Principles and methods of antitrust analysis of the abuse of intellectual property rights Lecturer: Professor Huang Yong Law school of UIBE UIBECLC March 12,2010

Outline Ⅰ. The relationship between intellectual property (IP) and Antitrust Law. Ⅱ. Basic principles of applying Antitrust Law to the abuse of intellectual property rights (IPR). Ⅲ. Specific regulations of the abuse of intellectual property rights.

Ⅰ. The relationship between intellectual property and Antitrust Law. IP can promote innovation by entitling the right holders an exclusive right to their intellectual property during certain period, thereby provide consumers with cheaper products and service of higher quality. By maintaining competition, Antitrust Law ensures that products and service be traded and circulated in competitive circumstances, achieving a rational resource allocation, enhancing economic efficiency, maintaining innovation achievement, thereby benefits consumers to the utmost. IP and Antitrust Law are both committed to providing consumers with new, better and cheaper technique, products and service, their basic targets are the same: to increase consumer welfare and promote innovation.

Article 55 of Antitrust Law Article 55 This law is not applicable to undertakings who exercise their intellectual property rights in accordance with the laws and administrative regulations on intellectual property rights ； however, this law shall be applicable to the undertakings who eliminate or restrict market competition by abusing their intellectual property rights.

Article 55 of Antitrust Law Whether the abuse of IPR restricted competition or not, Antitrust Law should be the only judging standard. If the exercise of IPR restricts relevant market competition, it will be regulated by Antitrust Law, no matter IPR be abused or not. Conversely, even IPR is abused, if there is no negative influence on relevant market competition, Antitrust Law is not applicable, it shall be regulated by Intellectual Property Law or Civil Law.

The current status of IPR protection in China and Chinese IPR policy Science and technology are the primary productive forces. China is paying more attention to technical innovation, focusing on developing high-tech industry economy. As a whole, China is still an IP importing country, while the developed countries are major IP exporting countries.

IPR protection in China China has established a complete legal system for IPR protection, and has acceded to many international conventions for the protection of IPR:  Domestic laws: Patent Law, Trademark Law, Copyright Law, Regulation for the Protection of Computer Software, Regulations on the Protection of Layout Designs of Integrated Circuits, Regulations on the Collective Management of Copyright, Regulations on the Management of Audio-Video Products, Regulations on the Protection of New Varieties of Plants, etc.  International treaties: Regulations on the Protection of Intellectual Property Rights by the Customs, Paris Convention for the Protection of Industrial Property, Patent Cooperation Treaty, Madrid Agreement for International Registration of Trademarks, Berne Convention for the Protection of Literary and Artistic Works, Universal Copyright Convention, etc.

The relationship between IPR protection and regulation of IPR abuse As Chinese government protects foreign IPR energetically, domestic enterprises are crying out against the unfair treatment of foreign IPR, for instance, DVD Patent Pool was on a charge of overhigh license fee, refusal of license, and illegal tying. Antitrust Law is not the sole legal remedy regulating IPR abuse. It maintains and promotes technological competition, encourages technological innovation. Cracking down on IPR abuse shouldn’t be at the cost of restraining innovation. Protecting IPR and promoting technological innovation should still be China’s basic IPR policy.

Ⅱ. Basic principles of applying Antitrust Law 1.. When an IPR conduct is examined for whether it violates Antitrust Law, it should be analyzed in the framework of Antitrust Law, and IPR should be treated equally to other property rights,and the same principles of Antitrust Law should be applied.

Ⅱ. Basic principles of applying Antitrust Law 2. IPR owners can’t be presumed to possess market control required by Antitrust Law only because they own IPR. Market control refers to the capacity of making profit while maintaining the price higher or the production lower than the level of competition in a fairly long period. Although IPR entitles a certain product,method or the relevant work exclusive rights, there are usually enough aforementioned product, method or work or potential similar substitute that impede market control.

Ⅱ. Basic principles of applying Antitrust Law 3. The exercise of IPR can usually promote competition, realize mutual complementarity of resources, increase the efficiency of resource allocation. For that reason, the Antitrust Law Enforcement Agency should apply the rule of reason to analyze a conduct concerning IPR, comparing its effect upon promoting competition and restraining competition.

IPR and the abuse of market dominant position  Merely owning an IPR can’t make undertakings possess market dominant position, the Antitrust Law Enforcement Agency should judge whether the undertakings possess market dominant position through determining the relevant market and economic analysis.

IPR and the abuse of market dominant position Even though undertakings who own IPR possess market dominant position, it isn’t against Antitrust Law for undertakings to possess market dominant position through IPR, as long as they don’t eliminate competition by exercising IPR unreasonablly.

IPR and the abuse of market dominant position  To examine whether a conduct concerning IPR is the abuse of market dominant position, the Antitrust Law Enforcement Agency should analyze the constitutive requirements of the abuse of market dominant position in accordance with Article 17 of Antitrust Law, by applying the rule of reason.

Ⅲ. Specific regulations of the abuse of intellectual property rights. Overhigh license fee Refusal of license Tying Patent Pool Technical Standard

（Ⅰ） Overhigh license fee License fee is the main way for IPR owners to get income, especially the non-production R&D institutions, license fee is their one and only source of profit. License fee income is the motivation for IPR owners to continue carrying on technical innovation. Overhigh license fee can stimulate competitors to invest in R&D relevant technique, and to improve production efficiency.

（Ⅰ） Overhigh license fee Conditions for overhigh license fee becoming monopoly price: IPR owners who possess market dominant position can get out of competition pressure, and determine license fee without obeying market discipline, and gain monopoly profit though fixing monopoly price which is higher than competitive price. Antitrust Law should respect IPR owners’ right to determine license fee, and let market itself adjust overhigh license fee.

( Ⅱ )Refusal of license Patent law explicitly entitles patentees to exclusive rights to exercise their patent, including refusal of license. According to traditional antitrust law principles, monopolists have no obligation to aid their rivals, sharing goes against the purpose of antitrust law, that is, promoting competitors’ enthusiasm to invest by means of competition.

( Ⅱ )Refusal of license Intervening refusal of license to much may lead to: 1. The law enforcement agency may become the director or planner of market conduct. 2. Discouraging licensors’ enthusiasm for innovation. 3. Depriving market participants of their right to choose freely with whom to deal. 4. Resource sharing may also lead to collusion. Compulsory license against refusal of license should be taken rarely.

( Ⅱ )Refusal of license According to the rule of reason: 1. The enterprise has the power of market monopoly; 2. Carrying out unilateral refusal of license, especially conditional refusal of license; 3. The aforesaid conduct has weakened market competition; 4. There is no just cause for the aforesaid conduct. Generally, if a patentee who has the power of market monopoly exercise license previously, but conditionally refuse to continue license for the sake of raising license conditions or increasing license restrictions, and the aforesaid license is good for the society’s welfare, this unilateral conditional refusal of license will probably be determined as a violation of Antitrust Law.

Example Plaintiff Company A developed a kind of software and lodged a copyright application, defendant Company B is a rival of company A, plaintiff A holds 90% in the after-sales service market, while defendant B holds only about 3%. Initially, Company A took a loose policy that permit the third party to use the diagnostic software. Company A changed this policy soon afterwards, and restricted the scope of license to its technicians and device owners that accept A’s service. Therefore, Company B couldn’t use the software. To obtain the software, Company B get a copy from one of its employees who was a former employee of Company A. Company A sued Company B for infringement of copyright, while Company B countercharged Company A with illegal monopoly because of its unilateral refusal of license.

（Ⅲ） Tying  Tying refers to the conduct of the undertakings who demand consumers to buy another product (tied product) when selling a certain product (tying product).  The constitutive requirements of tying: 1. Two independent products (tying product and tied product); 2. The seller sells those two products by means of tie-in sales; 3. The seller has market dominant position in the tying product market; 4. Material effect upon the tied product market; 5. Whether there is just reason for tying.

（Ⅲ） Tying Special problems of tying involving IPR: If the tying product is a patented product, the Antitrust Law Enforcement Agency shall not presume the patentee to have market dominant position in the tying product market. Case 1: Sichuan Dexian Science and Technology Co., Ltd vs. Sony

Example 2 Company A is a manufacturer of equipment and components, and its equipment and components are patented, Company A supplies equipment maintenance service. Company B is a third-party equipment maintenance service provider, and needs to purchase components from Company A when it supplies maintenance service. Hereafter, Company A takes a measure: only sells components to the equipment buyers who accept Company A’s maintenance service. Meanwhile, Company A attempts to prevent Company B from buying components from other channels. Company B therefore sued Company A for illegally compelling equipment maintenance service (tied product) to be subject to the sale of equipment and components (tying product).

（Ⅳ） Patent Pool Patent pool is often established when a group of patentees all decide to cross license their patents to each other and also license to a third party. The form of patent pool is always because masses of licensed technologies are used to produce one standardized product. Patent pool is helpful to solve complicated ‘patent thickets’, reduce transaction cost, and improve license efficiency.

（Ⅳ） Patent Pool The integration of complimentary or mutually exclusive patents by patent pool always promotes competition. We can’t presume that patent pool restricts competition because of the fact that patent pool includes alternative patents, the competitive effect should be measured according to specific cases. The competitive effect of patent pool license requirements shall be analyzed according to specific cases, including the promotion of competition and the restraint of competition.

（Ⅳ） Patent Pool The fields where patent pool may leads to anti-competitive include: 1. Whether the patents in the patent pool are core and valid patents; 2. Whether members of patent pool restrict the right to license a third-party; 3. Whether the grantback provision weakens innovation impetus; 4. Whether to restrict the use of competitive sensitive business information; 5. Whether refusing to license part of patent may lead to competition damage; When analyzing the aforesaid issues, the rule of reason should be applied for specific efficiency analysis.

Example Two leading manufacturers of a consumer electrical product own the patent of the product including alternative circuit design. These two manufacturers transfer their patents to an independent company wholly owned by them (to establish patent pool). The company licenses the patent of the circuit design to other consumer product manufacturers, and fixes the license fee. Case 1: The use of any patent in the independent company won’t infringe the patent of the other party, or needn’t combine with the other party’s patent (alternative patents); Case 2: The use of any patent in the independent company may infringe the patent of the other party (mutually exclusive patents).

（Ⅴ） Technical Standard The difference of the technical standard formulation system between China and developed countries-- administrative management and market autonomy. China’s standardization takes a management system which combines centralized management with divided responsibility. Authorized by the State Council, supervised by Administration of Quality Supervision ， Inspection and Quarantine (AQSIQ), Standardization Administration of China (SAC) is in charge of the standardization of China, that is, to formulate, carry out and supervise national standards. The competent administrative departments under the State Council and the relevant trade associations are in charge of the standardization of each department and trade individually, that is, to formulate, carry out and supervise industry standards.

（Ⅴ） Technical Standard China’s standpoint on whether a patented technology can be included in national standards is : Compulsory national standards shouldn’t include patent, recommended national standards don’t object patent included in standard in general, but the patent should be the technology that can’t be replaced in national standard, and no other material reasons that refuse to involve the patent shall exist.

（Ⅴ） Technical Standard In July, 2008, in the official letter about whether implementing the patent in the standard infringes the patent right, Supreme People’s Court indicated: If the patentees participated the formulation of the standard or the patent was brought into national, trade or local standard with the consent of the patentees, the patentees are deemed to license others to implement the patent when implementing the standard, the conduct of implementing doesn’t pertain to the conducts of infringement of patent right stipulated in Patent Law article 11. The patentees are entitled to certain royalty from the patent users, but the sum of royalty shall be considerably lower than normal license fees; if the patentees promise to waive license fees, do as their promise.

（Ⅴ） Technical Standard Problems: 1. What role shall Antitrust Law play under the current system? 2. Does the current system intervene in the exercise of IPR too much?

Enlightenment of the case Rambus In the case Rambus, Columbia Circuit Court of Appeal overruled FTC’s charge of antitrust based on Sherman Act article 2. Legal system for patent (fraud) disputes in technical standardization: 1. Contract Law 2. Patent Law (laches, estoppel and implied license) 3. Tort Law (General Principles of the Civil Law of the People's Republic of China ) 4. Law of the People’s Republic of China Against Unfair Competition 5. Antitrust Law

Thanks Q&A Contact information: