Provisions on Prohibition of the Abuse of Intellectual Property Rights to Exclude or Restrict Competition
Recently, the SAMR issued the “Provisions on Prohibition of the Abuse of Intellectual Property Rights to Exclude or Restrict Competition” (hereinafter referred to as the “New Provisions”), which will come into effect on August 1, 2023. As one of the supporting regulations of the “Anti-Monopoly Law”, the revised “New Provisions” has increased the number of articles from 19 to 33 compared to the previous version issued in 2020. The main modifications are as follows:
- Regarding the monopoly agreements
| Item | Key amendments |
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1 |
Article 3 of the previous version stipulates that the illegal act starts from the time point of “implementing” of a monopoly agreement, but the “New Provisions” stipulates that the illegal act starts from the time point of “reaching” a monopoly agreement. |
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2 |
Article 6 of the “New Provisions” adds that, “Undertakings may not, by way of exercising IPR, organize other undertakings to reach monopoly agreements or provide substantive assistance for other undertakings to reach monopoly agreements.” |
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3 |
Article 18 of the “New Provisions” adds that, “An undertaking may not, without justifiable reasons, reach any of the following monopoly agreements by taking advantage of the formulation and implementation of standards in the process of exercising its IPR: (I) jointly with a competing undertaking to exclude certain undertakings from participating in the formulation of standards, or exclude certain undertakings from proposing relevant standards and technical schemes; (II) jointly with a competing undertaking to exclude certain other undertakings from implementing relevant standards; (III) agreeing with a competing undertaking not to implement other competitive standards; and (IV) other monopoly agreements as determined by the SAMR.” |
| 4 | Article 25 of the “New Provisions” adds that, “It is prohibited for an undertaking organizes other undertakings to conclude a monopoly agreement or provides substantive assistance for other undertakings to conclude a monopoly agreement.”
According to paragraph 2 of Article 18 of the “Provisions on Prohibition of Monopoly Agreements”, the substantive assistance provided by the undertaking to other undertakings to reach a monopoly agreement includes the provision of necessary support, creation of key convenient conditions or other important assistance. Note: The specific acts of providing the substantive assistance require further clarification by judicial interpretations or guidance cases. |
- Regarding the abuse of dominant market position
| Item | Key amendments |
| To add more factors for determining the dominant position | Considering the special nature of IPR, the third paragraph of Article 8 of the “New Provisions” adds that, “In order to determine whether an undertaking who owns IPR has the dominant position in the relevant market, the following factors may also be considered: the possibility of the transaction counterparties switching to substitutable technologies or products and the transfer costs in the relevant market, the dependence of the downstream market on the products provided by applying the IPR, and the capability of the transaction counterparties to check and balance the undertaking.” |
| To add provisions regarding unfair high price | Refer to Article 15 of the “Anti-monopoly Guidelines of the Anti-monopoly Commission under the State Council for the Field of Intellectual Property Rights”, Article 9 of the “New Provisions” adds that, “An undertaking who is of dominant market position may not, in the process of exercising its IPR, license the IPR at an unfair high price or sell the products containing the IPR, so as to exclude or restrict competition. The following factors may be considered in the identification of the act prescribed in the preceding paragraph: (I) the research and development cost and recovery cycle of the said cost of the IPR; (II) the calculation method of the license fee for the IPR and licensing conditions; (III) the previous license fee or license fee criteria that may be compared for the IPR; (IV) the commitments made by the undertaking as to the licensing of the IPR; and (V) any other relevant factors to be considered.”
Note: In consideration of the low marginal effect of IPR, that is, the party has to invest a large amount of costs in R&D, but the nobody knows the result, so the factor (I) is listed. |
| To add a new type of prohibited “restricted transactions behavior” | To be consistent with Article 17 of the “Anti-Monopoly Law”, Article 11 of the “New Provisions” adds a new type of prohibited “restricted transactions behavior”, which is, “restricting the trading counterparties to engage in transactions only with designated undertakings.” |
| To amend the behaviors related to tie-in sales | Article 12 of the “New Provisions” wholly amended the behaviors as stipulated in the previous version. It stipulates that, “An undertaking who is of dominant market position may not, in the process of exercising its IPR, go against the transaction practice or consumption habit of the industry or field or disregard the functions of the commodities to engage in the following tie-in sales so as to exclude or restrict competition without justifiable reasons: (I) compelling or compelling in a disguised form the licensee to purchase other unnecessary products during the licensing of IPR; or (II) compelling or compelling in a disguised form the licensee to accept a package license during the licensing of IPR. |
| To amend rules regarding of imposing unreasonable terms of transaction | For a matter that no longer possess IPR, even if the operator attaches unreasonable terms of transaction, it could not gain profit from this matter. Therefore, Article 13 of the “New Provisions” deletes the terms as “(4) continuing to exercise IPR for which the protection period has expired or been declared void.”, which is stipulated in Article 10 of the previous version. At the same time, it adds a term as “requiring the transaction counterparties to grant back the technologies improved thereby on an exclusive or sole basis, or requiring the transaction counterparties to conduct a cross license in the same technical field without offering reasonable consideration.” |
| To adds types of behaviors related to a patent pool | Article 17 of the “New Provisions” adds 3 types of behaviors related to a patent pool, which are, (I) licensing a patent in the pool at an unfairly high price; (II) restricting the scope of patent use by a member of the patent pool or a licensee without justifiable reasons; and (III) prohibiting a licensee from questioning the effectiveness of a patent in the pool without justifiable reasons. |
| To add rules related to a pre-good-faith negotiation | Article 19 of the “New Provisions” adds that, “In the process of licensing an essential patent for a standard, violating the principles of fairness, reasonableness and non-discrimination and without good-faith negotiation, requesting a court or any other relevant authority to make a judgment, ruling or decision, etc. on prohibiting the use of relevant IPR, forcing a licensee to accept an unfair high price or other unreasonable transaction conditions.” |
- To add provisions regarding a concentration of undertakings involving IPR
In consistence with the “Anti- Monopoly Law”, Article 15 of the “New Provisions” adds that, “Where a concentration of undertakings involving IPR reaches the threshold of declaration prescribed by the State Council, the undertakings concerned shall make a declaration in advance to the SAMR.”
Refer to Article 24 of the “Anti-monopoly Guidelines of the Anti-monopoly Commission under the State Council for the Field of Intellectual Property Rights”, Article 16 of the “New Provisions” adds that, “Depending on the specific circumstances of a concentration transaction involving IPR, the additional restrictive conditions may include the following circumstances: (I) divestiture of IPR or business involving IPR; (II) maintaining the independent operation of business in relevant to IPR; (III) licensing IPR on reasonable terms; and (IV) other restrictive conditions.”
Finally, Articles 25 to 28 of the “New Provisions” are provisions on administrative penalties, which are basically consistent with Articles 56 to 59, and Article 63 of the “Anti-Monopoly Law”.