Jurisdiction - China
Reports and Analysis
China – New Rules On Abuse Of Intellectual Property Rights.

7 May, 2015

 

 
On April 7, 2015, the State Administration for Industry and Commerce (SAIC) promulgated the Rules on Prohibition of Abuses of Intellectual Property Rights to Eliminate or Restrict Competition (Rules), which will come into effect on August 1, 2015.
 
Content
 
The main content of the Rules includes, inter alia:
 
  • The Anti-monopoly Law (AML) shares the same objectives as the protection of intellectual property rights (IPR), namely to promote competition and innovation, to enhance the efficiency of economic operations and to protect consumer welfare and the public interest;
  • SAIC has the authority to investigate into conduct alleged to have abused IPR to eliminate or restrict competition;
  • Abusing IPR to eliminate or restrict competition subject to the Rules includes conduct such as monopolistic agreements and abuse of dominant market position (price-related monopolistic conduct is excluded from the Rules); 
  • Patent pool management and the exercise of intellectual property rights through the formulation and implementation of standards may constitute a monopolistic agreement and/or abuse of a dominant market position separately or concurrently;
  • The principles, framework and approaches of analysis in enforcing AML in abuses of IPR; and ¾ Liabilities of abusing IPR.
 
Highlights
 
1. Relevant Technology Market
 
The Rules specify that, in terms of exercising IPR, the relevant product market can be the market concerning either technology or the product that contains specific intellectual property. Although neither the Rules nor the Guidelines on Definition of Relevant Markets mention the relevant innovation market, they both emphasize the important role played by intellectual property and innovation in defining relevant product markets and relevant geographic markets.
 
2. Limited Safe Harbor
 
The Rules provide in Article 5 a safe harbor for monopolistic agreements in relation to intellectual property, while the scope and thresholds of the safe harbor are quite limited.
  • The safe harbor is only applicable to “such other monopolistic agreements as identified by anti-monopoly agencies” under Articles 13(1)f and 14(3) of AML, excluding other specific types of monopolistic agreements under Articles 13 and 14.
  • The safe harbor thresholds are (i) the combined market share of competitors does not exceed 20% or there are at least four qualified technology substitutes in the relevant market; or (ii) as for vertical monopolistic agreements, market share of each undertaking does not exceed 30% or there are at least two qualified technology substitutes in the relevant market.
 
Essential Facilities Doctrine
 
The Rules retain the essential facilities doctrine, which caused most of controversy when the draft of the Rules (Draft Rules) was released for public comment last year. Compared to the Draft Rules, the final Rules provide that when applying the essential facilities doctrine, in addition to the factors originally specified in the Draft Rules, enforcement agencies must further assess the competitive purpose/effect of the conduct and whether the conduct may harm consumer welfare or the public interest.
 
Patent Pools
 
The Rules define a patent pool as a “scheme of agreement in which two or more patent holders jointly license their respective patents to third parties in forms such as setting up a special joint entity or entrusting a patent pool member or a third party with the responsibilities of management.”
 
Five types of abusive conduct by patent pool management organizations are specified in the Rules and also there is a catch-all sub-clause that empowers SAIC to identify other types of abusive conduct in patent pool management, which was added to the Draft Rules.
 
Standard-Essential Patents (SEP)
 
Provisions with respect to SEPs were among the most controversial clauses in the Draft Rules. We note that Article 13(2)(a) had been in line with comments that the disclosure obligations should only be imposed on those SEP holders who participated in formulating the standards. As for Article 13(2)(b), despite the refined language compared to the Draft Rules, the comments raised with respect to the Fair, Reasonable and Non-discriminatory (FRAND) obligations were not adopted in the Rules. The Rules impose FRAND obligations on each SEP holder regardless of whether such SEP holder was required to adhere to and/or had committed to such FRAND obligations when the standards were formulated.
 
Conclusion
 
After nearly seven years in the drafting process involving extensive discussions and revisions, the Rules were finally released. We understand that sections of the Rules reflect the experience and wisdom of IP and competition enforcement in other jurisdictions and will contribute to the efficiency, transparency and predictability of China’s AML enforcement in the area of IPR. Meanwhile, many practical issues, such as what would constitute a justification or an essential facility, need to be further clarified by SAIC in its future enforcement.
 
Jun He 4

 
For further information, please contact:
 
Yingling Wei, Partner, Jun He
weiyl@junhe.com
 
Wanli Zhou, Jun He
zhouwanli@junhe.com
 

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