Although the ink has not yet been fixed on guidelines for IP abuse in antitrust matters in China, the preparatory work on revisions to China’s Antimonopoly Law (AML) are always underway. In that connection, the Global Antitrust Institute (GAI) at George Mason University School of Law submitted the attached response to the Questionnaire on AML Revisions that had been prepared by the China University of Political Science and Law.
I have summarized below some of the key IP-related concerns:
- Deleting References to Use of Non-Competition Factors in Competition Analysis. The GAI recommended that references to non-competition goals such as “promoting the healthy development of the socialist market economy” be deleted. This request reflects similar efforts made by the US government in the Strategic and Economic Dialogue where an outcome was the mutual recognition that “the objective of competition policy is to promote consumer welfare and economic efficiency, rather than to promote individual competitors or industries, and . . . enforcement of its competition law should be fair, objective, transparent, and nondiscriminatory.”
- Deleting Exemptions for State-Owned Enterprises (SOEs). The GAI recommended that SOEs be fully subject to the AML, including liability and fines. I have often wondered what the effect of additional competition would be on content creators who rely on state-owned entities such as China Film Group (for imports) or China Mobile and China Unicom (for music ring tones). Possibly due to weak competition, a study cited by IFPI noted in that in 2012 in China the estimated total value of the digital music sector in China at RMB30 billion (US$4.9 billion), but the study estimated that a very small share of that revenue (less than 3 per cent) was being shared with the copyright holder.
- Deleting the Prohibition on Charging “Unfairly High” or Purchasing at “Unfairly Low” Prices. The GAI recommended that this prohibition be deleted in its entirety or, at the very least, revised to explicitly provide an exception for matters involving intellectual property rights. Among other things, the GAI explained that price regulation risks punishing vigorous competition and government imposed prices that are too high or too low encourage misallocation of resources, soften incentives to engage in efficient conduct, reduce incentives to innovate, and distort markets. These risks are especially acute for IPR’s, because “the very purpose for which nations create and protect IPRs is to induce investment in risky and costly research and development. To achieve a balance between innovation and the protection of competition, monopoly prices should only be unlawful if they are the result of conduct that is unlawful on other grounds.” The most recent 2015 JCCT also specifically requires that China should “take into account the pro-competitive effects of intellectual property,” which arguably also suggests some degree of caution should be exercised in looking solely at prices charged for licensing IP rights.
- Limiting the Prohibition on Refusals to Deal to Conduct that Creates or Maintains a Monopoly. The GAI explained that, without such a limitation, the prohibition could be interpreted to impose an antitrust-based duty to deal on firms, to micromanage the terms of trade between firms, and to require courts and agencies to administer a burdensome remedy with substantial risk of causing more harm to competition and to consumers than benefits. Apart from consistency of forced licensing with the Paris Convention, TRIPS and other agreements, through erosion of the right to exclude inherent in a patent, the competition law IP risks to licensors are also underscored by GAI: “potential inventors may be less likely to undertake the research and development that lead to an invention if the inventor’s reward for its efforts is reduced by having to share its technology or goods. Conversely, if businesses know they can easily gain access to the goods or technology of other firms, then they have less incentive to innovate and more incentive instead to free-ride on the risky and expensive research of others.”
- Specifying that the Legitimate Use of Intellectual Property Rights Includes the Right to Exclude. The GAI has suggested revising Article 55 of the AML, which deals with abuse of IP as follows:
This Law [the AML] is not applicable to undertakings who exercise their intellectual property rights in accordance with the laws and administrative regulations on intellectual property rights, which includes the right to exclude; however, the Law shall be applicable to undertakings who eliminate or restrict market competition by abusing their intellectual property rights. This Article does not create a standalone violation for the abuse of intellectual property rights. Conduct will only be found to violate this Law if it constitutes a violation of Articles 13 or 14.
As GAI notes “If the government is too willing to step in and appropriate the gains from innovation and dynamic competition, then potential innovators anticipating such interventions will have weak incentives to risk investment in new inventions. Likewise, if the laws governing abuse of IPRs is uncertain or unpredictable (which they would be if the prohibition of “unfairly high pricing” is applied to IPRs), potential innovators will also have weak incentives to innovate.” As I previously noted in addressing NDRC’s IP abuse drafting effort: “the starting point of that discussion … is the incentive afforded by the patent system to disclose technology in order to exclude others and ultimately contribute to the public domain of technology when the patent lapses.”
A special thanks to Koren W. Wong-Ervin, Director, Global Antitrust Institute, George Mason University School of Law, for sharing these comments and her summary which I have adopted in light of my knowledge of some of the IP issues in Chinese antitrust enforcement.