Under the tide of globalization where highly customized skillful works becomes more prevalent, there are increasingly diverse applications and frequent exchanges of proprietary technologies and intellectual property rights among enterprises from different countries. Against such backdrop, in a bid to protect the fruits of Taiwanese companies' R&D efforts, on December 30, 2020, the Investment Commission ("IC") under Taiwan's Ministry of Economic Affairs promulgated the amendments to Article 5 of the Regulations Governing the Approval of Investments or Technical Collaborations in the People's Republic of China (PRC) (the "Approval Rules") and Article 4 of the Regulations Governing the Review Criteria for Investments or Technical Collaborations in the PRC (the "Review Criteria") to further prevent any direct or indirect transfer or licensing of Taiwanese proprietary technologies or intellectual property rights to individuals or corporations of the PRC without prior approval. A summary and analysis of the amendments are as follows:

一、Summary of the Amendments

(一)The types of technical collaborations in the PRC that are subject to regulatory approval now include those involving the transfer and/or licensing, either directly or indirectly through a third-area company, of Taiwanese technologies or intellectual property rights.

Before the amendment to Article 5 of the Approval Rules, "technical collaborations in the PRC" meant the licensing of proprietary technologies or intellectual property rights of and by individuals, corporations, groups or other organizations in Taiwan ("Taiwan Nationals") to individuals, corporations, groups or other organizations in the PRC ("PRC Nationals") in exchange for compensation other than equities (where equities were involved, the IC would usually consider it as an investment, instead of a technical collaboration in the PRC), while the transfer of such technologies or intellectual property rights to the PRC Nationals, and the transfer or licensing of such technologies or intellectual property rights indirectly through a third-area company were not covered or expressly regulated under the Approval Rules.

Under the newly amended Article 5 of the Approval Rules, all the events described above are defined as technical collaborations and are subject to regulatory approval, i.e., all future transfer and licensing of technologies or intellectual property rights by the Taiwan Nationals to the PRC Nationals, 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 IC's prior approval.

(二)Investments and technical collaborations in the PRC are now subject to different review procedures.

The IC's review procedures for investments and technical collaborations in the PRC by the Taiwan Nationals are set forth under the Review Criteria. Before the amendments, such investments and technical collaborations were subject to the same review procedure.

Given the fundamental differences between an investment and a technical collaboration, the amended Article 4 of the Review Criteria prescribes different review procedures for investments and technical collaborations in the PRC. That is, a Taiwan National who plans to invest in the PRC is required to either apply for prior approval or report the investment afterwards depending on the amount of investment, and such prior approval can be applied for through simplified or standard procedure. Meanwhile, a Taiwan National who plans to carry out a technical collaboration in the PRC must file for prior approval. When reviewing such applications, regardless of the value of the technologies/intellectual property rights at issue, the IC will always take into consideration factors such as the collaboration's impact on the core competitiveness of Taiwan companies, Taiwan's research and development roadmaps in the relevant industries, and any potential infringement on the intellectual property rights of any other entities in Taiwan. Such applications may also be further reviewed at the Commissioners' Meetings of the IC if special circumstances necessitate a closer scrutiny.

二、Analysis and Potential Issues

While the Approval Rules and the Review Criteria were newly amended at the end of 2020, as the technical collaborations between the Taiwan Nationals and the PRC Nationals are being implemented in various forms, even after the amendments, the Approval Rules and the Review Criteria may not necessarily capture every possible type of such technical collaborations, thus leaving much room for interpretations by the competent authorities. If the competent authorities are to adopt an overly broad interpretation on the definition of transfer or licensing, the business operations of the Taiwan Nationals (especially those with subsidiaries in the PRC) might be affected.

The IC's overall position is that the Approval Rules and the Review Criteria were amended for the purpose of preventing substantial disclosure of technologies to the PRC Nationals, without interfering with the regular operation of Taiwan enterprises or the intra-group function allocation. Therefore, regarding the cross-strait transfer/licensing of proprietary technologies or intellectual property rights between parents and subsidiaries within the same group, if there is no substantial disclosure of technologies, such transfer or licensing will not be considered as a technical collaboration under the Approval Rules. For example, where a Taiwan parent company engages its PRC subsidiary to provide R&D services, consequently licenses certain technologies to the PRC subsidiary and owns the works thus created, the Taiwan parent company would not be required to apply with the IC for prior approval for the technical collaborations in the PRC; similarly, where a Taiwan parent company engages its PRC subsidiary to provide after-sale services to customers in the PRC and consequently licenses certain technologies to the PRC subsidiary which are required for the provision of such services, the Taiwan parent company would not be required to apply for prior approval, either.

In addition, for Taiwan enterprises that have subsidiaries in the PRC, the IC has already examined the technical aspects of their PRC investments when they applied for the establishment of a subsidiary in the PRC; hence these Taiwan enterprises do not need to apply for prior approval for technical collaborations in the PRC (unless such Taiwan parent company subsequently transfers or licenses other proprietary technologies or patent rights to the PRC subsidiary, in which event prior approval for technical collaborations in the PRC from the IC would be required).

In practice, the IC will determine on a case-by-case basis whether a specific transfer or licensing constitutes a technical collaboration under the amendments. Although the IC's objective is to prevent substantial disclosure of technologies without affecting the regular business arrangements between Taiwan enterprises and its PRC presence, whether certain transfer or licensing constitutes any substantial disclosure of technologies would still be subject to the review and determination of relevant competent authorities. While there are various types of transfers and licensing of proprietary technologies and intellectual property rights, how the competent authorities will view such transfers and licensing will become clearer only after they are presented with an actual case seeking their review. Therefore, to avoid any inadvertent violation of the laws, companies that plan to participate in any cross-strait or cross-border cooperation involving proprietary technologies or intellectual property rights should conduct a thorough assessment in determining whether or not to apply for the IC's prior approval.