At first glance, the goals of intellectual property law and competition law might appear to conflict. IPR owners are granted statutory rights to control access and charge monopoly rents to others for use of their rights. IPR owners may also use terms of IPR licences to regulate downstream activities of their distributors, such as imposing exclusivity, territorial restraints and price restraints. Competition law, on the other hand, is directed at curtailing such market power which may prove harmful to economic welfare.

However, IP laws and competition laws can also be seen as complementary rather than antagonistic. Both laws share the same fundamental goals of enhancing consumer welfare and promoting innovation. According to the United States (US) Department of Justice (DoJ) and the Federal Trade Commission (FTC) :

“…[competition] laws protect robust competition in the marketplace, while intellectual property laws protect the ability to earn a return on the investments necessary to innovate. Both spur competition among rivals to be the first to enter the marketplace with a desirable technology, product, or service.”

While an IPR may confer a “legal monopoly” over a product, process or work, it does not necessarily confer an “economic monopoly”. Further, while an IP license may well confer restraints on licensees (such as territorial restraints) with respect to a specific product, process or work, there may be sufficient actual or potential close substitutes that constrain the exercise of market power by the IPR owner.

Despite the view that the goals of IP and competition laws are complementary, difficult questions can arise when competition law is applied to specific activities involving IPRs.

A. China’s AML:  Article 55

The IPR provision in the AML is set out in Article 55:

“This law shall not apply to the conduct of operators to exercise their intellectual property rights in accordance with the laws and relevant administrative regulations on intellectual property rights; however, this law shall apply to the conduct of operators to eliminate or restrict market competition by abusing their intellectual property rights.”

Article 55 exempts conduct which amounts to an exercise of IPRs so long as:  those IPRs are exercised in accordance with the provisions of laws and administrative regulations relating to IPRs; and the conduct does not amount to an abuse of IPRs by eliminating or restricting competition.

The Article 55 approach is very similar to the approaches in Australia and Canada. In both these countries, there has been debate about when the IPR owner is only fairly exercising their inherent rights in the IPR or is trying to achieve something more which has an anti-competitive outcome. Experiences in both countries show that this dividing line can be difficult to draw.

B. IPRs and abuse of dominance

Article 55 also subjects the exercise of IPRs to the abuse of dominance conduct rule (Article 17 of the AML). This is similar to the approaches of the competition laws of the US, Singapore, EU and Australia.

The key phrase is “abusing… intellectual property rights”. However, this phrase has not been defined in the AML.

This phrase, is, however used in Article 40 of the World Trade Organisation’s (WTO) Agreement on Trade Related aspects of Intellectual Property Rights (TRIPS). Article 40(2) may shed some light in relation to the AML phrase “abuse of intellectual property rights”:
“…nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market …a Member may [however] adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member.”

China acceded to the WTO in 2001 and as such has an obligation to comply with all WTO agreements including TRIPS. In paragraph 286 of the Report of the Working Party on the Accession of China, some members of the Working Party expressed some concern as to the compatibility of China’s rules on control of anti-competitive licensing practices or conditions with the corresponding obligations under Article 40 of TRIPS. Notably, the representative of China stated in response that China’s legislation would comply with these obligations. The representative of China stated that these rules would apply across the board to all intellectual property rights. The Working Party on the Accession of China took note of this commitment. Hence, there is some suggestion that Article 55 of the AML may not stray too far from Article 40(2) of TRIPS.

On October 11, 2007, the European Communities raised the following question with China during a WTO Council for TRIPS meeting: “…[t]he EC welcomes the recently adopted Chinese Anti-Monopoly Law. This new legislation refers to the concept of ‘abuse of intellectual property rights’ in particular in Article 55. Can China clarify what this concept means in practice? Can China confirm that this concept does not go beyond what the TRIPS Agreement considers as abusive practices under Article 31(k) (compulsory licensing) and Article 40 (competition)?” This question may be indicative of concerns from other WTO members as to whether China will ignore Article 40 of the TRIPS Agreement when defining the term “abuse of intellectual property rights”.

Dominant entities exercising IPRs may still have to be concerned about the following provisions: (a) the prohibition against refusal to deal (without justification) ; (b) the prohibition against exclusive dealing (without justification) ; (c) the prohibition against tying ; and (d) the prohibition against applying differential treatment to parties . In a typical IP licence, it is common to find tying and exclusive dealing provisions. It is also common for IPR owners to refuse to deal with certain entities for various reasons.

Given that no guidelines or regulations have been issued in relation to the AML, there is much uncertainty as to how the dominance provisions (or the rest of the other provisions) of the AML will operate.

In relation to Article 55, the following questions arise: Should dominant entities (exercising IPRs) be subject to the same competition scrutiny as dominant entities selling other goods or services? Or would Chinese competition regulators apply a different standard in relation to IP licences and assignments, in recognition of the fact that IP differs from all other forms of property? Does the Chinese government intend for there to be transitional provisions in relation to the AML? Will the AML apply to IP licences and assignments entered into after 1 August 2008 (the date in which the AML will come into effect) or will it apply retrospectively to IP licences and assignments entered into before 1 August 2008?

C. The Article 15 “improving technology, research and new products” exception

If entities are somehow not able to get their IP related agreements exempt from the AML pursuant to Article 55, then there is a possibility that these agreements may be exempt pursuant to Article 15. Specifically, Article 15 of the AML exempts certain categories of agreements from the “monopoly agreements” conduct rule (located in Article 13 and 14). However, it is important to note that Article 15 does not exempt an agreement from the abuse of dominant position conduct rule (located in Article 17).

The most relevant Article 15 exemption in relation to IP related agreements is the “improving technology, research and new products” exception located in Article 15(1). Specifically, Article 15(1) exempts agreements made “for the purpose of improving technology, researching and developing new products” from the monopoly agreements conduct rule.

The EU has a similar exemption in the form of a block exemption entitled “categories of research and development agreements”. However, in order for an agreement to fall under the EU block exemption, there are several conditions which need to be fulfilled, including the condition that, if the agreement only provides for joint research and development but excludes joint exploitation of the results, then each party conducting the research must be free to exploit the results and any necessary pre-existing know-how independently. In addition, agreements exempt under this block exemption are immune from competition law only for a limited period of time (usually 7 years) and the market share of the participant undertakings must not exceed a particular threshold (for non-competing undertakings, the threshold is 25%).

It is unclear whether the Article 15 exemption will apply in a similar way as the EU’s “categories of research and development agreements” block exemption.

There are still many grey areas to iron out in relation to Article 55 and Article 15 of the AML. Hopefully guidelines or regulations, which are able to shed light on some of the issues and questions above, will be issued before the AML comes into effect.


* Angie Ng is a graduate in the Competition and Regulatory Group at Gilbert + Tobin in Sydney, Australia.

** Ding Liang is of counsel for King & Wood’s International Trade Practice in Beijing.

*** Peter Waters is a partner in the Competition and Regulatory Group at Gilbert + Tobin in Sydney, Australia.

King & Wood established a strategic alliance with Gilbert + Tobin in November 2007.