Following numerous high-profile cases concluded by the National Development Reform Commission (“NDRC”) in 2013 against cartel and RPMs, abuse of market dominance has become the new focus to the Chinese antitrust agencies. Apart from the first abuse case closed by Guangdong Provincial Administration of Industry and Commerce in December 2013 against a local water supply company, NDRC’s recent decision to suspend the investigation against Inter Digital Inc of the US (“IDC”) immediately became another noteworthy headline to global business community.

Compilation of the developments of IDC Case

NDRC opened an investigation against IDC in May 2013 based on the complaint made by a Chinese company. Before the NDRC’s investigation was launched, IDC just lost a patent-related abuse claim case made by Huawei in Guangdong Province of the PRC in October 2013, in which IDC was ordered by the PRC courts to compensate Huawei RMB 20 million for damages caused by its monopolistic misconducts.

IDC is an American company holding numerous essential standard patents in wireless telecommunication sector, and most telecom device manufacturers should seek IDC’s license before production or sales. In China, IDC was complained for and suspected of alleged abuse of market dominant position through the work of its patents pertaining to wireless telecommunication standards, specifically:

  • charging unfairly high prices to Chinese telecommunication producers, such as Huawei and ZTC etc (the “Chinese Licensees”);
  • requiring the Chinese Licensees to grant-back their patents freely; and
  • forcing the Chinese Licensees to take essential standard patent technology plus non-essential standard patent technology.

As reported by the media1, on the excuse of fearing its officials being detained or arrested, IDC at one point refused to come to China in response to the investigation, before finally attending a meeting with NDRC officials in January 2014, an occasion on which the two sides clarified their stances. Since then, IDC vowed cooperation with NDRC’s investigation.

On March 3, 2014, IDC submitted to NDRC, pursuant to a procedure set out in China’s Anti-Monopoly Law, a formal application for suspension of the investigation that included proposed commitments by the Company, inter alia:

  • to terminate all discriminative treatment towards telecommunication terminals manufacturers in China and not to collect the royalty charged to Chinese manufacturers that is tens of times higher than those applicable to handset producers such as Apple, Samsung and Nokia etc;
  • not to commit a bundled license of essential standard patent technology and non-essential standard patent technology;
  • not to require Chinese companies to grant back their patents freely; and
  • not force Chinese companies to accept unreasonable licensing conditions by way of litigation2.

On May 22, 2014, considering the commitments made by IDC would lead to an effect to eliminate the anti-competitive effects of IDC’s monopolistic practice and restore the market competition order, NDRC made an announcement that it has decided to suspend the current price-related antitrust investigation against IDC and an on-going oversight on the performance of commitments by IDC will be conducted. Where IDC cannot fully honor these commitments or in case of the existence of any circumstances as prescribed by the PRC law, the antitrust investigation will be assumed3.

Observations

Suspension of investigation upon commitments has been firstly applied in China Telecom and China Unicom Antitrust Investigation Case in 2011, where both infringing parties are Chinese industrial giants in telecommunication sector. By no doubt, IDC case marked the first time where suspension upon commitments would be equally applied to a violating foreign company according to Article 45 of the Anti-Monopoly Law.

Snice the information publicly disclosed by NDRC on IDC Case was pretty limited, it is hard to ascertain whether NDRC has followed the same analytical approach as Guangdong courts in Huawei v. IDC case that: 1) each essential standard patent constitutes an independent “relevant market” because of the non-replaceable and exclusive nature of essential standard patents; 2) the patent holders are deemed to holding a dominant market position; and 3) abuse of “essential standard” patent by patent holders would lead to an abuse of dominant market position.

Furthermore, since the investigation against IDC has been suspended before reaching the stage of fine determination, it remains to be seen whether NDRC would use the investigated company’s global revenues as the basis for calculating patent-related antitrust fines, as opposed to the past common practice of NDRC in 2013, in which domestic revenues of the involved companies generally served as corporate fine calculation basis if the alleged antitrust violations are not related to patents, such as RPMs.

Admittedly, the closing and analytical approach of IDC case would have a significant impact on  future IP-related abuse cases in China.

Conclusion

Companies having abuse or patent-related antitrust concerns in China, are strongly advised to watch out the future development of Qualcomm Case..