To protect fair market competition, encourage innovation and prevent operators from abusing intellectual property rights to exclude or restrict competition, the State Administration for Industry and Commerce promulgated on April 7, 2015 the Provisions on Prohibiting the Abuse of Intellectual Property Rights to Exclude or Restrict Competition (hereinafter, the "Provisions"), which will enter into effect on August 1, 2015. The main points of the Provisions are as follows.
First, the Provisions specifically provide for two circumstances where an agreement reached by operators on the exercise of intellectual property rights will not be deemed as an anticompetitive agreement in violation of the Anti-monopoly law unless the evidence indicates that such an agreement effectively exclude or limit competition, namely where "competitors do not do not hold an aggregate share of over 20% of the relevant market, or there are at least four independently controlled alternative technologies in the relevant market which can be acquired for reasonable costs" and "no operator and trading counterpart holds over 30% share of the relevant market, or there are at least two independently controlled alternative technologies in the relevant market which can be acquired for reasonable costs."
In addition, the Provisions specifically stipulate that an operator with a dominant market position shall not abuse the dominant position and exclude or restrict competition in the exercise of its intellectual property rights, which include: eliminating and restricting competition by denying without cause other operators from making use of such intellectual property under reasonable terms even though the operator is aware that the intellectual property is essential for engaging the relevant production and operation activities; eliminating and restricting competition by implementing without just cause restrictions on business transactions while using such intellectual property; implementing without just cause tie-in sales or excludes or restricts competition while using such intellectual property; and implementing without just cause any unreasonable restrictive conditions to the use of such intellectual property.
The Provisions specifically prohibit an operator from engaging in any act that excludes or restricts competition through patents pooling in the course of exploiting its intellectual property rights.
The Provisions provide for eight factors that should be considered in determining the impact on competition from an operator's exercise of its intellectual property rights, namely, the "the market positions of the operators and their trading counterparts," the "the degree of concentration in the relevant market," the "the barrier of entry for the relevant market," "industry conventions and the current development stage of the industry," the "the timing and effective scope of restrictions on production volume, area and consumers," the "impact on the promotion of innovations and technologies," the "innovative capabilities of the operators and the speed of technological changes," and "other factors that help determine the impact on competition from the exercise of intellectual property rights."
Finally, the Provisions set penal measures for operators who exclude or restrict competition by abusing their intellectual property rights. For an anticompetitive agreement, the administrative authorities for industry and commerce shall order the parties to stop all illegal acts, seize all illegal proceeds and impose a fine equivalent to one percent to ten percent of the sales amount of the parties for the previous fiscal year. If an anticompetitive agreement has been reached but has yet to be implemented, a fine of up to RMB 500,000 may be imposed. If an operator abuses its dominant market position by abusing its intellectual property rights to exclude or restrict competition, the administrative authorities for industry and commerce shall order the operator to stop the illegal acts, seize all illegal proceeds and impose a fine equivalent to one percent to ten percent of the sales amount of the operator during the previous fiscal year. The Provisions also require that when determining the penalty amount, the administrative authorities for industry and commerce shall generally consider factors such as the nature, circumstance, extent and duration of the illegal act involved before deciding on the amount.