds US$0.3 billion, or if investment is made to country or region in the sensitive area, or if the investment is made into a business that is encountering a huge loss, then the project may be much more strictly reviewed and decided. If it succeeds with the NDRC procedures, the outbound investment will need to go through procedures with the Ministry of Commerce, the foreign exchange regulatory agency and the relevant bank or their respective competent local branch offices. Although, no matter whether it is inbound or outbound investment, so long as it is a cross-border transaction, the following shall be taken into consideration and be prepared for: (1) merger control review; (2) national security review; (3) foreign exchange control; and (4) government commitment or contract, etc, which cannot be explained in detail here because of the complexity and length of the context.

Taking into consideration the characteristics of the luxury and fashion industry, the following are strongly suggested to be taken into consideration for an M&A or joint venture deal:

identifying the scope, types and evaluation of the assets (including intellectual property rights and other intangible value of the business) involved in the deal with details, which are desired by the investor or offered by the investee;
identifying the personnel who are critical for the business and operation involved in the deal and checking their shareholder and employee relationship with the parties involved in the deal;
understanding the key factors of business and operation, such as sourcing, sales (distribution, retail, franchise if any), making SWOT analysis on competition, strength, weakness, etc;
structuring the deal based on due diligence results, especially with content relating to (1) to (3), to decide whether to do an equity deal or asset deal, an equity joint venture or cooperation joint venture, which is directly relevant to whether or not the assets or intellectual properties relating to the luxury or fashion business and operation shall be transferred or not, and how much shall they be evaluated so as to decide the M&A deal value or the sharing structure of the joint venture.

As to the personnel, it is critical to decide who shall be retained for continuity and value of the deal and how to make sure such personnel will be retained, either through shareholders’ arrangement, senior management team stock option plan arrangement, plus necessary business protection measures such as confidentiality agreement, intellectual property rights ownership agreement and non-compete protection. Regarding the sourcing and sales relationship, if it were an asset deal or a new joint venture project, it is critical to get necessary representations, warranties and other commitments from the relevant parties to ensure continuity and consistency of the business and operation. If the luxury or fashion business to be acquired or invested has been operated under the name of the designer as an individual, for the M&A or joint venture deal as desired, it is important to have that ‘name’ or ‘brand’ transferred to the acquiring party or the joint venture, and at the same time, make sure the non-compete agreement, intellectual property rights ownership agreement and other necessary arrangements are accomplished and guaranteed.

Competition

What competition law provisions are particularly relevant for the luxury and fashion industry?

Similarly, there is no specific competition law particularly applicable to the luxury and fashion industry, it is the general laws and regulations in antitrust, anti-monopoly, competition, pricing and other relevant fields that shall apply, mainly focusing on legal and compliance requirements on pricing control, distribution compliance and online sales, governed by the following laws and regulations:

the Anti-Monopoly Law of the People’s Republic of China (effective from 1 August 2008);
the Interim Provisions on the Prohibition of Monopoly Agreements (effective from 1 September 2019);
the Pricing Law of the People’s Republic of China (effective from 1 May 1998);
the Guide for the Anti-monopoly Declaration for the Merger or Acquisition of A Domestic Enterprise by A Foreign Investor (effective from 8 March 2007);
the Guidelines of the Anti-monopoly Commission Under the State Council Concerning the Definition of Relevant Markets (24 May 2009); and
the Anti-Unfair Competition Law of the People’s Republic of China (revised in 2019).

For luxury and fashion brand owners, there are several key antitrust compliance challenges that need to be taken into serious consideration. First, price-fixing shall be avoided, although it is not a typical nor traditional risk for the luxury and fashion industry, but for almost all industries of goods or services. In summary, vertically, it is prohibited for the brand owners to reach vertical monopoly agreement with the distributors or dealers to fix the resale price or to limit the minimum resale price when goods are sold to third parties, or to fix the price level, range of price changes, profit level, discounts, handling fees and other expenses when goods are resold, or to limit the minimum resale price or doing so by limiting the range of price changes, profit level, discounts, handling fees and other expenses when goods are resold, or to fix the resale price or limit the minimum resale price through other means. Horizontally, it is prohibited for the brand owners who are competitors to reach a horizontal monopoly agreement to fix or change the goods or services’ price level, range of price changes, profit level, discounts, handling fees or other expenses, or to agree to adopt a standard formula to calculate prices, or to limit the operators’ independent power regarding pricing, or to fix or change the prices by other means. In addition, according to the Pricing Law of the People’s Republic of China (effective from 1 May 1998), it is prohibited for the business operators such as the brand owners to collude with others to manipulate the market price, and it also stipulates that goods shall be sold at the prices expressly marked and no additional price shall be charged in addition to such are expressly marked on the goods.

Second, the luxury and fashion brand companies shall avoid abusing their dominant market position, which eliminates or restricts competition. As defined by the law, ‘dominant market position’ refers to a market position where an operator (brand owner) can control the prices or volume of goods or other trades in a relevant market, or can obstruct or affect other operators’ capability to enter into a relevant market. According to the relevant laws and regulations, the following acts are deemed abuse of dominant market position, thus prohibited:

selling products at unfairly high prices or buying goods at unfairly low prices;
selling goods at a price lower than cost without justified reasons;
refusing to trade with relevant trading counterparts without justified reasons;
restricting trading counterparts to the trading only with the said operator or its designated party without justified reasons;
conducing tie-in sales without justified reasons; or
adding other unreasonable conditions to the trading, discriminating against trading counterparts of the same qualifications with regard to transaction price, etc, without justified reasons, and other practices determined by the anti-monopoly law enforcement authorities as abuse of dominant market position.

Third, the following monopoly agreements shall be avoided, which are prohibited by the laws and regulations: agreements between competitors that:

limit the production volume or sales volume of goods;
divide the sales market or the raw material procurement market;
limit the purchase of new technologies and new equipment or limiting the development of new technologies and products; or
conduct boycott of trading, which jointly refuses to supply or sell goods to specific operators, jointly refuses to purchase or sell goods of specific operators; jointly restricts specific operators from trading with operators which are in competition with them; and jointly boycotts trading by other means. In practice, luxury or fashion group with multiple brands shall pay special attention to this compliance requirement, as they need to avoid violation of any of such while negotiating or signing agreements with landlords, suppliers, services providers or their distributors, dealers or retailers.

Fourth, during promotion and advertising of luxury or fashion goods or services, advertisement is prohibited to contain any information that belittles the other luxury or fashion products or services, nor to denounce the reputation or good name of the competitors.

Fifth, when there is a luxury or fashion-related M&A deal or joint venture project, merger control review is an important compliance requirement to meet with. According to the Anti-Monopoly Law of the People’s Republic of China (effective from 1 August 2008) and the Guide for the Anti-monopoly Declaration for the Merger or Acquisition of A Domestic Enterprise by A Foreign Investor (effective from 8 March 2007), when concentration of undertakings as a result of a deal may cause certain standards obligatory for reporting to be reached, the parties involved shall report to the State Council anti-monopoly law enforcement authority in advance. In principle, the acquiring or merging party shall report; however, the acquired or merged party may also report. If multiple parties meet the requirements to report, they may report jointly or separately, by themselves, or by their lawyers on their behalf.

Sixth, luxury and fashion brand owners shall be aware that industry associations shall not make arrangements for industry players to engage in the monopolistic practices, otherwise it will also be triggered as violation of the anti-monopoly laws and regulations.

Last but not least, all of the above-mentioned antitrust compliance challenges exist not only in offline operation of luxury and fashion business, no matter it is design, manufacture, distribution, retail, promotion, marketing or related sales, but also for online business.

Employment and labour

Managing employment relationships

What employment law provisions should fashion companies be particularly aware of when managing relationships with employees? What are the usual contractual arrangements for these relationships?

In China, the employer and employees’ relationship is mainly governed by following laws and regulations:

the Labour Law of the People’s Republic of China (revised in 2009);
the Labour Contract Law of the People’s Republic of China (revised in 2012);
the Implementing Regulations of the Labour Contract Law of the People’s Republic of China (effective from 18 September 2008);
the several Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases;
the Circular of the Ministry of Human Resources and Social Security on Implementing the Newly Revised Labor Contract Law to Strictly Regulate Labor Dispatch (effective from 13 January 2013);
the Circular of the Ministry of Labor on Issuing and Distributing the Opinions on Several Issues concerning the Implementation of the Labor Law of the Peoples Republic of China (effective from 4 August 1995);
the Social Insurance Law of the People’s Republic of China (revised in 2018); and
various other local and departmental regulations, measures in respect of employment and labour-related matters.

Considering the luxury and fashion business and operation practice in China, as well as the employment and labour legal and compliance requirements, it seems that the legal relationship most popularly and widely existing between the individuals and companies in the industry are employment relationships (ie, labour contract relationships as defined by the Labor Contract Law). In addition to that, there are various contractual relationships involved like contracts for works, service-based agreements between various freelancers and companies, such as designing service provided by independent designers, hand-craftmanship services provided by craftsmen, celebrity endorsement services provided by celebrities and models, marketing or promotion services by marketing freelancers, journalists, writers or key opinion leaders. According to Chinese laws and regulations, interns are students, thus cannot be employed as employees.

As an employer, a luxury and fashion company shall be particularly aware of the following legal and compliance requirements.

First, the establishment, conclusion, performance, amendment, cancellation or termination of a labour contract relationship between an employee and an employer shall be strictly subject to the Labour Contract Law of the People’s Republic of China. Labour contracts shall be concluded in writing and in a Chinese version, at the same time that a labour relationship is established or within a limited time period soon after that, failing which legal liability may be caused to the employer. As a foreign brand, the employer may decide whether to sign a foreign language contract in addition to the Chinese version; however, it is subject to the employee whether to agree to sign the foreign language version.

Second, a labour contract shall be either with a fixed-term, an open-ended term or a contract terminates upon completion of a specific task. It is advisable to be careful about an open-ended term, as it imposes more legal liabilities on the employer. According to law, an open-ended contract is concluded as agreed between the employer and employee; however, if an employee eligible for an open-ended contract proposes or agrees to renew and conclude a labour contract in certain circumstances, an open-ended contract shall be obligatory, unless the employee requests a fixed-term contract.

Third, all employer labour rules and regulations shall be formulated according to the law, while rules on labour compensation, working hours, leave and rest, occupational safety and hygiene, insurance and welfare, training, work discipline or work quota management matters that may have a direct impact on the employees’ immediate rights and interests are being formulated, amended or decided, the employer shall immediately make such rules presented to the employees representative congress or to all employees for discussion, and decide based on fair discussion or negotiation with them. In the process of decision and implementation of such company rules and the important matters, if deemed inappropriate by the trade union or employees, they are entitled to bring such comments to the employer and have them improved through discussion and negotiation with the employer. The employer shall publicise all company rules, policies, processes as well as important matters that may directly impact the employees’ benefits or interests, or to inform the employees of the same.

Fourth, it is important to include confidentiality provisions and non-competition provisions in the labour contract or in a separate agreement entered between the employee and the employer to protect the employer’s trade secrets, other confidentiality as well as the intellectual properties.

Fifth, all of the other legal requirements in respect of working hours, rest and vacations and special protection for female staff and workers and juvenile workers, personal information and private data shall also be strictly complied with.

Sixth, as termination of employment based on employee misconduct is very difficult in practice, it is always advisable to make disciplinary actions as detailed as possible and have such rules, policies, processes approved by the employees’ representative congress or all employees signed off by each of the employees in writing as a personal written commitment. Last but not least, as labour dispatch is a frequently used practice in luxury and fashion industries especially in manufacture, marketing or retail, it is extremely important for the companies to understand and fully comply with the dispatch related regulations, more specifically, the Circular of the Ministry of Human Resources and Social Security on Implementing the Newly Revised Labour Contract Law to Strictly Regulate Labour Dispatch.

Trade unions

Are there any special legal or regulatory considerations for fashion companies when dealing with trade unions or works councils?

There is no specific legal or regulatory requirement for trade unions for the luxury or fashion industry in China; therefore, the general laws and regulations shall apply, which mainly include the Labour Union Law of the People’s Republic of China (revised in 2009) and the various local implementing measures promulgated by different provinces, municipalities, etc for implementation of this law, as well as other relevant labour and employment-related laws and regulations. According to the Labour Union Law of the People’s Republic of China, all workers in the enterprises, public institutions and administrative authorities in China shall enjoy the right to participate in and form labour unions according to the laws and regulations, regardless of their ethnicity, race, sex, occupation, religious belief or education background, and such right shall not be obstructed or restricted by any organisation or individual. It is explicitly stipulated that the basic duty of a labour union is to protect the legitimate rights and interests of employees. The labour unions shall organise employees through an employees’ representative congresses or other means to participate in the democratic decision-making, democratic management and democratic supervisory processes of their working unit.

According to the relevant laws and regulations, the labour union shall intervene when:

any of the employees’ rights or interests is infringed because of their employer’s violation of the labour-related laws and regulations, such as: when any employee’s wage is withheld or reduced by his or her employer, when the employer fails to provide a safe and hygienic working environment, when the employer extends the working hours arbitrarily, when the employer infringes the special rights and interests of female employees or juvenile employees, when the employer commits any other serious infringement of the labour rights and interests of any of the employees;
the working conditions, the safety and health facilities designed, constructed and put into use simultaneously together with the major construction project in respect of a newly constructed, expanded or technologically renovated project need to be supervised and monitored, and the comments made by the labour union shall be carefully handled by the enterprise or administrative authority, which shall provide the labour union with handling result in writing thereafter;
workers are found to be ordered or forced to work in danger; or when a hidden huge accident risk or occupational hazard is discovered during the production process, the labour union is entitled to suggest with solutions, which shall be seriously considered and researched by the enterprises concerned, and feedback shall be immediately provided. When there is a finding about an emergency that endangers the employees’ lives or safety, the labour union shall have the right to suggest organising to evacuate the employees as soon as possible, and the enterprise in concern must immediately react to take actions;
there is investigation into infringement cases in which any legitimate right or interest of employees is infringed by any enterprise or public institution;
there is investigation into cases in which any employee died or was injured because of any accident or any other reasons that seriously harm employees’ health – the labour union shall provide suggestions and shall have the right to claim against the party that shall be legally liable;
there is a strike or work-to-rule – the labour union shall negotiate with the enterprise, public institution or relevant party on behalf of the employees, to express the employees’ point of view, requests and proposals. The enterprise or public institution shall handle it so long as the employees’ requests are reasonable. The labour union shall assist them to handle it; or
there is any labour dispute – the labour union shall participate in the mediation.

In addition, the labour union above the county level may provide legal services to the subordinate labour unions and employees, it shall also assist to implement the collective welfare projects and provide necessary assistance in handling the wages, health, safety and social security matters for the employees. In addition, the labour union shall be involved when important issues regarding enterprise operation, management and development are being studied, or meetings concerning wages, welfare benefits, health and safety, social security and other matters relating to the immediate interests of the employees are being held, and on the board of directors or board of supervisors shall be employees representatives, who shall be elected in accordance with the Company Law.

According to the laws and regulations, the labour union operating funds shall come from the following sources: membership dues levied on the union members, monthly allocation equivalent to 2 per cent of the total wages of the employees, income paid by the enterprises and public institutions that subordinated to the labour union, the subsidies from the government, and other income. In addition, the facilities, premises and other material requirements necessary for labour unions shall be provided by the enterprise.

In operation, the luxury and fashion companies shall make sure to involve the labour union when they are formulating, amending, deciding the company rules, policies and processes that need to be binding on the employees.

In addition, the labour union must be brought in when:

working hours need to be extended because of necessity of production and operation, the employer shall negotiate with the labour union and the employees, and it may decide to extend the working hours within the limit as allowed by the Labour Law after the negotiation;
collective contract is involved, the draft shall be presented to the employee representative congress or all of the employees for discussion and approval, and be concluded by the labour union with the employer, on behalf of the employees, and if the employer is found violation of the collective contract which harms the employees’ rights and interests, the labour union may request the employer to be liable for it, and it may claim against the employer on behalf of the employees through labour arbitration or lawsuit if a settlement agreement is not reached through negotiation;
layoffs are planned, the employer shall explain to the labour union or all of the employees in details 30 days in advance, and report the layoff plan to the government labour administrative authority with comments from the labour union or all of the employees;
unilateral earlier termination of a labour contract with an employee is planned by the employer, it shall inform the labour union with excuses for earlier termination. If the employer is found violation of law, administrative regulation or labour contract, the labour union is entitled to request the employer to correct, and the latter shall carry out research on the suggestions from the labour union and shall provide the labour union with its written feedback; or
there is violation of the labour or employment laws, regulations, labour contracts or collective contracts, the labour union is entitled to make suggestions and to request the employer to correct such violations.

If the employee decides to take legal action such as arbitration or litigation, the labour union shall provide support and assistance in accordance with the laws and regulations. Last but not least, the labour union has the responsibility to supervise the occupational disease prevention and control as well as to safeguard workers’ legitimate rights and interests. Therefore, the employer shall seek and listen to opinions from the labour union while developing rules and regulations on occupational disease prevention and control. Besides, if any employer conceals to report or omits to report in respect of occupational diseases, the labour union and employees may report the facts to the labour administrative departments directly.

Immigration

Are there any special immigration law considerations for fashion companies seeking to move staff across borders or hire and retain talent?

There is no special immigration law or regulation for the luxury or fashion industry. If a Chinese luxury or fashion company plans to hire a foreigner to work in China, it is defined as ‘foreign employee working in China’, and the foreigner shall not be of Chinese nationality as stipulated in the Nationality Law of the People’s Republic of China. For such a foreigner to be legitimately employed in China, the following laws and regulations shall be complied with: (1) the Circular on the Issuance of the Regulations on the Management of the Employment of Foreigners in China (revised in 2017); and (2) the Administrative Regulations of the People’s Republic of China on Entry and Exit of Aliens (effective from 1 September 2013).

First of all, the Chinese employer shall apply for employment permission for foreigners and may employ foreigners only after obtaining the certificates of the People’s Republic of China permitting the employment of foreigners. To obtain the certificates, the employer shall submit all requested documents and materials to the authority including most of which are relevant to the desired foreign employee, the employer shall explicitly explain and prove to the government authority that employment of the foreigner is necessary and a replacement is not available in China. The foreigner to be employed shall meet various conditions as requested. Most importantly, the foreigner shall be healthy, be free from criminal records and possess the professional skills needed by the employer; in practice, the education records of the foreigner shall be legally verified and acceptable by the authority. If the employer is a foreign-invested entity, no supervisory authority’s approval is requested, and the procedures can be a little bit simplified. The foreigner shall apply for an occupational visa (Z Visa) from the competent Chinese embassy or consulate in his or her country or region. As soon as the foreign employee crosses the Chinese border, the employer shall apply for the work permit for him or her within 15 days’ time. If the foreigner is employed as a representative or chief representative for representative office of a foreign enterprise, or if employed to work for a government-related institution or organisation, he or she might be exempted from certificates of permission and work permits. Upon obtaining the work permit, the foreign employee shall go to the social security department to apply for a residence permit for work.

To be compliant, it is extremely important to maintain consistency among facts and the certificates, information, materials and documents submitted, more specifically, the actual employer, profession, title, employment region and other employment-related information shall be exactly the same as those that were prescribed by the authority on the certificates, work permit and other records as filed with the authorities. In case of any change, the employer is obligated to update the filing with the government authority within a certain time period, failing which may cause cancellation or invalidity of the original certificates or work permit, and be triggered with relevant legal liabilities at the same time. The work permit is subject to annual inspection; therefore, the employer must complete the inspection within 30 days prior to the expiry date of every year. The term of the labour contract entered into between the employer and the foreign employee shall not be longer than five years, which, however, shall be able to be renewed upon approval. If approved, the work permit can be applied to be renewed. Last but not least, dispatch and services outsourcing is not allowed for foreigners from an employment point of view. In addition, residents of China Taiwan, Hong Kong SAR and Macao SAR working in mainland China shall separately follow the Provisions of the Administration of the Employment of Taiwan, Hong Kong, and Macao Residents in the Mainland and not the laws and regulations as mentioned, therefore employment of foreigners in China’s Taiwan, Hong Kong SAR and Macao shall also be otherwise discussed.

Update and trends

Trends and developments

What are the current trends and future prospects for the luxury fashion industry in your jurisdiction? Have there been any notable recent market, legal or regulatory developments in the sector? What changes in law, regulation, or enforcement should luxury and fashion companies be preparing for?

In the luxury and fashion industry, licensing is a field worth being noticed and explored, especially from a new business development point of view. Success stories for sharing include the continuous success of Coty’s perfume licensing collaboration with a couple of world-leading luxury and fashion brands, and Uniqlo’s apparels and accessories licensing collaboration with famous artists and cartoons.

In 2018, the global retail sales of licensed merchandise was US$280.3 billion; fashion was the third-largest licensed property type with an 11.5 per cent share. In China (including Hong Kong SAR), the total retail sales of fashion-licensed merchandise was US$1.8 billion, representing 19.23 per cent of the total regional retail sales of all licensed merchandise, which was the second-largest licensed property type. Globally, the United States ranked number one for years. In China, crossover and brands collaboration are very welcome by consumers, either when there are continuous new products in the fast fashion brands or when the traditional Chinese brands collaborate with new or innovative brands and artists, both in the luxury and fashion fields.

From an intellectual property perspective, China has been working extremely hard on legislation and enforcement, not only to protect intellectual properties, but also to respect innovation, creativity and to promote utilisation and commercialisation of intellectual property rights. One example of legislation best practice sharing is that in 2019, China revised the Trademark Law of the People’s Republic of China, to enhance stronger registered trademark protection and to effectively crack down on malicious trademark registration. One significant change is that monetary compensation for infringement is significantly increased, from ‘one to three times’ to ‘one to five times’ of the relevant calculated amount, and the verdict of the amount is increased from ‘up to 3 million yuan’ to ‘up to 5 million yuan’. In enforcement, customs offices have been continuously taking action to fight against intellectual property infringement. In 2019 campaigns, the General Customs Office and its local branches made more focus and put more resources into fighting against infringement through all transportation channels, including transportation by sea, by air, by land, by rail, by courier and by mail. They monitored different types of trading with special attention to online trading, which became more and more popular, and which also made anti-infringement more difficult. Another focus in 2019 was to enhance more protection of multinational companies’ trademarks.

Coronavirus

Coronavirus

What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

Answer in progress.

Law stated date

Correct on

Give the date on which the information above is accurate.

31 March 2021.