Jolene Chen and Teresa Huang
On November 17, 2022, the Supreme People’s Court published twenty typical anti-monopoly and anti-unfair competition cases tried by the people’s courts. In the second case, i.e., the case involving a dispute over the horizontal monopoly agreement, “de-energized tap-changer patent infringement settlement agreement” (No. 1298  Final, Civil, IP, SPC of the Supreme People’s Court, the monopoly agreement dispute case of Shanghai Huaming Power Equipment Co., Ltd. v. Wuhan Taipu Transformer Switch Co., Ltd.), the Supreme People’s Court analyzed in depth the characteristics, fundamental purpose and essence of the agreement concerned, and then analyzed the content of the agreement as a whole from the perspective of the market competition order in light of the provisions of the Anti-monopoly Law on horizontal monopoly, and made a judgment based on the comprehensive consideration of the content and relevance, and the actual or potential effect of eliminating or restricting competition of the relevant articles of the agreement, etc. This case is an important guideline for determining whether a future case involving patent rights is a monopolistic act. The following is a description of the key facts of the case and the opinion of the Supreme People’s Court.
In 2015, Taipu Company filed a lawsuit against Huaming Company for infringement upon its invention patent right for “a kind of de-energized tap-changer with a shielded device.” In January 2016, both parties entered into a “mediation agreement” (which was a settlement agreement without court confirmation), stipulating that: Huaming Company could only produce certain kinds of de-energized tap-changers, and could only resell other kinds of de-energized tap-changers to downstream customers through Taipu Company, and the sales price should be determined according to the supply price of Taipu Company. Moreover, in overseas markets, Huaming Company shall act as the market agent of Tai Pu United, the company in which Taipu holds shares, and shall not produce by itself or act as an agent of any other enterprise for the same kind of products, and the sales price shall be consistent with the supply price of Taipu. In 2019, Huaming Company filed a lawsuit with the court, claiming that the settlement agreement involved in this case was a monopolistic agreement that violated the Anti-monopoly Law and should be determined as invalid.
In this case, the court of first instance held that both parties divided the market according to the type of products in order to avoid patent infringement disputes between them again, while granting Huaming Company the rights to develop overseas market agents in view of the tax rebate, and therefore the agreement was entered into for the purpose of business cooperation, and held that the plaintiff should prove its claim that the mediation agreement had monopoly effect.
The court of second instance took a completely different view, holding that the claims of the patent involved in this case protect a kind of de-energized tap-changer with a shielded device and did not involve a specific type or shape of de-energized tap-changers, while the mediation agreement in dispute divided the products by the type of de-energized tap-changers into cage shape and non-cage shape (including drum, bar, cylinder, or squirrel cage shapes, etc.); but in the overseas market, it divided the products by the manufacturer of de-energized tap-changers, i.e., de-energized tap-changers produced by Taipu Company and de-energized tap-changers produced by other enterprises, and such division was used as a basis to restrict Huaming Company’s production and sale of certain specific types of de-energized tap-changers, but this restriction was not substantially related to the scope of protection of the patent involved in this case. It can be seen from above that the core of the mediation agreement in this case does not lie in the protection of the patent right, but is to pursue the effect of dividing the sales market, limiting the production and sales quantity of goods and fixing prices under the guise of exercising the patent right, which is an abuse of the patent right and constitutes an act of eliminating or restricting competition, and breaches the provisions of the Anti-monopoly Law. In addition, in view of the fact that the agreement is a horizontal monopoly agreement entered into by two competing enterprises, the party being sued for monopoly shall bear the burden of proving that the agreement does not have the effect of eliminating or restricting competition. However, in this case, Taipu Company has no sufficient evidence to prove that the mediation agreement has the effect of promoting competition and the effect exceeds the effect of eliminating or restricting competition, therefore, the mediation agreement shall be determined as having the effect of eliminating or restricting competition. Moreover, Article 15 of the Provisions of the Supreme People’s Court on Several Issues concerning the Application of Law in the Trial of Civil Disputes Arising from Monopolistic Acts stipulates that: “If the contents of the contract or the constitution of a trade association being sued violate the Anti-monopoly Law or the mandatory provisions of other laws and administrative regulations, the people’s court shall determine them as invalid according to law, except where the mandatory provisions do not cause the civil juristic act invalid.” Thus, the court held that the mediation agreement involved in this case violates the mandatory provisions on validity and is invalid.
In this case, the Supreme People’s Court dissected the essence of the mediation agreement concerned in greater depth, and reviewed whether the content of the agreement signed was in essence an act of dividing the sales market, limiting the production and sales quantities of goods and fixing prices, and achieving monopoly benefits by eliminating and restricting competition in the relevant market. Through this case, the criteria for analyzing and judging horizontal monopoly agreements involving the license of patent rights are clarified, and guidelines are provided for reviewing whether a mediation or settlement agreement reached by parties to a patent infringement case violates the Anti-monopoly Law.
This case also weighed the protection of the legal monopoly rights of patents against the protection of consumer interests and social and public interests, and is of positive significance to regulate the lawful exercise of the rights of patentees and raise the awareness of anti-monopoly rule of law in the whole society.
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