By Susan Ning, Ting Gong, Kate Peng King&Wood Mallesons’ Commercial & Regulatory Group
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m late 2015 to early 2016, we notice that China’s Anti-monopoly law regime has continued to gain momentum with an intensified legislative effort. It is reported that altogether six guidelines are expected to be issued by the Anti-monopoly Commission of the State Council in 2016, namely, the guidelines on the interface between intellectual property (“IP”) rights and antitrust; the guidelines on leniency programme; the guidelines on commitments by undertakings under antitrust investigation; the guidelines for the motor vehicle sector; the guidelines on calculation of illegal gains and fines; and the guidelines on procedures for exemption application in relation to monopoly agreements.
IP Guidelines
Among others, one of the most awaited guidelines was the IP Guidelines. Given the importance and prevalence of antitrust enforcement in the IP-related area, The Anti-monopoly Commission of the State Council has entrusted the NDRC, SAIC, MOFCOM and the State Intellectual Property Office with the task to issue their own versions of IP antitrust guidelines. It is understood that the Anti-monopoly Commission will then consolidate these documents.
On 31st December 2015, NDRC published its second draft IP guidelines (“NDRC Draft of IP Guidelines”) on its website for public comments.[1] In the meantime, SAIC issued the seventh edition of the draft guidelines on antitrust enforcement in relation to the intellectual property rights (“SAIC Draft of IP Guidelines”) on 4th February 2016.[2]
The legal basis for the IP Guidelines is Article 55 of the AML, which states that the AML is not applicable to undertakings that exercise their IP rights in accordance with the laws and administrative regulations, but shall be applicable to the undertakings that eliminate or restrict the competition by abusing their IP rights.
Both the NDRC and SAIC draft IP Guidelines primarily introduce the basic principle regarding the interface between antitrust and IP rights, the definition of abuse of IP rights, the analytical methodology and the factors to be considered when assessing whether there is an abuse of IP rights. It’s important to note both drafts introduce a “safe harbour” mechanism to exempt certain IP related horizontal or vertical restraints from the AML. Basically the safe harbour defines a set of market share thresholds, below which the antitrust authorities generally will not intervene. [3] Specific IP-related issues are also covered, such as licensing arrangements, exclusive grant-backs, FRAND-encumbered IP rights, and patent pools, etc.
The consultation period of the NDRC Draft of IP Guidelines was expired on 20th January 2016, and the expiry date to comment on the SAIC Draft of IP Guidelines was ended on 23rd February 2016.
Leniency Guidelines
On 3rd February, NDRC, entrusted by the State Council, published the draft guidelines on leniency application in cartel cases for public consultation (“Leniency Guidelines”).[4] This legislative endeavor is considered as an important step by antitrust enforcement authorities to uncover and put an end to hard-core cartels.
The legal basis for the Leniency Guidelines is the 2nd paragraph of Article 46 of the AML, which stipulates that any undertaking voluntarily reports a monopoly agreement to the anti-monopoly enforcement authorities and furnishes a substantial evidence, the anti-monopoly enforcement authorities have the discretion to reduce the fine or exempt the undertaking from penalty entirely, depending on the circumstances.
The Leniency Guidelines further clarify the following issues:
1. The leniency program is no longer applicable to vertical restraints, notably an agreement involving resale price maintenance.
2. The information an applicant needs to provide to NDRC to benefit from immunity, and introduces a “preliminary report” for leniency applicants, which is largely similar to the marker system in the EU. Where justified, an application can be accepted on the basis of only limited information. The applicant is then granted time to complete the information and evidence to qualify for immunity.
3. In order to ensure that applicants that cooperate with NDRC investigation are not impaired in their position in other administrative proceedings, NDRC introduces a procedure to protect any statements made by undertakings in pursuit of a leniency from being made available to other pending antitrust investigations as evidence.
The consultation period was expired on 22nd February 2016. It is reported that the final version will be expected to submit to the Anti-monopoly Commission by June 2016.
Commitment Guidelines
On the same day, NDRC, entrusted by the State Council, also published the draft guidelines on commitments by undertakings under antitrust investigation for public consultation (“Commitment Guidelines”).[5]
The legal basis for the Commitment Guidelines is Article 45 of the AML, where an undertaking under investigation makes commitments to eliminate the impact of its conduct by taking specific measures, the competent antitrust authority may decide to suspend or terminate the investigation.
The Commitment Guidelines allows undertakings to offer commitments that are intended to address the competition concerns identified by the antitrust authorities. If the competent authority accepts these commitments it adopts a commitment decision making them binding on the parties without, however, establishing an infringement (no formal infringement decision issued by the authorities).
The Commitment Guidelines recognize two types of commitments: Behavioural commitments include a commitment by a company to provide certain services or goods under specified conditions (e.g., licensing an IP right); Structural commitment includes the divestiture of assets.
To note that, pursuant to the Commitment Guidelines, the antitrust authority shall not accept commitment proposals from the undertakings under investigation if the finding of an infringement has been completed. It further provides that where cases concern hard-core cartels, such as price fixing, production or sales restrictions, market division, the commitment proposal shall not be accepted. In other circumstances, it is at the discretion of the authorities to assess whether or not it is appropriate to accept commitments in an investigation. The Commitment Guidelines also set out the main steps of procedure concerning a commitment decision. In particular, the authorities encourage undertakings under investigation signal their interest in doing so at the earliest possible stage. The undertakings concerned may decide at any moment during the commitment procedure to discontinue their discussions. The authorities may then continue formal investigation proceedings.
The consultation period was expired on 22nd February 2016. It is reported that the final version will be expected to submit to the Anti-monopoly Commission by June 2016.
Other NDRC Guidelines expected in 2016
Currently, NDRC is preparing the guidelines for the auto sector under the authorization of the Anti-monopoly commission of the State Council. Although the final text of the guidelines has not yet been released, the draft released for certain institutions to make comments (not publicly available) cover a broad range of issues, including horizontal and vertical agreements, unilateral conducts, merger control, and administrative monopolies, etc.
Aside from the above, NDRC is also preparing the guidelines on calculation of illegal gains and fines, and the guidelines on procedures for exemption application in relation to monopoly agreements. We will follow up on these guidelines in our following editions of the client alert.
Note:
[1] The Chinese version (关于滥用知识产权的反垄断指南（征求意见稿）) is available at: http://www.sdpc.gov.cn/gzdt/201512/t20151231_770313.html.
[2] The Chinese version (关于滥用知识产权的反垄断执法指南（国家工商总局征求意见第七稿）) is available at:http://www.saic.gov.cn/fldyfbzdjz/gzdt/201602/t20160204_166524.html.
[3] For more details on the safe harbor mechanism, please read our previous client alert “Antitrust Safe Harbor for Exercising IPRs: More Details are Needed for its Scope, Thresholds and Compatibility”, available at: https://www.chinalawinsight.com/2016/02/articles/antitrust-international-trade/the-antitrust-safe-harbor-for-exercising-iprs-more-details-are-needed-for-its-scope-thresholds-and-compatibility.
[4] The Chinese version (横向垄断协议案件宽大制度适用指南征求意见稿） is available at: http://jjs.ndrc.gov.cn/fjgld/201602/t20160203_774287.html.
[5] The Chinese version (反垄断案件经营者承诺指南征求意见稿） is available at: http://jjs.ndrc.gov.cn/fjgld/201602/t20160203_774286.html.