Developments in Chinese Antitrust/Competition Law


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Starting from the year of 2013, the Chinese Anti-monopoly Law Enforcement Authority has initiated a series of anti-monopoly investigations and imposed fine in total over RMB 3.25 billion Yuan (about US$ 531 million). Although such anti-monopoly law enforcements have attracted a lot of attention, there are also some remarkable developments happened in the anti-monopoly of the intellectual property field that is worth of noticing.

Current Laws and Practice concerning the IP Anti-Monopoly in China

In accordance with Article 55 of the People’s Republic of China on Anti-Monopoly Law which is effective as of August 1, 2008, this law is not applicable to conducts by undertakings to implement their intellectual property rights in according with relevant IP laws and administrative regulations; however, this law is
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applicable to the conduct by undertakings to eliminate or restrict market competition by abusing intellectual property rights.

By far, the Article mentioned above is the only provision specifying China’s attitude toward the anti-monopoly in the field of intellectual property right, that is, it does not deny the legitimacy that the owner of the intellectual property right exercising its rights in accordance with relevant intellectual property laws, e.g. the Trademark Law, the Patent Law etc.; however, it is necessary to regulate those abuses of the intellectual property rights that might result in exclude or restrict competition. Since the said Article 55 of the Anti-Monopoly Law is merely a general principle, when it comes to a specific case involving IP anti-monopoly issues, the court will need to review the case in accordance with relevant Articles of the said law, e.g. Chapter 3 Abuse of a Dominant Market Position to decide whether the “abuse” of the intellectual property right has reached the degree to exclude or restrict competition.

Huawei v. InterDigital Group Case

On April 17, 2014, the Guangdong High People’s Court published its second instance judgment on the anti-monopoly cases between Huawei Technology Co., Ltd, and InterDigital Technology Corporation, InterDigital Communications,Inc. and InterDigital,Inc. (collectively as “the InterDigital Group”) on its official website. The published judgment disclosed the basic facts of the case and the courts’ reasoning for the first time since the day the Guangdong High Court reaffirmed the lower court’s decision on October 28, 2013:

On December 6, 2011, Huawei filed two lawsuits at the Shenzhen Intermediate People’s Court against the InterDigital Group, which complained the InterDigital Group abused the dominant market position and asked the said Shenzhen Court to determine the royalty rates in accordance with the FRAND principles. Upon hearing the case, the said Shenzhen Court supported Huawei’s claim and decided an estimate RMB 20 million Yuan damages paid to Huawei by the InterDigital Group after a detailed reasoning on four key issues of the case: 1) determination of the scope of the relevant market of the case, including a discussion of the Standard-Essence Patent (“the SEP”); 2) issue on the dominant market position of the InterDigital Group in the relevant market; 3) question of whether the InterDigital Group constitutes monopoly by abusing its dominant market position; and 4) liability of the InterDigital Group in this case. Both parties dissatisfied with the Shenzhen Court’s decision and appealed.

After hearing the case in a private session due to confidential matters involved in the case, the Guangdong High Court confirmed the lower court’s decision by emphatically analyzing issues such as the determination of the relevant market based on the basic nature, substitutable demand, and substitutable supply analysis of the SEP involved in this case etc.

Since the issuance of the decision of this historical case, it has drawn great attention from inside and outside China, it is not only the first litigation case relating to the SEP in China, but also the first case that a Chinese court determined abusing the dominant market position by a SEP owner through claiming unreasonable royalty rate. Besides, this is also the first time that a Chinese court cited the “FRAND” principle as a ground to determine the royalty rate. As we mentioned earlier above, China only has not issued any specified rules or regulations for the anti-monopoly matters in the field of intellectual property rights. Thus, the significance of the said case is that it provides us valuable guidance and reference on how to define the relevant market and determine the abuse of the dominant market place relating to the field of intellectual property right. It also fills in the blank of IP anti-monopoly rules in China to certain extent.

Latest Legal Developments in the IP Anti-Monopoly Field

Currently, there are three anti-monopoly law enforcement authorities in charge of different anti-monopoly matters, including: the State Administration for Industry and Commerce (“the SAIC”) is in charge of anti-monopoly cases relating to monopoly agreement, abuse of dominant market place, and abuse of administrative power to exclude and restrict competition (excluding the price monopoly); the National Development and Reform Commission (the NDRC) for anti-price monopoly cases, and the Ministry of Commerce (the MOC) for anti-monopoly review on concentration of undertakings. None of the said authorities have issued any specified rules or regulations for the IP anti-monopoly matters in China yet; however, things might be changed soon:

The SAIC mentioned above had actually conducted a series work to fill in this part of legal blank. For example, it has started the drafting process on the Guide on Law Enforcement of Anti-Monopoly in the Field of Intellectual Property Rights (“the fifth Guide draft”) since 2009; and it also released an draft of Regulations on Forbidding Abuse of Intellectual Property Rights from Excluding and Restricting Competition (“the Drafted Regulations”) for public opinions in June 2014.

The Fifth Guide Draft

According to the said draft, it sets up three principles for the anti-monopoly law enforcement in the field of intellectual property rights, including: 1) exercising intellectual property rights will not be exempted from the Anti-Monopoly Law due to protection of the Intellectual Property Rights Law, nor being particularly reviewed by the Anti-Monopoly Law; 2) abusing intellectual property right to exclude, restrict competition by undertakers is not the fourth monopoly act provided by the Anti-Monopoly Law; 3) the intellectual property rights will be treated the same as other property rights in the anti-monopoly law enforcement. It will not infer that an undertaker is in dominant market position in the relevant market merely based on the fact that it owns intellectual property rights. Apart from the said principles, the fifth Guide draft also established the analysis principles and framework for the anti-monopoly law enforcement in the field of intellectual property rights, as well as the anti-monopoly analysis on exercising normal (e.g. refusal of licensing IP rights, bundle sales involving IP rights etc.) and particular (e.g. patent pool etc.) types of intellectual property rights.

The Drafted Regulations

The drafting work for the said Drafted Regulations started at the end of 2012. The content of the Drafted Regulations can be summarized as followings: 1) it interprets relevant definitions, such as abuse of intellectual property rights to exclude, restrict competition, relevant market etc, and determines the factors that influencing competition when exercising intellectual property rights. 2) It prohibits undertakers from enforcing monopoly agreement during exercise of intellectual property rights and regulates relevant presumption rules and safety harbor rules. 3) It prohibits undertakers from abusing dominant market position during exercise of intellectual property rights and provides specific circumstances such as refusal to licensing IP rights, bundle sales involving IP rights etc. 4) It provides whether certain specific kinds of exercising of intellectual property rights constitute relevant monopoly acts. 5) It specifies the grounds, principles and punishments for the AIC Bureaus to investigate and punish exclusion and restriction competition by exercising the IP rights.

Conclusion

The court case and the latest legal developments in the anti-monopoly field introduced above give us a good opportunity and hint to see how Chinese authorities is and will handle anti-monopoly cases involving intellectual property rights issues. Such developments are definitely a welcomed, as is more transparent decision making by the courts and authorities.

ABOUT THE AUTHOR: Fei Dang
Fei Dang is an Associate in the MMLC Group.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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