Microsoft under Chinese Antitrust Scrutiny?

Yesterday, July 28, the Western press, including the Washington Post and South China Morning Post, as well as Chinese online media reported that the State Administration for Industry and Commerce (SAIC), one of China’s three antitrust regulators, was investigating Microsoft for possible antitrust violations by visiting Microsoft’s offices at Beijing, Shanghai, Guangzhou and Chengdu.

Chinese IT analysts suggested that if there were an antitrust investigation, it would involve Microsoft’s operating system, which controls 95% of the market.   However, analysts also noted that while PC OS has not been a principal focus of attention of China’s antitrust regulators, China has potentially eight domestic competitors to Microsoft in the OS sphere, and that there market share has been growing in part through government procurement efforts. While OS is a basic platform for building computer systems and services, these analysts noted Microsoft’s technological depth in this area has brought it many competitive advantages.

One hopes that Chinese regulators note that the 95% “market” dominance figure that is being discussed necessarily refers to the legitimate, non-pirated market only since Microsoft’s chief competitor in China is likely the stolen pirated versions of its own software.

The limited news that is available makes it difficult to infer much. SAIC handles non-pricing related investigations involving monopolistic agreements, and abuse of dominance. In recent months, however, NDRC has undertaken several price-related antitrust investigations. SAIC is a vast agency which also has broad authority in a range of IP and market regulation areas, including “abuse of IP” pursuant to article 55 of China’s Antimonopoly Law as well as supervisory authority under China’s contract law.

History also offers little guidance, in part because of Microsoft’s extensive involvement in a range of tech sectors. A Hong Kong based company reportedly accused Microsoft of discriminatory and excessive pricing for its software products in 2012 in a case in Guangdong. .” On a positive note, however, Microsoft’s merger with Nokia was also recently approved by China’s antitrust regulators

China does appear to be more clearly expanding its efforts to regulate technology markets.   These efforts began even when there was an unclear legislative basis. The press had reported that Microsoft had been reported to be the subject of an antitrust investigation by SIPO in 1998, which thereafter led nowhere except to a flurry of denials. In fact, as I noted in the 2011 book I coauthored on Antimonpoly Law and Practice in China, MofCOM Vice Minister Yi Xiaozhun complained even before implementation of the antimonopoly law (2007) of high licensing fees “running counter to fair competition”. More recently,the Huawei/Interdigital case appears to have been a harbinger of a more active role by the government, particularly NDRC, in regulation of foreign players in China’s technology markets.

We noted in the 2011 book that there are likely be “increasing concerns regarding policies that appear oriented towards enhancing national competitiveness rather than competition per se. These concerns over an emerging Chinese “techno-nationalism” have been escalating with increasing frequency.” At the same time, I also expressed hope that “China’s emergence as a major center of innovative intellectual property activity may alter policies that appear to diminish the value of foreign IP rights and may also temper rhetoric that is occasionally heard of using competition law and other policies as ‘counter strategies’ to Western ‘IP oppression.’”  More recently, these themes were echoed at the recently concluded Strategic and Economic Dialogue where China “recognized that the objective of competition policy is to promote consumer welfare and economic efficiency, rather than to promote individual competitors or industries, and that enforcement of its competition law should be fair, objective, transparent, and non-discriminatory. ”

These days at conferences no one seems to doubt that China is interested in IP protection. The “goods news” remains that China is interested in IP. Unfortunately, the bad news is also that China is interested in IP  —  as a tool of development for its “socialist market economy.” Striking the right balance will be a critical issue for both China and its trading partners in the years ahead.

The opinions expressed above are the author’s own.

SPC Publishes Revised Judicial Interpretation on Patent Infringement Litigation for Public Comments

On July 16, the Supreme Peoples Court published a public comment draft of proposed revisions to its “Decision of the SPC Regarding Questions of Application of Law in Adjudication of Patent Cases”, 最高人民法院关于审理专利纠纷案件适用法律问题的若干规定. Comments are due by August 15, 2014. Comments may be emailed to: zhuanliyijian@163.com。 The last revision to this document was in 2013, when a provision was inserted to give jurisdiction to designated basic courts to handle patent cases.

Of particular note in this short set of revisions are provisions regarding providing an appraisal report for utility model patents to the court if such a report had been requested by the plaintiff of SIPO, as well as provisions which appear to provide more flexibility in calculation of damages by the court, consistent with the 2008 patent law.

Many of the changes appear self-explanatory – such as those which track changes in relevant statutory provisions.  However, in light of the efforts to amend the patent law, experiments in specialized IP courts, calls for more deterrent damages and more extensive commercialization of IP rights, some additional explanation would be helpful regarding the reasons for any changes in policy that may be implicit in these revisions and any further changes that may be contemplated.

Earlier USG comments on the patent law revisions are found here.

Once I receive a full translation or comparison of prior drafts from any reader, I will post it on line. Readers are encouraged to send in their translations, suggestions and comments. For now, the full Chinese text of the proposed revisions with my own initial bilingual observations are attached.

 

State Council’s New Opinion on Market Order

statecouncilwordcloud
On July 8 the State Council released a new opinion on “market order” which, like many similar rules in China, is suggestive of possible significant policy changes, while being of uncertain legal status, all cloaked with a rather unappealing title.

The document is called “Several Opinions of the State Council Opinions on Promoting fair Competition in the Market to Maintain the Normal Market Order.” 国 务 院 关 于 促 进 市 场 公 平 竞 争维护市场正常秩序的若干意见国发〔2014〕20号 (http://www.gov.cn/zhengce/content/2014-07/08/content_8926.htm).

“Market order” is a term that has significant overlap with IP protection and antitrust matters. It has appeared in the draft patent law revisions of SIPO, and was also the basis for MofCOM’s earlier efforts at coordinating IP protection through the Market Order Rectification Office. Of course, some laws and regulations, such as those involving consumer protection and unfair competition, have a more direct relationship with what many Westerners may conceive as “market order”. These opinions point out some of these, such as by calling for “the strict implementation of the financial, food and drug safety in production.” However, in China the term is arguably broader. For example, this document calls for an expansion of joint liability concepts and of punitive damages when harm is caused to the “market order”, which are usually civil – rather than regulatory – concepts.

The “guiding ideology” of this opinion is positive. It is intended to provide for “equal protection of the legitimate interests of market players, maintain market order of fair competition and promote the sustained and healthy development of economy and society.” The document “insist[s] on the use of the rule of law in …market regulation functions.” Procedures should also involve “government regulatory standards of openness, the process is open, the results made public,” thereby echoing current efforts in IP administrative transparency as well as commitments to make AML procedures more transparent (see: https://chinaipr.com/2013/11/24/through-a-glass-less-darkly-chinas-march-to-administrative-enforcement-transparency/).

The Opinion also calls for “severely punishing monopolistic conduct and unfair competition conduct” in accordance with the relevant provisions of the antitrust law, anti-unfair competition law, and the price law. It also addresses monopolistic agreements that “hamper innovation and technological advancement.”  Other concerns are: false advertising, price fraud, commercial bribery, illegal lottery sales, business defamation, laws to protect all types of intellectual property rights, the fight against manufacturing and selling counterfeit and shoddy goods, etc. The Ministry of Commerce, Development and Reform Commission, State Administration for Industry and Commerce, Intellectual Property Office and other departments were responsible for implementing this provision.

The Opinion also calls for efforts to “to resolve duplicate law enforcement.” Some of this appears directed to efforts to integrate culture and copyright protection through local task forces. However it  does not appear to be specifically directed to antitrust and unfair competition, particularly in its call for “the elimination of duplication multilayered enforcement”, including territorial and subject matter overlaps. The antitrust subject matter overlap appears acute to me at this time between NDRC (pricing law) and SAIC (IP abuse) at least with respect to standards essential patents and licensing.

Considering existing overlaps in copyright (through cultural task forces), trademark (through overlap with AQSIQ, MIIT, and others) and that China has a three-track system for enforcing antitrust matters (MoFCOM, NDRC, and SAIC), efforts to minimize duplication and achieve enforcement by laws that are consistently implemented throughout the country may yet be difficult to achieve absent more extensive reorganization.

Note: The word cloud, above, drawn from a google machine translation of the document suggests a robust role for  “supervision”, “market” and the “law” to promote “competition”, which one hopes is the prerequisite to a more robust role for the market, and not simply by market regulators.

As usual, these are my personal non-official observations.