China’s SAIC Promulgates Regulations on Abuse of Intellectual Property Rights

China’s State Administration for Industry & Commerce has published its long-awaited regulations regarding the use of intellectual property rights to eliminate or restrict competition.  The Regulations, which are designed to foster innovation and competition, improve economic efficiency and protect consumer welfare, address both monopolistic agreements and the abuse of dominant market positions resulting from the ownership of IP rights. They go into effect on August 1, 2015.

The Regulations are designed to address conduct in which IP is abused in connection with monopolistic agreements or abuse of dominant position.  Article 5 creates a presumption that in certain circumstances the exercise of IP rights cannot be found to be a monopolistic agreement unless the evidence demonstrates that it eliminates or restricts competition.  In addition, Article 6 adopts the modern view that the mere ownership of IP rights does not create a presumption of a dominant market position.

The Regulations address a broad range of activities involving IP rights that potentially violate the Anti-Monopoly Law.  For example, the Regulations provide that an undertaking with dominant market position cannot engage in the following activities without justification:

  • Article 7: refusing to license essential patents under reasonable conditions.
  • Article 8: entering into exclusive dealing arrangements without justification.
  • Article 9: tying activity such as the forced sale of bundled or package commodities against customary practices.
  • Article 10: imposing exclusive grantbacks, prohibiting challenges to the validity of claimed IP rights, claiming rights over IP that has expired, etc.
  • Article 11: discriminating against others of the same condition to eliminate or restrict competition.

Article 12 of the Regulations provides fairly specific guidance with respect to patent pools that mirror some of the guidelines provided in the United States Department of Justice Business Review Letters regarding patent pools.  Article 13 outlines rules regarding the behavior of dominant firms with respect to standard essential patents, including prohibiting a holder of IP rights from refusing to disclose standard essential patents but then asserting them once a standard is adopted, and refusing to license on FRAND terms.

Articles 14-16 outline procedures the SAIC may follow in conducting investigations, including consideration of factors such as, among others, market positions; market concentration in relevant markets; barriers to entry; industry practice; limit and scope of validity in terms of output, regions, consumers; and effects on innovation.

Article 17 provides that if an abuse of IP constitutes a monopolistic agreement, or if the conduct constitutes abuse of dominant market position, the SAIC will instruct the undertaking to cease the conduct, confiscate the unlawful gains, and impose a fine in an amount that is between 1% and 10% of turnover for the prior year.

The Regulations are available here.