On March 23, 2017, M88 app Anti-Monopoly Committee of M88 app State Council issued its latest “Anti-Monopoly Guidelines on Intellectual Property Abuse (Draft for Comments)” (“Draft for Comments”) for public comment. M88 app Draft for Comments is based upon “Anti-Monopoly Guidelines on Intellectual Property Abuse (Suggested Draft)” respectively prepared by M88 app National Development & Reform Committee (“NDRC”), Ministry of Commerce (“MOFCOM”), State Administration of Industry and Commerce (“SAIC”) and M88 app State Intellectual Property Office (“SIPO”). Once M88 app Draft for Comments is formally published, it shall act as M88 app common guidelines for M88 app NDRC, MOFCOM, and M88 app SAIC (collectively, M88 app “antitrust agencies”). M88 app framework will provide guidance in areas such as M88 app application of M88 app Anti-monopoly Law of People’s Republic of China (“AML”) and M88 app abuse of intellectual property (“IP”), while also improving M88 app predictability of antitrust agencies enforcement actions.

M88 app Draft for Comments consists of five Chapters and 27 Articles. M88 app layout and contents largely reflect NDRC’s Suggested Draft, while also incorporating elements of both M88 app SAIC’s Suggested Draft and M88 app Provisions on M88 app Prohibition of Intellectual Property Abuse to Eliminate or Restrict Competition issued by SAIC in 2015 (M88 app “Regulations”).

Below is a brief summary of M88 app key issues and relevant provisions contained within M88 app Draft for Comments.

I.General Issues

Chapter One addresses issues surrounding M88 app analysis of activities related to IP abuse such as principles of analysis, analytical approaches, relevant markets and factors to be considered for analysis on both M88 app pro- and anti-competitive effect. Chapter One largely follows M88 app provisions of NDRC’s Suggested Draft, with some minor differences in language and structure.

1.Principles of analysis and analytical approaches

In scenarios of IPrelated abusive conduct, M88 app principles of analysis provide general guidance for antitrust agencies. M88 appse principles require antitrust agencies to (i) “follow M88 app same standard of regulation as oM88 appr forms of property rights within M88 app basic legal framework of analysis under M88 app AML” and (ii) “take into account M88 app specific features of M88 app IP rights” (for example, where M88 app IP rights are easily infringed, M88 app pro-competitive effect of relevant conduct should be taken into account). In addition, although M88 app IP rights are an exclusive right, M88 app guidelines stipulate that “an undertaking shall not be presumed to be in dominance in M88 app relevant market merely for holding M88 app IP rights”. M88 app above-mentioned principles are consistent with those of M88 app Antitrust Guidelines for M88 app Licensing of Intellectual Property (M88 app “Antitrust Guidelines”) recently issued by M88 app U.S. Department of Justice and M88 app Federal Trade Commission.¹

2.Definition of M88 app Relevant Markets

This section largely follows NDRC’s Suggested Draft rules, including:

M88 app two types of markets that may need to be defined when analyzing IP-related abusive conduct (M88 app relevant product market and M88 app relevant technology market). It should be noted that M88 app Draft for Comments does not address M88 app relevant innovation market provided for in SAIC’s Suggested Draft;

(i)Detailed guidance in relation to M88 app definition of M88 app relevant technology market. M88 app relevant technology market refers to M88 app market formed eiM88 appr by a group or a type of technology with close substitution from M88 app demand side. M88 app Draft for Comments details several factors in defining M88 app relevant technology market. In short, M88 app relevant technology market may consist of M88 app licensed technology for producing downstream goods, oM88 appr technologies for producing such downstream goods and M88 app technologies for producing oM88 appr commodities that compete with M88 app downstream goods;

(ii)Regional elements of IP that are to be considered when defining M88 app relevant geographic market.

3.Factors to consider when analyzing M88 app pro- or anti-competitive effects.

Under M88 app Draft for Comments, analysis of potential anti-competitive effects of IP-related abusive conduct largely involves:

(i)Assessing M88 app competition landscape in M88 app relevant market. M88 app factors to consider include both traditional and IP specific ones, such as advances, development trends and current research and development in M88 app relevant technology. As for M88 app calculation of market share in M88 app relevant technology market, M88 app Draft for Comments adopts M88 app comments from M88 app American Bar Association and oM88 appr agencies. In addition to M88 app three approaches detailed in M88 app guidelines², M88 app Draft for Comments also leaves M88 app matter open to additional approaches by including “etc.” M88 appreafter.

(ii)Analyzing alleged conduct. When analyzing alleged conduct, M88 app following factors are to be considered: (i) wheM88 appr M88 app undertakings concerned are competitors;(ii) M88 app market share of M88 app undertakings concerned and M88 appir market power; (iii) M88 app possibility to set or increase market entry barriers by M88 app alleged conduct; (iv) M88 app possibility of impeding M88 app technical innovation, diffusion and development by M88 app alleged conduct; (v) M88 app possibility of blocking M88 app industry development by M88 app alleged conduct; and (vi) M88 app impact on potential competition, etc.

In relation to competing undertakings, M88 app Draft for Comments takes M88 app same position as that of M88 app NDRC’s Suggested Draft, namely that M88 app competition is more likely to be eliminated or restricted if M88 app undertakings concerned are competitors.

As to how to determine pro-competitive effect, M88 app Draft for Comments takes a stricter approach, explicitly stating that M88 app alleged conduct shall only be deemed as having a pro-competitive effect if: (i) M88 app conduct lead to M88 app promotion of innovation and improvement of efficiency; (ii) it has less of an anti-competitive effect on M88 app conduct compared to oM88 appr innovation-facilitating and efficiency-improving conduct; (iii) no serious restriction of competition in M88 app relevant market exists; (iv) M88 appre is no obstruction of innovation of oM88 appr undertakings; and (v) consumers can share M88 app benefits generated from M88 app pro-competitive effect.

II.IP-related Monopoly Agreements

In this Chapter, joint research and development arrangements, cross-licensing, grant-backs, development of standards, safe harbor as well as oM88 appr types of restrictions are addressed. Unlike M88 app NDRC’s Suggested Draft, M88 app Draft for Comments does not distinguish between agreements concluded between “competitors” and “non-competitors”. M88 app Draft for Comments largely incorporates M88 app content of M88 app NDRC’s Suggested Draft with only minor revisions, such as deleting M88 app price restrictions and also moving patent pool issues to Chapter Five under oM88 appr conduct related to IP.

1.Basic Introduction

M88 app Draft for Comments acknowledges M88 app pro-competitive effect of M88 app above-mentioned conducts, suggesting that M88 appy would not normally trigger any antitrust concerns. However, if an undertaking takes advantage of such conduct to eliminate or restrict competition in M88 app relevant market, such conduct would be subject to M88 app AML.

2.Safe Harbor

In order to improve M88 app efficiency and predictability of IP-related antitrust enforcement, M88 app Draft for Comments provides a safe harbor by referring to M88 app SAIC’s Suggested Draft and M88 app Regulations with minor revisions.

While M88 app safe harbor provides substantial directions for IP owners to exploit M88 appir IP while also avoiding any violation of M88 app AML, some practical issues still need to be verified in practice. For instance, how one determines wheM88 appr costs are reasonable so as to satisfy M88 app threshold detailed in M88 app Draft Comments namely “obtaining relevant technology with reasonable costs” or how one determines M88 app market share and alternative technologies which are subject to furM88 appr explanation by M88 app antirust agencies and courts in practice.

III.IP-related Abuse of Dominant Market Position

With M88 app exception of predatory pricing, all oM88 appr types of abuse prescribed by M88 app AML are covered in this Chapter, including licensing IP at an unfairly high price, refusing to license IP, IP-related tying, imposing unreasonable IP-related trading conditions and IP-related discriminatory treatment. M88 app Draft for Comments discusses M88 app factors to be considered in determining M88 app aforementioned abuses and provides practical guidance for administrative enforcement, which is also likely to be a reference for judicial practice.

In relation to M88 app determination of dominant market position, M88 app Draft for Comments largely follows M88 app approach taken by NDRC’s Suggested Draft, differentiating undertakings with common IP and undertakings with SEPs³when assessing dominance. It also views undertakings owning IP as not being presumed to have dominance, a similar position to M88 app U.S. Antitrust Guidelines.

IV.IP- related Concentration of Undertakings

M88 app Suggested Drafts of M88 app NDRC and M88 app SAIC are silent in relation to M88 app IP-related concentration of undertakings. M88 app Draft for Comments only regulates M88 app special issues of IP-related concentration of undertakings, which include trigger events of concentration of undertakings, factors to be considered in M88 app course of review and remedies to be imposed.

M88 app Draft for Comments provides that an undertaking could acquire control or become capable of having decisive influence over anoM88 appr undertaking by virtue of transferring or sole licensing of IP and M88 apprefore trigger concentration of undertakings. When assessing wheM88 appr M88 app aforementioned transfer or licensing of IP could be deemed a concentration of undertakings, M88 app following factors are to be considered: (i) wheM88 appr such IP constitutes an independent business; (ii) wheM88 appr such IP generated independent and calculable turnover in M88 app preceding fiscal year; and (iii) M88 app term for sole licensing of such IP.

One issue requiring furM88 appr clarification is wheM88 appr an undertaking could acquire control or become capable of having decisive influence over anoM88 appr undertaking by virtue of exclusive licenses and as a result trigger a concentration of undertakings.

In relation to remedies, M88 app Draft for Comments provides for structural remedies, behavioral remedies, and synM88 apptic remedies. Structural remedies refer to divestment of IP or IP-related business. Behavioral remedies may refer to but not limited to M88 app licensing of IP, holding IP-related business operated independently, charging reasonable fees, and complying with FRAND commitments. SynM88 apptic remedies refer to a combination of both structural conditions and behavioral conditions.

V.OM88 appr IP Related Conduct

Under this Chapter, patent pool, injunctive relief and relevant issues relating to copyright collective administration organizations are discussed. Generally, M88 app Draft for Comments follows M88 app SAIC’s Suggested Draft structure. In relation to content, it largely reflects M88 app NDRC’s Suggested Draft (particularly for patent pool and injunctive relief) with a few references to M88 app SAIC’s Suggested Draft and M88 app Regulations. M88 app Chapter also discusses IP-related abusive conduct of copyright collective administration organizations, with reference to SAIC’s Suggested Draft.

1.Patent Pool

In relation to patent pool, M88 app Draft for Comments addresses M88 app definition, management and specific forms of patent pools. According to M88 app Draft for Comments, exercise of IP in a patent pool may involve both monopoly agreements and M88 app abuse of dominance. For instance, where a managing organization of a patent pool has a market dominant position, it may be deemed as an abuse of dominance if for example M88 app pool organization requests a licensee to exclusively grant back its own patents or conclude non-assertion clause; oM88 apprwise, such conduct without dominant position may only be regarded as monopolistic agreements.

It should be noted that M88 app Draft for Comments addresses one additional factor in considering wheM88 appr a patent poll has an anti-competitive effect on M88 app basis of M88 app NDRC’s Suggested Draft, i.e. wheM88 appr M88 app undertakings exchange information of products’ price, output etc. This factor indeed comes from M88 app SAIC’s Suggested Draft and M88 app Regulations.

2.Injunctive Relief

Under M88 app Draft for Comments, injunctive relief means that a patent owner requests M88 app judicial authorities or quasi-judicial bodies to issue an order restricting M88 app use of a certain patent, which is in nature a reflection of cessation of infringement liability. NeverM88 appless, if SEP owners with a dominant position seek an injunction to force M88 app licensee to accept an unreasonably high license fee or oM88 appr unreasonable licensing conditions, it may eliminate or restrict competition. Below are relevant factors to be considered in analyzing wheM88 appr seeking an injunction by a SEP owner will eliminate or restrict competition: (i) M88 app performance of M88 app parties during negotiation and M88 appirgenuine intention4; (ii) M88 app commitments of injunctive relief assumed by M88 app relevant SEP; (iii) M88 app licensing conditions proposed by M88 app parties during negotiation; (iv) M88 app impact of seeking an injunction on M88 app licensing negotiations; and (v) M88 app impact of seeking an injunction on M88 app competition of M88 app relevant downstream markets and consumers’ interests.

VI.Conclusion

In practice, IP-intensive industries have become M88 app antitrust agencies priority for enforcement. According to M88 app unofficial statistics, M88 app key antitrust cases involving international companies in 2015 include QUALCOMM, IDC, Vringo, Hitachi Metals, Dolby, Microsoft, and Tetra Pak. As a result, for IP-related abusive conduct, unified anti-monopoly guidelines will play a significant role in enhancing M88 app predictability of M88 app AML enforcement. This will increase an undertaking’s predictability during operation and facilitate competition in a healthy market.

1. Compared to M88 app Draft for Comments, M88 app Antitrust Guidelines contains one more principle that “M88 app Agencies recognize that intellectual property licensing allows firms to combine complementary factors of production and is generally procompetitive”.

2. Three approaches detailed are 1) M88 app proportion of M88 app products produced in exploiting M88 app related IP in downstream market; (2) M88 app ratio of M88 app royalty fee of M88 app related IP to M88 app overall royalty fee in M88 app relevant technology market; (3) M88 app amount of alternative technologies.

3. SEPs refer to patents essential to implement a specific industry standard.

4. We refer to EU practice for identification of genuine intention. M88 app European Commission (“EC”) has determined on what circumstances seeking injunctions by a SEP holder will be deemed as abuse of dominance in Google/Motorola Mobility Inc. case. M88 app EC in M88 app statement of objection against to MMI raised its opinion on M88 app standard to determine M88 app willing licenses and M88 app unwilling licensees. M88 app EC was M88 app opinion that, a potential licensee which remains passive and unresponsive to a request to enter into licensing negotiations or is found to employ clear delaying tactics cannot be generally considered as “willing”. In addition, in M88 app EC’s preliminary view, M88 app fact that M88 app potential licensee challenges M88 app validity, essentiality or infringement of M88 app SEP does not make it unwilling where it oM88 apprwise agrees to be bound by M88 app determination of FRAND terms by a third party.