New Era of IPR Anti-Trust Legislation in China

The anti-trust investigations on high-tech companies in the past year shed attention on monopolistic activities in the IPR area in China. There is a call for regulations specifically dealing with this topic, in particular with the central government’s plan of “industrial upgrading”. In response to this trend, the State Administration for Industry and Commerce (“SAIC”) promulgated the Provisions on Prohibition of Abuse of Intellectual Property Rights to Eliminate or Restrict Competition (the “Provisions”). They will become effective on 1 August 2015.

1. Safe Harbour Clause

According to Articles 13 and 14 of the PRC Anti-Monopoly Law (“AML”), the horizontal and vertical monopoly agreements include not only the kinds of agreements specifically stipulated under the AML but also the so-called “any other kinds of agreements determined by the competent anti-monopoly enforcement authorities (“AMEAs”) as monopoly agreements”. This leaves room for the AMEAs to interpret such “other kinds of monopoly agreements” at their sole discretion and raises concerns and uncertainties when companies assess the risks of their horizontal and vertical agreements.

For the first time, the Provisions now introduce a safe harbour clause to exclude uncertainties of being regarded as “other kinds of monopoly agreements” in IPR related activities. Unless otherwise proven to be the contrary, an agreement shall not be regarded as “other kinds of monopoly agreements” under any of the following circumstances:

• In case of a horizontal relationship, the market share of each business operator is below 20% in the relevant market(s) affected by its conduct, or there are at least four other independently controlled substitute technologies in the relevant market that can be obtained at reasonable cost;
• In case of a vertical relationship, the market share of each business operator is below 30% in the relevant market(s) or there are at least two other independently controlled substitute technologies in the relevant market that can be obtained at reasonable cost.

In comparison with its draft for public opinion of last June, the Provisions newly add that the substitute technologies must be under independent control. This implies that if the substitute technologies are controlled by the violating party, the safe harbour clause will not apply.

2. Essential Facility Doctrine

The Provisions introduce to the Chinese anti-trust regime the essential facility doctrine. Under Article 7 of the Provisions, a business operator having a dominant position, without reasonable cause, shall not refuse to permit other business operators to use its intellectual property rights on reasonable terms and conditions to eliminate or restrict competition, if such intellectual property rights constitute essential facilities for production and business activities. For determining whether an essential facility is constituted, the following factors shall be considered:

• Whether such intellectual property rights cannot be reasonably substituted, and are necessary for other business operators to participate in the relevant market;
• Whether the refusal will lead to adverse effect on competition or innovation in the relevant market, which harms the interests of the consumers or public interests; and
• Whether the permission of using intellectual property rights may cause unreasonable damages on the intellectual property holder.

3. Abuse of Dominant Position

The Provisions elaborate in detail about the abuse of dominant position in the IPR area. A business operator having a dominant position shall not, without reasonable cause, adopt the following behaviours:

• Exclusive dealing: restrict its counterparty to exclusively deal with itself or with its designated party;
• Tie-in sales: tie-in sales of different products irrespective of the trade practices, consumption habits or the product functions etc., which will lead to the extension of its dominant position to the market of the tied-in products and eliminate or restrict the competition in such market;
• Unreasonable conditions: impose unreasonable conditions on its counterparties, such as the exclusive granting back of the improved technology, no objection to the validity of its IPRs, restrict counterparties from using competing goods or technology after the expiration of the license agreement, etc.
• Discriminatory treatment: apply different transaction terms on counterparties which provide the same trading conditions

4. Patent Pool

The Provisions also cover monopolistic activities in a patent pool arrangement. The business operators shall not use the patent pool to eliminate or restrict the competition and the members of the patent pool shall not use this arrangement to exchange sensitive information to enter into a monopoly agreement. A patent pool management organization having a dominant position shall not impose the following restrictions:

• To restrict the members of the pool as an independent licensor from granting a license outside of the pool;
• To restrict the members of the pool or the licensee from carrying out R&D for competing technologies independently or jointly with third parties;
• To force the licensee to exclusively grant back the improved or developed technology;
• To prohibit the licensee from questioning the validity of the patent;
• To discriminate in transaction terms with the members of the pool or the licensee;
• Other activities considered as abusive by the State Administration for Industry and Commerce.

5. Formulation and Implementation of Standards

The Provisions also prohibit activities which may give rise to anti-competitive effect in the course of formulating and implementing standards. A business operator having a dominant position, without reasonable cause, shall not take the following activities:

• Formulation of standards: deliberately not disclosing the information of its rights to the standard formulation organization, or having explicitly waived its rights but asserting the patent rights to the implementers of the standard when such standard involves patent;
• Implementation of standards: refusing to grant a license, having tie-in sales of products or imposing unreasonable transaction conditions after the patent has become an essential patent for a standard.

6. Conclusion

The issuance of the Provisions signals the Chinese authorities’ determination to regulate the IPR activities from a competition law perspective. Therefore, it is important for IPR right holders to review and adapt their business policies in China under the new regime for compliance purposes.