The Definition of the Relevant Market Lecturer: Professor Huang Yong Law School of UIBE UIBECLC Dalian, China,June 11, 2010

Ⅰ.The necessity of defining the relevant market The defining of the relevant market is the beginning of anti- monopoly analysis. 1.Concentration of undertakings 2. Abuse of dominant market position 3.Monopoly agreements Article 12 of Anti-monopoly Law: For the purposes of this Law, a relevant market consists of the range of the commodities for which, and the regions where, undertakings compete each other during a given period of time for specific commodities or services （ hereinafter referred to, in general, as “commodities” ）。

Guidelines for the defining of the relevant market Anti- monopoly Commission under the State Council, May 24, There are 4 chapters and 11articles. The application of the defining of the relevant market: 1.Concentration of undertakings – the announcements of Ministry of Commerce ( 1 prohibits; 5 imposes additional conditions) 2.Judicial practices of the people’s courts – Medicine for the Whole People Net vs. Baidu.

Announcements of Ministry of Commerce From the defining of the relevant market in the announcements of Ministry of Commerce, we can see: 1.Vertical merger: defining the upstream and downstream relevant markets (Announcement 76) 2.Horizontal merger: carrying out a substitutive analysis to define the relevant market, on the basis of the overlapped business scope of the two parties involved in the concentration (Announcement77 and 28)

Medicine for the Whole People Net vs. Baidu The judge defined the relevant market as : “search engine service”, because “the search engine service can promptly search, locate and supply massive information for network users, and this character can’t be replaced by other internet application services.” Traditional function (demand) substitutability The limitation of SSNIP – many network products are free.

The basis of defining the relevant market In the process of the enforcement of the Anti- monopoly Law, the range of the relevant market mainly depends on the substitutability of the commodities (region). Substitutability analysis: 1.Demand substitutability 2.Supply substitutability

Methods of defining the relevant market More than one method is used to define the relevant market. Demand substitutability analysis, supply substitutability analysis, “presumed monopolist test” analysis Some issues of presumed monopolist test: benchmark prices, increasing range

Guidelines for enforcing Anti-monopoly Law in the field of IP Article 9 the definition of relevant market in the field of IP When analyzing the exercise of IPR by undertakings which is suspected to violate the Anti-monopoly Law, the authority for enforcement of the Anti-monopoly Law under the State Council, for specific cases, will define the relevant market, which generally includes the relevant product market and the relevant technology market, and effect on innovation by the exercise of IPR is also considered. The specific method of defining the relevant market is in accordance with Guidelines for Defining the Relevant Market promulgated by Anti- monopoly Commission under the State Council.

Ⅱ.American IP Guidelines In 1995, the Department of Justice and the Federal Trade Commission of US jointly promulgated Antitrust Guidelines for the Licensing of Intellectual Property. the product market the technology market the innovation market

Firstly, the administration shall make sure whether there is enough information in the market by analyzing the product market to assess the influence of the license agreement over competition. If there is not enough information to analyze in the product market, and if IP and the products made by the aforesaid IP are traded separately, the administration will analyze the second market —— technology market. When the administration can’t assess the influence of the license agreement over petition from those two markets —— the product market and the technology market, analyzing by using the innovation market will be appropriate.

Technology Market Technology market includes the licensed IP and its extremely similar substitutes, the latter refers to the functionally similar alternative technology or the technology that can be used to produce alternative products, and these technologies can effectively restrict the market control related to the licensed IP. The definition of technology market and product market are similar, if the royalty of the license IP rises by 5%-10%, all the technologies access the market are in the scope of the related technology market. The territorial scopes of technology market are usually international, except when there are restraints of technology import and export.

Innovation Market Innovation market includes the research and development (R&D) for a certain special utility model or modified product or method, and the similar substitutes of the aforesaid R&D. The similar substitutes refers to the R&D attempt, technology and products that can effectively restrict the market control over the related R&D. Only when the ability of the related R&D is connected with the specific property or feature of a manufacturer (R&D needs the support of specific resources), will the administration define innovation market. Practically, the definition of innovation is still controversial.

Example Three biggest disposable plastic manufacturers plan to jointly carry out the R&D of a new type of plastic which can biodegrade fast. The joint venture will grant the investor (but not anyone else) all the patent rights and know-how.

The relevant innovation market – the R&D of biodegradable (or other environmental friendly) containers. The authority will define the scope of the real or potential competitors of the joint venture, including the manufacturers that have the capability and motivation to carry out substitutable R&D which is similar to the joint venture.

Step One The process of determining the dominant market position Hold a dominant market position or not Investigate other factors to see whether the undertakings can control price, quantity or hinder or affect market access Defining the relevant market, investigate the market share of the undertaking and the competitive condition of the relevant market Whether the undertakings can give disproof and prove effectively that they don’t hold a dominant market position Holding a dominant market position Deducing a dominant market position There is one of the following circumstances: 1.the market share of one undertaking accounts for over half of the total in a relevant market； 2.the joint market share of two undertakings accounts for over two-thirds of the total in a relevant market； or 3.the joint market share of three undertakings accounts for over three-fourths of the total in a relevant market. Additionally, the market share of any of the undertakings a ccounts for over one-tenth of the total in a relevant market. Not holding a dominant market position If Yes No Yes No Yes No

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