Provisions on the Prohibition of the Abuse of Intellectual Property Rights to Exclude or Restrict Competition

Order of the State Administration for Industry and Commerce No.74

April 7, 2015

The Provisions on the Prohibition of the Abuse of Intellectual Property Rights to Exclude or Restrict Competition, which were deliberated on and adopted at the executive meeting of the State Administration for Industry and Commerce, are hereby promulgated for implementation as of August 1, 2015.

Zhang Mao, Minister

Provisions on the Prohibition of the Abuse of Intellectual Property Rights to Exclude or Restrict Competition

(Promulgated by Order of the State Administration for Industry and Commerce No.74 on April 7, 2015)

Article 1 In order to protect fair market competition, encourage innovation, and stop operators from abusing intellectual property rights to exclude or restrict competition, the Provisions on the Prohibition of the Abuse of Intellectual Property Rights to Exclude or Restrict Competition (hereinafter referred to as the "Provisions") are formulated in accordance with the Anti-monopoly Law of the People's Republic of China (hereinafter referred to as the "Anti-monopoly Law").

Article 2 Anti-monopoly and intellectual property rights protection share a common goal, namely, promoting competition and innovation, improving economic operation efficiency, and safeguarding consumer and public interests.

The Anti-monopoly Law does not apply to the exercise of intellectual property rights by operators in accordance with the provisions of laws and administrative regulations concerning intellectual property rights, but applies to the abuse of intellectual property rights by operators to exclude or restrain competition.

Article 3 For the purpose of the Provisions, "abuse of intellectual property rights to exclude or restrict competition" refers to the operators violating the Anti-monopoly Law when exercising the intellectual property rights, implementing monopoly agreements, abusing dominant market positions and conducting other monopolistic behaviors (except for the price monopoly).

For the purpose of the Provisions, "relevant markets", including the relevant commodity markets and the relevant geographic markets, are defined pursuant to the Anti-monopoly Law and the Guidelines of the Anti-monopoly Commission under the State Council concerning the Definition of Relevant Markets, with the effects of intellectual property rights, innovation and other factors taken into consideration. In relation to intellectual property licensing and other anti-monopoly enforcement, the relevant commodity markets may be either technology markets or product markets containing specific intellectual property rights. Relevant technology markets refer to the markets formed through the competition between technologies involved in the exercise of intellectual property rights and alternative similar technologies.

Article 4 Operators shall not, by way of exercising intellectual property rights, reach among themselves any monopoly agreement prohibited in Articles 13 and 14 of the Anti-monopoly Law, except the operators can demonstrate that the agreement reached complies with the provisions of Article 15 of the Anti-monopoly Law.

Article 5 If an operator's exercise of intellectual property rights falls under either of the following circumstances, the relevant agreement may not be regarded as a monopoly agreement prohibited in Item 6, Paragraph 1 of Article 13 and Item 3 of Article 14 of the Anti-monopoly Law, except there is contrary evidence indicating that such agreement is of effects to exclude or restrict competition:

1. the competitive operators' share in the relevant market affected by their behaviors does not exceed 20% in total, or there are at least four alternative technologies under other independent control in the relevant market which may be obtained at reasonable costs; and
2. neither of the shares of the operator and transaction counterparts in the relevant market does not exceed 30%, or there are at least two alternative technologies under other independent control in the relevant market which may be obtained at reasonable costs.

Article 6 An operator who is of dominant market position shall not abuse the dominant market position to exclude or restrict competition when exercising intellectual property rights.

The dominant market position shall be recognized and inferred in accordance with Articles 18 and 19 of the Anti-monopoly Law. An operator owning the intellectual property rights may constitute one of the factors to recognize its dominant market position, but an operator shall not be directly inferred to have dominant market position in the relevant market only based on its ownership of the intellectual property rights.

Article 7 An operator who is of dominant market position may not, without justification, refuse to license other operators to use its intellectual property rights on reasonable terms so as to exclude or restrict competition under the circumstance that the intellectual property rights constitute a necessary facility for the relevant production and operating activities.

Recognition of the act in the preceding paragraph needs to consider the following factors at the same time:

1. there are no other reasonable substitutes for the intellectual property rights in the relevant market and the intellectual property rights are necessary for other operators to participate in competition in the relevant market;
2. refusal to license the intellectual property rights will have adverse impact on competition or innovation in the relevant market, and harm the consumer or public interests; and
3. licensing the intellectual property rights will not cause unreasonable harm to the operator.

Article 8 An operator who is of dominant market position may not, without justification, place the following restraints on transactions so as to exclude or restrict competition in exercising intellectual property rights:

1. specifying that the transaction counterparts can only trade with it; and
2. specifying that the transaction counterparts can only trade with the operators it designates.

Article 9 An operator who is of dominant market position may not, without justification, implement at the same time the tied sale meeting the following conditions so as to exclude or restrict competition in exercising intellectual property rights:

1. compulsorily bundling or combining different products for sales in violation of trade practices or consumption habits, or by ignoring the function of products; and
2. implementing tied sale enabling the operator to extend its dominant market position from the tying product market to the tied product market which excludes or restrains the competition from other operators in the tying product market or tied product market.

Article 10 An operator who is of dominant market position may not, without justification, implement the following behaviors with unreasonable restrictive conditions so as to exclude or restrict competition in exercising intellectual property rights:

1. requiring the transaction counterparts to license back the technologies improved thereby exclusively;
2. prohibiting the transaction counterparts from questioning the validity of its intellectual property rights;
3. restraining the transaction counterparts from making use of the competitive commodities or technologies in the case of non-infringement of intellectual property rights after the expiration of the license agreement;
4. continuing to exercise the rights to the intellectual property the protection period of which has expired or which has been determined to be invalid;
5. prohibiting the transaction counterparts from trading with any third party; and
6. adding other unreasonable restrictive conditions to the transaction counterparts.

Article 11 An operator who is of dominant market position may not, without justification, implement differential treatment on the transaction counterparts with the same conditions so as to exclude or restrict competition in exercising intellectual property rights.

Article 12 An operator may not make use of patent pool to exclude or restrain competition in exercising intellectual property rights.

Members of patent pool may not use patent pool to exchange the yield and market segmentation and other sensitive information in relation to competition, and reach any monopoly agreement prohibited in Articles 13 and 14 of the Anti-monopoly Law, except the operator can demonstrate that the agreement reached complies with the provisions of Article 15 of the Anti-monopoly Law.

A patent pool administration organ who is of dominant market position may not, without justification, implement the following acts of abuse of dominant market position by use of patent pool so as to exclude or restrict competition:

1. constraining the members of patent pool from licensing patents as independent licensors other than in patent pool;
2. constraining the members of patent pool or licensees to research and develop, independently or jointly with any third party, technologies competing with the parent pool;
3. forcing the licensees to license back the technologies improved or researched and developed thereby exclusively to the patent pool administration organ or the members of patent pool;
4. prohibiting the licensees from questioning the validity of patent pool;
5. treating differently the members of patent pool with the same conditions or the licensees in the same relevant market in terms of the transaction conditions; and
6. other abuse of dominant market position identified by the State Administration for Industry and Commerce.

For the purpose of the Provisions, "patent pool" refers to an agreement arrangement under which two or more patentees license the parents they own respectively to a third party in a certain manner, such as establishing a special joint venture for such purpose and entrusting a member of parent pool or an independent third party to administrate.

Article 13 An operator shall not use the formulation and implementation of the standards (including the mandatory requirements of national technical specifications, hereinafter the same) to exclude or restrict competition in exercising intellectual property rights.

An operator who is of dominant market position may not, without justification, implement the following acts of excluding or restricting competition in the course of formulation and implementation of the standards:

1. when participating in the formulation of the standards, deliberately not disclosing information on its rights to the standards developing organization, or explicitly waiving its rights, but claiming its patent rights to the implementers of a standard after the standard involves the patent.
2. after the patent has become an essential patent of the standards, in violation of the fair, reasonable and non-discriminatory principles, implementing denial of license, conducting tied sale of products, adding other unreasonable trading conditions in the transaction or implementing other acts of excluding or restrict competition.

For the purpose of the Provisions, the "essential patent of the standards" refers to the patent which is essential to the implementation of such standards.

Article 14 Where an operator is suspected of abusing the intellectual property rights to exclude or constraint competition, the administration for industry and commerce shall perform the investigation in accordance with the Anti-monopoly Law and the Provisions of the Administrations for Industry and Commerce on the Procedures for the Investigation and Penalties of Monopoly Agreement Cases and Abuse of Dominant Market Position Cases.

Article 15 When the acts of operators suspected of abusing intellectual property rights to exclude or restrict competition are analyzed and identified, the following steps may be taken:

1. determining the nature and form of the exercise of intellectual property rights by operators;
2. determining the nature of the relationship between the operators who exercise the intellectual property rights;
3. defining the relevant market involving the exercise of intellectual property rights;
4. recognizing the market position of the operators who exercise the intellectual property rights; and
5. analyzing the impact of the acts of the operators on competition in the relevant market in exercise of the intellectual property rights.

Analyzing and identifying the nature of the relationship between the operators need the consideration of the characteristics of the exercise of intellectual property rights per se. In case that intellectual property licensing is involved, the operators who are originally in a competitive relationship are in a trading relationship under a license contract, and the licensor and the licensee are in a competitive relationship in the market in which they both use the intellectual property rights to manufacture products. However, if when the license agreement is entered into, the parties are not in a competitive relationship, and a competitive relationship arises after the agreement is entered into, such agreement shall not be regarded as an agreement between competitors, unless the original agreement substantial changes.

Article 16 When impacts of the acts by operators to exercise the intellectual property rights on competition are analyzed and identified, the following factors shall be considered:

1. market position of the operators and the transaction counterparts;
2. concentration degree of the relevant market;
3. degree of difficulty to enter the relevant market;
4. industry practices and the development stage of industry;
5. time limit and scope for limitation to production output, territory, consumers and other aspects;
6. impact on the development of innovation and technology promotion;
7. operators' innovation capability and technological change speeds; and
8. other factors related to identification of the impacts of exercise of intellectual property rights on competition.

Article 17 If an operator's abuse of intellectual property rights to exclude or restrict competition constitutes a monopoly agreement, the administration for industry and commerce shall order the operator to stop the illegal act, confiscate the illegal income, and impose a fine of not less than 1% but not more than 10% of annual sales of the previous year; if the operator has not yet implemented the monopoly agreement reached, the operator may be imposed a fine of not more than CNY500,000.

If an operator's abuse of intellectual property rights to exclude or restrict competition constitutes an abuse of dominant market position, the administration for industry and commerce shall order the operator to stop the illegal act, confiscate the illegal income, and impose a fine of not less than 1% but not more than 10% of annual sales of the previous year.

When determining the specific amount of the fine, the administration for industry and commerce shall consider the nature, circumstance, extent, duration and other factors of the violations.

Article 18 The Provisions shall be interpreted by the State Administration for Industry and Commerce.

Article 19 The Provisions shall come into force as of August 1, 2015.

(Source:LexisNexis)