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Competition Law and Intellectual Property in China edited by Maniatis, Spyros; Kokkoris, Ioannis; Wang, Xiaoye (31st January 2019)

9 Anti-Competitive Agreements and Intellectual Property Licensing in China

Ken Dai

From: Competition Law and Intellectual Property in China

Edited By: Spyros Maniatis, Ioannis Kokkoris, Xiaoye Wang

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved. Subscriber: null; date: 23 October 2019

Subject(s):
Monopoly — Licensing — Jurisdictions

(p. 167) Anti-Competitive Agreements and Intellectual Property Licensing in China

1.  Introduction

The Chinese competition legislation system is composed mainly of the Anti-Monopoly Law of PRC (the ‘AML’),1 the Anti-Unfair Competition Law of PRC (the ‘AUCL’)2 and relevant guidelines and circulars. Based on the principle of good faith and recognized business ethics, the AUCL protects undertakings from suffering anti-competitive conducts so as to maintain a competitive market and protect the interests of consumers. The AML focuses more on competition itself, requiring enough competitors in the market in order to provide freedom of choice for counter-parties/consumers and improve economic efficiency and social welfare of consumers.

Generally speaking, undertakings in the market enjoy the freedom to choose whom and the conditions to establish a business relationship with in, which is the essence (p. 168) of a free economy. However, what the border to rights and interests is what anti-monopoly law is to business agreements. From the AML’s perspective, undertakings are prohibited from entering into anti-competitive agreements (including agreements, decisions ,and other concerted conducts designed to eliminate or restrict competition between competing undertakings or non-competing undertakings from upstream or downstream industries). Further, the AML is also applicable to the conducts of undertakings that eliminate or restrict competition by abusing their IPRs.

Nowadays, more and more cross-border transactions have been increasingly reached between undertakings from both at home and abroad in various forms, among which intellectual property (‘IP’) licensing is a classic. Usually, licensing is achieved through relevant agreements in practice. In an IP licensing agreement, the licensor keeps the ownership of the IPRs, while the licensee is entitled to make use of the IPRs under certain conditions. Whether the relationship between the licensor and the licensee is horizontal or vertical is unclear, and may depend on particular circumstances. Mostly, it appears in a vertical form. Some undertakings like Qualcomm Incorporated (‘Qualcomm’) grab a large part of their profits from licensing IPRs, while others like Huawei Technologies Co., Ltd. (‘Huawei’) and Zhongxing Telecommunication Equipment Corporation (‘ZTE’) may act as licensees or licensors in different situations. Not one of the undertakings can obtain all the cutting-edge technologies by itself, even Qualcomm. In order to maintain continuous growth and keep up with latest developments, master the core technologies or just for economic reasons, undertakings choose to request a licence of patents from the developed ones in a particular area. Clauses concerning grant-back, joint R&D, geographic restriction etc are very common in IP licensing agreements.

Strictly speaking, from the antitrust perspective, China has not had a set of laws or regulations targeting at intersection of anti-competitive agreements and IP licensing until the promulgation of the Provisions on the Prohibition of the Abuse of Intellectual Property Rights to Eliminate or Restrict Competition on 7 April 2015.3 When it came to IP licensing agreements that would eliminate or restrict competition, the Chinese antitrust enforcement authorities could only count on Article 55 of the AML, which is quite general and vague. Of course, there are provisions in laws from other sectors dealing with IP-related agreements. However, those rules were enacted by the legislator to achieve other objectives, such as to promote import and export trade, etc. Taking the AML as a turning point, this article delves deep into the legislation and practice prior to the enactment of the AML firstly and then looks at relevant situations afterwards.

(p. 169) 2.  Legislation and Practice Prior to the AML

2.1  Legal framework

2.1.1  International treaty

The World Trade Organization (‘WTO’)’s Agreement on Trade-Related Aspects of Intellectual Property Rights (‘TRIPS’) negotiated at the end of Uruguay Round is an international agreement that establishes minimum levels of protection each government has to provide to the IPRs of fellow WTO members. TRIPS aims to narrow the gaps of various IPRs protected around the world, and bring them under common international rules.4 As for application of TRIPS, China has to first transpose it into domestic law, such as Patent Law of PRC (‘Patent Law’).

Acting as a kind of property, IPR is distinct from the others because of its intangibility and replicability, which makes it very vulnerable. Besides, IPR is an exclusive right, meaning that the proprietor enjoys exclusive right of his or her IP, even monopolistic rights under some circumstances. That’s the reason IPRs are more easily abused compared with general properties. IP law is a kind of interest-balance rule. It has to reward investors and innovators of new technologies, art, or literal works and innovative industry on the one hand, and provide access to contributions mentioned above to the public on the other hand. Conflicts and differences between developed countries with cutting-edge technologies and developing countries in the process of industrialization in respect of IPRs protection is widely recognized. TRIPS is fruitful of countless negotiations and a balance of rights and interests from all circles. It includes protection of trade-related IPRs, reflecting objects of developed countries, while controlling anti-competitive practices in contractual licences in Section 8 at the insistence of developing countries at the same time.

Generally speaking, member states agree that some licensing practices or conditions pertaining to IPRs that restrain competition may have adverse effects on trade and impede transfer and dissemination of technology.5 A member state may adopt appropriate measures to prevent or control practices that may include exclusive grant-back conditions, conditions preventing challenges to validity and coercive package licensing in light of the relevant laws and regulations of that member state. Member states are free to specify in their legislation the licensing practices or conditions that may in particular cases constitute an abuse of IPRs having an adverse (p. 170) effect on competition in the relevant market.6 From a legal perspective, Article 40 aims to preventing IPRs holders from abusing their exclusive rights. We could also find more general rules or legal bases against the abuse from Articles 7,7 8,8 30,9 and 3110 of TRIPS.

2.1.2  Chinese laws and regulations

China’s legal system consists of three levels. The first level consists of laws enacted by the National People’s Congress and Standing Committee, which overrule the other levels.11 The second level consists of administrative statutes published by the State Council.12 Courts mainly count on legislation from the first and second levels to rule on specific cases. The third level consists of regulations, circulars, rules, and orders published by departments under the State Council within the scope of respective authority from now and then.13 Courts may refer to rules from the third level when necessary, but will not rely on them. What’s worth mentioning is that interpretation of questions involving the specific application of laws and decrees in court trials shall be provided by the Supreme People’s Court (‘SPC’).14 Judicial interpretation plays a pivotal role in China. Though inferior to legislative interpretation in aspects of nature and status, judicial interpretation could affect the society directly from points of the quantity and role played in the society, which makes it more important in people’s daily life.

When it comes to the intersection of IP licensing and anti-competitive agreement, we have certain articles of the Contract Law of PRC (‘Contract Law’), the Foreign Trade Law of PRC (‘Foreign Trade Law’), and the Patent Law from the first level, the Regulations of PRC on the Administration over Technology Import and Export from (p. 171) level two and Interpretation of the Supreme People’s Court Concerning Some Issues on Application of Law for the Trial of Cases on Disputes over Technology Contracts (‘Judicial Interpretation’) before the promulgation of the AML in 2008.

2.1.2.1  Contract law

Situations of invalidity of a contract15 stipulated in General Provisions of the Contract Law could be applied to all contracts between equal parties, including technology contracts. Besides, the term ‘mandatory provisions’ mentioned in Article 52(5) of the Contract Law refers to the mandatory provisions on effectiveness16 instead of mandatory provisions on management.17 If parties of a contract violate mandatory provisions on effectiveness, then it would affect the validity of the contract.

Entering into a technology contract should reflect the basic principles, such as helping in the progress of scientific technology as well as transformation, application, and popularization of technological results. Any technology contract that illegally monopolizes technologies, impedes technological progress, or infringes upon the technological results of others is null and void,18 in theory. However, several issues are in need of special attention. Firstly, a null and void contract is void ab initio. Secondly, a party of the contract could only apply to the court or arbitration institution to declare a contract null and void instead of to the other party directly and privately. After declaration of nullity, restoration to the original status might be required. To be more specific, one party should return technological materials or samples without keeping the replication to the other party. One could require the other to bear confidential responsibility as regards technological material/intelligence within a certain period or not to put the technology into practice. Moreover, if one party causes losses for the other, the amount of compensation for the loss shall be equivalent to the loss actually caused by the breach of contract and shall include the profit obtainable after the performance of the contract, but shall not exceed the sum of the loss that might be caused by breach of the contract and has been anticipated or ought to have been anticipated by the breaching party (p. 172) in entering into the contract.19 If both parties breach the contract, then they shall bear respective liabilities accordingly.20 Last but not least, if a technology contract is declared null and void due to infringement of the others’ technological achievements, then several principles should be adhered to. If the technological contract is null and void for the reason that one infringes patent, the right to apply for a patent or right to practise patent of the other, then the contract should not be implemented if it had not been and the implementation should cease if it had been. If the one who adopts technology is fully aware of or should have known the infringement of the other, but still enters into and implements the contract, then contributory infringement should be determined and the two should bear joint and several liabilities. If the right to use and transfer of non-patent technological achievement is infringed, then the one offering technology should bear liability for tort. An adopting party with good faith could continue to apply technology but should pay reasonable royalties. For those who are fully aware of the tort but still adopt the relevant technology, they shall be deemed as contributory infringers with the aforesaid infringing party. In this case, joint and several liabilities is required, and continuous implementation is forbidden. For technological contract in breach of right of proprietary, such as right of invention, discovery, or other scientific and technological achievement, declaration of nullity of some provisions would not affect validity of the other provisions. That is to say, nullity of certain provisions would not affect the validity of the whole technology transfer contract. For those who are responsible for the tort, the court could require him or her to stop the infringement, eliminate the obstruction, and compensate for the damages.21 It is noteworthy that the above mentioned technology contract under the Contract Law refers to a contract involving technology development, transfer, consulting and/or services, whose scope is much larger than licensing of patent. In other words, the provision on technology contract under the Contract Law applies to contracts with respect to technology, including patent, and non-patent technology.

In Dayang Co. v Huanghe Co.,22 the SPC upheld a lower court’s judgment, holding that the licensor’s offering of dedicated production equipment to the licensee could include relevant technology. Since the patent licensing agreement did not constitute the ‘contract that illegally monopolizes technologies, impedes technological progress’. What Article 329 of the Contract Law prohibits is requiring the licensee (p. 173) to accept attached conditions which are not necessary for technology implementation, including technology, service, raw materials, equipment, products, or personnel not needed by the licensee.

In Wu Yunjie and Guo Zhiming v Chongqing Paiwei Energy Management Co.,23 the SPC was of the opinion that only the provision concerning C/S structure software which infringed business secrets of a third party (Jia Li Da Co.) was null and void, not the whole software development agreement.

2.1.2.2  Foreign trade law

Member states of WTO could take appropriate measures consistent with provisions of TRIPS to prevent the abuse of IPRs by owners or the resort to practices that unreasonably restrain trade or adversely affect the international transfer of technology.24 Only legal persons or organizations, excluding natural person, engaging in foreign trade activities in compliance with provisions of the Foreign Trade Law (1994) were qualified for ‘foreign trade operator’.25 At that time, the Chinese legislator was of the opinion that domestic natural persons could not defend their rights very well due to lack of necessary knowledge or experience so as to exclude them from foreign trade activities directly. IPRs-related article in the Foreign Trade Law (1994) was very simple and general.26 However, IPRs concerning trade have increasingly become an essential instrument taken by major trading nations around the world to safeguard state interests.

With the aim to expand the opening up to the outside world, developing foreign trade, maintaining the order of foreign trade, safeguarding foreign trade operators’ legal rights and interests, and promoting the healthy development of a socialist market economy, the Foreign Trade Law (2004) was promulgated.27 As of 1 July (p. 174) 2004, a whole chapter aimed at protecting IPRs related to foreign trade was introduced in accordance with WTO rules and legislation/enforcement experience of the US, EU, and Japan, etc. Under most circumstances, it is a competent department of foreign trade under the State Council (predecessor of Ministry of Commerce (‘MOFCOM’))28 instead of parties to a particular foreign trade relationship that could take actions on the basis of most-favoured-nation treatment, national treatment, or principles of reciprocity and equality.29 Special attention should be paid to the fact that only when provisions in IPRs licensing agreement damage the order of fair competition in foreign trade could the foreign trade department under the State Council take necessary actions, which is consistent with the legislative purpose of the Foreign Trade Law (2004),30 illustrating its limited protective effects on intersection between anti-competitive agreements and IP licensing.

Where IPRs holders have any of the following acts, including (1) preventing licensees from challenging the validity of IP covered in licence contracts, (2) imposing forced package licensing; or/and (3) specifying exclusive grant-back conditions in license contracts etc, which damage the order of fair competition in foreign trade, the competent department of foreign trade under the State Council may take necessary measures to eliminate the damage.31

2.1.2.3  Patent law

In principle, the holder of IPRs is free to decide whether to license its IPRs to other parties or not as long as it would not eliminate or restrict competition in the market or its pro-competitive effects outweigh private rights, though they are in sense of their nature. With respect to national industrial policy, national economic security, or even competitive position in international trade, states would compel proprietors to license certain IPRs when necessary.

Where a patentee’s exercising of patent right is determined as monopoly in accordance with the law and the negative impact of such exercise on competition needs to be eliminated or reduced, the Patent Administration Department under the State Council (‘Patent Administration Department’) may grant a compulsory licence for the exploitation of an invention patent or utility model patent upon the application of any organization or individual possessing exploitation conditions.32(p. 175) Besides, when a national emergency or any extraordinary state of affairs occurs, or the public interest so requires,33 for the purpose of public health with regard to patented drugs,34 or if a patented invention or utility model had made significant technological advancement with remarkable economic significance, compared with an earlier patented invention or utility model and the exploitation of the former relies on the exploitation of the latter,35 the Patent Administration Department may also grant necessary compulsory licence to exploit a related invention or utility model upon application of relevant parties. Furthermore, if an invention involved in a compulsory licence is a semi-conductor technology, the exploitation thereof shall be limited for purpose of public interest and for elimination or reduction of negative impact of the patentee’s exercising patent right, such as licensing.36 Of course, an organization or individual granted a compulsory licence for exploitation shall pay reasonable royalties to the patentee.37 Until now, there is no case of compulsory licence in China. What’s worth mentioning is that neither reasonable application nor compulsory licence applies to registered trademarks, as it concerns less about public interests.

2.1.2.4  Administration regulation over technology import and export

On 10 December 2001, the State Council promulgated the Regulations of PRC on the Administration over Technology Import and Export (‘Administration Regulations over Technology Import and Export’), which came into effect as of 1 January 2002. Strictly speaking, the Administration Regulations over Technology Import and Export has lost its legal ground, which is Foreign Trade Law (1994),38 though it was revised on 8 January 2011.39 Conducts supervised by the Administration Regulations over Technology Import and Export include transfer of patents, transfer of the patent (p. 176) application right, patent exploitation licensing, transfer of technological know-how, technological services, and technology transfer in other forms, referring to technologies from outside the territory of PRC to inside the territory of PRC, and vice versa.40 The limitation here is that technology transfer in the form of IPRs licensing without crossing the border is not under the control of the regulations. The Administration Regulations over Technology Import and Export reflects more about industry policy than competition policy during the State’s administration over technology imports and exports.41

The State encourages import of advanced, applicable technologies, and export of mature industrialized technologies.42 In principle, achievements made from technological improvements shall belong to the party that made such improvements during the term of validity of a technology import contract.43 Moreover, restrictive clauses include:

  1. a)  requiring the transferee to accept attached conditions not essential for technology import (including the purchase of non-essential technologies, raw materials, products, equipment, or services);

  2. b)  requiring the transferee to pay royalties or undertake relevant obligations for the technologies whose patent has expired or has been declared invalid;

  3. c)  restricting the transferee from making improvements to the technologies provided by the transferor or restricting the transferee from using improved technologies;

  4. d)  restricting the transferee from obtaining technologies similar to or competitive with the technologies provided by the transferor from other resources;

  5. e)  placing unreasonable restrictions on the channels or sources from which the transferee may purchase raw materials, parts and components, products or equipment;

  6. f)  placing unreasonable restrictions on the quantity, types or sale prices of the products manufactured by the transferee; or

  7. g)  placing unreasonable restrictions on the export channels of the products manufactured by the transferee using imported technologies, shall not be contained in any technology import contract.44

(p. 177) Clauses mentioned above cover almost all anti-competitive situations in IPRs licensing. They are illegal per se, and no case-by-case analysis is needed, the determination of the Chinese legislators to protect the Chinese licensees could be reflected therefrom.

2.1.2.5  Interpretation of the Supreme People’s Court

In accordance with the Contract Law, the Patent Law, the Civil Procedure Law of PRC, and other relevant laws, and in consideration of trial practices, the Interpretation of the Supreme People’s Court on Some Issues Concerning the Application of Law in the Trial of Technology Contract Dispute Cases (Interpretation of the SPC’) was promulgated on 16 December 2004 and came into effect as of 1 January 2005 in order to ensure the correct trial of cases involving technology contract disputes. Article 10 of the Interpretation of the SPC lists six circumstances that could be defined as ‘illegal monopoly or hindrance to technology advancement’ specified in Article 329 of the Contract Law, which could lead to technology contract null and void. They are:

  1. a)  restricting one of the parties concerned from carrying on any new research and development on the basis of the technology that is the subject matter of the contract or restricting the party from using the improved technology or carrying out exchange regarding the improved technology with unequal terms for both parties etc, including that one party is required to provide for free, or to transfer non-reciprocally, the technology improved by the party to the other party, or that one party monopolizes or shares, for free, the intellectual property rights to the improved technology;

  2. b)  restricting one of the parties concerned from obtaining from other resources the technology similar or competitive to that of the technology supplier;

  3. c)  hindering one of the parties concerned from sufficiently implementing the technology which is the subject matter of a contract in reasonable ways according to market demand, including obviously unreasonable restriction on the quantity, type, price, marketing channel, or export the market of the products produced or services provided by the technology receiving party through implementing the technology;

  4. d)  requesting the technology-receiving party to accept the conditions unessential to the implementation of the technology, including purchase of unnecessary technology, raw materials, products, equipment, or services, or acceptance of unnecessary personnel etc;

  5. e)  limiting unreasonably the channels or sources from which the technology-receiving party purchases raw materials, parts, and components, products, or equipment; and

  6. f)  prohibiting the technology receiving party from filing opposition to the validity of the intellectual property rights of the technology which is the subject matter of a contract, or imposing conditions on the filing of opposition.

(p. 178) Serving as private law, the Contract Law should respect autonomy of will. However, technology agreement refers to public interests (such as competition order in the market), that prevail when conflicts between the private and the public appear.

2.2  High-profile case: Intel v Dongjin

2.2.1  Relevant parties

The plaintiff Intel (‘Plaintiff’) is one of the world’s largest and highest valued semiconductor chip makers, headquartered in US. The Plaintiff has invested heavily in research in China. Around 100 researchers, 10 per cent of the total number of researchers of the Plaintiff are located in Beijing. In April 2011, the Plaintiff began a pilot project with ZTE to produce smart phones using the Plaintiff Atom processor for China’s domestic market. China is one of the main markets for the Plaintiff.

As the defendant, Shenzhen Donjin Communication Technology Co. (‘Defendant’) is a Chinese telecommunication and network equipment manufacturer.

2.2.2  Disputes

In 2004, the Plaintiff accused the Defendant of copying parts of its Dialogic Systems Release 5.1.1 software used in circuit boards running touch-pad telephone systems at Shenzhen Intermediate People’s Court and also sought for a permanent injunction of prohibiting the Defendant from manufacturing and selling products in question and compensation of USD 7.96 million.45 The main dispute was centred on compatibility of the Defendant’s products with Plaintiff’s software, as well as whether users of the Plaintiff’s communications cards could switch to the Defendant’s products without the need to change their existing programs. The marketing director of the Defendant said the Plaintiff’s requirement had constituted a technology monopoly, which was detrimental to the interests of consumers and did stifle fair competition.

In 2005, the Defendant’s subsidiary in Beijing countersued the Plaintiff for IPRs monopolistic licensing. On 1 April 2005, Beijing No. 1 Intermediate People’s Court accepted the case. Such subsidiary alleged that the Plaintiff’s protocol of Dialogic System Release 5.1.1 software had strictly restricted its users by binding the software to its own hardware products. Hardware produced by third parties is out of reach of Plaintiff’s customers. It is a classic kind of tie-in provision in a licensing agreement. This counterclaim was sought for invalidation of the Plaintiff’s protocol.

(p. 179) 2.2.3  Final settlement and its implication

On 14 May 2007, the Plaintiff announced that it had already settled the lawsuit with both the Defendant and its subsidiary. The Plaintiff’s spokesman expressed the concern that continuous litigation would bring no good to its strategy,46 which was also against its intent to exploit China’s booming computer and microprocessor demand. Settlement of licensing between the Plaintiff and the Defendant had been achieved but was confidential. Though industry analysis, the settlement signalled that the Plaintiff would like to eliminate any potential political or business roadblocks during its ongoing investment in China.47

It has been observed that in the absence of the AML, to regulate the suspected anti-competitive IP licensing, undertakings could only challenge such conduct by applying the notion of technology monopoly.

2.3  Summary of legislation and cases before the AML

From relevant laws, regulations, judicial interpretations, and cases mentioned above before the promulgation of the AML, we could find that parties to IP licensing chose to seek for invalidity of the contract under most of the circumstances. The legal ground was certain provisions of the Foreign Trade Law, the Contract Law etc. Chinese legal professionals believed that related lawsuits were a great driving force for the legislation on intersection of IPRs and anti-monopoly. They also alerted Chinese high-tech companies to speed up innovation and create more products with their own IPRs, so as to make more products from China, instead of in China.

3.  Legislation and Practice since the AML

3.1  Regulatory approach of the AML

To some extent, IPR is a kind of legal monopoly. IPRs holders are granted the exclusivity within a particular period and territory at the cost of short-term social interests. It could lead to a win-win result. On one hand, those with intelligent human resources are encouraged to spend more time on R&D activity so as to keep their cutting-edge position, leading the general direction of social development. On the other hand, the others with enough funding could pay for newest technology and put them into practice, which could affect people’s daily life directly.

(p. 180) Though there was great controversy as regards whether the AML applies to IPRs during discussion of the draft, the AML came out with a compromise. In principle, the AML does not apply to exercising IPRs in accordance with relevant laws and regulations. However, abuse of IPRs which might eliminate or restrict competition falls into the regulatory scope of the AML.48 Such approach is consistent with the best practice in other matured competition jurisdictions, such as US and EU. Nonetheless, such stipulation is too general and vague, which has created the great uncertainty on the application.

The AML is applicable to legitimate exercise of IPRs. If an undertaking is accused of infringing Article 55(1) of the AML, then it needs to bear the burden of proof that practice of IPRs is in line with IPR laws and regulations. Nevertheless, the burden of proof is difficult, since most legal provisions are prohibitive rather than legitimate. To make a defence of legitimate practice work is really a technical piece of work.

The point of Article 55 depends on the second subparagraph, which is ‘however, this Law (the AML) shall be applicable to the undertakings that eliminate or restrict market competition by abusing their intellectual property rights’. However, what practices could be defined as ‘abuse’ is not clear in written law. Abuse is very common in patent licenses, especially which are between non-competitors. So, patent licensing could constitute a horizontal or vertical anti-competitive agreement. Furthermore, the licensor might make use of its market position or superior bargaining power when licensing a patent to the licensee.

Compared with the relevant provisions under other laws and regulations, such as the Contract Law and the Patent Law, the AML makes it clear that abuse of IPRs is subject to antitrust enforcement both from the public and private sides. Anyone is entitled to make the complaints against the suspected monopolistic acts before the competent Chinese antitrust enforcement authorities.49 Requirement for materials or evidence provided by such a complainant is much lower than that for a plaintiff in a civil litigation concerning disputes under the Contract Law. As for terms of reference, the competent department in charge of foreign trade could only take measures to eliminate negative effects instead of administrative penalty under the Foreign Trade Law and the Administration Regulations over Technology Import and Export.

(p. 181) 3.2  SAIC provisions

In order to make it more certain for antitrust enforcement authorities to enforce the AML in IPRs area, upgrade transparency of enforcement, and help undertakings exercise IPRs properly, the State Administration for Industry & Commerce of PRC (‘SAIC’) has already initiated the draft work of guidelines for the AML enforcement in IPRs area as early as March 2009, only one year after the promulgation of the AML. Due to a lack of relevant experience, it seems to be too early to implement such a set of well-developed guidelines from all perspectives at that time. However, rules that could restrict or prohibited abuse of IPRs to eliminate or restrict competition are in great and urgent need. During the drafting of guidelines for anti-monopoly enforcement in IPRs area, SAIC was on the track of its own department regulations/provisions as a transitional enforcement tool.50

Acting as the sixth supporting regulation51 ever since enforcement of the AML in 2008, the Provisions on Prohibiting the Abuse of Intellectual Property Rights to Eliminate and Restrict Competition (promulgated on 7 April 2015 and came into effect as of 1 August 2015, ‘SAIC IPRs Provisions’) upgrade transparency of the AML enforcement and provide the public with more details as regards how one of the three antitrust enforcement authorities tackle52 abuse of IPRs or non-patent technology more specifically,53 through anti-competitive agreement and abuse of market position. It is the first anti-monopoly regulation targeting at abuse of IPRs, filling China’s legislative loophole in this area. Although the SAIC IPRs Provisions are only working guidelines of a ministry under the State Council, one of whose (p. 182) duties is to review anti-competitive agreement and abuse of market position unrelated to price, they could still offer reference in practice more or less.

Through nineteen articles, the SAIC IPRs Provisions cover both conventionally monopolistic issues (such as anti-competitive agreements and abuse of market position) and innovative theories/policies (such as ‘safe-harbour provisions’,54 essential facility55, patent pool,56 and standard patent57). Of note is that phrases such as ‘eliminate or restrict competition’ are everywhere, reflecting the enforcer’s emphasis on anti-competitive conducts’ effect on the market during the investigation and enforcement.

Article 4 of the SAIC IPRs Provisions rephrases general principles and exceptions concerning anti-competitive agreement stipulated in Articles 13,58 14,59 and 1560(p. 183) of the AML. Articles 13.1.1–13.1.5 and 14.1–14.2 enumerate the most obviously illegal anti-competitive conducts, namely the horizontal and vertical monopoly agreements. When defending themselves according to Article 15, business operators should also prove that agreements shall not restrict the competition in the relevant market substantially and would enable consumers to share benefits derived therefrom.

The ‘safe-harbour’ mentioned in Article 5 of the SAIC IPRs Provisions is a huge step further on the basis of Article 15 of the AML. It stipulates monopolistic conducts under Article 13.1.6 (‘other anti-competitive agreements between competing undertakings confirmed as such by the authority for enforcement of the AML under the State Council’) and Article 14.3 (‘other anti-competitive agreements between non-competing undertakings confirmed as such by the authority for enforcement of the AML under the State Council’) of the AML. It means that all those situations expressly listed in black and white in Articles 13.1.1–13.1.5 and 14.1–14.2 of the AML are not eligible for ‘safe-harbour’. Article 5 separates particular kinds of anti-competitive agreements from those ones illegal per se under certain conditions. Where the combined market share of two competing business operators is not more than 20 per cent in the relevant market that is affected by the exercise of IPRs, or there exist at least four alternative technologies on the relevant market that are accessible at reasonable costs and are under independent control; or where the combined market share of two non-competing business operators is not more than 30 per cent on the relevant market, or there exist at least two alternative technologies on the relevant market that are accessible at reasonable costs and are under independent control, Articles 13 and 14 of the AML do not apply. SAIC learns a lot from the relevant experience of the US and EU. It is a historic step forward in theory, of course. However, problems such as how to define the ‘relevant market’, ‘alternative technologies accessible at reasonable costs and under independent control’ etc are to be interpreted in practice. Legislation develops together with the social development. We have every reason to believe that SAIC would give out satisfying answers sooner or later, to provide a more improved instruction.

(p. 184) 3.3  Proposed guidelines

Though SAIC has promulgated and implemented the SAIC IPRs Provisions mentioned above, they cannot replace guidelines against abuse of IPRs to eliminate or restrict competition. On the one hand, acting as a ministerial regulation, SAIC IPRs Provisions could only be applied by SAIC during its own enforcement, not by NDRC or MOFCOM at all. On the other hand, due to legislative limitation and style, this regulation could only cover limited issues, and a lot more could not be regulated very well.61 As such, it has been argued for a certain time that a wide guideline to regulate IP and antirust should be prepared by the Anti-monopoly Commission under the State Council (the ‘AMC’).

Actually, under the AML, the AMC is in charge of organizing, coordinating, and guiding anti-monopoly work and to perform duties, including but not limited to formulating and releasing anti-monopoly guidelines,62 which could be relied on by all the three antitrust enforcement authorities. Acting as a coordinating organization, the AMC is not in charge of drafting guidelines itself. Instead, NDRC, SAIC (as early as 2009), MOFCOM, and the State Intellectual Property Office has initiated drafting guidelines against abuse of IPRs to eliminate or restrict competition under the direction of the AMC. The official version of the guidelines was due to be published by the end of 2016 on the basis of draft guidelines mentioned above. Until now, SAIC and NDRC have released their own drafts for the guidelines respectively.

3.3.1  Draft of SAIC IPRs guidelines

The 7th Draft of the Guidelines for Anti-Monopoly Enforcement against Abuse of IPRs (‘Draft of SAIC IPRs Guidelines’) was published by SAIC on 4 February 2016 to solicit public comments until 23 February 2016.63

Consisting of thirty-two articles in seven chapters, the Draft of SAIC IPRs Guidelines specifies basic principles for anti-monopoly law enforcement in the field of IPRs, and gives the prompt that ‘the market position of the operator and the counterparty’ and another eight factors could be considered in analysing and determining the influence of IPRs exercise by an operator on competition. Also, the guidelines (p. 185) explain the definition of relevant market, IPRs-related monopoly agreement, IPR-related abuse of market dominance, and some specific issues (anti-monopoly analysis about standard setting, patent pool, and conduct of copyright collective management organization) in detail. In addition, the guidelines emphasize that where an operator is deemed to have abused IPRs, resulting in the elimination or restriction of competition, the competent antitrust enforcement authorities shall investigate the legal liability against the operator in accordance with the AML.

The Draft of SAIC IPRs Guidelines put agreements concerning IPRs between competing undertakings and non-competing undertakings within the same chapter. After giving the general principles, Chapter 3 firstly lists restriction provisions in agreement between competing undertakings that might eliminate or restrict competition, including price, output, R&D restriction, market division, and collective boycott. As for exclusive grant-back, it could be reached between both competing and non-competing undertakings, while the former one would bring more harm to competition. Price, geography, and consumer restriction in agreements between non-competing undertakings are forbidden under the Draft of SAIC IPRs Guidelines. The ‘Safe Harbour’ principle here is totally the same with that in the SAIC IPRs Provisions.

3.3.2  Draft of NDRC IPRs guidelines

3.3.2.1  Background

During a press conference about price reform and supervision of NDRC held on 5 November 2015,64 investigator (Mr. Dong Zhiming) of the Price Supervision Inspection and Anti-Monopoly Bureau (‘PSIAMB’) indicated that NDRC would race against time to promote research, draft, and promulgate six sets of guidelines, including those for prohibition against abuse of IPRs to eliminate or restrict competition, auto industry, leniency system, operator commitment, calculation of illegal income and fine, and exemption procedure for monopoly agreements. For the moment, laws, administrative statutes, and rules compatible with the AML are not well-developed, which do not meet the requirement of anti-monopoly enforcement. In order to clarify guiding rules concerning the anti-monopoly system further, provide market players with clearer reasonable expectation, and improve transparency of anti-monopoly enforcement, NDRC is studying relevant anti-monopoly guidelines under the direction of the AMC. Until now, all the six draft guidelines have been released.

3.3.2.2  General introduction

On 31 December 2015, the Anti-Monopoly Guidelines for Abuse of Intellectual Property Rights (Draft for Comments) (‘Draft of (p. 186) NDRC IPRs Guidelines’) were released to solicit public comments from 1 January 2016 to 20 January 2016.65 The Draft of NDRC IPRs Guidelines is composed of the preface and three main parts. After providing the basic concepts, each part enumerates IPRs related conducts which are legal generally, but may be determined to be illegal if they would eliminate or restrict competition.

The preface reiterates the fundamental role played by Article 55 of the AML in reviewing the exercise of IPRs. The AML does not apply to the exercise of IPRs subject to IPRs-related laws and regulations, but applies to abuse of IPRs to eliminate or restrict competition. For the main body of the Draft of NDRC IPRs Guidelines, the first part is about basic issues. It stipulates principles of law enforcement, definition of relevant market, and the general analysis approach. As for principles of law enforcement, antitrust authorities should treat IPRs the same as other properties under the basic frame of the AML while specific characteristics of IPRs should be taken into consideration. An undertaking cannot be directly presumed to have dominant market position only because of its ownership of IPRs. Principles of fairness and transparency should be followed during the case-by-case analysis. The second and third parts of the Draft of NDRC IPRs Guidelines are about IPRs agreements that may eliminate or restrict competition and abuse a dominant market position involving IPRs respectively.

3.3.2.3  Analyses in detail

For the first time, the Draft of NDRC IPRs Guidelines list explicit provisions often found in IPRs licensing agreement from all perspectives. Certain kinds of abuse of IPRs are stipulated under provisions of agreements concluded by competing undertakings and non-competing undertakings respectively. It does not mean that only these would appear in the former while those could only be found in the latter. Any IP licensing agreement could include such provisions, while the relationship between undertakings should be paid due attention.

Structure of the second part is similar to that of the AML (Article 13 for competing undertakings and Article 14 for non-competing undertakings). Generally speaking, IPRs agreement between competing undertakings is more likely to eliminate or restrict competition than that between non-competing undertakings. In judging whether a competing relationship between undertakings exists, exercise of IPRs by the parties before and after the agreement come into effect in the relevant market should both be analysed. Regarding IPRs agreements between competing undertakings, the Draft of NDRC IPRs Guidelines combines Articles 13.1.1–13.1.5 of the AML. This part covers IPRs agreement of joint (p. 187) R&D,66 patent pool,67 cross-licence,68 or standard setting69 between competing undertakings that might be recognized as would eliminate or restrict competition, though normally, these arrangements could save R&D costs, improve efficiency, promote innovation and competition. Besides giving definition of arrangements mentioned above, the draft guidelines also list elements that could be considered when coming out with the final decision. For example, if the cross-licensing is exclusive, and constitutes market entry barriers to a third party or impedes competition in the relevant downstream product market, then it might be recognized as likely to eliminate or restrict competition. To take standards setting as another example, if it could exclude other certain undertakings or relevant proposal of particular undertakings, then competition may probably be restricted. In addition, IPRs agreements between non-competing undertakings could also include these arrangements, and criteria mentioned above applies too. What’s worth mentioning is that the ‘non-competing relationship’ element should be given enough attention.

Taken together with Articles 14.1–14.2 of the AML, IPRs agreement with grant-back,70 non-challenge,71 and other restriction provisions72 between non-competing undertakings might be thought of eliminating or restricting competition, though sometimes they could also bring benefits. As for grant-back, what’s prohibited is that the licensor or a certain third party appointed by the licensor could exercise technology improved by the licensee exclusively. Non-challenge provision prohibits the counterparty from challenging the validity of IPRs so as to avoid vexatious litigation and increase efficiency. But if the non-challenge provision requires all the licensees not to question the validity of IPRs, restricts exercise of other competitive (p. 188) IPRs, etc., then it may eliminate or restrict competition. The other restriction provisions, such as the restrictions on licensees to apply IPRs within certain fields through particular distribution channels only, are also very common in IPRs area. However, the content, degree, mode of exclusion, characters of product using IPRs and other criteria should also be on the schedule of investigation of the antitrust authorities. Price-fixing and restricting the minimum price of products for resale to a third party are regarded as illegal per se in China, as long as the agreements do not fall within Article 15 of the AML. Furthermore, if all the arrangements mentioned in this part meet the requirements in Articles 13.1.1–13.1.5 (for agreement between competing undertakings), they might also be prohibited.

The Draft of NDRC IPRs Guidelines is also equipped with its own ‘safe harbour’ principle. Though certain types of agreements are in principle exempted under Article 15 of the AML, case-by-case analysis is still needed to determine, unlike the ‘safe-harbour’ principle, exempting certain sets of agreement between undertakings meeting particular thresholds. IPRs agreements (such as IP licensing agreement) concluded by undertakings with relatively low market share usually do not severely eliminate or restrict competition. In order to increase efficiency of anti-monopoly enforcement and provide undertakings with a clear expectation, IPRs agreements could be presumed to be exempted under Article 15 of the AML if a) the combined market share of competing undertakings in the relevant market does not exceed 15 per cent; or b) the combined market share of non-undertakings in any relevant market involved in the agreements does not exceed 25 per cent. Similar to the ‘safe harbour’ in the SAIC IPRs Provisions (Article 5), agreements expressly stipulated in Articles 13.1.1–13.1.5 and 14.1–14.2 and those concerning price restriction are not eligible for the exemption.

3.3.2.4  Differences from the draft of SAIC IPRs guidelines

It is worth mentioning that the safe harbour thresholds proposed in the Draft of NDRC IPRs Guidelines (15 per cent for competing undertakings and 25 per cent for non-competing undertakings) are lower than those in the SAIC IPRs Provisions (20 per cent for competing undertakings and 30 per cent for non-competing undertakings), which will no doubt bring great discussions by the public. In practice, one of the technical issues about market share standard is its calculation, especially in the relevant technology market. Should antitrust enforcement authorities take the average market share of undertakings concerned during a particular period as reference? When calculating market share in the relevant technology market of products involving IPRs, should volume of production or turnover act as the foundations? More questions still need to be answered in practice. It is a good example of a transplant from other legal systems, such as the ‘safe harbour’ in the US and EU.

Moreover, under the SAIC IPRs Provisions, if there exist at least four alternative technologies on the relevant market that are accessible at reasonable costs and are (p. 189) under independent control for agreements between competing undertakings, or at least two alternative technologies on the relevant market that are accessible at reasonable costs and are under independent control for agreements between non-competing undertakings, the ‘safe harbour’ principle could also apply. However, the Draft of NDRC IPRs Guidelines does not refer to alternative technologies. It is noteworthy that, only when the review of the effect on technology competition or R&D is required, market data is not accessible or market data could not reflect the importance of competition accurately, the alternative technology will apply under the US Antitrust Guidelines for the Licensing of Intellectual Property. There is not any similar limitation in the SAIC IPRs Provisions, not to mention the total lack of provisions of alternative technology in the Draft of NDRC IPRs Guidelines. One more thing, the ‘safe harbour’ in China only applies to anti-competitive agreements or conspiracy concerning abuse of IPRs, instead of anti-competitive agreements or conspiracy in general.

3.3.3  Draft of exemption guidelines

On 12 May 2016, NDRC released the Guidelines on General Conditions and Procedures for the Exemption of Anti-Competitive Agreements (Draft for Comment) (‘Draft of Exemption Guidelines’) to solicit public comments until 1 June 2016.73 It is the first time that Chinese antitrust enforcement authorities have implemented official working guidelines for case-by-case exemption. The Draft of Exemption Guidelines clarifies general conditions and procedure for anti-competitive agreement exemption based on Article 15 of the AML.

The Draft of Exemption Guidelines defines ‘exemption application’ and ‘exemption consultation’ respectively. ‘Exemption application’ refers to applications filed by undertakings after antitrust enforcement authorities have initiated investigation, while ‘exemption consultation’ means consultations made by undertakings to the authorities as regards whether agreements to be entered into by undertakings or industry association meet the exemption situations listed in Article 15 of the AML.74 Generally speaking, it is up to undertakings and industry associations to decide whether agreements to be concluded satisfy the exemption conditions in Article 15 of the AML, and to decide all by themselves whether to initiate exemption application or consultation to antitrust enforcement authorities. Normally speaking, antitrust enforcement authorities would not communicate with undertakings or industry associations concerning such questions. However, there are two circumstances where antitrust enforcement authorities will accept exemption consultation (p. 190) about an agreement to be entered. Firstly, the agreement might have influences on several countries or regions, including China. Furthermore, the relevant undertaking or industry association decides to apply for exemption in other jurisdictions. Secondly, the national industry association would like to consult with the antitrust enforcement authorities for agreement with universality and significance in the name of the whole industry. Undertakings and industry associations having entered into agreement are presumed to have already decided by themselves as regards whether the agreement meets the provisions of the AML. Antitrust enforcement authorities will not accept exemption consultation after conclusion of an agreement and before initiation of an investigation.75

3.4  Standard essential patents

3.4.1  General introduction

When talking about IP licensing nowadays, one can never bypass standard essential patents (‘SEPs’). Standard setting is the process of determining a common set of characteristics for goods or services.76 Or to put it more formally:

technical regulations and standards set out specific characteristics of a product—such as its size, shape, design, functions and performance, or the way it is labeled or packaged before it is put on sale. In certain cases, the way a product is produced can affect these characteristics, and it may then prove more appropriate to draft technical regulations and standards in terms of a product’s process and production methods rather than its characteristics per se.77

Standardization of technology could promote compatibility and connectivity of products manufacture by differentiated manufacturers so as to decrease costs, upgrade efficiency, and promote continuous innovation.

In order to obtain a competitive advantage, undertakings participating in standard setting often choose to apply for patents with their own technologies. After being involved in the standard, relevant patent technologies would become SEPs. SEPs refer to essential and irreplaceable patents included in technology standard, or patents that have to be applied for implementation of technical standard. Technology standardization could reduce production costs, promote innovation, provide consumers with more choices, and remove international trade barriers brought by technology disparity. If a technological standard has been widely used so as to become the industrial standard or compulsory national standard, keeping products (p. 191) and services below the standard out of the market, then the technical standard is compulsory requirement for undertakings.

For economic reasons, proprietors might raise royalties unreasonably or eliminate competitors in the industry through the foreclosure effect of his or her SEPs.78 Since implementation of the AML, there have been several cases concerning SEPs, most of which were about abuse of market dominance. In most of the foreign legal regimes, a patent grants its investor an exclusive right to use the covered technology, and a standard-setting organization generally must obtain permission from the proprietor to include a patented technology in its standard. So, it will often request a proprietor to clarify its willingness to license its SEPs on fair, reasonable, and non-discriminatory terms (‘FRAND’). If the proprietor refuses to accept FRAND terms, then the standard setting organization must exclude that technology out of the standard. Or put another way, the FRAND commitment serves to harmonize the private interests of proprietors and the public interests of standard-setting organizations.79

3.4.2  Situations in China

In China, it is the department of standardization administration under the State Council who is in charge of the unified administration of standardization throughout the country. National standards shall be formulated by the department of standardization administration under the State Council. Where, in the absence of national standards, technical requirements for a certain industry need to be unified, industry standards may be formulated. Industry standards shall be formulated by competent administrative authorities under the State Council. In the absence of both national and industry standards, safety and sanitary requirements for industrial products need to be unified within a province, an autonomous region or a municipality directly under the central government, local standards may be formulated by departments of standardization administration from respective level.80 Moreover, for many industries all over the world, the majority of essential standards are set by standard setting organizations through cooperation, such as the International Telecommunication Union.

As early as 2012, the SPC released a judicial policy, namely the Opinions on Giving Full Play to Functions of the Trial so as to Provide Judicial Protection to (p. 192) Deep Reform of Science and Technology System and Speedy National System Construction.81 Point 2(7) mentions that, as for patent patent infringement litigation concerning national, industrial, or local standard, courts should judge parties’ legal liabilities reasonably on foundation of FRAND principle, combining industrial characteristics, standard nature, setting procedure etc., so as to promote the perfection of pre-disclosure of patent information, payment of royalties, and other standard setting procedures and rules. Article 24 of the Interpretations (II) of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Cases Involving Patent Infringement Disputes released on 21 March 2016 (effective date: 1 April 2016) also mentions FRAND terms. It is the first time China has expressed its attitude towards FRAND in the form of judicial interpretation. Firstly, the implementation of a patent belonging to a recommended national, industrial, or local standards should have a licence from the licensor as the pre-condition. Secondly, during the negotiation of terms of a licensing agreement, the licensor should respect FRAND principle, failure of which would deprive the licensor’s right to require the licensee to cease the exploitation of the standards, if IP licensing contract cannot be concluded and the alleged infringer has no obvious fault in the negotiation. Last but not least, if the patentee and the alleged infringer cannot reach consensus on licensing and exploitation conditions, they could require the court to determine, during which FRAND principle should be respected. Furthermore, the court should also take into comprehensive consideration of the degree of innovation of the patent, the role the patent plays in relevant standards, the technical field to which the standards belong, the nature and scope of application of the standards, relevant licensing conditions, and other factors.

(p. 193) 3.5  Practice

Until now, IPRs guidelines are only at the draft stage to solicit public opinions, which have not yet come into effect. Almost all of the high-profile cases relate to abuse of dominant market position82 or concentration of undertaking83 concerning SEPs, instead of anti-competitive agreement, or maybe some of which have already been under investigation. Parties to SEPs licensing and exploitation agreement should respect FRAND commitment so as to get ready from the first step and better protect their SEPs if tort litigation were brought.

4.  Conclusion and Looking Forward

Before the promulgation of the AML, parties to IP licensing agreements mainly counted on certain provisions of the Contract Law, the Foreign Trade Law etc. to restrict or prohibit abuse of IPRs. All those laws were enacted to achieve their own goals respectively instead of maintaining the competition order. Undertakings usually sought for invalidity of IP licensing agreement, though invalidity of anti-competitive provisions would not affect the validity of the other provisions generally. Only limited remedies were offered, making it difficult for a party to IP licensing agreement to protect his or her legal rights and interests.

The AML was the first Chinese law stipulating three traditional anti-competitive conducts, which are monopoly agreement, abuse of market dominance, and concentration of undertakings which have or will be likely to have the effect of restricting or eliminating competition. The AML does not apply to the proper practice of IPRs according to relevant laws and regulations, but does prohibit abuse of IPRs which eliminates or restricts competition.84 Article 55 is only a general provision, reflecting the principal attitude of the legislator in this regards. It leaves great discretion to courts and antitrust enforcement authorities when deciding whether IP licensing, constituting abuse of IPRs, would be prohibited according to Articles 13 or 14 of the AML.

(p. 194) Through summarizing experience, SAIC released the first IPRs provisions in 2015 among the three Chinese antitrust enforcement authorities to fill up loopholes left by Article 55 of the AML. Though only acting as working rules, the SAIC IPRs Provisions could provide some reference to NDRC and MOFCOM. The SAIC IPRs Provisions introduce essential facilities and ‘safe harbour’ principle for the first time. In order to provide a legal basis from upper level, both NDRC and SAIC have published draft of guidelines against abuse of IPRs as the first step under the direction of the AMC. Through combining the AML, recent cases concerning the most recent development of IPRs (including but not limited to joint R&D, patent pool, cross-licensing, standard-setting, grant-back, non-challenge clauses) and experience learned from the US and EU, IPRs guidelines of both SAIC and NDRC aim at targeting at the classic abuse of IPRs which eliminate or restrict competition. Until now, we do have several high-profile cases concerning SEPs in areas of concentration of undertakings and abuse of market dominance. In those cases, courts and antitrust enforcement authorities requested relevant undertakings to abide by FRAND principles during the SEPs licensing. With more and more undertakings becoming giant licensors of IPRs (especially patents), such as today’s Huawei, China will become better developed in both legislation and enforcement in the intersection between anti-competitive agreement and IP licensing.

Footnotes:

1  The Anti-Monopoly Law of the People’s Republic of China (‘AML’) was promulgated on 30 August 2007 and came into effect as of 8 January 2008. It is the first systematic anti-monopoly law in China’s legal history. The AML mainly stipulates four categories of monopolistic conducts, which are anti-competitive agreement, abuse of dominant market position, concentration of undertakings, and abuse of administrative power to exclude or eliminate competition.

2  The Anti-Unfair Competition Law of the People’s Republic of China (‘AUCL’) was promulgated on 2 September 1993 and came into effect as of 1 December 1993. Due to certain historical reasons, the AUCL includes articles concerning illegal conducts, such as counterfeiting a registered trademark of another person, undertaking’s tie-in sale of commodities, or attaching any other unreasonable conditions to the sale of their commodities, which should be stipulated by advertising law and anti-monopoly law respectively. Taking into consideration of overlap with other laws and regulations, lack of rules against new anti-competitive conducts and limited deterrence of relevant legal responsibility, the Legislative Affairs Office of the State Council published the Anti-Unfair Competition Law (Revised Draft Submitted for Review) on 25 February 2016. One of the most heated discussion circles around whether ‘superior bargaining power’ should be included in the new AUCL.

3  State Administration for Industry and Commerce (‘SAIC’): Provisions on the Prohibition of the Abuse of Intellectual Property Rights to Eliminate or Restrict Competition. Promulgation date: 7 April 2015. Effective date: 1 August 2015.

4  Intellectual property: protection and enforcement, Origins: into the rule-based trade system …’, available at <https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm#skip> accessed 25 June 2016.

5  World Trade Organization: Agreement on Trade-Related Aspects of Intellectual Property Rights (‘TRIPS’) (effective date: 1 January 1995; parties: all WTO members), Article 40(1).

6  Ibid, Article 40(2).

7  Article 7 of TRIPS, ‘The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.’

8  Article 8(2) of TRIPS, ‘Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.’

9  Article 30 of TRIPS, ‘Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.’

10  Article 31 of TRIPS is about compulsory licence.

11  Legislative Law of PRC (Revised in 2015), Article 7.

12  Ibid, Article 65.

13  Ibid, Article 80.

14  Article II of the Resolution of the Standing Committee of the National People’s Congress Providing an Improved Interpretation of the Law (promulgated and came into effect as of 10 June 1981).

15  Article 52 of the Contract Law, ‘A contract is invalid under any of the following circumstances:

  1. (1)  either party enters into the contract by means of fraud or coercion and impairs the State’s interests;

  2. (2)  there is malicious conspiracy causing damage to the interests of the State, of the collective or of a third party;

  3. (3)  there is an attempt to conceal illegal goals under the disguise of legitimate forms;

  4. (4)  harm is done to social and public interests; or

  5. (5)  mandatory provisions of laws and administrative regulations are violated.’

16  Article 14 of Interpretation II of the Supreme People’s Court on Certain Issues concerning the Application of the Contract Law (promulgated on 24 April and came into effect as of 13 May 2009).

17  Most of ‘mandatory provisions on management’ are prohibitive or restrictive rules, in breach of which would not lead to invalidity of a contract. However, parties to a contract need to bear administrative liabilities.

18  Article 329 of the Contract Law.

19  Article 113 of the Contract Law.

20  Article 120 of the Contract Law.

21  Article 118 of General Principles of Civil Law of PRC.

24  Article 8(2) of TRIPS.

25  Article 8 of the Foreign Trade Law (1994).

26  Article 27 of the Foreign Trade Law (1994), ‘Foreign trade shall be undertaken in compliance with law and under the principle of fair competition with the infringement upon the IPRs protected by law of PRC being strictly prohibited.’

27  The Foreign Trade Law (1994) had been revised and adopted at the 8th Session of the Standing Committee of the 10th National People’s Congress of PRC on 6 April 2004, and the revised edition was promulgated for implementation from 1 July 2004. Article 1 of the Foreign Trade Law (2004).

28  Ministry of Commerce (‘MOFCOM’), a department in charge of both domestic and international business, economy, and trade under the State Council, was established in 2003. The First Session of the Tenth National People’s Congress decided to combine the previous Ministry of Foreign Trade and Economic Cooperation and State Economic and Trade Commission, establishing MOFCOM.

29  For example, Articles 6, 26, 29, 30, 32, et al of the Foreign Trade Law (2004).

30  Article 1 of the Foreign Trade Law (2004), ‘With a view to expanding the opening-up to the outside world, developing foreign trade, maintaining the order of foreign trade, safeguarding foreign trade operators’ legal rights and interests, and promoting the healthy development of the socialist market economy, this Law is formulated.’

31  Article 30 of the Foreign Trade Law (2004).

32  Article 48(2) of the Patent Law.

33  Article 49 of the Patent Law.

34  Article 50 of the Patent Law.

35  Article 51 of the Patent Law.

36  Article 52 of the Patent Law.

37  Article 57 of the Patent Law.

38  Article 1 of the Administration Regulations over Technology Import and Export, ‘With a view to regulating the administration of technology import and export, maintaining the order of technology import and export, and promoting national economic and social development, this Regulation is formulated pursuant to the Foreign Trade Law (1994) and other relevant laws.’ However, the effectiveness of the Foreign Trade Law (1994) has already expired, and is replaced by the Foreign Trade Law (2004).

39  Pursuant to the Decision of the State Council on Repealing and Revising Certain Administrative Regulations promulgated on 8 January 2011, the expression of ‘technologies falling under any of the circumstances prescribed in Article 16 or Article 17 of the Foreign Trade Law (1994)’ under Article 8 and Article 31 herein shall be revised to read as ‘technologies falling under any of the circumstances prescribed in Article 16 of the Foreign Trade Law (2004)’. Articles 16 and 17 of the Foreign Trade Law (1994) were about circumstances under which technology import or export might be restricted and prohibited respectively, while Article 16 of the Foreign Trade Law (2004) is about circumstances under which goods or technologies import or export might be restricted or prohibited.

40  Article 2 of the Administration Regulations over Technology Import and Export.

41  Article 4 of the Administration Regulations over Technology Import and Export, ‘Technology import and export shall be in line with State policies on industries, science and technology, as well as social development. It shall also be conducive to promoting China’s scientific and technological progress and the development of foreign economic and technological cooperation, and to safeguarding China’s economic and technological rights and interests.’

42  Articles 7 and 30 of the Administration Regulations over Technology Import and Export.

43  Article 27 of the Administration Regulations over Technology Import and Export.

44  Article 29 of the Administration Regulations over Technology Import and Export.

45  ‘Intel charged with tech monopoly’, available at http://www.chinadaily.com.cn/english/doc/2005-04/05/content_431159.htm, accessed 30 May 2016.

46  ‘Intel settles copyright fight with Chinese company’, available at <http://www.itworldcanada.com/article/intel-settles-copyright-fight-with-chinese-company/8791>, accessed 30 May 2016.

47  ‘Intel settles copyright infringement suit with China firm’, available at <http://www.chinaipmagazine.com/en/journal-show.asp?id=353>, accessed 23 May 2016.

48  Article 55 of the AML, ‘This law is not applicable to undertakings who exercise their intellectual property rights in accordance with the laws and administrative regulations on intellectual property rights; however, this law shall be applicable to the undertakings who eliminate or restrict market competition by abusing their intellectual property rights.’

49  Article 38(2) of the AML, ‘All units and individuals shall have the right to report to the authority for enforcement of the Anti-Monopoly Law against suspected monopolistic conducts. The latter shall keep the information confidential.’

50  Provisions on Prohibiting the Abuse of Intellectual Property Rights to Eliminate and Restrict Competition (promulgated on 7 April 2015 and came into effect as of 1 August 2015, ‘SAIC IPRs Provisions’).

51  The previous ones are:

  1. 1.  Provisions on the Procedures for the Administrative Organs for Industry and Commerce to Prevent Abuses of Administrative Powers to Exclude or Restrain Competition;

  2. 2.  Provisions on the Procedures for the Administrative Organs for Industry and Commerce to Investigate Cases Concerning Monopoly Agreements and Abuses of Dominant Market Positions;

  3. 3.  Provisions for Administrative Authorities for Industry and Commerce on Prohibiting Conclusion of Monopoly Agreements;

  4. 4.  Provisions for Administrative Authorities for Industry and Commerce on Prohibiting Abuses of Dominant Market Positions; and

  5. 5.  Provisions for Administrative Authorities for Industry and Commerce to Prevent Abuses of Administrative Powers to Eliminate or Restrict Competition.

52  Article 15 of the SAIC IPRs Provisions stipulate steps that might be taken by SAIC in analysing and determining whether a business operator has abused IPRs to eliminate or restrict competition.

Article 16 lists factors which shall be taken into consideration by SAIC in analysing and determining the impact on competition by exercise of IPRs.

53  The final version of the SAIC IPRs Provisions deleted Article 14 of its Draft for Comments (promulgated on 11 June 2014, and the solicitation period lasted until 10 July 2014), which is about actions forbidden to be taken by the collective management organization of copyright.

54  Article 5 of the SAIC IPRs Provisions.

55  Article 7 of the SAIC IPRs Provisions.

56  Article 12 of the SAIC IPRs Provisions.

57  Article 13 of the SAIC IPRs Provisions.

58  Article 13 of the AML, ‘Competing undertakings are prohibited from concluding the following monopoly agreements:

  1. (1)  on fixing or changing commodity prices;

  2. (2)  on restricting the amount of commodities manufactured or marketed;

  3. (3)  on splitting the sales market or the purchasing market for raw and semi-finished materials;

  4. (4)  on restricting the purchase of new technologies or equipment, or the development of new technologies or products;

  5. (5)  on joint boycotting of transactions; and

  6. (6)  other monopoly agreements confirmed as such by the authority for enforcement of the Anti-Monopoly Law under the State Council.

For the purposes of this Law, monopoly agreements include agreements, decisions and other concerted conducts designed to eliminate or restrict competition.’

59  Article 14 of the AML, ‘Undertakings are prohibited from concluding the following monopoly agreements with their trading counterparts:

  1. (1)  on fixing the prices of commodities resold to a third party;

  2. (2)  on restricting the lowest prices for commodities resold to a third party; and

  3. (3)  other monopoly agreements confirmed as such by the authority for enforcement of the Anti-Monopoly Law under the State Council.’

60  Article 15 of the AML, ‘The provisions of Articles 13 and 14 of this law shall not be applicable to the agreements between undertakings which they can prove to be concluded for one of the following purposes:

  1. (1)  improving technologies, or engaging in research and development of new products; or

  2. (2)  improving product quality, reducing cost, and enhancing efficiency, unifying specifications and standards of products, or implementing specialized division of production;

  3. (3)  increasing the efficiency and competitiveness of small and medium-sized undertakings;

  4. (4)  serving public interests in energy conservation, environmental protection and disaster relief;

  5. (5)  mitigating sharp decrease in sales volumes or obvious overproduction caused by economic depression;

  6. (6)  safeguarding legitimate interests in foreign trade and economic cooperation with foreign counterparts; or

  7. (7)  other purposes as prescribed by law or the State Council.

In the cases as specified in Subparagraphs (1) through (5) of the preceding paragraph, where the provisions of Articles 13 and 14 of this Law are not applicable, the undertakings shall, in addition, prove that the agreements reached will not substantially restrict competition in the relevant market and that they can enable the consumers to share the benefits derived therefrom.’

61  Article 80(2) of the Legislation Law, ‘Matters prescribed by department rules shall be matters for the application of laws or the administrative regulations, decisions, or orders of the State Council. Without the bases prescribed by laws or the administrative regulations, decisions or orders of the State Council, department rules shall not contain provisions that reduce the rights or increase the obligations of citizens, legal persons and other organizations, and shall not contain provisions that enhance the power or reduce the statutory duties of the department concerned.’

62  Article 9 of the AML.

63  Guidelines for Anti-Monopoly Enforcement against Abuse of IPRs (7th Draft of SAIC) Issued to Solicit Public Comments, available at <http://home.saic.gov.cn/fldyfbzdjz/gzdt/201602/t20160204_205344.html>, accessed 9 October 2018.

64  ‘NDRC holds press conference for work of price reform and supervision’, available at <http://www.scio.gov.cn/xwfbh/gbwxwfbh/xwfbh/fzggw/Document/1453975/1453975.htm>, accessed 30 May 2016.

65  Anti-Monopoly Guidelines for Abuse of Intellectual Property Rights (Draft for Comments) Issued to Solicit Public Comments, available at <http://jjs.ndrc.gov.cn/fjgld/201512/t20151231_770233.html>, accessed 30 May 2016.

66  Article II.A of the Draft of NDRC IPRs Guidelines, ‘Joint research and development means that two or more undertakings jointly research and develop technology or products.’

67  Ibid, ‘Patent pool refers that two or more patentees jointly license their respective IPRs to others. Patent pool takes such forms as establishing dedicated company, entrusting certain member to manage or entrusting an independent third party to manage.’

68  Ibid, ‘Cross-licensing means that undertakings license their respective IPRs to each other.’

69  Ibid, ‘Standard setting means that undertakings jointly set the standards involving IPRs uniformly implemented in certain scope.’

70  Article II.B of the Draft of NDRC IPRs Guidelines, ‘Grant-back means that the licensees grant the follow-up improvements made upon the licensed IPRs or new fruits generated by using the licensed IPRs to the licensors. Exclusive grant-back means that only the licensors have the right to implement the improvement or new fruits granted back by the licensees.’

71  Ibid, ‘Under non-challenge clause, the licensors require the licensees not to challenge the validity of licensors’ IPRs.’

72  Ibid, IPRs agreements concluded by undertakings without a competing relationship may include clauses 1, restricting the licensees to use IPRs within a specific field; 2, restricting distribution channels, scope of distribution, or trading counterparts of products provided by the licensees through using the IPRs; 3, restricting volume of product produced or sold by using the IPRs; or 4, prohibiting the licensees from obtaining license or using competing IPRs from a third party, or prohibiting the licensees from producing or selling products which are competitive to products of the licensors.

73  Guidelines on General Conditions and Procedures for the Exemption of Anti-Competitive Agreements (Draft for Comment) Issued to Solicit Public Comments, available at <http://www.ndrc.gov.cn/gzdt/201605/t20160512_801562.html#rd?sukey=3903d1d3b699c208abbb713d238ffba03f3c173c8506c366b1dace5a669660e63fd85a879d78a149ee7da3a6e5448fa1>, accessed 25 May 2016.

74  Article 2 of Draft of Exemption Guidelines.

75  Article 3 of Draft of Exemption Guidelines.

76  OECD Policy Roundtables—Standard Setting 2010, available at <http://www.oecd.org/daf/competition/47381304.pdf> p19, accessed 24 May 2016.

77  See ‘Technical Information on Technical barriers to trade’, available at https://www.wto.org/english/tratop_e/tbt_e/tbt_info_e.htm, accessed on 24 May 2016.

78  Wang Xiaoye, ‘Research on Anti-Monopoly Litigation of SEPs’, China Legal Science (June 2015).

80  Article 6 of the Standardization Law of the People’s Republic of China (‘Standardization Law’, promulgated on 29 December 1988, and came into effect on 1 April 1989). What’s more, the General Administration of Quality Supervision, Inspection and Quarantine (‘AQSIQ’) had revised the current Standardization Law, drafted an Amendment (Draft for Review), and submitted it to the State Council. The Legislative Affairs Office of the State Council studied and revised, in concert with the AQSIQ and the Standardization Administration of China, the Draft for Review and released the Standardization Law of the People’s Republic of China (Draft Revision for Comment) (the ‘Draft for Comment’) for public comments on 22 March 2016 until 21 April 2016. The Draft for Comment clarifies that national standards shall be formulated for technical and administrative requirements that need to be unified nationwide. National standards shall be classified into compulsory standards and voluntary standards. Compulsory national standards shall be formulated for technical and administrative requirements that need to be unified to secure personal health and life and property security, state security, and ecological environment safety and meet the basic requirements for social and economic administration. Voluntary national standards shall be formulated by the competent administrative department for standardization under the State Council. Article 17(2) of the Draft for Comment stipulates that the use of standards for engaging in illegal activities such as imposing industry barriers, setting up regional blockades, engaging in unfair competition, etc. shall be prohibited.

81  Opinions on Giving Full Play to Functions of the Trial so as to Provide Judicial Protection to Deep Reform of Science and Technology System and Speedy National System Construction, available at <http://www.court.gov.cn/zixun-xiangqing-4825.html>, accessed 25 May 2016.

82  Such as Huawei v InterDigital judged by Guangdong High People’s Court, available at www.gdcourts.gov.cn/gdcourt/front/front!content.action?lmdm=LM41&gjid=20140417024309113155, accessed 26 May 2016 and the Qualcomm Case decided by NDRC, available at http://jjs.ndrc.gov.cn/fjgld/201503/t20150302_666170.html, accessed 25 May 2015.

83  Such as MOFCOM’s conditional clearance of Microsoft’s acquisition of Nokia’s Devices and Services Business available at http://fldj.mofcom.gov.cn/article/ztxx/201404/20140400542415.shtml, accessed 26 May 2016, Merck KGaA’s acquisition of AZ Electronic Materials S.A., available at http://fldj.mofcom.gov.cn/article/ztxx/201404/20140400569060.shtml, accessed 26 May 2016, and Nokia’s proposed acquisition of 100 per cent stock of Alcatel-Lucent, available at http://fldj.mofcom.gov.cn/article/ztxx/201510/20151001139743.shtml, accessed 25 May 2016.

84  Article 55 of the AML.