On August 1, 2023, the revised Regulations on Prohibiting the Abuse of Intellectual Property Rights to Eliminate or Restrict Competition (“Regulations”) promulgated by the State Administration for Market Regulation (“SAMR”) came into effect. Of the new Regulations comprising 33 articles, 18 were revised and 14 were newly added. They systematically implement the guiding rules in the Anti-Monopoly Law (“AML”) with a balance between encouragement of innovation and fair competition, in the hope of creating a roadmap for fair, transparent and predictable behavior in the course of IPR operation. Some highlights are summarized below.

  In alignment with part of the AML’s legislative goal of driving innovation, the enterprise having market dominance shall not abuse its market power to eliminate or restrict competition. The possession of IPR may be a factor in identifying the dominant market position. However, it is not the only factor. In view of a given circumstance, the possibility and switching cost for a counterparty in a relevant market to switch to a replaceable technology or product, the downstream market’s degree of dependency on the product incorporating an IPR, and the counterparty’s ability to counterbalance the enterprise may all be evaluated. (Article 8) The new Regulations set forth the factors for determining if the IPR exercises are legitimate such as whether an activity (1) promotes innovation and competition; (2) is necessary for using or protecting IRP; (3) is necessary to ensure product safety, technical effects and quality performance; (4) meets both the actual needs of the counterparty in transaction and the proper customary norms in the industry; and (5) fulfils certain other factors of legitimacy. (Article 20)

  More unlawful types of monopoly agreement are exemplified. Enterprises shall not by means of using IPR enter into monopoly agreements, meaning the agreed deals, decisions or other concerted activities that eliminate or restrict competition. In addition to contracting for oneself, an enterprise is further forbidden from using IPR to either abet others to reach a monopoly agreement or provide substantive assistance to others in reaching the same. (Article 6) However, a safe harbor clause is available. Should the enterprise be able to prove to the contrary that said agreement—even if contracted—does not eliminate or restrict competition, said agreement may be deemed lawful. (Article 7)

  The Regulations feature the prohibition of the event of excessive pricing in the monetization of IPR. The enterprise that possesses market dominance shall not license IPR or sell IPR-inclusive products at an unfairly high price in order to weaken or limit competition. What constitutes an unfairly high price may take into account (1) the R&D expenses and the break-even time of said IPR; (2) the royalty calculation and licensing terms; (3) the comparable former royalty rate or standards; (4) the promises made to the IPR license; and (5) other factors. (Article 9) Several types of abuse of market dominance have been defined in more detail; these include the refusal of licensing under fair conditions (Article 10), restrictive transactions (Article 11), tie-in regardless of the customary practice in the industry or a product’s functionality (Article 12), attachment of unreasonable terms and conditions (Article 13), and discriminative treatment (Article 14).

  Events of market concentration are subject to stricter controls specifically. According to the Regulations, when the level of concentration of undertakings involving IPR meets a particular threshold set by the State Council, the enterprise shall report and then receive an approval before carrying on any actions for concentration. (Article 15) In furtherance, as to whether a market formed of IPR-involved enterprises is considered concentrated, more restrictive factors in addition to the conventional ones required by the AML shall be considered, such as (1) the nature of the divested IPR or the business associated with the IPR; (2) the maintenance of independent operation of IPR-related business; (3) the licensing of IPR under reasonable terms; and (4) others. (Article 16)

  Standard essential patent-related anti-competitive activity is another focus of the Regulations. Not only may the enterprises be forbidden from engaging in behaviors detrimental to competition using patent pools in the course of exercising IPR, they are also prohibited from reaching an anti-monopoly agreement through exchange of sensitive intelligence regarding pricing, production capacity and exclusive territory, etc. unless no elimination or restriction to the market is demonstrated. Furthermore, an enterprise having market dominance shall not exercise its market power to license a pooled patent at an unfairly high price, to restrict the pool member or licensee’s scope of use of the patent without due cause, or to forcibly demand a licensee to exclusively or solely license back an improvement or developed know-how to the pool member. (Article 17)

  Without due cause, an enterprise shall not take advantage of the formulation and the implementation of a standard to become party to a monopoly agreement and shall not unreasonably engage in behaviors that undermine competition such as licensing in violation of FRAND requirements. (Articles 18 and 19)

  Article 24 and below of the Regulations set forth the penalties. One who illegally practices an anti-monopoly agreement will be punished with an injunction, a confiscation of unlawful income, and a fine amounting to 1-10% of the sales of the previous fiscal year. Instead, should there be no sales in the previous year or if the agreement has been entered but not yet practiced, a maximum fine of RMB 5 million or RMB 3 million will be imposed, respectively. (Article 25) One who illegally abuses market power will likewise be punished with an injunction, a confiscation of unlawful income, and a fine amounting to 1-10% of the sales of the previous fiscal year. (Article 26) For one who illegally engages in IPR concentration events that have or may have anti-competitive effects, the SAMR shall require the cessation of the concentration events, disposal of the shares or assets, transfer of the business, and adoption of necessary means to return to the status prior to the commencement of the events of concentration. A fine amounting to less than 10% of the sales of the previous fiscal year will be imposed. Notably, concentration is per se illegal. Even if a case of disallowed concentration does not cause anti-competitive effects, the SAMR will impose a fine of RMB 5 million. (Article 27) Lastly, as per the AML, a punitive fine from two times to five times may be imposed in the event of grave malice or negative consequence. (Article 29)

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