Wang Xianlin, Law School of Shanghai Jiao Tong University Identification of Abuse of Intellectual Property Rights and Monopoly Conducts Wang Xianlin, Law School of Shanghai Jiao Tong University wangxianlin@sjtu.edu.cn 2010-3-11 Changsha

Main Contents I. Overview of the Identification of Abuse of Intellectual Property Rights and Monopoly Conducts II. Exercising of Intellectual Property Rights and Monopoly Agreement III. Exercising of Intellectual Property Rights and Abuse of a Dominant Market Position IV. Exercising of Intellectual Property Rights and Concentration of Undertakings V. Some Special Types of Conducts exercising Intellectual Property Rights

I. Overview of the Identification of Abuse of Intellectual Property Rights and Monopoly Conducts The conduct of business operators to eliminate or restrict market competition by abusing their intellectual property rights is not a independent monopoly conduct, but constitutes the monopoly agreement, abuse of a dominant market position or concentration of undertakings eliminating or restricting market competition according to the nature and form of the conduct. The conduct relating to the exercising of intellectual property rights shall be analyzed and indentified according to the basic institutional framework of the anti-trust law. For example, for the monopoly agreement relating to the intellectual property rights, corresponding rules (including the exemption rule) shall apply to different agreement of horizontal or vertical one. Another example is that for the abuse of a dominant market position, it needs to identify that the conductor has a dominant market position, so the relating market shall be indentified at first.

If the exercising of intellectual property rights by the business operator is indentified as the monopoly conduct to eliminate or restrict market competition by abusing the intellectual property rights, the enforcement authority of antitrust law shall pursue legal liabilities of the conductor according to the Antitrust Law. For the monopoly conduct which has been indentified by the enforcement authority of antitrust law, other business operators can seek remedy from relating execution authorities according to other laws or regulations. For example, if the exercising of patent right by the patentee is identified as monopoly conduct by the enforcement authority of antitrust law under the State Council, other operators may request the compulsory license to exploit the patent for invention or utility model at the patent administrative organ under the State Council according to Article 48 of the Patent Law of the PRC.

II. Exercising of Intellectual Property Rights and Monopoly Agreement License is the basic way for the IPR owner to exercise its right, it focuses on the license agreement of IPR when analyzing whether the exercising of IPR constitutes the monopoly agreement of abusing the IPR. Generally speaking, the license agreement of IPR is beneficial for competition. However, the license agreement of IPR may sometimes bring severe limitation for competition. For example, in some circumstances, some limitations in the license agreement can be used to as the tool to conduct cartel (such as fixing the price, restricting the output and sharing the market) which harms the consumers and may be used to eliminate competition in the market of the products using the licensed technology or the market of the licensed technology. This is beyond the scope of the inherent proper limitation of competition of IPR.

Horizontal Restriction in License Agreement of IPR The horizontal restriction in License Agreement of IPR is the restriction influencing the parties in the horizontal relation which can be divided into two kinds: 1. The License Agreement of IPR includes the restriction articles beyond the scope of IPR obviously which involves in the typical horizontal restriction such as fixing the price, restricting the output and sharing the market. The rule of perse shall be used to identify and deal with it. The situation has no difference in kind with the horizontal collaboration of restricting competition not involving the IPR. 2. The License Agreement of IPR includes the restriction articles which is closely related to the features of IPR, such as cross-licensing and patent pool, which is reasonable to some extent and may be abused to limit the competition improperly. The principle of rationality shall be used to identify and deal with it.

Competing undertakings are prohibited from concluding the following monopoly agreements relating to IPR according to Article 13 of Antitrust Law: 1. fixing or changing commodity prices, such as fixing the royalties or the price of the commodity using the patent through agreement by the competing patentees; 2. limiting the output or sales of the products , such as restricting the licensees or the amount of commodities manufactured by using the IPR; 3. splitting the sales market or the purchasing market for raw materials, such as dividing its own sales market through crossing-license agreement by the competing patentees; 4. restricting the purchase of new technologies or equipment, or the development of new technologies or product, such as forbidding the licensee from developing or using new alternative technologies or products; 5. joint boycotting of transactions, such as jointly refusing to license the IPR or sell the commodities manufactured by using the IPR to certain trading counterparts by some business operators owning the IPR in related market; 6. other monopoly agreements relating to IPR confirmed as such by the authority for enforcement of the Antitrust Law under the State Council.

Vertical Restriction in License Agreement of IPR The parties of License Agreement of IPR is generally in the vertical relation, so there are many situations involving the vertical restriction. To some extent, the restriction of the license agreement of IPR itself is vertical restriction. The vertical restriction in the license agreement of IPR is less influential to the competition than the horizontal restriction. So for the vertical restrictions, a few is by rule of perse and most of them is by the principle of rationality . There are many situations of exemption or exception for the vertical restrictions in the antitrust law.

Undertakings are prohibited from concluding the following monopoly agreements relating to IPR with their trading counterparts according to Article 14 of Antitrust Law: 1. fixing the prices of commodities resold to a third party, such as requesting the purchaser to resold the commodity to a third part at a fixed price by the patentee when selling the patented commodity; 2. restricting the lowest prices for commodities resold to a third party, such as restricting the lowest price for the patented commodity resold to a third party by the patentee when selling it to the purchaser; 3. other monopoly agreements relating to IPR confirmed as such by the enforcement authority of the Antitrust Law under the State Council

Exemption and Safety Zone of License Agreement of IPR The license agreement of IPR may get exemption when complying with Article 15 of Antitrust Law. Some countries and regions also established the system of “Safety Zone”. Under some circumstances, the license agreement of IPR can be deemed as being little influential to the competition in related market, so the enforcement authority of antitrust law shall not investigate. For example: the market share of competing undertakings accounts for no more than 20% of the total in a relevant market; if the market share can not be calculated, there are at least four other operators owning the alternative IPR in the relevant market; the market share of the operator or the trading counterpart accounts for no more than 30% of the total in a relevant market; if the market share can not be calculated, there are at least two other operators owning the alternative IPR in the relevant market

III. Exercising of Intellectual Property Rights and Abuse of a Dominant Market Position It has to be identified according to the regulations of the antitrust law (such as Article 17,18,19 of the Antitrust Law of China) whether the exercising of IPR by the operators constitutes the abuse of a dominant market position. When identifying and presuming whether the operator is in a dominant market position, the investigator usually has to consider the factor of IPR, especially in the industries highly relying on the IPR, although the ownership of IPR is not a direct evidence

Refusing to license the IPR Refusing to license the IPR means the conduct that the IPR owner refuses to authorize other operator to use his IPR with compensation. Refusing to license the IPR is a form of freely exercising the IPR by the IPR owner. Generally speaking, the authority for the enforcement of antitrust law shall not request the IPR owner to bear the obligation of have transaction with its competitor or trading counterpart. But there is exception that: Generally speaking, the enforcement authority of antitrust law shall not identify the conduct of refusing to license unilaterally without any condition or non-discriminatively when exercising the IPR as the violation of antitrust law.

However, for the following circumstances of refusing to license the IPR, the enforcement authorityof antitrust law may identify them as the violation of the regulation on abuse of a dominant market position in the antitrust law after investigation: 1. the operator refuses to license the IPR has the dominant market position and refuses to license its IPR unfairly and discriminatively; 2. the IPR refused to license is a necessity for the licensee to participate the market competition, and the refusing to license such IPR leads to the fact that the licensee can not compete effectively in relevant market and the competition and innovation in relevant market are adversely influenced. It should also be noted that refusing to license the IPR may be the means for the operator to set restriction conditions or tying. the enforcement authority of antitrust law shall analyze the influence to competition by such conduct according to the relevant restriction conditions or tying.

Tying Involving Intellectual Property Rights Tying involving intellectual property rights means when exercising rights by licensing an intellectual property rights and other means, the licenser, against the will of licensee, force licensee demands licensee to accept another intellectual property rights, or buy some kind of products from right holder or a third party designated by right holder. The product or intellectual property rights constituting tying may be sold or licensed separately, and have independent consumption demand, the former intellectual property rights is referred to as tying product, and the latter is referred to as tied product. The adverse effects brought or may brought by tying to relevant market competition manifest itself as eliminating the trading opportunities of other suppliers in tied product market and damaging the options of consumers. Tying may also have positive effects on competition in relevant market, manifest mostly reducing selling or management cost.

When analyzing the impacts brought or may brought by tying to competition in relevant market, the antimonopoly execution authority shall consider factors including purpose of selling, the characters and interrelation of tying product and tied product, transaction practice, scale of influence of tying and actual operation capacity of undertaking carrying out tying. The antimonopoly execution authority may stop tying that match the following conditions, (1)Intellectual property rights holder is in a dominant position in tying product market; (2)Tying product and tied product are two separate products in characters and transaction practice; (3)Tying has material influence on tied product market, and makes dominant position in tying product market of intellectual property rights holder extend to tied product market.

VIII. Exercising of Intellectual Property Rights and Undertaking Concentration The act of undertakings to obtain intellectual property rights is a manifestation of free transaction of intellectual property rights. The free transaction of intellectual property rights, overall, is benefit for the broadcasting of technology and promoting of competition and innovation. However, in some specific cases, the act of undertakings to obtain intellectual property rights may constitute concentration of undertakings which will eliminate and restrict relevant market competition. Undertakings, through the transference of intellectual property rights or exclusive license agreement, obtain key intellectual property rights of other undertakings and further get the control power over other undertakings, or can exert decisive influence upon other undertakings. When coming up to the notification criteria of concentration of undertakings, undertaking shall file with the antimonopoly execution authorities and accept relevant review.

In specific cases, although the act of undertakings to obtain intellectual property rights cannot get the control power over other undertakings or can exert decisive influence upon other undertakings, it may eliminate and restrict competition of relevant technology market. For example, undertakings owning specific patented technology, through the transference of intellectual property rights or exclusive license agreement and other means, obtain competing patented technology of other undertakings. If the undertaking obtains patented technology and has a dominant position in the relevant technology market having no competing alternative technology and entry barrier, this act of undertakings to obtain patented technology not only eliminates all competitors of relevant technology market, but also improves the entry difficulty for potential competitors, and thus, bring adverse affects to relevant technology market.

In specific cases, concentration of undertakings may have adverse effects on technology improvement or innovation. For example, the concentration of undertakings with technology leading position in specific high and new technology industries may reduce the speed of technology improvement and innovation of this industry; also, the acquisition of other undertakings with new technology taken by undertaking of market dominant position in specific industry may have adverse effects to technology improvement and innovation of this industry. When analyzing the undertaking concentration which may affect technology improvement or innovation, in addition to other factors, the antimonopoly execution authority shall also analyze the innovation ability of undertaking, the innovation character of other undertakings and technology change characteristic of relevant industry.

V. Some Special Types of Conducts exercising Intellectual Property Rights Some conducts exercising intellectual property rights may constitute one or more kinds of monopoly agreement, abuse of a dominant market position or concentration of undertakings simultaneously, therefore it is difficult to classify them into certain kind and they shall be regarded as a certain kind to analyze. This mainly involves some special types of exercising intellectual property rights, such as patent pool, conducts exercising patent rights during the drafting and enforcement of standard, technical measures behaviors during protection of Copyrights, behaviors of copyright collective management organization and etc.

Patent Pool Patent pool is an agreement in which two or more patentees license the patent they owned to each other or to a third party commonly through an entity. This entity may take different forms: either an entrusted joint venture company specially established for this purpose, or a member of patent pool or an independent third party. Patent pool has significant effect on fostering integration of complements technology, reducing trade cost, eliminating obstacles patents, reducing infringement proceedings and its uncertainty and etc, however, patent pool in some cases may have effect of eliminating or restricting competition, and a review of anti-monopoly shall be done. In different cases, this review may respectively or simultaneously be subjected to regulations regarding monopoly agreement, abuse of a dominant market position or concentration of undertakings of the Antimonopoly Law.

When analyzing impacts brought by patent pool to relevant market competition, the antimonopoly execution authorities shall consider following factors: The market dominant position of the entities participating in the patent pool; Whether the patent pool is open or non-discriminatory when an entity participating in the patent pool having a market dominant position; Whether or not the patent poll unreasonably block the technology of a third party or restrict the establishment of alternative patent pool. Generally, a patent pool, consisting of complements patents, has no adverse effect on competition, but the effect to relevant market competition brought by a patent pool including alternative patent shall be analyzed by the antimonopoly execution authorities according to the characters of the specific case.

According to the character of the patent pool and experiences of other countries, the following patent pool license agreement articles may have effects of eliminating or restricting competition: (1)forbitting the patentee licensing patent solely out of the patent pool; (2)forcing licensee licensing its improved or developed patent technology to the patent pool of licenser exclusively; (3)forbitting the licensee questioning the validity of the patent pool; (4)charging different license fees to different licensees in the same product market without legitimate reasons; (5)restricting licenser or licensee independently or with third party researching on technology in competition with patent pool. The conducts of management organization of patent pool setting restricting conditions for reasonable necessasity to manage patent pool activities usually will not eliminate or restrict competition of relevant market. However, those conducts discriminating specific participant unreasonably, restricting participant using patent pool or provide convenience for participants to exchange sensitive message regarding competition may have effects of eliminating or restricting competition.

Conducts Exercising Patent Rights during the Drafting and Enforcement of Standard It has become an attention-getting phenomenon in market competition at the present stage that standard integrates with patent tightly, and it involves complicated issues regarding antimonopoly. Generally, the drafting and enforcement of standard have important effect for unifying technical specification, promoting technology innovation, maintaining benefits of consumers and social public interests. However, if a standard that including patented technology has been implemented extensively, it will raise cost of other alternative technologies to enter the standard and may have patent impediment effect. If the conducts of exercising patent rights of patentee in the process of drafting and enforcement of standard have or may have effects of eliminating or restricting competition, the antimonopoly execution authorities shall take a review of antimonopoly.

In the process of the drafting of internal standard, national standard, industrial standard or local standard, the behavior of patentee to announce patent license articles and price one-sided is a form of exercising patent rights, and will not have effect of eliminating or restricting competition. Nevertheless, the behaviors matching the following conditions may violate the antimonopoly law: (1) patentee or applicant for patent knows or shall know that its patent or patent-pending may be incorporated into internal, national, industrial or local standard;(2) patentee or applicant for patent didn't disclose the information of the patent may be incorporated into standard or published information of patent application in accordance with relevant intellectual property polices stipulated by standard organization; (3) patentee claims the patent rights of its patent which has been incorporated into standard after the announcement of standard; (4) this conduct have or may have adverse affects on the competition and innovation of relevant market.

In the process of enforcement of international, national, industrial, local or enterprise standard, if the patentee whose patent has been incorporated into standard licenses anybody enforcing the standard for free or enforcing his patent with the condition and term of reason and no discrimination, generally, it will not eliminate or restrict competition of relevant market. However, the following cases may have effects of eliminating or restricting competition (1)refuse to license those people who enforce this standard to use its patent without legitimate reasons; (2)apply dissimilar prices or other license conditions to equivalent counterparties who using this standard without legitimate reasons; (3)tie products or require unreasonable conditions for trading without legitimate reasons when licensing those people enforcing this standard to use its patent.

Technical Measures Behaviors during Protection of Copyrights The conducts of the copyrighter taking technical measures play an important role of protecting copyrights under the information network, and generally it will not eliminate or restrict competition of relevant market If technical measures becomes a mean of competition used by copyrights holder to eliminate or restrict other undertakings in relevant market, such as a mean of competition to tie products or intellectual property, the antimonopoly execution authorities shall take a review by law. Where the undertaking did not use other alternative methods which could be used and have few impact on competition of relevant market without legitimate reasons, the use of technical measures taken by the undertaking shall be considered to have effect of eliminating or restricting competition.

Behaviors of Copyright Collective Management Organization Copyright collective management organization is a social group, established for the benefit of rights holders, conducting collective management to the copyrights of right holders or relevant rights regarding copyrights according to the authorization of rights holders. The establishment and activities of copyright collective management organization play an important role to the exercising of copyrights of single rights holder and timely and lawfully using of works for organizations and individuals. The behaviors matching one of the following conditions conducted by copyright collective management organization shall be analyzed by law : (1)charging exorbitant agency fee or license fee without legitimate reasons; (2)appling discriminatory conditions to equivalent copyrights holders without legitimate reasons; (3)enforcing others to accept package licensing; (4)conducting other activities that may have effects of eliminating or restricting relevant market competition.

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