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To implement the June 2022 revised Anti-Monopoly Law of the People’s Republic of China (“Anti-Monopoly Law”), the State Administration for Market Regulation (“SAMR”) began drafting a revision of the Provisions on Prohibiting Abuse of Intellectual Property Rights to Exclude and Restrict Competition (“2015 Provisions”) promulgated in 2015, and adopted a new comprehensive version of the Provisions on 25 June 2023. The newly revised Provisions (“2023 Provisions”), will come into force on 1 August 2023, changed from 19 Articles in the Provisions 2015 to 33 Articles, retaining only the original Article 11, modifying the other 18 Articles, and adding 14 new Articles.
According to Article 3 of the 2023 Provisions, the abuse of intellectual property rights to exclude or restrict competition refers to monopoly agreements, abuse of a dominant position in the market, or the implementation of a concentration of undertakings that has or may have the effect of excluding or restricting competition concluded or conducted by the exercise of intellectual property rights by undertakings in violation of the provisions of the Anti-Monopoly Law. According to Article 5 of the 2023 Provisions, the relevant market includes the relevant product market and geographical market. The relevant product market includes the relevant technology market constituted by the competition between the technologies involved in the exercise of intellectual property rights and similar technologies that can be substituted for each other.
Articles 8 to 14 of the 2023 Provisions set out in detail the rules for determining market dominance. It is specified that the legal basis for determining whether an undertaking has a dominant market position is the Anti-Monopoly Law and the Provisions on Prohibiting Abuse of Dominant Market Positions. An undertaking’s possession of intellectual property rights may constitute one of the factors for determining its dominant market position, but it is not a necessary condition for the determination. Factors for the dominance determination include the likelihood and cost of switching to alternative technologies or products by the counterparties in the relevant market, the degree of reliance on the products provided by the intellectual property right in the downstream market, and the ability of the counterparty to check and balance the undertaking.
The 2023 Provisions enumerate factors for the determination of several prohibited abuses of dominance in the process of exercising intellectual property rights, including excessive pricing, refusal to license, limitation to deal, tying practices, imposition of unreasonable terms and discriminatory treatment. For example, factors considered in determining the abuse of excessive pricing include R&D cost, payback circle, the method of calculating the license fee, licensing conditions, comparable historical license fees and license fee rates regarding the relevant intellectual property right. Factors considered in determining the abuse of refusal to license are the relevant intellectual property right cannot be reasonably substituted and is necessary for other undertakings to compete in the relevant market; refusal to license will adversely affect competition or innovation in the relevant market, cause damage to the interests of consumers or the public interest, and licensing of the intellectual property right will not cause unreasonable harm to the undertakings.
Article 17 of the 2023 Provisions modifies and improves the specific provisions on monopoly agreement and abuse of dominance concerning the patent pool in the Provisions 2015. Firstly, it amended the original definition of the patent pool as two or more undertakings jointly licensing their respective patents to pool members or third parties by agreeing, establishing a company or other entity, etc. Secondly, it expands on the sensitive information related to competition that pool members are prohibited from exchanging to enter into monopoly agreements, including price, output and market division. Thirdly, it adds three new abuses of dominance. They are licensing patents of the patent pool at unfairly high prices, unreasonably restricting the scope of use of patents by the pool members or licensees, and compulsory combination licensing of patents such as competitive patents, non-essential patents and terminated patents without justified reasons.
Articles 18 and 19 of the 2023 Provisions are specially developed for key areas such as wireless communications. Article 18 amended substantially the original provisions on the prohibitions during the formulation and implementation of standards in the 2015 Provisions. According to the new provision, the undertakings shall not unreasonably use the development and implementation of standards in the exercise of intellectual property rights to enter into a monopoly agreement with competing undertakings to jointly exclude a specific undertaking from participation in the development of standards, to exclude the technical solutions of the relevant standards from a specific undertaking, to jointly exclude other specific undertakings to implement the relevant standards, or not to implement other competing standards by agreement.
Article 19 stipulates those undertakings with dominant positions must not engage in four specific acts in the process of formulating and implementing standards. These acts include failing to fully disclose information about its patent rights promptly following the provisions of the standard-setting organization, or expressly waiving its rights, but asserting such patent rights from the standard implementer after the standard involves such patents; violation of the principle of fairness, reasonableness and non-discrimination by licensing at an unfairly high price, refusing to license, tying products, imposing other unreasonable transaction conditions, or implementing differential treatment after its patent becomes essential to that standard (“standard-essential patent”); and without good faith negotiations, unreasonably requesting the court to issue an injunction forcing the licensee to accept unfairly high prices or other unreasonable trading conditions.
In addition to listing some of the specific abuse of intellectual property rights to exclude and restrict competition in Articles 10 to 14, and 17 to 19, the 2023 Provisions also provide justifiable reasons in Article 20. These reasons, which can exempt some acts from the determination of the abuse, include conducive to encouraging innovation and promoting fair competition in the market, necessary for the exercise or protection of intellectual property rights, necessary to meet product safety, technical effects or product performance, and meets the actual needs of the transaction counterparty and complies with proper industry practices and trading habits. In particular, it should be emphasized that the defense of “conducive to encouraging innovation and promoting fair competition in the market” is not listed in the Provisions on Prohibiting Abuse of Dominant Market Positions. It indicates that such a defense can be applied only for abuses of dominance in the process of exercising intellectual property rights.
According to Articles 25 to 29 in the 2023 Provisions, an undertaking’s violation by reaching and implementing a monopoly agreement, abuse of dominance or illegally implementing a concentration will be subject to a fine of up to 10% of the previous year’s sales or RMB 5 million, and its legal representative and other individuals concerned are also subject to a fine of up to RMB 1 million. In serious cases, a punitive fine from two times to five times the amount of the fine will apply.
In conclusion, the 2023 Provisions expand the connotation of abuse of intellectual property rights to exclude and restrict competition, improve the rules for the determination of monopolistic acts through exercising intellectual property rights, and strengthen the regulation of typical and special monopolistic acts in the field of intellectual property rights. The Interpretation of the Provisions on Prohibiting Abuse of Intellectual Property Rights to Exclude and Restrict Competition are worthy of review, as are illustrative guidelines offered in the introduction of the 2023 Provisions.