The concept of “abuse of IPRs” in Anti-Monopoly Law

Issue 21 By Huang yong,[Anti-Monopoly]

Professor Huang Yong, a legislator of the AML and a member of the AML Experts and Advisors Group, talked with China IP and People’s Daily Online about the intention and purpose of the legislation, the definition of abuse of IPR, the future arrangement of anti-monopoly law enforcement agencies and the possible amendment to the relevant laws and regulations. As Professor Huang points out, IPR and AML share common objectives i.e. to encourage innovation and ensure the interest of consumers.

The Design and Objective of Article 55 of the Anti-Monopoly Law

As we all know, to protect IP will encourage people to engage in technical innovation, and hence, promote market competition. From this perspective, the protection of IP and the anti-monopoly law have the same objectives, i.e. to encourage innovation and promote competition, though in different ways. The two are complementary to and consistent with each other and their common final objective can be summarized as being to raise the welfare of consumers. Certainly any misuse of IPRs may be detrimental to competition and subject to the regulation of the anti-monopoly law. The major developed countries have established detailed regulations on IP-related issues in their anti-monopoly laws or acts, and based upon the same legal conception, China has also provided its IP-related provisions in the Anti-Monopoly Law (“AML”).

Borrowing Valuable Basic Anti-Monopoly Principles and Detailed Regulations from Other Countries

European countries and America have developed relatively mature reasoning system for their IP field, which is based on the experience gained from practice over a long period of time. This system is scientific, reasonable, and strongly operative, and can be borrowed or referenced by China. In fact, in the making of the AML, China has borrowed much from other countries, especially regulations and rules of the European Union and the United States, such as the reasoning and detailed wording on the IP-related anti-monopoly regulation in Article 55 of the AML.

China will continue to prepare the implementing regulations and operational instructions for each industrial sector in the future. This requires a whole set of scientific and systematic regulations, which are based on a careful study of the experiences and regulations of other countries and integrate the experience of China in the enforcement of the law. To be more specific, as far as I see it, China may borrow the following from other countries in the making of the anti-monopoly instructions with regard to the IP field:
1. IP protection has common objectives with AML i.e. to encourage innovation and ensure the interests of consumers;
2. With regards to the AML, IP has the essential characteristics to differentiate it from other properties, but is subject to the same rules as the other properties;
3. The exclusive privilege of the IP owner is, by itself, not equivalent to market dominance; and
4. Generally, an IP license contract, by its very nature, will encourage, rather than discourage competition.

Other detailed legal rules may also be referenced, such as the intellectual license agreement instructions, the standardization and patent pool agreement instructions, and the IP related acquisition and merger instructions, among others. 

The Definition of “Abuse of IPRs”

Based on the detailed provisions, how are we to comprehend the meaning of the “abuse of IPRs”?

First, the so-called “abuse of IPRs” is not a real scientific or firm concept, but is a general term referring to the fact that an IPR has been used exceeding its authorization or otherwise inappropriately. Some of the abuses are irrelevant to the AML, such as the exclusive right to exploit a trademark being used on other products or in other ranges than authorized, which we will not discuss here. The other abuses which violate the AML are also called the “abuse of IPRs”, with the basis or standard in the AML, rather than in the IP law. Note that the word “abuse” here does not only refer to the “abuse” of market dominance in Chapter 3 of the AML, but to collusion among businesses, abuse of market dominance, and excessive concentration. Also, note that although owning an IP is in its very form a “monopoly”, the IPRs alone does not violate the AML, and is far from being an abuse.

Second, the IP owner, who competes in the market, may not necessarily achieve a dominant position; even if he has achieved a monopolistic position in the market, the ownership does not violate the AML, unless he has engaged in some kind of monopolizing conduct. The AML does not care whether a right is exclusive or monopolistic, but it does care whether any competing conduct has caused damage or threat to normal market competition, thereby lowering market efficiency and impairing the benifits to consumers. Here, the standards for abuse of IPRs can only be found in the AML, rather than in any other IP law. Any violation of the IP-related law might still be called an abuse of IPRs, but not be an abuse with respect to the AML. It is a monopolistic level of abuse that is provided for in Article 55 of the AML and is subject to the AML standard.

The phrase “exclusionary or restrictive conduct” means such conduct that excludes or restrains, or intends to exclude or restrain, competition. Therefore, exclusionary or restrictive conduct includes not only any conduct which has excluded or restrained competition, but also any conduct which aims to do so, but has not yet brought about any consequences. However, to determine exclusionary or restrictive conduct depends on a complicated and detailed analysis on a case-by-case basis. Exclusionary or restrictive conduct, in its expressed form, is collusion among businesses, abuse of market dominance or excessive concentration, and these three kinds of conduct are also highlighted in anti-monopoly law in China, as well as in a majority of other countries.

The Establishment of Anti-Monopoly Law Enforcement Authority

There exists a double-tier structure in the enforcement of the AML, i.e. the Anti-Monopoly Commission, in addition to the Anti-Monopoly Law Enforcement Authority. How is the second tier – the Anti-Monopoly Law Enforcement Authority to be organized? Is it organized as a unified body or is it dispersive? Currently, no provisions have been issued.

As I consider, it would be best to establish a unified, relatively independent, professional and authoritative law enforcement authority. Multiple involvements prove to have many deficiencies and may easily lead to an unclear delineation of authorities, waste administrative resources, result in low efficiency in law enforcement, and prove burdensome to businesses or cause confusion as to which one to follow, among others. A unified, independent, professional and authoritative law enforcement authority best safeguards the efficient enforcement of the law, which has been indicated by the experiences of other countries or required internally by the enforcement of the AML.

Moreover, the first tier – the Anti-Monopoly Commission is expected to carry out its responsibilities and duties to the fullest extent. The members will be high ranking officials, such as departmental heads and professional advisors. The commission should also have a standing body.

A Series of Influences from the Anti-Monopoly Law

In general, the IP law does not directly conflict with or contradict the AML in China. The promulgation of the AML will not directly lead to change in the IP law, but supplement or amend it, so that the two can accord and complement each other in the application of the AML. Specifically, as I see it, the amendment will be focused on the complementary clauses between the IP law and the AML. For example, the IP law may contain an additional direct clause that any use of IP which restrains market competition will be subject to the AML. As for another example, because a patent is very technical and professional-oriented, it would be more appropriate that a patent pool be regulated in the patent law, including the definition of a core patent and the inflow/outflow mechanism for patents in a patent pool. Similarly, the patent law should provide a guiding clause that if abused to restrain competition, a patent pool will be regulated by the AML. Otherwise such abuse should be dealt with under the framework of the patent law.

The provision on the abuse of IPRs in the AML has understandably attracted attention and aroused concern among foreign companies in China. Foreign companies, especially the market dominators, are obviously in an advantageous position when compared with domestic Chinese companies, in terms of either the number of core intellectual properties or the output of intellectual properties. Their conduct will be more easily followed, which is, however, the same in China, as in any other country with an anti-monopoly law.

On the one hand, the promulgated AML will certainly correct the unregulated conduct of some companies, leading to more restraints on them. On the other hand, although an anti-monopoly law will more concentrate on large-scale businesses, China’s AML states clearly that the AML will not highlight the monopolistic positions of large companies, particularly not on monopolistic positions resulting from IP. Also, an owner will not be determined as dominating the market on account of any one or several patents it owns. Even if the market dominance is achieved because of IP, the dominance by itself does not violate the law, but a violation should be judged through a careful market analysis. This shows that the overall rule is the same in the application of the AML, whether conduct is IP-related or not. Therefore, the AML will not interfere with any use of IP which has not seriously impaired competition, even if such use has restrained competition to some degree. In the event of the latter, the AML will subject it to the market. In conclusion, the AML only provides a reasonable baseline of law in order to build a competitive market, but is never to be used as a weapon to contain multinational corporations.

About the author:
    Huang Yong is a professor at the Economic Law Department, School of Law, University of International Business and Economics

                                                                                      (Translated by Ren Qingtao)

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