China patents: Latest developments on IP misuse guidelines
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China patents: Latest developments on IP misuse guidelines

Back in April 2015 we reported that one of the China antimonopoly agencies (SAIC) published the IP Misuse Rules, which became effective then. What followed after that surprised everyone. The other anti-monopoly agency (National Development and Reform Commission, NDRC), which was at the centre of the attention of the global IP/antitrust community for last couple of years due to its investigation into Qualcomm and InterDigital in China, announced in the summer that it was asked by the State Council to draft guidelines on IP misuse. NDRC issued a preliminary draft in October 2015 and issued an updated version in January.

At the beginning of January, the third anti-monopoly agency MOFCOM announced its draft IP misuse guidelines are ready, though these are not publicly available. Almost immediately SAIC published online its draft IP Misuse Guidelines, including the English version. The patent office (SIPO) also announced that it is preparing its own version of the guidelines. This means China is going to have four versions of IP misuse guidelines, which will all be submitted to the State Council Antimonopoly Commission for final review and consolidation. Chinese press reported that the State Council will publish its first version in the first half of 2016.

One of the key issues in the earlier October 2015 NDRC draft is the applicability of the guidelines to non-FRAND encumbered patents. It arguably may hold patent owners that have a dominant market position in a product sector to have violated the Chinese antimonopoly law if the patent owners refuse to license or charge "excessive" royalty fees. People have put a lot of hopes in the latest draft to watch if any improvements were made. However, the new draft does not resolve it either. NDRC now removes the section on SEPs and treats both SEPs and non-SEPs under the section of "abuse of dominant market position". This remains highly problematic to those patent owners that have strong portfolios. It seems that the NDRC is tired of the controversies and tries to adopt a single approach to deal with either SEP or non SEPs.

The concept of "innovation market" is deleted from the NDRC draft, as some people have been criticising it for being too confusing. As an alternative, the guideline states that "the influence of exercising IPRs on investments on R&D, or innovation activities should also be considered". A detailed method is also given for calculating the market share of the relevant technology market.

Notably, the SAIC draft guidelines still retain the concept of innovation market and even provide a methodology when the innovation market should be defined and analysed.

The new guideline have re-defined the types of agreements which may raise competition concerns, which include joint R&D, patent pool, cross licensing, standardisation, price restrictions, exclusive grant-back and no-challenge clauses.

Notably, it separates those rules to regulate IPR agreements signed by competitive business operators and those by non-competitive business operators.

  • For the first type of agreements (Section II(i)), the guideline includes four different circumstances – joint R&D; patent pooling; cross-licensing; and standard formulation. It is stated that the first type of agreement is supposed to cause more antitrust concerns.

  • For the second type of agreements (Section II(ii) ), the guideline also covers four different circumstances – price constraint; exclusive grant-back; non-challenge clause; and other restrictive clauses.

The guideline recognises that all eight circumstances may help improve efficiency, but also may have the impact of eliminating or restricting competition, or hampering innovation. Some detailed factors are given to be adopted in case-by-case decision.

Interestingly, SAIC Guidelines have fairly similar rules to those in the NDRC guidelines.

The guideline has also incorporated the safe harbour rules and specified a certain market threshold (15% for competitive business operators and 25% for non-competitive business operators). Based on this threshold, some agreements entered by business operators may be exempt from penalties because they do not seriously exclude competition.

Notably, this is inconsistent with the conditions for safe harbour stipulated in the SAIC IP Misuse rules (20% for competitive business operators and 30% of each counterparties). The inconsistency may cause conflict and great confusion in practice.

The guideline entails standards for determining whether an IPR owner has a dominant position (Section III(i)) and, if so, whether it has abused that position (Section III(ii)). It lays out six types of abuse behaviours which include unfairly high royalty fees, refusal to license, tying, impose unreasonable conditions, discriminatory treatment and injunctive relief etc, which both apply to SEP and non-SEP licensing. This arguably will cause greater concern to many people. For example, in the part of "unfairly high royalties", seven factors are listed which apply to the analysis for all types of IP.

We expect that lots of efforts and attention will be devoted to the IPR Misuse Rules in China. Experts have to choose when and how to participate in the commenting processes. Whoever is going to consolidate the four sets of IP misuse guidelines could certainly use lots of help from the international legal community.

Jing_He-100
Liangyong

He Jing

Liu Liangyong


AnJie Law Firm26/F, Tower D, Central International Trade Center6A Jianguomenwai Avenue, Chaoyang District, Beijing 100022, PR ChinaTel: +86 10 8567 5988Fax: +86 10 8567 5999wuli@anjielaw.comwww.anjielaw.com

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