In August 2012, the State Administration for Industry and Commerce published the fifth draft of the Guidelines on Anti-Monopoly Law Enforcement in the Field of Intellectual Property (the “Draft Guidelines“). Although compulsory licensing is not expressly mentioned in the Draft Guidelines, many provisions therein seem to imply it being a possible remedy for relevant monopolistic conducts in the IP field. For example, where a dominant market player’s refusal to license has anti-competitive effects1, a compulsory license could be the right answer to the problem. However, the role to be played by the antitrust enforcement agencies in compulsory licensing is not clearly defined under the current legal system.

There are very limited provisions in the Chinese law with respect to compulsory licensing. In fact, compulsory license is only stipulated in the Patent Law and the Regulations on Protection of Integrated Circuit Layout Design (the “Regulations on Layout Design“). The relevant article in the Regulations on Layout Design is rather general2, whereas relatively comprehensive rules have been developed in the context of the Patent Law.

During the third amendment of the Patent Law in December 2008,  Article 48 was amended to provide that the patent administrative department of the State Council, i.e. the State Intellectual Property Office (“SIPO“) may grant a compulsory license on a patent for invention or utility model,  if the patentee’s act of exercising the patent rights is determined as a monopolistic conduct and the compulsory license is to eliminate or reduce the adverse consequences of the said conduct on competition.  On March 15, 2012, SIPO issued the Measures for Compulsory License for Patent Exploitation (the “Measures“), which set forth the granting, royalty determination and termination procedures regarding compulsory license on patent.

According to the Measures, SIPO enjoys broad authority over compulsory patent licensing,  including accepting a written requests for a compulsory license,  reviewing the opinion of the patentee in response to the request, conducting an on-site verification where appropriate, holding a hearing upon the parties’ request, deciding whether to grant a compulsory license, deciding on the scope and term of the compulsory license granted, deciding on the amount of royalties should the parties not be able to reach an agreement, and deciding whether to terminate a compulsory license before the expiration of the valid term.  At the same time, the Measures require that the petitioner shall submit with the written request an effective judgment or decision of a judicial organ or anti-monopoly law enforcement agency that rules, pursuant to law, that the patentee’s exercise of the patent right is monopolistic conduct.

The above provisions seem to draw a line between the authority of SIPO and that of an antitrust enforcement agency: the antitrust enforcement agency is responsible for deciding whether the patentee’s conduct is of a monopolistic nature, while SIPO decides whether a compulsory license is the proper remedy for such conduct. However, this division of authority does not seem to be consistent with the relevant stipulations of the Anti-Monopoly Law (the “AML“), which empower the antitrust enforcement agencies to be responsible for the AML enforcement3.

In view of the above different provisions, how should we interpret the role of the antitrust enforcement agencies in compulsory patent license? Should an antitrust enforcement agency’s responsibility be limited to recognizing a monopolistic conduct and not include the authority to further decide on a remedial compulsory license? Or should the antitrust enforcement agency get to make the full spectrum of decisions in relation to a case, and SIPO only take charge of the implementation work?

There is no clear answer to the above questions at the present. Nor is there any precedent that we can refer to. However, from both legal and practical perspectives, the antitrust enforcement agencies appear to be in a better position to decide on the granting of a compulsory license in the AML context. Compulsory license is an antitrust remedy, and thus the relevant decision is interrelated with the facts of the case and the competition analysis thereof. It requires a careful balance between encouraging the incentive to innovate and preventing the elimination of competition. Also, the specific terms of the license need to be based on a detailed evaluation of the competition status of the relevant market. Taking into account the competition analyses involved in the decision-making process and the high degree of expertise and skills required, the antitrust enforcement agencies should be more suitable to make the decision on whether to adopt the remedy of compulsory license.

From another point of view, if SIPO will be the organ issuing the decision instead, it will have to re-examine the case, thus repeating and duplicating the effort and time already spent by the antitrust enforcement agencies in deciding the case. In a worst-case scenario, this structure could even turn SIPO into a parallel authority with the antitrust enforcement agencies, and increase the risks of having inconsistent opinions and decisions by SIPO and the antitrust enforcement agencies.

In view of the above, the current compulsory patent licensing system should be coordinated with the antitrust enforcement system, and the role of the antitrust enforcement agencies should be defined more clearly. This does not mean that SIPO should be excluded from the decision making process. Instead, SIPO’s involvement in the earlier stage and its contributions from the standpoint of patent could assist the antitrust enforcement agencies in making informed decisions.

In addition, the coordination suggested above will not only improve the compulsory licensing under the patent system, but will also provide valuable experiences for the establishment of compulsory licensing systems of other types of intellectual property like layout design, copyright and know-how, setting aside the controversies about how broadly compulsory license should be allowed to apply.