|(“Regulations”) (关于禁止滥用知识产权排除、限 制竞争行为的规定), issued by the State Administration for Industry and Commerce (“SAIC”)

To promote competition and innovation, the Regulations provide guidance on how business operators should exercise intellectual property rights (“IPRs”) to comply with China’s Anti-Monopoly Law (“AML”).

Under the principle that business operators are not allowed to abuse IPRs to exclude and restrict competition, the Regulations’ highlights are as follows:

  1. A business operator with a dominant market position cannot unjustifiably refuse to license other business operators to use on reasonable terms its IPRs, which are “essential facilities” for production and operation

However, the Regulations do not specify any criteria to identify “essential facilities,” which could make it difficult to determine whether the AML has been breached and affect the enforcement of the provision in practice.

  1. A business operator with a dominant market position cannot engage in exclusive dealing, tie-in sales (the sale of one product on the condition that a second product must be purchased), impose unreasonable conditions or apply discriminatory treatment under the AML.
  2. A business operator participating in a patent pool with a dominant market position cannot use the patent pool to restrict competition, and cannot:
  • restrict licensing outside the pooling arrangement;
  • restrict other members in the patent pool from developing technologies competing with the pool;
  • force licensees to grant back technology to the pool exclusively;
  • stop licensees from challenging the validity of the licensed patents;
  • offer different transaction terms to patent pool members with the same conditions or licensees on the same relevant market.
  1. A business operator with a dominant market position cannot use the formulation and implementation standards to restrict competition. It must not:
  • Intentionally withhold IPRs information from the standard setting organization, or claim patent rights after expressly committing itself not to assert these rights;
  • Refuse to license its patents, engage in tying sales or impose other unreasonable conditions once its patents become standard essential patents. 
  1. The Regulations also specify the following circumstances in which certain business operators will not be considered in breach of the AML, unless there is contrary evidence:
  • The business operator and its competitors’ combined market share is lower than 20% or there are at least four other independently controlled substitutable technologies available at reasonable cost.
  • Neither the business operator nor the other party to the transaction holds more than a 30% market share or there are at least two other independently controlled substitutable technologies available at reasonable cost. 
  1. The Regulations specify factors to consider when analyzing and identifying the impact these practices have on competition and establish the following penalties for non-compliance:
  • If the abuse of IPRs to exclude or restrict competition is the result of a monopoly agreement or results in market dominance, the business operator will have to stop the illegal acts, its illegal gains will be confiscated, and it will be fined between 1% and 10% of its sales revenue for the previous year.
  • If the monopoly agreement has not been carried out, the business operator may be fined up to RMB 500,000.

Although the Regulations reflect the anti-competition authorities’ efforts to facilitate the implementation of the AML relating to IPRs, they are general and there is great uncertainty around enforcing them in practice as there is no specific criteria to determine when the AML is breached.

Date of issue: April 7, 2015. Effective date: August 1, 2015.