After years of drafting and by taking public opinions, the State Administration for Industry and Commerce (“SAIC”) promulgated the Provisions on the Prohibition of the Abuse of Intellectual Property Rights to Exclude or Restrict Competition (“Provisions”) on April 7, 2015. The SAIC is one of the competent authorities for enforcing the Anti-Monopoly Law of China (“Anti-Monopoly Law”). The Provisions guide the law enforcement activities of one of the important fields of the Anti-Monopoly Law.
Overview
The Provisions apply to those IP related protocols or behaviors (including patent pool and the formulation and implementation of the standards) and the unilateral behavior performed by the operator who holds a dominant market position. The Provisions are aimed at stopping operators from abusing intellectual property rights to exclude or restrict competition in order to protect fair market competition and to encourage innovation. The Provisions may have significant impact on the licensing of IP within the territory of China, especially for those licensing behaviors of the operators who have large sales or hold the essential patent of the standards in the relevant market.
Example provisions are as follows:
l “An operator who is of dominant market position” may not, without justification, refuse to license other operators to use its intellectual property rights on reasonable terms under the circumstance that the intellectual property rights constitute a necessary for the competition in relevant market. It is also forbidden to implement specific exclusive transaction (including requiring transaction counterparts to license back the IP exclusively), to implement tied sale, to implement differential treatment on the transaction counterparts with the same conditions and to implement other specific behaviors without justification.
l Prohibit specific behaviors implemented by the members of patent pool; and
l Regulate the IP rights holders’ behaviors during the process of formulation and implementation of the standards, requiring that when licensing the “essential patent of the standards”, the holders may not violate the fair, reasonable and non-discriminatory principles (“FRAND”).
The Provisions also regulate the “Safe Harbor” principle for parts of the monopoly agreements entered into between the competitive operators and parts of the monopoly agreements concluded between the operators and the transaction counterparts. The range and conditions for applying the “Safe Harbor” principle are comparatively strict. Meanwhile, the Provisions generally illustrate the “Rule of Reason” for recognizing whether specific IP licensing act violates the regulations of the Anti-Monopoly Law or not.
Since the AIC only has the law enforcement power towards the acts apart from the pricing or the deal of merger and acquisition (pricing and M&A are respectively controlled by the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOFCOM”)), the Provisions did not incorporate matters related to “unfair high price” licensing fee which was the focus during NDRC’s investigation for Qualcomm’s case. Besides, although the Provisions are the guidance for AIC’s law enforcement towards those cases pertinent to IP and competition, neither the MOFCOM nor the NDRC is bond by the Provisions. It is not clear whether the MOFCOM or the NDRC will comply with the Provisions during their further investigations.
Detailed regulations in the Provisions
Relevant Market and “Dominant Market Position”
Article 3
For the purpose of the Provisions, “abuse of intellectual property rights to exclude or restrict competition” refers to the operators violating the
Anti-monopoly Law
when exercising the intellectual property rights, implementing monopoly agreements, abusing dominant market positions and conducting other monopolistic behaviors (except for the price monopoly).
For the purpose of the Provisions, “relevant markets”, including the relevant commodity markets and the relevant geographic markets, are defined pursuant to the
Anti-monopoly Law
and the
Guidelines of the Anti-monopoly Commission under the State Council concerning the Definition of Relevant Markets
, with the effects of intellectual property rights, innovation and other factors taken into consideration. In relation to intellectual property licensing and other anti-monopoly enforcement, the relevant commodity markets may be either technology markets or product markets containing specific intellectual property rights. Relevant technology markets refer to the markets formed through the competition between technologies involved in the exercise of intellectual property rights and alternative similar technologies.
The Provisions specified that “An operator owning the intellectual property rights may constitute one of the factors to recognize its dominant market position, but an operator shall not be directly inferred to have dominant market position in the relevant market only based on its ownership of the intellectual property rights.” However, the standard for determining the dominant market position based on the market share by the Anti-Monopoly Law is relatively low. It may be assumed that one or more operators have a dominant market position if: 1. An operator has 50% or higher market share in a relevant market; 2. Two operators have 66% or higher market share in a relevant market; or 3. Three operators have 75% or higher market share in a relevant market.
“Safe Harbor”
Article 13 and Article 14 of the Anti-Monopoly Law state many kinds of forbidden monopoly agreements. Referring to the pricing, they are beyond the range for applying the Provisions. Paragraph 6 of Article 13 and Paragraph 3 of Article 14 are save clauses for other monopoly agreements. Article 5 of the Provision regulates as follows:
Article 5 If an operator’s exercise of intellectual property rights falls under either of the following circumstances, the relevant agreement may not be regarded as a monopoly agreement prohibited in Item 6, Paragraph 1 of Article 13 and Item 3 of
Article 14
of the
Anti-monopoly Law
, except there is contrary evidence indicating that such agreement is of effects to exclude or restrict competition:
1. the competitive operators’ share in the relevant market affected by their behaviors does not exceed 20% in total, or there are at least four alternative technologies under other independent control in the relevant market which may be obtained at reasonable costs; and
2. neither of the shares of the operator and transaction counterparts in the relevant market does not exceed 30%, or there are at least two alternative technologies under other independent control in the relevant market which may be obtained at reasonable costs.
Article 15 further specified that if when the license agreement is entered into, the parties are not in a competitive relationship, and a competitive relationship arises after the agreement is entered into, such agreement shall not be regarded as a monopoly agreement between competitors.
This is the first time for law enforcement agencies to regulate such “Safe Harbor” principle, and it is very positive. However, it should be noted that the application of the aforesaid “safe harbor” principle is relatively limited, and it is not applicable for those agreements mentioned in paragraph 1 to paragraph 5 of Article 13 or paragraph 1 and 2 of Article 14, including the split sale market agreements or the fixed sale price agreements.
Refuse to license for the “necessary facility”
Article 7 An operator who is of dominant market position may not, without justification, refuse to license other operators to use its intellectual property rights on reasonable terms so as to exclude or restrict competition under the circumstance that the intellectual property rights constitute a necessary facility for the relevant production and operating activities.
Recognition of the act in the preceding paragraph needs to consider the following factors at the same time:
1. there are no other reasonable substitutes for the intellectual property rights in the relevant market and the intellectual property rights are necessary for other operators to participate in competition in the relevant market;
2. refusal to license the intellectual property rights will have adverse impact on competition or innovation in the relevant market, and harm the consumer or public interests; and
3. licensing the intellectual property rights will not cause unreasonable harm to the operator.
Prohibited behaviors implemented by the operators who hold dominant market position
Article 10 An operator who is of dominant market position may not, without justification, implement the following behaviors with unreasonable restrictive conditions so as to exclude or restrict competition in exercising intellectual property rights:
1. requiring the transaction counterparts to license back the technologies improved thereby exclusively;
2. prohibiting the transaction counterparts from questioning the validity of its intellectual property rights;
3. restraining the transaction counterparts from making use of the competitive commodities or technologies in the case of non-infringement of intellectual property rights after the expiration of the license agreement;
4. continuing to exercise the rights to the intellectual property the protection period of which has expired or which has been determined to be invalid;
5. prohibiting the transaction counterparts from trading with any third party; and
6. adding other unreasonable restrictive conditions to the transaction counterparts.
Patent Pool
Article 12 An operator may not make use of patent pool to exclude or restrain competition in exercising intellectual property rights.
Members of patent pool may not use patent pool to exchange the yield and market segmentation and other sensitive information in relation to competition, and reach any monopoly agreement prohibited in
Articles 13
and
14
of the
Anti-monopoly Law
, except the operator can demonstrate that the agreement reached complies with the provisions of
Article 15
of the
Anti-monopoly Law
.
A patent pool administration organ who is of dominant market position may not, without justification, implement the following acts of abuse of dominant market position by use of patent pool so as to exclude or restrict competition:
1. constraining the members of patent pool from licensing patents as independent licensors other than in patent pool;
2. constraining the members of patent pool or licensees to research and develop, independently or jointly with any third party, technologies competing with the parent pool;
3. forcing the licensees to license back the technologies improved or researched and developed thereby exclusively to the patent pool administration organ or the members of patent pool;
4. prohibiting the licensees from questioning the validity of patent pool;
5. treating differently the members of patent pool with the same conditions or the licensees in the same relevant market in terms of the transaction conditions; and
6. other abuse of dominant market position identified by the State Administration for Industry and Commerce.
For the purpose of the Provisions, “patent pool” refers to an agreement arrangement under which two or more patentees license the parents they own respectively to a third party in a certain manner, such as establishing a special joint venture for such purpose and entrusting a member of parent pool or an independent third party to administrate.
Essential Patent of the Standards
Article 13 An operator shall not use the formulation and implementation of the standards (including the mandatory requirements of national technical specifications, hereinafter the same) to exclude or restrict competition in exercising intellectual property rights.
An operator who is of dominant market position may not, without justification, implement the following acts of excluding or restricting competition in the course of formulation and implementation of the standards:
1. when participating in the formulation of the standards, deliberately not disclosing information on its rights to the standards developing organization, or explicitly waiving its rights, but claiming its patent rights to the implementers of a standard after the standard involves the patent.
2. after the patent has become an essential patent of the standards, in violation of the fair, reasonable and non-discriminatory principles, implementing denial of license, conducting tied sale of products, adding other unreasonable trading conditions in the transaction or implementing other acts of excluding or restricting competition.
For the purpose of the Provisions, the “essential patent of the standards” refers to the patent which is essential to the implementation of such standards.