China's SAIC Looks at Abuses of IP Rights to Eliminate or Restrict Competition

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On June 11, 2014, the State Administration of Industry and Commerce (“SAIC”) published a draft of Rules of the Administration for Industry and Commerce on Prohibition of Abusing Intellectual Property Rights to Eliminate or Restrict Competition (“the drafted Rules”) to solicit public opinions.

Necessity of the drafted Rules

Although the PRC Anti-trust Law stipulates that it shall apply to the abuse of intellectual property by business operators to eliminate or restrict competition in accordance with Article 55 thereof, it is only a general principle that expressing the basic attitude of the Chinese government toward anti-trust in the field of IP rights, that is, conducting
necessary regulation on the abuses of IP rights that results in the effect of restricting competition. For the purpose of regulating such suspected abuses, it is imperative to make more detailed rules or guides to specify the boundary between legitimate exercise of right and abuses of rights to eliminate/restrict competition. Under such circumstance, the SAIC started up the process of the drafted Rules at the end of 2012 and released the said draft after extensively soliciting views from relevant departments, specialists, enterprises as well as oversea anti-trust enforcement institutions.

Contents of the drafted Rules

The said draft contains 21 Articles and in accordance with the illustration issued by the SAIC the content thereof can be summarized as following:

1) It specified the objective and basis of the drafted Rules, that is, stipulating the said draft to protect competition and encourage innovation, to prohibit operators from abuses of IP rights to eliminate, restrict competition. Meanwhile, it also makes necessary interpretation of certain concepts, such as conducts eliminating and restricting competition by abuses of IP rights, relevant market.

2) It prohibits operators from reaching monopoly agreement during exercise of the IP rights. It is worth of mentioning that the drafted Rules also create safe harbors which are situations that may not be deemed as “monopoly agreement” forbidden by the Anti-trust Law.

3) It prohibits operators from abusing the dominant place in the market during exercise of the IP rights to eliminate, restrict competition. It also sets forth several common abusive conducts in practice, including refusal to license the IP rights, exclusive trading, bundle sales, imposing unreasonable restrictions as well as differential treatment.

4) It stipulates that whether four kinds of exercises of the IP rights would constitute relevant monopolistic conducts, such as patent pool, exercise of patent right during making and enforcing standard, collective management organization of copyright, and abusively issuance of infringement warning letter. According to the SAIC, those said conducts may, respectively or simultaneously, constitute monopoly agreement or abuse of dominant market place; however, it mainly involves the latter.

5) It provides basis, principles and punishments when the AIC departments investigating abuses of IP rights to eliminate and restrict competition by operators.

Possible effect of the drafted Rules

The opinion solicitation for the drafted Rules has been ended on July 10, 2014. Although it is not clear that when the finalized version will come out, it is suggested that the IP right owners pay close attention to the follow-up of the said Rules since it may greatly affect the current way the owners of the IP rights to exercise their rights.

For instance, in practice, it is common for the right owners to set forth provisions that prohibiting or restricting the counter party (i.e. the supplier/the licensee) from transaction with others to some extent in an agreement involving license of the IP rights in order to protect their own rights maximally. Even though such provisions may in fact result in the effect of eliminating, restricting competition, it is hard to punish the right owners under the current legal framework due to lack of operable regulation or guide in this field. However, things will be different now. After the drafted Rules becomes effective, the IP right owners need to be very careful when making the said provisions in contract, because by then such provisions may be in violation of the said Rules and result in a great amount of fine by the AIC departments once it is considered as “abuse of dominant market position” or “constitution of monopoly agreement” after duly investigation.

Therefore, for avoidance of unnecessary legal risks, it would be wise for enterprises, especially those having lots of IP rights, to make full use of the said Rules as a guide to find the balance between right protection and right abuse.

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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