Friday, June 7, 2013

Anti-Monopoly Laws In China

Friday, June 07, 2013
The Anti-Monopoly laws (AML) in China have been put in place to promote the “public interest” and constitute the equivalent of anti-trust laws in the US representing a step forward in unifying Chinese laws with the international laws. AML can be divided to three categories(1) : First is the merger category, which requires companies whose transactions exceed a certain threshold to inform the Chinese government of these transactions in order to receive clearance. The second category is focuses on monopoly agreements, prohibiting agreements from containing certain clauses that restrict competition, such as clauses directed to price fixing, technology restrictions and limiting production.  The third category pertains to the abuse of dominant market position, which prohibits businesses that have dominant position in the market to abuse this position in controlling the market.(2)
The AML are implemented through special government agency called “Anti-monopoly Enforcement Authorities” (AMEA) which decide when and how to enforce these decisions(3).

From a practical perspective, the law has been used more as a tool for organizing government activities, rather than as a method of balancing the interest of citizens and the state(4).  Before AML, anti-trust competition laws were in place, which prohibited tied selling, price fixing and bid rigging, but failed to address other anticompetitive activities like creating monopolies(5).  As a result AML is filling the gap that existed before.

Article 55 of AML contains provisions that speak specifically about Intellectual Property. This Article provides that “this law is not applicable to the undertaking which use Intellectual Property rights according to the laws and administrative regulation relevant to Intellectual Property, but it is applicable to the undertakings which “abuses IP” and “eliminate or restrict market competition”(6).  This provision provides a safe environment for IP owners as long as they are within their legitimate rights and applies when the abuse of Intellectual Property occurs. However, the term “abuse” has not been defined.  Some commentators find the existence of Article 55 equal to “patent misuse” provision under the US law, which does not allow a patent holder from “seeking to leverage its lawful monopoly IP rights to extend them beyond the proper scope of the patent”(7).

Commentators find three major issues with this Article(8). First, the relationship between the prohibitions and Article 55: Is this Article merely designed to further clarify the AML or does it create a prohibition? Some critics believe that this article prohibits companies that are abusing the market dominant position and it has been put in place to help the non-dominant companies carry out business as well. If this provision is interpreted widely, then it will include all dominant and non-dominant companies. For example, Microsoft argues that it does not have a dominant market share in China, as a result of the high amount of piracy. However, this position may be considered irrelevant if the provision is broadly interpreted. So far there has not been any case with regards to this matter.

The second issue is that Article 55 may prevent entities from price discrimination and discrimination in IP licensing. This means when it comes to licensing, an entity has to treat all third parties the same and favorably - if licensing is compulsory this can disincentivize innovation.

The third issue is the potential impact of Article 55 on patent infringement issues. Local companies may bring Article 55, to accuse the patent holder of monopolizing the market and preventing competition. Local companies then can ask for an investigation from the government with this regard. This will make it more difficult for foreign companies to enforce their IP rights in China. A law firm in China submitted a case to AMEA against Microsoft and suggested using AMEA to initiate an anti-monopoly investigation against Microsoft and further accusing Microsoft of abusing this alleged market monopoly.

Some of the defences used when facing an anti-monopoly charge are the ‘non-dominant position’ defence or the ‘defence of new development’. There are some approved exemptions to AML where the monopoly agreement are beneficial to: (1) improve technology or research and develop new products; (2) upgrade product quality, reduce costs, improve efficiency, unify product specifications and standards, or realize division of work based on specialization; (3) improve operational efficiency and enhance competitiveness of small and medium sized entities; or (4) serve the public welfare, by conserving energy, protecting the environment, and providing disaster relief (9).  These provisions are designed to encourage foreign investment in China. Microsoft has set up the China research & development group and is planning to invest $1 billion on this research and development center. 

AML in China has been created in an effort to keep China more in tune with the other countries; however it has also created a degree of ambiguity. Going forward, legal observers will be following the developments in Chinese jurisprudence to further clarify this legislation, giving foreign companies a sense of just how AML is going to be applied in Chinese courts.

By: Asrin Jawaheri
(1)Hannah C. L. Ha, “China’s Anti-Monopoly Law” online:
(2) Ibid
(3) Thomas Brook, China’s Anti-Monopoly law: History, Application and Enforcement, (2011) 16 Appeal review of current law and law reform 31-48 

(4) Ibid
(5) Ibid
(6) Dr. Yuun Tian, “The impact of the Chinese Anti-Monopoly Law on IP Commercialization Technology-Driven Companies and Future Regulators” (2010) Duke Law & Technology Reviews
(7) Ibid
(8) Ibid
(9) Ibid