Anti-monopoly Guidelines on Abuse of Intellectual Property Rights (Draft for Comments)(Mainland China)

James Cheng
On March 23, 2017, the State Council Anti-monopoly Committee promulgated the second version of the Anti-monopoly Guidelines on Abuse of Intellectual Property Rights (Draft for Comments) (the “Guidelines”) following the previous version promulgated at the end of 2015. The Draft for Comments was based on the Anti-monopoly Guidelines on Abuse of Intellectual Property Rights (Draft Recommendations) that each of the National Development and Reform Commission, the Ministry of Commerce, the State Administration of Industry and Commerce and the Intellectual Property Office has separately prepared. Once the Guidelines, which are collectively prepared by the State Council Anti-monopoly Committee, are formally promulgated, they will become the law enforcement standards and the analytical framework to handle abuse of intellectual property rights and anti-competitive issues, as well as further provide unified guidance for the application of the Anti-monopoly Law of the People’s Republic of China to abuses of intellectual property rights. Therefore, even at the comment solicitation stage, the Guidelines represent a consensus viewpoint of the various ministries and commissions. This article seeks to introduce the Guidelines as follows in comparison with the existing Anti-monopoly Law:
First, the Guidelines no longer differentiate between horizontal and vertical agreements with respect to monopolistic intellectual property agreements, thereby expanding the original scope of examination for vertical agreements. In addition, a safe harbor system is set up for the exercise of intellectual property rights.
The Guidelines abandon the previous classification of horizontal or vertical agreements, and Chapter II enumerates the common circumstances where a monopolistic agreement on intellectual property rights may be constituted in practice, including joint research and development, cross-licensing, monopolistic grantbacks, no-challenge clauses, standard setting and other restrictions. Such requirement in fact expands the scope of examination on vertical agreements under Article 14 of the Anti-monopoly Law, with many other types of vertical agreements that now needs to be examined, including restrictions in a license based on region, sales channels, sales scope, sales targets, quantities of goods, use of competing technologies or provision of competing goods. In addition, with respect to the safe harbor system, Article 12 of the Guidelines provides that under the miscellaneous provisions concerning monopolistic agreements under Article 13, Paragraph 1, Subparagraph 6 and Article 14, Subparagraph 3 of the Anti-monopoly Law, an agreement in a specific matter shall be excluded from the scope of the monopolistic agreements prohibited by the Anti-monopoly Law unless there is evidence that otherwise substantiates such agreement as have an effect of eliminating and restricting competition in the relevant markets. The thresholds for the safe harbor measures include the following: The combined market share of competing business operators in the relevant market shall not exceed 20%; the market share of non-competing business operators shall not exceed 30% in any relevant market affected by an intellectual property agreement; if market share information about the business operators in relevant markets is hard to come by, or if market shares do not accurately reflect the market position of a business operator, but there are at least four substitutive technologies other than the technologies controlled by the parties to the agreement in the relevant market that are independently controlled by other operators and may be acquired at reasonable cost. The safe harbor for horizontal agreements is 20%, while 30% is the determination threshold for vertical agreements, which is in line with international conventions, and the substitutability requirement is based on the specific circumstances of China.
In addition, the Guidelines incorporate earlier cases involving Huawei suing IDC and the Qualcomm anti-monopoly case to further break down acts constituting abuse intellectual property rights, including unreasonable prices for licensing intellectual property, refusal to license intellectual property, tie-in involving intellectual property, failure to attach reasonable commercial terms in a matter involving intellectual property rights and discriminatory treatment in a matter involving intellectual property rights.
With respect to licensing intellectual property at unfair and exorbitant prices, which had previously raised a lot of eyebrows and, the relevant leaders of the anti-monopoly authority specifically stated that anti-monopoly is not about direct intervention of market prices, instead, it is about price analysis and behavioral analysis by analyzing various factors, such as the value, creativity, contribution, coverage and effective term of the intellectual property in question. Price analysis seeks to determine if the licensing behavior of an intellectual property rights holder is discriminatory on price against the licensee, while behavioral analysis determines if a licensing agreement contains unfair and unreasonable terms, e.g., the bundling of standard essential patents and non-standard essential patents for sale or free cross-licensing, etc.
The Guidelines further deal with concentration of intellectual property rights business operators, which primarily includes the concentration of businesses caused by intellectual property transactions, the examination of matters involving a concentration of intellectual property business operators, and the attachment of restrictive terms to intellectual property rights.
Article 19 of the Guidelines provides that when conducting specific analysis to determine whether a business is able to control or otherwise exert a decisive impact on another business through the use of intellectual property transfer and exclusive licensing the factors that should be considered include: (1) whether the intellectual property rights constitute an independent business, (2) whether the intellectual property created independent and assessable business turnover in the previous accounting year, and (3) whether there are any exclusive licensing terms for intellectual property rights. These requirements are derived from the lawsuit between Huawei and InterDigital Group, in particular, the annual reports released by InterDigital indicate that its revenues were primarily generated from royalties under patent licensing agreements. However, aside from the parties’ own assertions, what is considered “independent business” and how can “independent and assessable business turnover” be determined still require further refinement.