China recently published its “Regulation on the Prohibition of Conduct Eliminating or Restricting Competition by Abusing Intellectual Property Rights.”

The law is aimed at anti-competitive abuses involving the use of intellectual property. The Regulation is the first comprehensive statement of antitrust laws in relation to intellectual property rights in China. It does not make major changes in Chinese law but clarifies how the law will be applied.

The US and the EU have similar guidelines.

Some key provisions are briefly noted below.

IP Licensing

Companies with dominant power in a relevant market are prohibited from licensing their technology under specified terms, absent valid reasons.

Problematic licensing clauses include non-competes, no-challenge clauses, and exclusive grant-backs from licensees for improvements they make to the licensed technology.

Refusal to License

The owner of an IP right (such as a patent) that is deemed an “essential facility” for a particular market must agree to license it under reasonable terms.

The following factors are among those to be considered:

  • The granting of a license must not cause unreasonable harm to the IP licensor.
  • The IP rights at issue must be indispensable for other companies that wish to compete in the market.
  • The refusal to license must lead to a negative effect on competition and/or innovation.

Setting Standards

The Guidelines provide that intellectual property rights should not be used in an anti-competitive manner when industries are setting standards for the interoperability of technology.

This relates to licenses for standards-essential technology being granted on “fair, reasonable, and non-discriminatory” (FRAND) terms. (We recently discussed FRAND terms here.)

The Guidelines, in their original Chinese, may be found here. They come into force on August 1, 2015.

Time for a Licensing Check-Up?

Companies doing business in China – and/or licensing their intellectual property to Chinese companies – may wish to examine both their market positions and their licensing terms to assure that they are not running afoul of the Guidelines.