1. New Development of China’s Anti-monopoly Regulations on the Abuse of Intellectual Property Rights WANG Xianlin Shanghai Jiao Tong University KoGuan Law School May 20th, 2016

2. Contents 1. Background and Legal Basis of China’s Anti-monopoly Regulation on the Abuse of Intellectual Property Rights 2. Judicial and Law Enforcement Practices of China’s Anti-monopoly Regulation on the Abuse of Intellectual Property Rights 3. Main Contents of China’s Anti-monopoly Regulations on the Abuse of Intellectual Property Rights 4. Development of China’s Anti-monopoly Guidelines on the Abuse of Intellectual Property Rights

3. 1. Background and Legal Basis of China’s Anti- monopoly Regulation on the Abuse of IPRs

4. Background of China’s Anti-monopoly Regulation on the Abuse of IPRs  The centerpiece of IP system is the protection of rights. IP protection cannot be taken to extreme, otherwise IP rights may be abused.  The abuse of IPRs refers to an exercise of them by their holders beyond the extent permitted by law or legitimate boundaries, which causes damages to the interests of others and the general public. Due to their distinct characteristics and important economic values, IPRs are subject to improper use by their holders, which can disrupt normal market competition.  In China, the abuses of IPRs have occurred from time to time, so does the elimination or restriction of competition through the abuse of IPRs. Thus, as China continues to strengthen IPR protection, it is also exploring means to regulate the abuse of IPRs.

5.  At present, the regulation of the abuse of IPRs is mainly based on the Article 55 of the Anti-monopoly Law (AML) “This Law does not govern the conduct of business operators to exercise their intellectual property rights under laws and relevant administrative regulations on intellectual property rights; however, business operators’ conduct to eliminate or restrict market competition by abusing their intellectual property rights shall be governed by this Law.” Legal Basis of China’s Anti-monopoly Regulation on the Abuse of IPRs

6. 2. Judicial and Law Enforcement Practices of China’s Anti-monopoly Regulation on the Abuse of IPRs

7.  Huawei v. InterDigital This is the first anti-monopoly civil case in China that was decided entirely in favor of the plaintiff, and also the first monopoly case arising out of SEP licensing that has ever been accepted by a Chinese court. The case involved some of the most difficult legal issues in the IPR area and drew marked attention from abroad and at home.  NDRC’s Investigation of Qualcomm’s Abuse of Dominant Market Position As the case involving the highest fine and the greatest attention at home and abroad since the AML entered into effect, it became a milestone in the development of China’s anti-monopoly enforcement. The case also involved SEPs, and the NDRC’s decision put to an end Qualcomm’s longstanding exercise of some monopolistic conducts in the wireless communication industry. As a warning to other enterprises in the industry, this decision has promoted fair competition in the industry and safeguarded consumers’ interests. Judicial and Law Enforcement Practices of China’s Anti- monopoly Regulation on the Abuse of IPRs

8.  IPR in the MOFCOM’s Anti-monopoly Investigation of Concentration of Undertakings Google’s acquisition of Motorola in 2012 Microsoft’s acquisition of Nokia in 2014 Nokia’s acquisition of Alcatel-Lucent’s shares in 2015 Judicial and Law Enforcement Practices of China’s Anti- monopoly Regulation on the Abuse of IPRs

9. 3. Main Contents of China’s Anti-monopoly Regulations on the Abuse of IPRs

10.  In order to facilitate anti-monopoly authorities’ enforcement in the IPR area, enhance the transparency of the enforcement, and help relevant business operators correctly exercise their IPRs, the SAIC promulgated Provisions on the Prohibition of the Abuse of Intellectual Property Rights to Eliminate or Restrict Competition (hereinafter referred to as the Provisions) On April 7, 2015, which entered into effect on August 1, 2015. Provisions on the Prohibition of the Abuse of IPRs to Eliminate or Restrict Competition

11.  The Relationship Between Anti-monopoly and IPR Protection (Article 2 of the Provisions ) “The Anti-monopoly Law does not apply where an undertaking exercises intellectual property rights pursuant to the laws and administrative regulations relating to intellectual property rights; however, the Anti-monopoly Law shall apply if an undertaking abuses its intellectual property rights to eliminate or restrict competition.”  Definition and Understanding of the Abuse of IPRs to Eliminate or Restrict Competition (Article 3.1 of the Provisions) “Abuse of intellectual property rights to eliminate or restrict competition in the Provisions refers to the exercises of intellectual property rights by an undertaking to engage in monopolistic conducts, such as monopoly agreements or abuse of a dominant market position, which are in violation of the Anti- monopoly Law (except for price monopolistic conducts).” Some Basic Issues Clarified in the Provisions

12.  The Relationship Between IPR and the Dominant Market Position (Article 6.2 of the Provisions) “The dominant market position shall be determined or presumed in accordance with Articles 18 or 19 of the Anti-monopoly Law. An undertaking’s ownership of intellectual property rights may constitute one of the factors to determine its dominant market position; however, it cannot be presumed that an undertaking has a dominant market position in a relevant market solely based on the fact that it owns intellectual property rights.”  Relevant Markets Related to IPR (Article 3.2 of the Provisions) “Relevant markets in the Provisions, including relevant product markets and relevant geographic markets, are defined according to the Anti-monopoly Law and the Guidelines of the Anti-monopoly Commission under the State Council on the Definition of Relevant Markets, with the impact of intellectual property rights, innovation and other factors taken into consideration. In relation to intellectual property licensing and other Anti- monopoly enforcement, a relevant product market may be a technology market or a goods market based on specific intellectual property rights. A relevant technology market is comprised of the technologies related to the exercise of a certain intellectual property right and substitutable technologies that compete with the former.” Some Basic Issues Clarified in the Provisions

13.  Safe Harbor (Article 5 of the Provisions) Within any of the following circumstances where an undertaking exercises its IPRs, the agreement may not be deemed as a monopoly agreement prohibited by the AML: −The combined market shares of competing undertakings in a relevant market affected by their conducts are no more than 20 percent, or there are at least four substitutable technologies that are independently controlled by other entities and obtainable at reasonable costs in the relevant market; −Neither of the shares of the undertakings and trading counterparts in the relevant market exceed 30 percent, or there are at least two substitutable technologies that are independently controlled by other entities and obtainable at reasonable costs in the relevant market. Several Important Mechanisms Established in the Provisions

14.  The Refusal to License (Article 7 of the Provisions) In determining the conduct referred to “the refusal to license”, the following factors shall also be taken into consideration: −Such IPRs cannot be reasonably substituted in the relevant market, and are indispensable for other undertakings to compete in the relevant market; −Refusal to license such IPRs will result in adverse effects on competition or innovation in the relevant market, and will impair consumer or public interests; −Licensing its IPRs will not cause unreasonable harm to the dominant undertaking. Several Important Mechanisms Established in the Provisions

15.  Patent Pools (Article 12 of the Provisions) Without justifiable reasons, a patent pool management organization with a dominant market position shall not use the patent pool to engage in any of the following conducts that abuse its market dominant position, to eliminate or restrict competition: −Restricting members of the patent pool from licensing patents as independent licensers outside the pool; −Restricting members of the patent pool or licensees from independently or jointly with third parties developing technologies that compete with the pooled patents; −Forcing a licensee to exclusively grant back the technologies that the latter has improved or developed to the management organization of the patent pool or any member of the pool; −Prohibiting licensees from challenging the validity of pooled patents; −Applying differential treatment on the members of the patent pool or licensees in the same relevant market under equal conditions; −Other conduct abusing the dominant market position as determined by the State Administration for Industry and Commerce.” Several Important Mechanisms Established in the Provisions

16.  Setting and Implementing Patent-related Standards (Article 13 of the Provisions) Without justifiable reasons, an undertaking with a dominant market position shall not, in the course of setting and implementing standards, engage in any of the following conducts that eliminate or restrict competition: −When participating in the standard setting process, deliberately not disclosing information on its rights to the standard setting organization, or expressly waiving its rights, but asserting its patent rights against parties implementing such a standard after its patent has been included in the standard; −After its patent has become a standard essential patent, in violation of the fair, reasonable and non-discrimination principle, applying any conduct which eliminates or restricts competition, such as refusing to license, tying products or imposing other unreasonable trading conditions. Several Important Mechanisms Established in the Provisions

17. 4. Development of China’s Anti-monopoly Guidelines on the Abuse of IPRs

18. Necessity and Feasibility of the Development of an Anti- monopoly Guidelines on the Abuse of IPRs in China  It is not only necessary but also feasible to develop an anti-monopoly guideline on the abuse of IPRs in China. Firstly, China can draw experience from countries and regions (such as the US, EU and Japan) that have promulgated and implemented their respective anti- monopoly guidelines on the abuse of IPRs. Secondly, China’s own anti-monopoly enforcement and judicial practices provide domestic experience to the development of an anti-monopoly guideline on the abuse of IPRs. Thirdly, the promulgation of anti-monopoly regulations on the abuse of IPRs provides important legislative experience to the development of an anti-monopoly guideline on the abuse of IPRs.

19.  Developer The Anti-monopoly Commission.  Style The focus should be put on expounding, in a relatively flexible style, anti- monopoly authorities’ basic attitude toward anti-monopoly enforcement in the IPR area, and principles and methods for conducting relevant analysis, including comparison and specialized analysis of some typical conducts.  Structure It is still more proper for an anti-monopoly guideline on the abuse of IPRs to be analyzed through the third approach, so as to form a structure in correspondence with the three kinds of monopolistic conducts stipulated in the AML. Developer, Style and Structure of the Proposed Anti- monopoly Guidelines on the Abuse of IPRs in China

20.  In 2015, the Anti-monopoly Commission under the State Council launched the drafting work of an anti-monopoly guidelines on the abuse of IPRs, determining that the three anti-monopoly authorities and SIPO respectively drafted a guidelines in accordance with their own responsibilities and then submitted it to the Commission to be integrated, revised and issued. The Status and Future Development of the Proposed Anti- monopoly Guidelines on the Abuse of IPRs in China TimeAuthoritiesGuideline(Draft for Comments) October 2015the NDRC Anti-monopoly Guidelines On the Abuse Of Intellectual Property Rights November 2015the MOFCOM Guidelines on Issues Concerning the Anti-monopoly Review of the Concentration of Undertakings in Relation to Intellectual Property Rights December 2015the SAIC Guidelines on the Prohibition of the Abuse of Intellectual Property Rights to Eliminate or Restrict Competition December 2015The SIPO Guidelines on Anti-monopoly Enforcement in the Field of Intellectual Property Rights

21. According to the arrangement of the Commission, the above 4 agencies shall submit their respective drafts by the first half of 2016. Thereafter, the Commission will invite experts to integrate and modify these drafts, and the final version can be issued in as early as July 2016. It can be expected that after years of anticipation and preparation, China’s anti-monopoly guidelines on the regulation of abuses of IPRs will come out in the near future.

22. Thanks!