1. Legal Framework of China Regulating the Abuse of Intellectual Property in License He Zhonglin IP Tribunal of Supreme Court Da Lian, June 10, 2010

2. Legal Framework of China Regulating the Abuse of Intellectual Property in License Basis of International Treaties Basis of National Laws Articles in Anti-monopoly Law regulating the IP abuse Articles in Contract Law regulating the IP abuse Articles in Intellectual Property Law regulating the IP abuse Articles in Foreign Trade Law regulating the IP abuse Comments on the current rules

3. I. International Law Basis for the Anti-monopoly Regulation in Intellectual Property License

4. International Treaty Basis: Article 40 of Trips Agreement Part II Section 8: Control over the acts limiting competition in license contract Article 40 1. Members agree that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology. 2. Nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market. As provided above, a Member may adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grant back conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member. 3…… 4……

5. II. Articles in Anti-monopoly Law Regulating the Abuse of Intellectual Property

6. Articles in Anti-monopoly Law Regulating the Abuse of Intellectual Property Article 55 of Anti-monopoly Law Undertakings exercise intellectual property rights according to laws, administrative regulations related intellectual property rights, shall not be applied to this law; However, undertakings abuse the intellectual property rights to eliminate or restrict competition, shall be applied to this law.

7. Understanding of Articles in Anti-monopoly Law Regulating the Abuse of Intellectual Property “Abuse intellectual property”: a vague definition License (license limitation and refuse license)/prohibit infringements/the right to bring a law sue Anti-monopoly Law and Intellectual Property Law are parallel without conflicts Principally exclude the exploitation of IP outside Anti-monopoly Law Abuse of IP does not certainly constitute monopoly Must have the effect (or purpose) of “excluding or limiting competition”, while abusing IP is not a monopolistic behavior Even those exploitation of IP with the effect (or purpose) of “excluding or limiting competition” do not certainly constitute abuse Prohibit the abuse of IP v. Limitations to IP Static and dynamic; Form and substance

8. III. Articles in Contract Law Regulating the Abuse of Intellectual Property

9. Articles in Former Technology Contract Law Article 21 of former Technology Contract Law (1987) Technology Contracts which “illegally monopolize technology and impede technological advancement” are invalid. Article 25 (2) of former Implementation Regulation of Technology Contract Law (1989) “illegally monopolize technology and impede technological advancement” mentioned in Article 21 of Technology Contract Law refers to “through contract terms limiting the other party to carry out new researches and development on the basis of the contract’s subject technology or prohibit the other party fully exploit the patent and use the non-patent technology according to the market requirements.”

10. Articles in Contract Law Article 329 of Contract Law A technology contract which illegally monopolize technology and impede technological advancement or infringes on the technology of a third person is invalid. Article 343 of Contract Law A technology transfer contract may set forth the scope of exploitation of the patent or the use of the technical secret by the transferor and the transferee, provided that it may not restrict technological competition and technological development. Article 344 of Contract Law A patent licensing contract is only valid during the term of the patent. Where the term of the patent expires or the patent is invalidated, the patentee may not enter into a patent licensing contract with any other person in respect thereof.

11. Article 10 (1) of the Judicial Interpretations of Technology Contract “The following circumstances belong to the ‘illegally monopolize technology and impede technological advancement’ referred to in Article 329 of Contract Law: (A) limit one contracting party to carry out new research and development on the basis of the subject technology of the contract or limiting his use of improved technology, or reciprocal conditions exchanging the improved technology are unequal, including requiring that one party provides his self-improved technology with the other party free, non- reciprocal transfer to the other party, monopolizes or shares intellectual property of the improved technology without compensation; (B) restrict one contracting party to obtain similar technology or competitive technology from other sources; (C) obstructing one contracting party to fully exploiting the subject technology of the contract in accordance with an reasonable method based on market demand, including unreasonably limit the number, variety, price, distribution channels and export markets of the products or services that provided by the technology recipient through the implementation of the subject technology of the contract; (D) require the technology recipient to accept conditions which are not indispensable for the implementation of technology, including the purchase of unnecessary technology, raw materials, products, equipment, services, and receiving non-essential personnel; (E) unreasonably restrict the channels or sources that the technology recipient purchases raw materials, components, products or equipment; (F) prohibits the technology recipient to challenge the validity of intellectual property rights regarding the subject technology of the contract, or impose conditions on the challenge. "

12. Article 10 (1) of the Judicial Interpretations of Technology Contract 7 Specific Circumstances Per se rule Limit the technology research and limit the use of improved technology Limit the sources of technology Not competition obligations Rule of reason Exchange improved technology unequal (exclusive re-granting) Limit the exploitation of the technology Tying Limit the purchase

13. IV. Articles in Intellectual Property Law Regulating the Abuse of Intellectual Property in License

14. Articles in Intellectual Property Law Regulating the Abuse of Intellectual Property in License (1) Article 48 of Patent Law (2008) In the case of any of the following circumstances, the patent administrative department under the State Council may grant a compulsory license to exploit the patent for invention or utility model in accordance with the request of the entity or individual person who has the implementing conditions: (A)… (B) the patentee’s implementation of patent was identified as a monopoly by law, to eliminate or reduce the adverse effects made by such behavior. Monopoly becomes the ground for compulsory license

15. Articles in Intellectual Property Law Regulating the Abuse of Intellectual Property in License (2) Article 25 of Regulations for the Protection of Layout-design of Integrated Circuits Where a national emergency or any extraordinary state of affairs arises, or where the public interests so require, or the People's Court or the supervising and inspecting department against acts of unfair competition decides that the holder of right of layout-design is involved in an act of unfair competition and needs remedies, the intellectual property administrative authority under the State Council may grant the non-voluntary license for the exploitation of the layout-design.

16. Articles in Intellectual Property Law Regulating the Abuse of Intellectual Property in License (3) Article 47 of Patent Law Any patent right which has been declared invalid shall be deemed to be non- existent from the beginning. The decision of invalidation shall have no retroactive effect on any judgment or order on patent infringement which has been pronounced and enforced by the people's court, on any decision concerning the handling of patent infringement which has been implemented or enforced, and on any contract of patent license and of assignment of patent right which have been performed, prior to the decision of invalidation; however, the damages caused to other persons in bad faith on the part of the patentee shall be compensated. If, pursuant to the provisions of the preceding paragraph, no repayment, by the patentee or the assignor of the patent right to the licensee or the assignee of the patent right, of the fee for the exploitation of the patent or the price for the assignment of the patent right is obviously contrary to the principle of equity, the patentee or the assignor of the patent right shall repay the whole or part of the fee for the exploitation of the patent or the price for the assignment of the patent right to the licensee or the assignee of the patent right. Regulating the abuse of patent right, but not certainly in relation with monopoly

17. v. Articles in Foreign Trade Law Regulating the Abuse of Intellectual Property

18. General Guiding Article in Foreign Trade Law Prohibiting the Anti-competition Acts Anti-monopoly Article (Article 32) In the operation of foreign trade, monopolistic activities in violation of anti-trust laws and administrative rules shall not be conducted. Monopolistic activities in the operation of foreign trade that disrupt the fair market competition shall be punished in accordance with the laws and administrative rules on anti-trust. For the afore-mentioned activities violating laws and disrupting the foreign trade order, the department in charge of foreign trade under the State Council shall take necessary measures to eliminate the disruption. Anti-unfair competition Article (Article 33) In the operation of foreign trade, illegitimate business operations such as selling products at unreasonable low prices, colluded bidding, disseminating advertisements containing false contents and offering bribe in commercial activities shall not be conducted. The illegitimate business operations in foreign trade shall be punished in accordance with the laws and administrative regulations on anti-illegitimate competition. For the afore-mentioned activities violating laws and disrupting the foreign trade order, the department in charge of foreign trade under the State Council may ban the import and export of the relevant goods and technologies conducted by the operators to eliminate the impairment.

19. Articles in Foreign Trade Law Regulating the Abuse of Intellectual Property Article 30 Should the person who holds the intellectual property have any one of acts as forbidding the concessionaire from questioning on the effectiveness of the intellectual property in the concession contract, imposing package concession or inserting terms of exclusive re-granting in the concession contract and the act disrupt the fair competition order in foreign trade, the department in charge of foreign trade may take necessary measures to eliminate the disruption.

20. Special Provisions of Regulation for Technology Import and Export (1) Article 9 of former Administration Ordinance for Technology Import Contracts (1985) 9 kinds of limitation articles shall not be included in contract without review and approval Former Implementing Regulations of Administration Ordinance for Technology Import Contracts (1988) Stipulate mandatory provisions for infringement liability, ascription of improved technology, term of confidential obligations, limitations to export, continued use of the technology after the expire of the contract, etc

21. Special Provisions of Regulation for Technology Import and Export (2) Article 29 of Administrative Regulations for Technology Import and Export “A technology import contract may not contain any of the following restrictive clauses: (A) requiring the licensee to accept attached conditions that are not absolutely necessary for the import of the technology, including the purchase of technology, raw materials, products, equipment or services that are not necessary; (B) requiring the licensee to pay royalties or to undertake relevant obligations for the technology when the valid term of the patent has already expired or the patent has been declared to be invalid; (C) restricting the licensee from making improvements to the technology provided by the licensor or restricting the licensee from using improved technology; (D) restricting the licensee from acquiring from other sources technology similar to, or competitive with, the technology provided by the licensor; (E) unreasonably restricting the channels or sources from which the licensee buys raw materials, parts and components, products or equipment; (F) unreasonably restricting the quantity, type or sale price of the products manufactured by the licensee; or (G) unreasonably restricting the export channels of the products manufactured by the licensee with the imported technology. “ (B), (C) and (D) are pre se rule, others are rule of reason

22. Special Provisions for Technology Transfer of China-Foreign Joint Ventures Article 43 (2) of Implementing Regulations for the Law of the People's Republic of China on Joint Ventures Using Chinese and Foreign Investment (2001) Technology transfer agreements shall comply with the following stipulations: (A) Expenses for the use of technology shall be fair and reasonable. (B) Unless otherwise agreed upon by both parties, the technology exporting party shall not put any restrictions on the quantity, price or region of sale of the products that are to be exported by the technology importing party. (C) The term for a technology transfer agreement is generally no longer than ten years. (D) After the expiration of a technology transfer agreement, the technology importing party shall have the right to use the technology continuously. (E) Conditions for mutual exchange of information on the improvement of technology by both parties of the technology transfer agreement shall be reciprocal. ； (F) The technology importing party shall have the right to buy the equipment, parts and raw materials needed from sources they deem suitable. (G) No irrational restrictive clauses prohibited by Chinese law and regulations shall be included.

23. Provisions in Other Laws Relating to Anti-monopoly Anti-unfair Competition Law Trade designated by exclusive operator, administrative monopoly, dumping, tying, collusive bidding (Article 6, 7, 11, 12 and 15) Bidding Law collusive bidding (Article 32) exclude bidding (Article 18 (2) ) Price Law 4 kinds of 8 unfair pricing acts stipulated in Article 14 Independent Administrative Regulations Ordinance for Telecommunications

24. VI. Basic Comments on Regulating Rules for the Abuse of Intellectual Property in China

25. Comments on Current Rules (1) Regulatory history and current state Basically corresponding with our country’s developing stage Main problems Dispersion and cross applicability Conflicts and incompatibility Non-systematic and incomplete Lack of realistic focus Refuse license, put a patent into a standard, cross-license, patent pool, etc

26. Comments on Current Rules (2) Anti-monopoly Law as the principle and guidance Article 55 identifies the basic principles handing the IP protection and anti- monopoly from both positive and negative aspects The Analysis of whether a behavior constitutes monopoly must base on the legislative rules and spirit Pay attention to the adoption of economics analysis Market investigation: product market, technology market and innovation market Investigation on clients: distinguish competitors and non-competitors, focusing on competitors Prior consideration of the rule of reason Revision and application of Article 10 of the judicial interpretations of technology contracts Acts limiting price, number and sale market, shall not judge on the “obviously unreasonable”, but apply the pre se rule according to Anti- monopoly Law Tying and restricting purchase shall also modify the condition “obviously unreasonable” to “unreasonable”

27. Comments on Current Rules (3) Anti-monopoly Law/Contract Law/Foreign Trade Law: cross but not overlap, parallel without conflicts Several legal remedies can be adopted regarding one behavior The abuse of IP which constitutes monopoly can become a statutory ground for compulsory license Monopoly constitutes the ground of the contract invalidity The behavior which can not be regulated by a single law can be pursued remedies from other laws and regulations Refuse to license

28. Comments on Current Rules (4) Distinguish the abuse of IP and monopoly Article 329 of Contract Law has its independent value For those abuse acts which do not reach the extent of excluding or limiting competition, we can use the Contract Law to regulate them. Suggestions for amendments “A technology contract which illegally monopolizes technology, abuse intellectual property or infringes on the technology of a third person is invalid.”

29. Please point out the mistakes for correction if any! hezhonglin@vip.sina.com 100745 Dongjiaominxiang No.27 IP Tribunal, Beijing City