The Standing Committee of the National People’s Congress (NPCSC), China’s highest organ of state power and legislature, on June 24 passed an amendment resolution approving proposed first amendments to the Anti-Monopoly Law (AML) of China, which will come into force on August 1. Three days after that, the State Administration for Market Regulation (SAMR) released the Regulations on Prohibition against Intellectual Property Abuse in Preventing or Reducing Competition (Exposure Draft) (《禁止滥用知识产权排除、限制竞争行为规定（征求意见稿）》). The Regulations, presently in draft form, are meant to implement the AML in the enforcement and protection of intellectual property rights (IPRs).

IPRs and antitrust policy are inherently at odds, although both sets of rules ultimately seek to promote economic welfare and benefit consumers. The modern concept of IP developed in the U.K. in the 17th and 18th centuries, while the Sherman Antitrust Act of 1890 was introduced in the U.S. as the world’s first antitrust law, termed as anti-monopoly law in China. The IP regime encourages innovation by giving IP owners limited periods of time to exclusively use the intellectual goods they create to earn “monopolistic” profits, while the antitrust regime promotes free market entry and open competition to drive prices towards cost and squeeze excess profits out of the economy.

As in antitrust, a “trust” is a large grouping of business interests with significant market power, which may be embodied as a corporation or as a group of corporations that cooperate with one another in various ways. There were several giant businesses known as “trusts” emerging in the U.S. in the 1800s, which controlled whole sections of the economy, like railroads, oil, steel, and sugar. Two of the most famous ones were U.S. Steel and Standard Oil Co., Inc. The U.S. federal government began filing cases against a collection of trusts for their uncompetitive and dishonest practices under the Sherman Antitrust Act in 1890. According to the U.S. Supreme Court, antitrust law is not to protect businesses from the working of the market, but to protect the public from the failure of the market.

The most pronounced conflict between IPRs and antitrust policy is epitomized by countless rounds of litigation worldwide between holders and implementers of standard essential patents in all major technical sectors in recent years. The fair, reasonable, and non-discriminatory (FRAND) terms, as a voluntary licensing commitment that standards organizations often request from IP owners, are quintessentially an antitrust attempt to curb IP abuse.

The global climate prompted the 2019 enactment of the Guidelines on the Implementation of the Anti-Monopoly Law in the Enforcement and Protection of Intellectual Property Rights (《关于知识产权领域的反垄断指南》) in China. Back in 2013, China’s National Development and Reform Commission (NDRC) launched an investigation into U.S. chip titan Qualcomm’s allegedly monopolistic practices in the licensing of its patents to Chinese mobile phone manufacturers and baseband chip manufacturers. Qualcomm in 2015 was eventually fined $975 million for the findings about its charge of unfairly high patent licensing fees, the tying of non-SEPs with SEPs without justification, and unreasonable conditions in its baseband chip supply contracts. China’s Ningbo Intermediate People’s Court in April 2021 ruled against Japanese company Hitachi Metals, Ltd. for refusing to license its non-SEPs in connection with the production of rare earth magnets to four Chinese companies applying the “necessary facilities” doctrine.

For the moment, the litigation between aggressive international IP owners and Chinese implementers drives China’s antitrust policy as a counterbalancing agent much harder than that between domestic companies does, considering that Nokia Corp., Ericsson Mobile Communications AB, Koninklijke Philips N.V., and IP Bridge are “ambushing” Chinese companies worldwide.

The draft Regulations is a follow-up to the 2019 Guidelines. In the draft Regulations, Article 7 defines IP abuser as a dominant business operator, whose IP makes necessary facilities for production and business, refusing to license it to other business operators under reasonable conditions, without justification, so as to prevent or reduce competition. The additional parameters of identifying an IP abuser include: (1) its IP cannot be reasonably substituted; (2) its refusal will adversely affect competition or innovation, and harm consumers or the general public; (3) its IP licensing will not cause unreasonable damage to itself as the IP owner.

Article 14 specifies as to patent pools. It prohibits patent pool operators from abusing pools to prevent or reduce competition and members of patent pools from abusing pools to exchange sensitive information on competition such as prices, output, market segments, etc., and enter into monopoly agreements prohibited by Article 17, Article 18 Paragraph 1, and Article 19 of the AML. However, operators can prove that certain agreements reached are in compliance with Article 20 of the AML. The prohibited practices include: (1) to charge unfairly high prices; (2) to block members from licensing as independent IP owners without justification; (3) to block members or IP licensees from developing technologies competing with patented technologies in pools, independently or together with third parties, without justification; (4) to force IP licensees to license back technologies developed or improved with the use of licensed IP to patent pool operators without justification; (5) to prohibit IP licensees from challenging the validity of patents in pools without justification; (6) to offer discriminatory transaction terms to members or IP licensees without justification; (7) other abuses of market dominance identified by the SAMR.

The full text of the draft Regulations is here.

中文新闻线索：

https://mp.weixin.qq.com/s/QH5Lgxejic2_pWyiLpZwXw

https://www.samr.gov.cn/hd/zjdc/202206/t20220627_348155.html

https://www.classlawgroup.com/antitrust/

http://www.origin.co.uk/ip-strategy/china-antitrust-enforcement-against-qualcomm-a-translation-of-the-ndrc-official-release/

https://www.sohu.com/a/504793306_221481

https://www.bbc.com/news/business-31335551

https://www.reuters.com/article/us-china-qualcomm-idUSKBN0LD2EL20150210

https://baike.baidu.com/item/%E9%AB%98%E9%80%9A%E5%8F%8D%E5%9E%84%E6%96%AD%E6%A1%88/15953216

https://www.wipo.int/patent-law/en/developments/competition.html

https://www.natlawreview.com/article/china-s-state-administration-market-regulation-introducing-compulsory-licensing

https://www.wipo.int/patent-law/en/developments/competition.html