article · qualcomm held a dominant position in the cdma/wcdma/lte wireless ... 15 gu menglin &...

FRONTIERS OF LAW IN CHINA VOL. 10 SEPTEMBER 2015 NO. 3

DOI 10.3868/s050-004-015-0027-0

ARTICLE ANTI-ABUSE OF INTELLECTUAL PROPERTY RIGHTS UNDER THE

ANTI-MONOPOLY LAW: CHINA’S APPROACHES

GU Minkang*

Even though China’s first Anti-Monopoly Law (AML) was effective on August 1, 2008, the implementation of Article 55 has been delayed until 2014 when several actions were taken. For examples, several foreign giant intellectual property holders were investigated for possible abuse of their intellectual property rights and the State Administration for Industry and Commerce released the Rules on Prohibiting Conducts of Abusing Intellectual Property Rights by Excluding or Restricting. The underlying message is obvious: China starts to pay more and more attention to the protection of intellectual property (IP) rights on the one hand, she decides to seriously deal with the abuse of intellectual property rights by intellectual property owners, especially those giant international companies. Because the issue of how to balance the tension between IP law and the AML is a new topic in China, this paper intends to outline the prevailing experiences from foreign jurisdictions especially from the United States and European Union and to propose some useful strategies and approaches, which are fit into China’s reality.

INTRODUCTION .................................................................................................................... 489

I. THE ANTITRUST INVESTIGATIONS ........................................................................... 489 II. THE SAIC RULES .................................................................................................... 493 III. THE NEWLY ESTABLISHED IP COURTS.................................................................. 494 IV. RELEVANT COMPETITION POLICIES ...................................................................... 495 V. STRUCTURE OF THIS PAPER .................................................................................... 496

A. Experiences from US and EU.........................................................................496 1. US Experiences: From Scrutiny to More Protection ..................................... 497 2. EU Experiences: More Balanced Attitude..................................................... 499 3. Relevant Legislation and Implementation in EU and US.............................. 500 4. Short Summary.............................................................................................. 502

B. Chinese Strategy and Practice .......................................................................502 1. Approaches to Deal with Excessive Price ..................................................... 503

* (顾敏康) Professor, at School of Law, City University of Hong Kong, Hong Kong. Research interests

include Chinese and comparative company law, Chinese and comparative competition law and other international commercial law topics. Contact: [email protected]

2015] ANTI-ABUSE OF INTELLECTUAL PROPERTY RIGHTS UNDER THE ANTI-MONOPOLY LAW 489

2. Approaches to Deal with Patent Pool ............................................................ 503 3. Approaches to Deal with the Refusal to License ........................................... 505 4. Approaches to Deal with Other Issues........................................................... 505

CONCLUSION.........................................................................................................................508

INTRODUCTION

Those who are engaging in research on either intellectual property (IP) law or antitrust law (or competition law) may be aware of the several actions taken recently by Chinese authorities. Firstly, there was an investigation into Qualcomm by China’s National Development and Reform Commission (NDRC), the government agency in charge of pricing violations (including price monopolies). According to reports, Qualcomm was imposed a penalty of RMB6.088 billion ($975 million) for its abuse of dominant market position in China. The fine was 8% of Qualcomm’s China sales in 2013. Secondly, China’s State Administration for Industry & Commerce (SAIC), the nation’s main business authority in charge of implementing China’s Anti-Monopoly Law (AML) in the area of abusing market dominant position, visited Microsoft offices in Beijing, Shanghai, Guangzhou and Chengdu. Thirdly, on June 10, 2014, the SAIC released the Rules on Prohibiting Conducts of Abusing Intellectual Property Rights to Exclude and Restrict Competition (Draft) for the purpose of soliciting comments from the public. Subsequently, the SAIC officially issued the Rules on Prohibiting Conducts of Abusing Intellectual Property Rights to Exclude and Restrict Competition (SAIC Rules) on April 7, 2015. Fourthly, on August 31, 2014, the National People’s Congress (NPC) Standing Committee decided to establish three Intellectual Property Courts in Beijing, Shanghai and Guangzhou.

I. THE ANTITRUST INVESTIGATIONS

This paper will start with three cases where three foreign firms, i.e. Inter Digital Inc., Qualcomm and Microsoft, were under investigation by Chinese authorities.

Inter digital Inc. (IDC) is an American company that holds many essential standard patents in wireless telecommunication sector. It was accused for the abuse of market dominant position by: (1) charging unfairly high prices; (2) requiring grant-back patents freely; and (3) tying non-essential standard patent technology with essential standard patent technology.1 On May 22, 2014, the NDRC announced to suspend the antitrust investigation against IDC after IDC promised to eliminate the anti-competitive effects and to restore the market competition order.2 In fact, on December 6, 2011, Huawei

1 HUANG Wei & LIN Cathy, A Second Look at IDC Investigation Case in China, Jun. 8, 2014, available

at http://www.lexology.com/library/detail.aspx?g=bd34e778-468d-4a6b-8428-4ebc148dec0a (last visited Feb. 5, 2015).

2 Id.

490 FRONTIERS OF LAW IN CHINA [Vol. 10: 488

Technologies brought a case before the Shenzhen Intermediate People’s Court (Shenzhen Court) claiming that IDC violated the AML by abusing dominant market position in the licensing of standard essential patents (SEPs) for 3G wireless communications and asking for a compensation of RMB20 million. The Shenzhen Court held that there was a case of abusing dominant market position by charging excessive fees and ordered IDC to pay RMB20 million. But Shenzhen Court rejected Huawei’s claim of tying arrangement. Therefore, both parties appealed the judgment and on October 21, 2013, the Guangdong High People’s Court ruled to maintain the judgment.3 Thus, it seems that the NDRC had a good reason to investigate IDC’s suspected violations.

Qualcomm is the largest maker of processors and communications chips for mobile phones and its major customers are Apple Inc. and Samsung Electronics Co.4 Qualcomm established its presence in China in 1999.5 Recently, it was reported that Qualcomm was under investigation by the NDRC.6 Through the investigation, the NDRC had found that Qualcomm held a dominant position in the CDMA/WCDMA/LTE wireless communication SEPs market and base band chip market and Qualcomm had abused its dominant position in several ways: (1) Qualcomm charged unfairly high patent royalties on Chinese companies; (2) Qualcomm tied in sales of patent licenses that are not wireless communication standards; (3) Qualcomm imposed unfair terms on sales of base band chips. 7 During the investigation, Qualcomm proposed a rectification plan package concerning some of its wireless SEPs: (1) adjusting its patent royalties on handsets sold for use within China to 65% of the wholesale net selling price of a handset device; (2) providing a patent list and stopping charging patent fees for expired patents when licensing patents; (3) ceasing making the grant-back as one condition on Chinese licensees and request Chinese companies licensing their patents to Qualcomm for free; (4) stopping tie-in sales of non-wireless communication SEPs without justifiable cause; and

3 The Written Judgment of Guangdong Higher People’s Court is available at http://blog.sina.com.cn/ s/blog_c182d0730101hzfn.html (last visited Apr. 30, 2015).

4 Spencer E. Ante & Don Clark, China Opens Monopoly Probe into Chip Maker Qualcomm, Wall Street Journal, Nov. 26, 2013. In fact, Qualcomm has many Chinese customers such as Huawei, Zhongxing Telecommunication Equipment Corporation and Xiaomi, See CHEN Xi, 高通在华遭调查或伤及小米 (The Investigation of Qualcomm May Hurt Xiaomi), Dec. 4, 2014, available at http://tech.qq.com/a/20141204/ 058927.htm (last visited Feb. 5, 2015).

5 Neil Gough & Chris Buckley, Adviser to Government in Chinese Investigation of Qualcomm Is Ousted, Aug. 13, 2014, available at http://www.nytimes.com/2014/08/14/business/international/antitrust-adviser-to- beijing-ousted-in-inquiry-over-payments.html (last visited Feb. 5, 2015).

6 According to Mr. XU Kunlin, the Director General of the Bureau of Price Supervision and Anti-monopoly under the NDRC, the suspected conducts of Qualcomm were initially reported by two US companies in 2009, please see Press Conference of the PRC State Council Information Office, Sep. 11, 2014, available at http://www.scio.gov.cn/xwfbh/xwbfbh/wqfbh/2014/20140911/index.htm (last visited on Feb. 5, 2015).

7 See 国家发展改革委对高通公司垄断行为责令整改并罚款 60 亿元 (The NDRC Request Qualcomm to Rectify Its Wrongs and Imposed Fine for RMB6 Billion), available at http://www.sdpc.gov.cn/xwzx/ xwfb/201502/t20150210_663822.html (last visited Mar. 23, 2015).


(5) stopping imposing unfair terms in licensing agreements and non-challenge clause on Chinese licensees as a condition for baseband chip supply.8

As far as the possible violations of antitrust law were concerned, Qualcomm was accused in both South Korea and Japan, and is appealing adverse rulings in both countries. 9 Further, the latest news was that Qualcomm would face an antitrust investigation from the EU authority over allegations of abusing its dominant market position.10 Furthermore, Qualcomm disclosed that the Federal Trade Commission of the US was investigating its possible violation relating to patent licensing.11

On July 29, 2014, roughly 100 investigators on Monday raided Microsoft offices in four Chinese cities including Beijing.12 On September 1, 2014, the SAIC posted on its website a notice giving Microsoft 20 days to provide a written explanation concerning the company’s operations.13 The SAIC said that Microsoft had been suspected of violating China’s AML since June 2013 in relation to problems with compatibility, bundling and document authentication for its Windows operating system and Microsoft Office software.14

According to one IP lawyer, Microsoft might fail to unbundle its two products, i.e. Windows and Office. Further, it refused to open interface to third parties. Thus, Microsoft’s conduct could possibly amount to refuse to deal. Also, because Microsoft has a huge market shares in operating system market, to include IE and Windows Media Player in Windows could be considered as tying sale.15

Further, it was reported that Spain’s antitrust division has launched an investigation into Microsoft following allegations that the company’s Spanish and Irish units restricted the sale by third parties of software licenses.16 And Microsoft has a history of being heavily punished by the EU Commission for the abuse of a dominant position in relation

8 Id. 9 See Spencer & Don, fn. 4. 10 Sam Reynolds, Qualcomm May Face an EU Antitrust Investigation, Aug. 28, 2014, available at

http://www.brightsideofnews.com/2014/08/28/qualcomm-eu-antitrust-investigation/ (last visited Feb. 5, 2015). 11 Andre Grenon & Lisa Shumaker, Qualcomm Sees More China Trouble, Faces Probes in US, Europe,

Nov. 5, 2014, available at http://www.reuters.com/article/2014/11/05/us-qualcomm-results-idUSKBN0IP2P 020141105 (last visited Feb. 5, 2015).

12 Shira Ovide, Microsoft Is Big Target in a “Digital Cold War,” Wall Street Journal, Jul. 30, 2014. 13 Bien Perez & Sophie Yu, Microsoft CEO Faces Deadline in China’s Anti-Monopoly Probe, South

China Morning Post, Sep. 2, 2014. 14 Reuters, Chinese Antitrust Regulator Targets Microsoft Software Bundling, South China Morning Post,

Aug. 26, 2014. 15 GU Menglin & HAN Xu, 微软反垄断案涉浏览器播放器自带 IE 被认为“搭售” (Microsoft Anti-

Competitive Conducts involving in IE and WMP), Aug. 27, 2014, available at http://media.people.com. cn/n/2014/0827/c40606-25545178.html (last visited Feb. 5, 2015).

16 Zack Whittaker, Spain Begins Antitrust Investigation into Microsoft, Sep. 20, 2014, available at http://www.zdnet.com/blog/btl/spain-begins-antitrust-investigation-into-microsoft/58432 (last visited Feb. 5, 2015).


to the refusal to supply the interoperability information for operating PC Windows with other systems and the tied sale of Windows Media Player.17

So far, about 30 foreign firms have been investigated for suspected monopolistic conducts but only two or three foreign firms such as Microsoft and Qualcomm have been accused for abusing intellectual property rights (IPR/IPRs). Recently, there was a concern that foreign companies would have been unfairly targeted by China’s authorities through the operation of the AML. Both the American Chamber of Commerce and even the U.S. Treasury Secretary Jack Lew had warned that investment from abroad might continue to shrink or their foreign intellectual property might be devalued as a result.18

On the other hand, the Chinese authority expressly rejected this accusation. Mr. SHEN Danyang, the spokesman of the Ministry of Commerce of the People’s Republic of China (MOFCOM) said that the investigation of the violations of partial foreign enterprises had nothing to do with “exclusion of foreign enterprises.” Mr. SHEN further pointed out that the purpose of investigating those suspected monopolistic conducts was to promote fair competition and to protect lawful interests of consumers.19 Further, a study done by the international law firm, Freshfields Bruckhaus Deringer, found that business risks in China were not as bad as that in some other places around the world.20

Regardless domestic enterprises or foreign enterprises, they should bear similar legal responsibilities and be subjected to relevant punishments if they are found violations.21 This paper also holds the view that the allegation of discrimination should be substantiated by clear evidence. Mere guess or biased views cannot help to solve the problem. According to the China Daily, there were top 9 antitrust cases in China and involving parties are: (9) China Telecom and China Unicom; (8) six liquid crystal display (LCD) screen producers including two from South Korea (Samsung and LG) and four from Taiwan [CMO, AU Optronics (AUO), Chunghwa Picture Tubes and HannStar]; (7) Kweichow Moutai Co Ltd and Wuliangye Yibin Co Ltd; (6) six infant formula producers

17 T-201/04 Microsoft vs Commission, judgment of Sep. 17, 2007, available at http://ec.europa.eu/dgs/

legal_service/arrets/04t201_en.pdf (last visited Feb. 5, 2015). 18 Victoria Ruan, AmCham in China Echoes EU Gripes over Opaque Laws Unfairly Applied, South

China Morning Post, Sep. 2, 2014. See also Treasury’s Lew Warned China on Antitrust Probes of Foreign Firms: WSJ, Sep. 14, 2014, available at http://www.reuters.com/article/2014/09/14/us-usa-china-antitrust- idUSKBN0H90VM20140914 (last visited Feb. 5, 2015).

19 See MOFCOM Official Says China Pricing Probes Are Fair, Aug. 11, 2014, available at http://www.chinaeconomicreview.com/mofcom-official-says-china-pricing-probes-are-fair (last visited Feb. 5, 2015).

20 “The study found that 25 percent of deals in China faced problems of various kinds, which compared favorably with a figure of 60 percent in Indonesia, 43 percent in Mexico and 83 percent in India.” Toh Han Shih, Qualcomm Probe Raises Risk of Doing China Business, Dec. 9, 2013, available at http://www.scmp.com/business/china-business/article/1376396/qualcomm-probe-raises-risk-doing-mainland-china- business (last visited Feb. 5, 2015).

21 ZHANG Xiaoming, 对外企反垄断调查中国不存在“排外” (The Anti-Monopoly Investigation Does Not “Exclude Foreign Enterprises”), Wenhui Daily, Aug. 10, 2014.


including Biostime, Dumex, Mead Johnson, Abbott, Friesland and Fonterra; (5) five Shanghai-based gold and jewelry stores and a local trade association; (4) Johnson & Johnson Inc. and Bausch & Lomb Inc.; (3) Qualcomm Inc.; (2) Microsoft China Co Ltd.; and (1) Chrysler and Audi.22 Among these nine big cases, three were Chinese giant enterprises and this indicates, to some extent, that foreign investors have not been specially targeted. As far as this paper is concerned, it is important to note that since foreign IP holders have acquired dominant market power in China, they are likely to be the targets if they have abused their power. Furthermore, because Chinese enterprises are more relying on foreign IPs, they are less likely to be investigated for their abuse of IPRs. Certainly, it is reasonable to demand that all investigations should be done in a transparent way and the relevant sanctions given or judgments made should be supported by justifications.

II. THE SAIC RULES

On June 10, 2014, the SAIC published its latest draft of rules, i.e. the Rules on Prohibiting Conducts of Abusing Intellectual Property Rights to Exclude or Restrict Competition (Draft),23 to solicit public opinions. The SAIC Rules were finally issued on April 7, 2015 for the purpose of implementing Article 55 of the AML, which says that “this law is not applicable to undertakings who exercise their intellectual property rights in accordance with the laws and administrative regulations on intellectual property rights; however, this Law shall be applicable to the undertakings who eliminate or restrict market competition by abusing their intellectual property rights.” Comparatively speaking, the application of competition law to abuse of IPRs is an old topic but in China this is absolutely a new one. On the other hand, it is true that the abusive conducts of IP owners were dealt with by other laws. For example, Article 48(2) of The PRC Patent Law states that “if a patent-owner’s act of exercising the patent rights is determined as a monopolizing act and it is to eliminate or reduce the adverse consequences of the said act on competition, the patent administrative department of the State Council may, upon the application of an eligible entity or individual, grant it or him a compulsory license to exploit the patent for an invention or utility model.”24 However, under the Patent Law it is impossible to determine what a monopolizing act is and this job could only be done by the application the AML.

Even though the SAIC Rules were delayed for more than 6 years, it is clear that

22 See Top 9 Anti-Trust Cases in China, China Daily, Aug. 8, 2014, available at http://www.chinadaily.

com. cn/business/2014-08/08/content_18270762_9.htm (last visited Feb. 5, 2015). 23 The Chinese version of the Rules is available at http://www.saic.gov.cn/gzhd/zqyj/201406/

t20140610_145803.html (last visited Feb. 5, 2015). 24 Patent Law of the People’s Republic of China, adopted on Mar. 12, 1984, amended for the 3rd time in

accordance with the Decision of the Standing Committee of the Eleventh National People’s Congress on Amending the Patent Law of the People’s Republic of China at its 6th Meeting on Dec. 27, 2008.


Chinese regulatory authority intends to seriously deal with the abusive conducts of the IP holders. One prominent fact is that China is becoming the world’s fastest-growing market for licensed technologies,25 which means that China is still heavily relying on imported IP products. On the other hand, there is an inevitable situation that foreign IP owners may conspire among themselves or abuse their market dominant position, which may lead to the violation of Article 55 of the AML.26 For this reason, the SAIC Rules provide not only the general prohibition of boycotts, refusal to license, tying and imposing unreasonable trading conditions, but also some special types of anti-competitive behaviors, such as exclusive grant backs, certain patent pools, misleading a standards development organization, and sending nuisance IPR litigation threat letters.27

III. THE NEWLY ESTABLISHED IP COURTS

On February 4, 2008, the Supreme People’s Court (SPC) issued the Provisions on the Cause of Action of Civil Cases and decided that disputes over monopoly and disputes over unfair competition were within the scope of disputes over IPRs. On February 18, 2011, the SPC issued Notice of the Supreme People’s Court on Publishing the Decision on Amending the Provisions on the Cause of Action of Civil Cases and further divided disputes over monopoly into dispute over a monopoly agreement, dispute over abuse of dominant market position and dispute over concentration of business operators. According to these Provisions, all disputes over monopoly should be dealt with by the adjudication tribunals in charge of IPRs.28 On August 31, 2014, the NPC passed Decision of the NPC Standing Committee on Establishing Specialized IP Courts in Beijing, Shanghai and Guangzhou. However, it becomes unclear whether disputes over monopoly will also be handled by those IP courts. 29 The newly published SPC’s Decision concerning Jurisdiction of Intellectual Property Courts in Beijing, Shanghai and Guangzhou on October 31, 201430 does not mention whether the disputes over monopoly should be dealt with by these three IP courts. Regardless which direction will be, it is

25 ZHAN Hao, SAIC Moves Closer to Antitrust Rules for IP, Jul. 10, 2014, available at http://www.

chinalawvision.com/2014/07/articles/competitionantitrust-law-of-th/saic-moves-closer-to-antitrust-rules-for-ip/ (last visited Feb. 5, 2015).

26 Article 55 states that “this Law is not applicable to undertakings who exercise their intellectual property rights in accordance with the laws and administrative regulations on intellectual property rights; however, this Law shall be applicable to the undertakings who eliminates or restrict market competition by abusing their intellectual property rights.”

27 See ZHAN, fn. 25. 28 The Notice of the Supreme People’s Court on Publishing the Decision on Amending the Provisions on

the Cause of Action of Civil Cases is available at http://www.lawtime.cn/info/minshi/fagui/2014010628 77090.html (last visited Feb. 5, 2015).

29 MMLC Group, China Decides to Establish Intellectual Property Rights Courts, available at http://www.hg.org/article.asp?id=33348 (last visited Feb. 5, 2015).

30 The SPC’s Decision is available at http://baike.baidu.com/view/15228043.htm (last visited Feb. 5, 2015).


clear that anti-monopoly cases should be dealt with by judges with special knowledge.31 But regardless whether an anti-monopoly case would be handled by special collegiate panels or by the IP courts, the important task for the relevant courts is to build up trust and credibility. One of the effective ways is to provide convincing reasons in their judgments which are available for public review.

IV. RELEVANT COMPETITION POLICIES

The SAIC Rules have just been released and it is impossible to assess the impact on the enforcement at this stage. It is true that a good set of rules would help an effective enforcement of the law. However, one must bear in mind that the competition law is a special law in a sense that the enforcement of it must be guided by prevailing competition policies. In the famous case, Hospital Corp. of America vs F. T. C., the Court pointed out that “the [US] Supreme Court, echoed by the lower courts, has said repeatedly that the economic concept of competition, rather than any desire to preserve rivals as such, is the lodestar that shall guide the contemporary application of the antitrust laws, not excluding the Clayton Act.”32 Research indicates clearly that the Harvard School had a substantial impact on American antitrust policy in the 1950s and 1960s. The original Harvard view, best characterized by Kaysen and Turner’s book (Antitrust Policy: An Economic and Legal Analysis), was that market power per se is harmful and therefore should be illegal. The focus of analysis was on market structure rather than on business conduct as the source of adverse economic performance.33 The Chicago School, on the other hand, emphasizes more on efficiency of the business operations and it acquired a strong influence on American antitrust policy from the 1970s onwards and reached the apogee of its influence in the 1980s.34 But the situation in China is different simply because China has been doing experiments on economic reform for more than 30 years and the existing economic theories in China cannot offer reliable and manageable support to implementation of the AML,35 and the same to the SAIC Rules. Thus, it is logical to examine and learn some experiences of balancing the relationship between IP law and antitrust law (or competition law) from other jurisdictions, especially from the US and the EU.

31 For example, in Shanghai Number 2 Intermediate People’s Court, all antimonopoly cases will be handled by a special collegiate panel. See LÜ Guoqiang, 细谈反垄断专项合议庭设立之由来 (The Story of a Special Collegiate Panel Dealing with Antimonopoly Cases), available at http://www.chinaipmagazine.com/ journal-show.asp?375.html (last visited Feb. 5, 2015).

32 Hospital Corp. of America vs F. T. C., 807 F.2d 1381, 1386 (1986); Certiorari was denie, 481 U.S., 1038 (1987).

33 Roger J. Van den Bergh & Peter D. Camesasca, European Competition Law and Economics: A comparative Perspective, Thomson (Sweet & Maxwell), at 75 (2006).

34 Id. at 84. 35 XUE Zhaofeng, 反垄断法拓宽寻租之门 (The Anti-Monopoly Law Opens the Door of Rent-Seeking),

Aug. 1, 2008, available at http://xuezhaofeng.com/blog/?p=334 (last visited Feb. 5, 2015).


V. STRUCTURE OF THIS PAPER

This paper mainly chooses the US and the EU as its reference for obvious reasons. Firstly, the US has implemented its antitrust law and patent law for more than hundred years and it has accumulated rich experiences in dealing with the relationship between antitrust law and patent law. Secondly, the EU has implemented its competition law and IP law for more than half century and its experiences in dealing with monopolistic conducts of IP holders are worth of learning. Thirdly, both the US and the EU are influential in the world and this also attributes to their laws and enforcement experiences.

This part will focus on the developing trend of antitrust law or competition law in dealing with abuse of IPRs in the US and the EU and discuss the SAIC Rules in order to predict reasonable future trend of the AML in dealing with cases of abusing IPRs in China. In his conclusion, the author wishes to point out that China pays more and more attention to the protection of IPRs on the one hand, it decides to seriously deal with the abuse of IPRs by IP owners, especially those giant international companies such as Qualcomm and Microsoft on the other hand. Certainly, the issue of how to balance the tension between IP law and the AML is a new topic in China. As a matter of competition policy, the courts in China need to consider both the healthy development of domestic industries and the welfare of consumers.36 So long as the measures taken are transparent and reasonable, there is no need to worry about the criticism of discriminating foreign enterprises. Finally, the SAIC Rules will definitely play an important role in better enforcement of the AML.

A. Experiences from US and EU

IPR/IPRs generally refer to IP holders exercising exclusive right over the use of their intellectual property for a certain period of time. IPRs usually include copyright, patent right and trade mark right.37 The exclusive right as well as monopoly power within a certain period of time is authorized by the IP law. Under the IP law, the over exercise of exclusive right may not be a problem. However, the idea of monopoly under the IP law is fundamentally conflicting with the idea of competition under the competition law. One paper points out that “the exclusionary rights granted by intellectual property protection, coupled with trends toward standardization due to network effects, threaten to diminish

36 Unfortunately, the discussion of the relevant competition policies has not been seen from the

judgement of Huawei vs IDC. 37 Article 2(8) of Convention Establishing the World Intellectual Property Organization defines the

intellectual property as the rights relating to literary, artistic and scientific works, performances of performing artists, phonograms, and broadcasts, inventions in all fields of human endeavor, scientific discoveries, industrial designs, trademarks, service marks, and commercial names and designations, protection against unfair competition, and all other rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields.


market competition.”38 Thus, the over exercise of exclusive right could be a problem under any competition law.

It is commonly agreed that the best way to resolve this conflict is to strike a proper balance between IPR system and free competition system even though both intellectual property law and antitrust law may share the common purpose of promoting innovation and enhancing consumer welfare.39 As one scholar points out that antitrust law will push firms to compete and seek new roads to innovation and at the same time, it will prevent dominant firms from harming or retarding innovation.40

Generally speaking, an IP owner unilaterally refuses to license its IP products cannot be treated as violation of antitrust law so long as its refusal is unconditional and non-discriminative. Thus, before discussing the balance issue, it is necessary to discuss the question of how to define the terms of “over exercise” or “abuse”? In fact, under the general context of antitrust law, the scope of abuse of IPRs should be broadly including two conducts: One is any monopolizing conduct and another is over exercise of exclusive right that is contradicting to public interests. In both situations, it is necessary to prove that the defendant has acquired market dominant position.41 In separate sections, this part is going to examine how to deal with the abuse of IPRs under the antitrust law in both US and EU.

1. US Experiences: From Scrutiny to More Protection. — Even though courts in the US today have held or recognized a rule that a patent holder may violate the Sherman Act by bringing a patent infringement suit when the courts have determined that the patent holder has brought the suit as part of or in furtherance of an overall scheme to monopolize,42 it is necessary to learn different judicial attitude towards the abuse of IPRs in different time periods.

Roughly, from the end of the 19th century to 1931, the patent owners were generally protected under the IP law. Many courts, when dealing with cases of the infringement on patent rights, did not accept the defense of the defendant that the patent owner abused

38 Robert Pitofsky, Antitrust and Intellectual Property: Unresolved Issues at the Heart of the New

Economy, 16 Berkeley Technology Law Journal 535, 539 (2001). 39 “[T]he aims and objectives of patent and antitrust laws may seem, at first glance, wholly at odds.

However, the two bodies of law are actually complementary, as both are aimed at encouraging innovation, industry and competition.” Atari Games Corp. vs Nintendo of America, Inc., 897 F.2d 1572, 1576 (Fed. Cir. 1990). Cited from the US Antitrust Guidelines for the Licensing of Intellectual Property, FN 8.

40 See Pitofsky, fn. 38 at 542. 41 Although Article 2.2 of Antitrust Guidelines for the Licensing of Intellectual Property (1995) stated

clearly that “the Agencies will not presume that a patent, copyright, or trade secret necessarily confers market power upon its owner,” the US Supreme Court officially abolished a judicial assumption in Illinois Tool Works Inc. vs Independent Ink, Inc. 547 U.S. (2006) that because a patent does not necessarily confer market power upon the patentee, in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product.

42 The Antitrust Counterattack in Patent Infringement Litigation, American Bar Association, 1994, at 58.


his/her patent rights. Firstly, courts generally held the view that the purpose of the patent law was to give the holder the monopoly power.43 Secondly, the courts were of the view that in patent lawsuits, the patent owners should not be sued based on laws other than the patent law.44 However, this situation changed from 1930s to the beginning of 1970s, the theory of abuse of patent right became one of important defense used by defendants in the cases of infringement on patent rights. This means that the pendulum swung back and the IPRs were subject to stringent scrutiny under antitrust laws.45 The important indicator was the “Nine No-No’s” issued by the Department of Justice in 1970, which articulated nine licensing practices that the DOJ considered “unlawful in virtually every context,” including: (1) tying the purchase of unpatented materials as a condition of the license; (2) requiring a licensee to assign back subsequent patents; (3) restricting the resale right of a product’s purchasers; (4) restricting a licensee’s ability to deal in products outside the scope of the patent; (5) prohibiting a licensor from granting further licenses; (6) requiring mandatory package licensing; (7) requiring, as a condition of the license, royalties not reasonably related to the licensee’s sales of products covered by the patent; (8) restricting a licensee’s use of a product made by a patented process; and (9) setting minimum resale price provisions for licensed products.46 From many decided cases one can see that the US Supreme Court moved from a total denial of the theory of abusing IPRs to the full recognition of it. But the Supreme Court also held the view that the rule of reason rather than per se violation should be applied in examining relevant cases.47

But from 1980s to today, there was/is a global protection of IPRs, especially the intellectual properties involving information technologies.48 This is because the US government has realized that its advantages in global economic competition are highly relying on technologies and talented persons. Further, the best and effective way to maintain its resources is to protect its IP owners.49 In one case, the court even held that “In the absence of any indication of illegal tying, fraud in the Patent and Trademark

43 WANG Xianlin, 我国反垄断法适用于知识产权领域的再思考 (To Rethink the Application of Chinese

Anti-Monopoly Law to IPRs), 1 南京大学学报 (哲学人文科学社会科学版) [Journal of Nanjing University (Philosophy, Humanities and Social Sciences)], 36 (2013). In the case of E. Bement & Sons. vs National Harrow Co., 186 U.S. 70 (1902), the Supreme Court held that “The general rule is absolute freedom in the use or sale of rights under the patent laws of the United States. The very object of these laws is monopoly…”

44 SUN Gang, 聚焦国外知识产权保护法 (Focusing on Laws Protecting IPRs in Foreign Jurisdictions), 10 安徽科技 (Journal of Anhui Science & Technology), 55 (2008).

45 R. Hewitt Pate, Antitrust and Intellectual Property, Jan. 24, 2003, available at http://www.justice. gov/atr/public/speeches/200701.htm (last visited Feb. 5, 2015).

46 Id. 47 United States vs Studiengesellschaft Kohle, 670 F.2d 1122 (D.C. Cir. 1981) (holding that patent license

use restrictions should be evaluated under a rule of reason). 48 See fn. 44. 49 PENG Xinqian, 国家经济战略中知识产权法与反垄断法的平衡 (The Balance of Intellectual Property

Law and Antimonopoly Law in National Economic Strategy), 24(1) 山西省政法管理干部学院学报 (The Journal of Shanxi Politics and Law Institute for Administrators), 21 (2011).


Office, or sham litigation, the patent holder may enforce the statutory right to exclude others from making, using, or selling the claimed invention free from liability under the antitrust laws.”50 This holding was criticized as “allowing intellectual property holders to extend their market power beyond the scope of the intellectual property right itself and sacrificing more competition than is necessary to provide appropriate incentives to innovate.”51

The conclusion from this examination is obvious: The attitude of the US courts towards the abuse of IPRs is changeable based on the dynamic competition policies. Its today’s policies are more focusing on the IP hegemony in the world, especially in the most developing countries. Therefore, the US courts will place more emphasis on the protection of IPRs by the IP law with minimum interference by the antitrust law.

2. EU Experiences: More Balanced Attitude. — The EU took an approach differently because at the time the EC was established, its main objective was to achieve the integration among the member states and to remove barriers including technological barriers of the member states. Therefore, the main task was to actively develop the EU level competition law in order to regulate the IPRs. However, after the completion of the common market and many member states have established the antitrust system in line with the EU competition law, the EU started to relax its central regulation of IPRs by the EU competition law.52 Interestingly enough, the EU courts treated Microsoft case with the attitude different from that of US courts. On March 24, 2004, the EU Commission decided that Microsoft had abused its dominant position in the PC operating system market by refusing to disclose interface information and tying its separate Windows Media Player product with its Windows PC operating system. The Court of First Instance delivered its judgment on September 17, 2007 upholding the findings of abuse in the Commission’s decision and the amount of the fine remaining unchanged at EUR497 million. 53 Contrarily in the US, Microsoft successfully settled the case with the Department of Justice (DOJ) and the settlement actually had little effect on Microsoft’s abusive behavior. Maybe the motivation is to protect its superpower in the world because it has been said that the Microsoft-DOJ Proposed Final Judgment failed to protect the public interest, i.e. the consumers’ interest.54

50 In re Indep. Servo Orgs. Antitrust Litigation, 203 F.3d 1322, 1329 (Fed. Cir. 2000). 51 See fn. 38 at 546. 52 See PENG, fn. 49. 53 In the US, Microsoft was found guilty for abusing its monopoly power by bundling its flagship Internet

Explorer (IE) web browser software with its Microsoft Windows operating system. However, the case was finally settled and approved by the US appeals court. Microsoft thus avoided being broken into two separate units. For detailed information, please visit United States vs Microsoft Corp., available at http://en.wikipedia.org/wiki/United_States_v._Microsoft_Corp (last visited Feb. 5, 2015).

54 Consumer Federation of America, Competitive Processes, Anticompetitive Practices and Consumer Harm in the Software Industry: An Analysis of the Inadequacies of the Microsoft-Department of Justice Proposed Final Judgment, available at http://www.justice.gov/atr/cases/ms_tuncom/major/mtc-00028565b. htm#1 (last visited Feb. 5, 2015).


3. Relevant Legislation and Implementation in EU and US. — In order to properly deal with the IP holder’s rights under the antitrust law and to offer IP holders clear guidelines on how to avoid the violation of antitrust law, many countries and regions have published the relevant guidelines. For example, in the US in 1995, the DOJ and the Federal Trade Commission jointly issued the Antitrust Guidelines for the Licensing of Intellectual Property. In 1996, the European Commission issued Commission Regulation (EC) No 240/96 of 31 January 1996 on the Application of Article 85(3) of the Treaty to Certain Categories of Technology Transfer Agreements. In Japan in 1989, the Fair Trade Commission issued Guidelines on Patent Know-How Licensing Agreement (reissued in 1999). In Taiwan in 2001, the Fair Trade Commission (FTC) issued Fair Trade Commission Disposal Directions (Guidelines) on Technology Licensing Arrangements (updated February 6, 2012). The late-coming SAIC Rules are just a right reaction of this popular practice.

According to the Antitrust Guidelines for the Licensing of IP, three general principles should be followed: (1) IP is regarded as being essentially comparable to any other form of property; (2) there is no presumption that intellectual property creates market power in the antitrust context; and (3) IP licensing allows firms to combine complementary factors of production and is generally procompetitive.55 The 1996 EC Technology Transfer Agreements also indicate three important principles: (1) The IPR creates monopoly power and the abuse of monopoly power should be regulated by the competition law; (2) the IP owners have the absolute right to their innovative fruits but their licensing conditions or terms should be regulated by the competition law; and (3) the IP licensing should be subjected to exemption list and per se violation list.

The comparison of these two legal documents is meaningful. It shows clearly that IP holders do possess the market power because of their unique intellectual properties. But in other words, the more the intellectual properties are unique the bigger the market power they will achieve. Therefore, a lesson for China would probably be to initially adopt a rebuttable presumption of market power by IP owners at an initial stage of implementing the SAIC Rules so that they need to bear the burden of proving that they do not have substantial market power.56

The abuse of IPRs could be seen in various aspects. However, the most popular form of abuse is refusal to license.

In EU, the Magill case57 was regarded as the first case in which the court defined any

55 Article 2.0 of the Antitrust Guidelines for the Licensing of Intellectual Property. Despite the Guidelines, the presumption was officially removed by the US Supreme Court in 2006 in the case of Illinois Tool Works Inc. vs Independent Ink, Inc., 547 U.S. 28 (2006). “Today, we reach the same conclusion, and therefore hold that, in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product.”

56 This point will be further elaborated in part III. 57 The case summary is available at http://www.panix.com/~jesse/magill.html (last visited Feb. 5, 2015).


specific criteria to assess the abuse of IPRs. In this case, three television companies refused to license their copyright-protected program information to Magill, which wanted to offer a comprehensive weekly television guide in the UK and Ireland. Up to that point, the individual television companies had offered solely weekly guides for their own programs. Only daily listings of all programs were available in the newspapers. In April 1988, Magill filed a complaint at the European Commission against the three television companies. The Commission decided that the companies had violated Article 102 of Treaty on the Functioning of the European Union (TFEU)58 and ordered them to disclose the program information. The Court of First Instance (CFI) supported the decision and the European Court of Justice (ECJ) affirmed. As being clearly pointed out in this case that without a comprehensive weekly television guide, consumers had to buy three different television guides to decide which programs they would like to watch. Thus, the refusal to license the program information impeded the supply of a product that was not offered by the dominant firms. Furthermore, the CFI stating that the refusal to license goes far beyond of what is necessary for the essential function of copyright law and the refusal could not be justified. If the refusal was allowed, it would enable the television companies to leverage their market power in broadcasting activities to a secondary market, i.e. the market for television guides. In other words, by refusing to give the copyrighted essential information, the companies eliminated all competition in that particular market.59

Nevertheless, the debate as to how to deal with the refusal to license is still ongoing in the US. To some extent, the courts take an approach that is different from that of the EU. In other words, the US courts do not take into account the interest of consumers when consider whether a refusal to license has anticompetitive effect. In the Trinko case,60 a non-IP-related case, the court took a very clear position in favor of the dominant company, that was, no duty to deal. According to the US Supreme Court, the duty to share erodes incentives to investments and innovation. Furthermore, the court stated that it had never held that there was an essential facility demanding access to a facility as well in the absence of anticompetitive conduct. The court highlighted that antitrust did not impose obligations to dominant firms only because one might assume that consumers were better off.61 This kind of attitude is consistent with the conclusion made before.

In other suspected abusive cases, the IP holder is only liable under competition laws when his/her conduct goes beyond the scope of the right; for instance, when the IP holder

58 See Treaty on the Functioning of the European Union (formerly Treaty Establishing the European

Community). 59 Id. at 13–14. 60 Verizon Communications Inc. vs Law Offices of Curtis vs Trinko, Llp (02-682) 540 U.S. 398 (2004),

305 F.3d 89, reversed and remanded. 61 Claudia Schmidt, Refusal to License Intellectual Property Rights as Abuse of Dominance, Peter Lang

(Frankfurt am Main), at 24 (2011).


tries to control competition in another market. In contrast, competition law will tolerate a monopolist or a company with substantial market power competing on the merits, even though competitors might be hampered.62

4. Short Summary. — It seems that the EU IP law is quite a rigid one while the US antitrust law is quite flexible. Further, the US government has strengthened its protection of IPRs and when comes to the implementation of the antitrust law, it will consider more US interests if there is a conflict between domestic market and international market. Based on the observation of many antitrust law cases, US firmly advocate national interest when dealing with conflicting interests between public law and private law; it will firmly advocate domestic interests if there is a conflicting interest between domestic enterprises and foreign enterprises. Even if there is case of abusing IPR, courts will tend to flexibly deal with it under the antitrust law based on the national interests.63

However, it is clear that the protection degree of IPRs or to what extent the IPRs should be subjected to scrutiny under the antitrust law depends largely on the level of economic development and the competition in international community. Today, it is the time to highly rely on information technologies and both the US and EU would have an intention to give more protection to IPRs so that they could achieve victory in international competition.

Further, it is clear that both the US and EU have a systemic strategy for protecting intellectual properties, which is implemented through comprehensive measures such as national legislation, administrative guidelines and relevant education programs.64 These comprehensive measures will not limit the scope for judicial decisions but will help to improve the quality of the decisions and this is consistent with a legal tradition where judges are required to apply the laws and rules as their priority.

In comparison, China is a developing country relying on more of imported technologies. Therefore, its competition policy should be different from that of the US and the EU. In other words, the AML should take a positive role in regulating the abuse of IPRs. Further, it needs to act quickly in terms of forming a systemic strategy in order to catch up.

B. Chinese Strategy and Practice

China is a member of the World Trade Organization (WTO). This means that China is bound by the TRIPs Agreement. It is a common knowledge that the TRIPs Agreement has been heavily influenced by developed countries or, to be straightforward, by the US. That

62 Id. at 26. 63 SHI Jingyu, 探究知识产权滥用的根源 (Research on the Root Cause of Abuse of IPRs), 3 时代潮

(Chinese Times), 72–73 (2006). 64 DONG Xiaoli, 国外知识产权战略对我国的启示 (Enlightenments of Foreign Strategy for Intellectual

Property), 11 法制与经济 (Legal & Economy), 117 (2010).


is why the TRIPs Agreement is regarded as the high standards utilized by the US as an effective mean to protect its IP hegemony, especially its high-tech companies.65 China has an obligation to observe the provisions of the TRIPs Agreement. This also means that China should observe Article 40(2) of the TRIPs Agreement, which states clearly that “[N]othing 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.”66 Thus, in order to maintain a fair competition order in China, it is necessary to rely on the AML, especially the SAIC Rules, to deal with cases concerning the abuse of IPRs.

1. Approaches to Deal with Excessive Price. — In practice, there are some reported cases concerning the abuse of IPRs by foreign enterprises. The three cases (especially the cases of IDC and Qualcomm) mentioned in the introduction part may involve in the issue of excessive price (or monopoly price) which would not be charged in normal competition conditions and is far exceeding the level of fair price. Excessive price happens when an IP owner has already acquired dominant market position and is using it market power to exploiting welfare of consumers and users.67 So far, many developing countries treat the excessive price as a violation under the antitrust law. For example, Article 44 of the Argentine Patent Law regards the excessive price of patented products as an anti-competitive behavior. Brazilian competition law and South African competition law take the same position.68 The Competition Committee of South Africa ruled in 2003 that both GlaxoSmithKline South Africa and Boehringer Ingelheim abused IPRs by refusing to license antiretroviral drugs to combat HIV and AIDS to generics makers in return for royalties, charging excessive pricing, refusing accession to essential facilities and other engaging in other “exclusionary acts” that have an anticompetitive effect.69

2. Approaches to Deal with Patent Pool. — According to the SAIC Rules, the concept of patent pool refers to “the agreement-based arrangements under which two or more

65 See PENG, fn. 49. 66 So far this provision is considered as the most relevant and important legal authority in international

community. 67 WANG Xianlin, Identification of Abuse of Dominant Market Position involving IPR, Jun. 11, 2010,

available a thttp://webcache.googleusercontent.com/search?q=cache:vjdK-VWOG3QJ:www.ipr2.org/storage/ 5-11-6b_Wang_Xianlin_EN782.pdf+&cd=7&hl=en&ct=clnk&gl=hk (last visited Feb. 5, 2015).

68 Id. 69 Marius Meland, South Africa: GlaxoSmithKline, Boehringer Ingelheim “Abused Monopoly,” Oct. 17,

2003, available at http://www.law360.com/articles/88/south-africa-glaxosmithkline-boehringer-ingelheim- abused-monopoly (last visited Feb. 5, 2015).


patentees jointly license their respective patents to other third parties through a certain from which may be equity joint ventures established specifically for this purpose, or may be by entrusting management to a particular member of the patent pool or an independent third party.”70 So far, the case of DVD6C Licensing Group, which was a typical example of the patent pool, deserves a serious attention.

The DVD6C Licensing Group covered technologies in DVD discs, players, drives, recorders and decoders. The patents were owned by nine members: Hitachi, JVC, Panasonic, Mitsubishi, Sanyo, Sharp, Toshiba, Warner Home Video and Samsung.71 In order to obtain the joint license of using these technologies, the domestic manufacturers would have to pay very high royalties (excessive pricing).72 Thus, “patent pools whose purpose is entirely to generate royalties are seen as the worst manifestation of overseas patent control in China.”73 One may ask why Chinese domestic manufacturers wanted to use these technologies. It was because 80% of DVD machines were manufactured for exportation purpose and they needed to follow internationally recognized standards. It was also because the DVD market had already been monopolized by the influence of relevant patents.74

The ostensible advantage of the patent pool is to avoid competition among the patent holders, which may not be a problem under the patent law. However, in the eye of antitrust law, the joint action to eliminate or restrict competition could be regarded as a serious problem.

It was reported in Taiwan in 2002, the FTC determined that the patent pool for CD-R products by Philips, Sony, and Taiyo Yuden violated Article 14 (concerted action) and Article 10 (illegal monopoly) of the Taiwan Fair Trade Act and an administrative sanction on the patent pool of CD-R was imposed accordingly. Even though the decision was reversed by Taipei High Administrative Court and affirmed by the higher administrative court on the ground that the patent pool was not “concerted action,”75 this is continued to represent the basic attitude of the Taiwanese authority towards patent pools, namely that in general, the FTC is prone to disapprove them.76

The SAIC rules correctly include in one provision (i.e. Article 12) dealing with patent pool operation. Article 12, however, deals with only the relationship among the members of the patent pool in terms of forming monopoly agreement or restricting their freedom

70 Article 12(4) of the SAIC Rules. 71 Nicholas Redfearn, Patent Pools in China, Intellectual Asset Management, at 102 (Sep. /Oct . , 2009). 72 Patent royalties could be $20 per player and manufacturer could only earn $1 as profit. 73 See Redfearn, fn. 71 at 103. 74 Id. 75 TU Thanh Nguyen, Competition Law, Technology Transfer and the TRIPS Agreement: Implications for

Developing Countries, Edward Elgar Publishing Inc. (Cheltenham), at 206 (2010). 76 Roger Chang, Taiwan Fair Trade Commission’s Changing Stance towards Patent Pools, 27(8) World

Intellectual Property Report, 1 (2013).


the members from dealing with licensees independently. In fact, it should concentrate on dealing with the serious situation where licensees were charged too excessive fees.

3. Approaches to Deal with the Refusal to License. — When dealing with the abusive conduct in the process of licensing, i.e. the refusal to license, it is necessary to examine whether the SAIC Rules have established clear standards, which could be used to guide the enforcement. Obviously, there is a room for improvement. For example, it has been said that Article 13(2) states that an undertaking possessing standard essential patents may not “unequally or discriminatively refuse to license its IPRs” but offers no guidance as to the meaning of the terms “unequally” or “discriminatively.”77 Maybe it is better to use some concrete terms which are recognized globally even though there is no widely accepted definition of “fair, reasonable and non-discriminatory” (FRAND) term. In Huawei vs IDC, the Court, for the first time, applied the principle of FRAND in deciding whether there was an excessive price charge. According to Huawei, IDC initially asked for 2% of Huawei’s sales revenue. The Higher People’s Court affirmed the finding of the lower court that the FRAND licensing rate should be 0.019% of sales revenue of Huawei’s involved smart phones.78 This shows clearly that Chinese Courts adapt the international trend very well.

When dealing with the case of compulsory license, it is necessary to understand in what situation the IP holders must grant licensing. In fact, there are a plenty of practice in other jurisdictions and could be used as good references. For example, in the EU, the Commission will apply both the consumer welfare standard 79 and anticompetitive foreclosure standard.80 For another example, in Istituto Chemioterapico Italiano S.p.A. and Commercial Solvents Corporation vs Commission of the European Communities,81 three tests were established to examine whether the refusal of license would be considered as an abusive conduct: (1) The input must be essential for the productive activities of the requesting entity; (2) the refusal must risk eliminating all competition in the downstream market as a result of the essentially of the input; and (3) the refusal must not be objectively justified.82

4. Approaches to Deal with Other Issues. — China is still a developing country in the sense that it heavily relies on the importation of technologies. Thus, it has to pay a serious attention to the abuse of IPRs during the transfer of technologies. One effective way to ease the abuse is to apply the AML. Thus, the intention of release the SAIC Rules is to

77 See ZHAN, fn. 25. 78 SONG Haining, Chinese Court Decides FRAND Licensing Rate of Chinese SEP in Huawei vs

InterDigital, available at http://www.patentexp.com/?p=799 (last visited Apr. 30, 2015). 79 See Schmidt, fn. 61 at 9. 80 Id. at 10. 81 See Joined cases 6 and 7-73, available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:

61973CJ0006 (last visited Feb. 5, 2015). 82 See Schmidt, fn. 61 at 11.


make a declaration that all IP holders, regardless domestic holders or foreign holders, shall no longer abuse their rights under the context of the AML. XU Kunlin, the head of the price supervision and anti-monopoly bureau at the NDRC once said that “protecting IPRs is important, but we strongly oppose abuses of IPRs.”83

Thus, the general strategy is to protect the IPRs in line with the TRIPs on the one hand and to regulate the abusive conducts in line with Article 55 of the AML on the other hand. In particular, China should learn how to make a good use of Article 40(2) of the TRIPs. That is why the SAIC Rules should be utilized to serve that purpose effectively. In order to achieve this main purpose, the SAIC Rules could be improved by taking into account the experiences of other jurisdictions. For example, whether the SAIC Rules should adopt the rebuttable presumption that IP holders generally have acquired market dominant position?84 One might question why after the rebuttable presumption has been officially removed by the US Supreme Court in 2006, China should still adopt this approach? In fact, the SAIC Rules propose to follow the US approach by stating “the business operator shall not be directly presumed to enjoy a dominant market position on the relevant market merely because of its ownership of IPRs.”85 However, this kind of following international practice is not acceptable. This paper does recognize one important change made by the US Supreme Court. In the case of Illinois Tool Works Inc. vs Independent Ink, Inc.86 the Supreme Court unanimously removed the long-standing presumption that a patent confers market power and that the burden was on the plaintiff claiming an antitrust violation to show that the defendant had the power to raise prices above market rates. One possible reason was that the US Congress changed law to remove the presumption and another one was that a large number of valid patents might have little commercial significance. Certainly, the situation in China is different. Firstly, China is more relying on the importation of technologies and it has to face many giant IP holders who have already acquired relevant markets. Secondly, the presumption is rebuttable. Those patent holders who play little commercial significance could easily rebut the presumption.

The SAIC Rules should be more sophisticate in dealing with relevant concepts such as standard-essential patent, patent troll and interoperability remedy. In Microsoft/Nokia case, the MOFCOM approved $7.4 billion purchasing deal between Microsoft and Nokia but imposed on the parties a number of patent licensing commitments. With respect to smartphone’s SEPs, Microsoft must: (1) continue to offer licenses on FRAND term; (2)

83 Kwong Man-ki, Regulator Acts on Claims Qualcomm Overcharged Chinese Customers, Feb. 19, 2014,

available at http://www.scmp.com/business/china-business/article/1430963/regulator-acts-claims-qualcomm- overcharged-chinese-customers (last visited Feb. 5, 2015).

84 Obviously, Article 6(2) of the SAIC Rules follow the same approach as the AML, i.e. the market dominant position is determined and presumed pursuant the Articles 18 and 19 of the AML.

85 Article 6(2) of the SAIC Rules. 86 547 U.S. 28 (2006).


not seek an injunction against alleged infringers of such SEPs that are manufacturing smartphones in China; (3) not required the licensees to cross-license their own patents to Microsoft, unless such patents are also smartphone SEPs; and (4) not transfer those SEPs to any other entity unless such entity agrees to adhere to these commitments.87 On the other hand, Nokia must continue to license its SEPs pursuant to terms agreed with relevant standard setting organization.88 In this case, MOFCOM has made a proper balance by imposing relevant interoperability remedies because MOFCOM was aware of the fact that after the acquisition, Microsoft would achieve integration of operating systems and smartphone production. Thus, according some commentators, the acquisition would give Microsoft the incentive to raise royalty rates so its rivals’ costs would be increased.89 At the same time, Nokia would no longer need to cross-license its mobile phone business and would both decrease its incentives to maintain low royalty rates for the mobile phone industry and increase its incentives to earn higher profits from patent licensing.90

As far as the issue of patent troll is concerned, Article 15 of the SAIC Rules prohibits a business operator with a dominant market position from abusing its right of issuing infringement warning letters to exclude or restrain competition on the relevant market if the protection period of its IPRs has expired or its IPRs are invalid, or if other parties have provided sufficient evidence to prove that no IPR infringement is constituted. However, the only remedies available under Article 17(2) of the SAIC Rules is that the business operator whose abuse of IPRs should be ordered to stop the illegal acts by the relevant administration for industry and commerce, have its illegal gains confiscated, and be concurrently given a fine of not less than one percent but not more than ten percent of its sales revenue of the last year. Maybe it is proper to learn from the practice in the US where the prevailing party would be awarded lawyer’s fees in order to give more deterrence.91

Nowadays, interoperability remedies have been widely used in both the EU and the US. The concept of interoperability is “the extent to which products can exchange and use information.”92 Interoperability remedies are mostly used in merger and acquisition cases and maybe it is a proper way to balance the competition and innovation objectives. One

87 Cleary Gottlieb, MOFCOM Clears Microsoft’s Acquisition of Nokia’s Devices and Services Business with Conditions, Asian Competition Quarterly Report, 1 (Apr. –Jun . , 2014).

88 Id. 89 Koren W. Wong-Ervin, China’s Antitrust Enforcement in 2014: Looking Back, Looking Forward,

available at https://www.ftc.gov/system/files/attachments/key-speeches-presentations/wong-ervin_-_aba_program- china_antitrust_enforcement_in_2014_12-08-14.pdf (last visited Feb. 5, 2015).

90 Id. 91 Octane Fitness, LLC vs ICON Health & Fitness, Inc. 572 U.S. (2014), available at

https://supreme.justia.com/cases/federal/us/572/12-1184/ (last visited Feb. 5, 2015). 92 Thomas Hoehn & Alex Lewis, Can Interoperability Remedies Promote both Competition and

Innovation?, available at http://www.competitionrx.com/?page_id=338 (last visited Feb. 5, 2015).


could see that Siemens, GE, Cisco and Intel had committed to maintain open interfaces for medical devices, divest interoperability protocols for videoconferencing solutions or agreed the provision of interoperability information for microprocessor chips.93 On July 5, 2010, the MOFCOM issued Provisions on Divestiture of Assets or Businesses to Implement Concentrations of Undertakings.94 This paper argues that the SAIC Rules should also adopt interoperability remedies in dealing with situations of abusing IPRs, especially situations of compulsory license. This paper further considers how to smooth the relationship among three law enforcement bodies, i.e. the NDRC, the MOFCOM and the SAIC. XU Kunlin, head of the NDRC’s anti-price-fixing bureau once called for the merger of his bureau with antitrust divisions at the MOFCOM and the SAIC, which implies clearly that three agencies may have “overlapping” duties.95 To some extent, the “overlapping” duties could create a situation where the three agents hold similar duties but could not cooperate with other in a more efficient way.

After all, it is important to establish general guidelines to determine whether a conduct should be regarded as the abuse of IPRs. It may be useful to follow three guidelines. Firstly, it is whether the exercise of an IPR within the scope of the right. If the answer is positive, then the AML should refrain from stepping in. Secondly, if the exercise of an IPR exceeds the scope of the right, the AML should deal with the abuse. Thirdly, even if the exercise of an IPR does not exceed the scope of the right, the AML should be applied if the conduct excludes or restricts competition.96

The SAIC Rules have been officially issued but it is too early to assess the effectiveness of these rules. At its experimental stage, maybe the best way is to follow a famous Chinese saying, i.e. one should cross a river while feeling the stones. Through the actual practice, more experiences would be accumulated and the SAIC Rules could be improved accordingly.

CONCLUSION

The author wishes to point out that the application of the AML to the abuse of IPRs is an old matter in many developed countries but is a new topic in China. It possibly indicates that China starts to pay more and more attention to the protection of IPRs on the one hand, it has also decided to seriously deal with the abuse of IPRs, especially by those

93 Id. 94 The Provisions were abolished and replaced, on Dec. 4, 2014, by the Rules on Supplementary

Restrictive Conditions for Undertakings’ Concentration. The Chinese version is available at http://www.mofcom.gov.cn/article/b/c/201412/20141200835207.shtml (last visited Feb. 5, 2015).

95 Kazunori Takada & Nick Macfie, China Official Says Has “Substantial” Price-Fixing Evidence against Qualcomm: Media, Dec. 12, 2013, available at http://www.reuters.com/article/2013/12/12/us-china- antitrust-idUSBRE9BB0D920131212 (last visited Feb. 5, 2015).

96 WU Changhai, 反垄断法不该放过知识产权滥用 (The Anti-Monopoly Law Should Deal with the Abuse of IPRs), Procuratorate Daily, Aug. 2, 2005.


giant international companies such as Gualcomm and Microsoft on the other hand.97 By doing so, China wants to take necessary measures to protect the healthy development of domestic industries, as well as for the welfare of consumers. Off course, the SAIC Rules may still need to be improved in order to have a better enforcement. As have been discussed above, it is necessary to establish some objective standards or tests. For example, whether the competition in the relevant market has been substantially weakened? Whether the interests of consumers have been seriously affected because of the abuse?98 In what situation, the rebuttable presumption could be used?

Since China is more relying on the importation of the technologies so it is predictable that China would adopt a hash-but-justifiable approach when applying the AML to suspected abuse of IPRs. Therefore, the competition policy dealing with the abuse of IPRs must fit into China’s reality and be different from that of the US and EU. In other words, when balancing the IPRs and public interest, the scale should be reasonably leans towards the application of the AML. Finally, it is predicted that the initial implementation of the SAIC Rules would be focusing on excessive pricing and compulsory licensing.

97 This is a nature thing because only those giant international companies could possibly control the

market and have appreciable market power. 98 See Schmidt, fn. 61 at 7.

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