Merger review

Powers of competition authority

Does the competition authority have the same authority with respect to reviewing mergers involving IP rights as it does with respect to any other merger?

Yes, the Anti-Monopoly Bureau under the SAMR has authority to review mergers, whether they involve IP rights or not. According to the recently released organisational arrangement within the Anti-Monopoly Bureau, there are three departments dealing with merger reviews, which most likely divide their responsibilities based on the different industry sectors that a merger falls under and not on whether IP rights are involved.

Analysis of the competitive impact of a merger involving IP rights

Does the competition authority’s analysis of the competitive impact of a merger involving IP rights differ from a traditional analysis in which IP rights are not involved? If so, how?

Yes, for mergers involving IP rights the analysis of the SAMR can be different in a number of aspects. First, the SAMR will assess whether the transfer or exclusive licensing of IP rights could constitute ‘concentration of undertakings’ for the purpose of the AML. Second, it will assess the degree of importance of the arrangement involving IP rights to the proposed transaction (ie, are IP rights substantive components of the proposed transaction or significant to the realisation of the aim of the proposed transaction). Thirdly, it will assess what remedies are adequate to address competition concerns, considering that IP rights their have own special features; for instance, should access be required, should FRAND terms be imposed or maintained, or should reasonable royalty rates be set?

Challenge of a merger

In what circumstances might the competition authority challenge a merger involving the transfer or concentration of IP rights? Does this differ from the circumstances in which the competition authority might challenge a merger in which IP rights were not a focus?

The substantive test of the review has been the same for mergers involving IP rights and mergers in which IP rights were not a focus (ie, whether the concentration will exclude or restrict competition in the relevant market). If the SAMR thinks its competition concerns over the concentration can be eliminated by attaching restrictive conditions to the parties to the concentration, the parties can submit proposed commitments to address these concerns. If the proposed commitments are accepted by the SAMR, it will clear the merger subject to conditions. If the proposed commitments run the risk of not being able to be implemented, the SAMR may ask the parties to the concentration to come forward with alternative proposals, which may include divestiture of core assets. On the contrary, if the proposed commitments cannot eliminate competition concerns or the parties to the concentration do not submit proposed commitments within a specified time, the SAMR will prohibit the merger.

Remedies to address the competitive effects of mergers involving IP

What remedies are available to address competitive effects generated by a merger when those effects revolve around the transfer of IP rights?

When competitive concerns of the SAMR revolve around the transfer of IP rights, the parties to the concentration may submit commitments to address them. If the SAMR thinks the commitments can address competition concerns, it will clear the merger subject to conditions and make them binding upon the parties to the concentration. Remedies can be classified into structural or behavioural remedies, or a hybrid of both. IP-specific structural remedies can involve divestiture of IP rights. IP-specific behavioural remedies can involve mandatory licensing of IP rights, access to infrastructures such as network or platforms, hold-separate obligations, terminating exclusive agreements, compliance with FRAND obligations and charging royalty rates at a reasonable level. It therefore follows that measures such as mandatory licences and access to infrastructure can be imposed as remedies in a merger.