A Quick Read of the AML IPR Enforcement Guidelines (Fifth Draft)

As China becomes more of a stakeholder in the IP system, and no longer sees itself as a passive player, how will its perspective on the relationship between intellectual property and antitrust change?

The recently announced fifth draft of SAIC’s “Guidelines on Antimonopoly Law Enforcement in the Field of Intellectual Property Rights” gives some additional perspective on this.  After an initial read, my response is cautiously positive.

First of all, these guidelines seem to be more widely available than previous drafts – which were circulated and discussed on line and in conferences.  While I believe the Guidelines are not yet on the SAIC website, drafts and translations have begun to circulate as far away as in Washington, DC and New York.  Transparency thus far remains “selective” compared to an open notice and comment process, but is improved.

Critically, the Guidelines also appear to recognize the inherent legal weakness in these rules – that they may not bind local governments or other national government agencies, as they are not enacted at the level of State Council Regulations, but ministerial rules (guizhang).  Therefore they recognize that antimonopoly enforcement agencies can ask for assistance from other agencies, and that enforcement powers are vested in the national level but may be delegated to local governments (Art. 5).  In my own prior discussions with SAIC on these rules, and in an article I wrote in 2011, I questioned how these rules could be enforced locally in light of their low rank on the legislative totem pole – these provisions seem to be a response to such concerns. (See Cohen, “How an IP Lawyer Sees China’s Progress in Competition Law – Chapter 19 – International Antitrust Law & Policy: Fordham Competition Law

Here are some of the substantive points that I saw on a quick read:

Consistent with modern practice these Guidelines do not define abuse of intellectual property rights as one kind of antimonopolistic practice, but recognize that they may be part of other monopolistic behaviors  (Art. 4).  Intellectual property rights are also specifically treated like other property rights (Art. 9)

The rules also include more than patents and copyrights, but potentially include trade secrets (Law to Counter Unfair Competition), plant varieties, trademarks and other rights.

Refusals to license have been an ongoing concern, and are reflected in these rules and other practices in China.   MofCOM’s decision earlier this year to approve the Motorola Mobility/Google merger contained conditions on continued FRAND licensing of Motorola’s patents.  In the Guidelines, refusals to license are one type of conduct which are recognized as having a potentially adverse impact on competition (Art. 11).  The Guidelines are clear that under normal conditions refusals to license do not constitute monopolistic behavior and that it is a form of exercising intellectual property rights. (Art. 17).  Interestingly, tying is also not considered per se violative (Art. 18).

The Guidelines, like prior drafts, also appear to carry forward some of the restrictions on licensing from other laws such as the Contract Law  (Art. 329),  and Foreign Trade Law.  For example, restrictions on marketing products using licensed technology or restricting purchases of new technology are prohibited, if there is a “monopoly agreement.”  It is unclear, however, from the language of the Guidelines if these restrictions define monopoly agreements and are now per se illegal, or if a monopolistic agreement is a condition to these terms being found illegal.  By comparison, the Contract Law  prohibited restrictions on licensing that restrict “reasonable” access to markets and considered them “monopolistic.”

For several years,  I have repeatedly inquired after the relationship between the AML and Contract Law, with little success.  It appears to me that the Contract Law provisions may now have been undercut by a more aggressive position of the Guidelines, which lifts the “reasonableness” limitation.   However, Article 19 of the Guidelines may also permit the authorities to determine what constitutes unreasonable trading conditions on licensing of IP rights, which could facilitate the protection of  “reasonable” restrictions on markets as part of a licensing transaction.

Patent pools are separately discussed at Article 21.  However, the language is vague, including the extent to which they might apply to state organized patent pools, to patent pools that deny foreigners voting or observer rights, and their relationship to forthcoming rules on standardization that the Standardization Administration of China has announced it is working on.

Article 23 seems to carry forward language and concerns regarding concerns abuse of technological protection measures in copyright.  The draft thankfully recognizes that TPM’s that are used to protect copyright are not generally problematic.  However TPM’s that are used to restrict competition may constitute a violation.  Considering the weak protection already given to TPM’s, and that the kinds of cases that China is concerned with may have only tangential relationship with copyright and are primarily tools for tying hardware (e.g.,  batteries in digital cameras), or have been forms of malware (e.g, software that wipes out your hard drive if a pirated version is installed) this may be a misguided policy statement based on some troubling cases that China has encountered in the past.

During the past year there has been a renewed emphasis on legislating IP in China.  The patent, trademark and copyright laws are all under revision, as are inventor remuneration regulations, standardization and IP rules, and now the Guidelines.  SIPO recently revised its compulsory licensing rules as well.  The Guidelines and the Patent Law revision both avoid some problem issues, such as those of low quality patents, which are not discussed in either measure.  The recently announced draft Patent Law revision, which its authority for ex officio enforcement and treble damages, if “market order” is affected, may also raise new concerns over the scope of patent and antitrust enforcement – could SIPO consider bringing an ex officio invalidity action that it believed was anticompetitive? Could it initiate a case against a dominant market force who might be infringing a patent, in order to facilitate cross licensing?

As a final note, some outsiders would give Chinese regulators slack on these and other Guidelines, pointing to the vagueness of the Sherman Act and our 100+ years of developing a more predictable jurisprudence, this point may miss the context of vague regulation in China.  However, vague rules permit a level of regulatory discretion in a system which lacks effective judicial oversight, and also enhance the value of individuals who know the regulators and can anticipate their actions.  In the long run, we need more precision in Chinese laws as we do in our own – to guide behavior, but also because of the lack of strong limits on executive behavior in China.   These Guidelines are an improvement.  They appear to me, however, to be more of another milestone than a destination marker in this important area of China’s development of its its IP system and economic reforms.

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