Competition law issues

Restrictions on trade

Are practices that potentially restrict trade prohibited or otherwise regulated in your jurisdiction?

The Antimonopoly Law generally prohibits unfair competitive trade for any contract, including a licence contract. Practices that potentially restrict trade are prohibited or regulated by this Law. To follow up this general prohibition, the General Specification of Unfair Trade and the Guidelines for the Use of Intellectual Property under the Antimonopoly Law should apply.

Legal restrictions

Are there any legal restrictions in respect of the following provisions in licence agreements: duration, exclusivity, internet sales prohibitions, non-competition restrictions and grant-back provisions?

Duration

There are no legal restrictions on duration provisions.

Exclusivity

A statutory exclusive licence and a contract-based exclusive licence are legal, that is to say, an exclusive licence itself is legal.

On the other hand, if a licensor limits the type of customers to whom licensees may sell products (including copies of software programs) using the licensed technology, this may constitute formal restrictions on the licensee’s business activities. Limitations on the counterparties to trade in the products that may use a licensed technology constitute unfair trade practices prohibited by the Antimonopoly Law if they tend to impede fair competition. Examples of such conduct include limiting counterparties (distributors) to those nominated by the licensor, limiting counterparties to those assigned to the licensees and prohibiting trade with specific parties.

Internet sales prohibitions

If the restriction on internet sales tends to impede fair competition, this may also constitute an unfair trade practice prohibited by the Antimonopoly Law, as it does in the above-mentioned restriction on customers.

Non-competition restrictions

When a licensor imposes on licensees an obligation to refrain from exercising, in whole or in part, the rights owned or to be acquired by them against the licensor or any firms designated by the licensor, this obligation may be an unfair trade practice if it tends to impede fair competition.

A licensor imposing an obligation on its licensees not to contest the validity of rights to licensed technology may fall under the category of an unfair trade practice when it is found to impede fair competition by continuing rights that should be invalidated and restricting the use of technology associated with said rights. However, in principle, terminating an agreement with any licensee that challenges the validity of rights may not constitute an unfair trade practice.

If any licensor imposes a restriction on licensees in relation to manufacturing or selling any product that competes with the licensor’s products or to acquiring a licence for a competing technology from a competitor of the licensor, such a restriction constitutes an unfair trade practice prohibited by the Antimonopoly Law if it has a tendency to impede fair competition.

Grant-back provisions

If a licensor imposes on licensees an obligation to hand over to the licensor or any designated entity the rights to improved or newly developed technology made by the licensees, or to grant the licensor an exclusive licence for it, this conduct, in principle, constitutes an unfair trade practice prohibited by the Antimonopoly Law.

However, if the improved technology created by a licensee cannot be used without the licensed technology, the obligation imposed on licensees to hand over to the licensor the rights or grant the licensor an exclusive licence for the improved technology in exchange for fair consideration could be recognised as essential to promote technology transactions. Moreover, it is not recognised as detrimental to the licensees’ motivation for research and development. So, it is generally confirmed to have no tendency to impede fair competition.

When a licensor imposes on licensees an obligation to grant the licensor non-exclusive licences for improved or developed technology made by licensees, in principle it may not constitute an unfair trade practice as long as the licensees may still freely use their own improved technology.

IP-related court rulings

Have courts in your jurisdiction held that certain uses (or abuses) of intellectual property rights have been anticompetitive?

No.