Denial of access to AIC files will frustrate brand owners' enforcement efforts

China

Certain Administrations for Industry and Commerce (AICs) across China have reportedly started to refuse access to the files of local Chinese companies. This change in practice will have a negative impact for individuals and entities trying to ascertain the financial situation of Chinese companies; counsel and consultants will find it much harder to conduct independent investigations of Chinese companies on behalf of foreign clients.

According to various sources from the English-speaking media, this change will limit counsel's ability to examine and copy the content of a company’s AIC filings, except in cases where counsel has a proof of claim from a court (and a valid lawyer’s licence) or has the consent of the target company.

AIC records are often the first step in the due diligence process, and contain information concerning corporate, financial and performance records. However, it seems that the public will now be able to use the AICs only to find basic corporate information, such as the address, registered capital and business scope of a company.

First reported by the International Financial Law Review on June 1 2012, the new policy has allegedly been introduced by AICs in Shandong, Tianjin, parts of Shanghai and Beijing. However, so far there has been no national directive or formal announcement.

It is widely thought that the policy change is a response to repeated challenges from research firms such as Muddy Waters about allegedly fraudulent overseas-listed Chinese companies.

How will this affect the enforcement of IP rights? Brand owners have been actively using civil actions to sue counterfeiters and pirates for damages. A key step to launch the action was to conduct due diligence to discover whether the company had real assets. Therefore, AIC company files were often an important piece of information.

Consequently, the denial of access to AIC files (especially those relating to financial information) will be frustrating for brand owners, who will have to retain lawyers or hire outside investigators to spend more efforts on the initial investigations.

He Jing and Lynn Chang, ZY Partners, Beijing

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