Document Number: Order No. 31 of the State Administration for Market Regulation

Area of Law: General Provisions on Intellectual Property

Level of Authority: Departmental Rules

Date Issued: 10-23-2020

Effective Date: 10-23-2020

Issuing Authority: State Administration for Market Regulation

Status: Effective

Provisions of the State Administration for Industry and Commerce on Prohibiting the Abuse of Intellectual Property Rights to Preclude or Restrict Competition

(Issued by the Order No. 74 of the State Administration for Industry and Commerce on April 7, 2015, and revised by the Order No. 31 of the State Administration for Market Regulation on October 23, 2020)

Article 1 To protect fair market competition and encourage innovation, and prohibit businesses from abusing intellectual property rights to preclude or restrict competition, these Provisions are developed in accordance with the Anti-Monopoly Law of the People's Republic of China (hereinafter referred to as the “ Anti-Monopoly Law ”).

Article 2 Anti-monopoly and the protection of intellectual property rights have the same objectives: to promote competition and innovation, improve economic operation efficiency, and protect the interests of consumers and public interest.

The Anti-Monopoly Law shall not apply to a business's exercise of intellectual property rights in compliance with the provisions of laws and administrative regulations related to intellectual property rights; however, the Anti-Monopoly Law shall apply to a business's abuse of intellectual property rights to preclude or restrict competition.

Article 3 For the purposes of these Provisions, “abuse of intellectual property rights to preclude or restrict competition” means a business's exercise of intellectual property rights in violation of the Anti-Monopoly Law to implement a monopolistic agreement, abuse its dominant market position, or commit any other monopolistic conduct.

For the purposes of these Provisions, “relevant market” includes the relevant product market and the relevant geographic market, as defined in accordance with the Anti-Monopoly Law and theGuide of the Anti-Monopoly Committee of the State Council to the Definition of the Relevant Market and in consideration of the impact of intellectual property rights, innovation, and other factors. In the law enforcement against monopoly involving intellectual property licensing, among others, the relevant product market may be the technology market or the product market containing particular intellectual property rights. The relevant technology market is the market formed by the competition between the technologies involved in the exercise of intellectual property rights and the existing interchangeable technologies of the same kind.

Article 4 Businesses shall not enter into a monopolistic agreement between them as prohibited by Article 13 or 14 of the Anti-Monopoly Law by exercising intellectual property rights, unless they are able to prove that the agreement complies with the provisions of Article 15 of the Anti-Monopoly Law.

Article 5 Where a business exercises intellectual property rights under any of the following circumstances, it may be determined that the relevant agreement is not a monopolistic agreement prohibited by Article 13 .1(6) or Article 14 (3) of the Anti-Monopoly Law , unless there is any evidence to the contrary that the agreement has any effect of precluding or restricting competition:

(1) The aggregate market share of competing businesses in the relevant market affected by the business's conduct does not exceed 20%, or, at a minimum, four other substitutable technologies subject to independent control may be obtained at reasonable costs in the relevant market.

(2) Neither the business nor the transaction counterparty has a market share exceeding 30% in the relevant market, or, at a minimum, two other substitutable technologies subject to independent control can be obtained at reasonable costs in the relevant market.

Article 6 A business that has a dominant market position shall not abuse its dominant market position to preclude or restrict competition in the course of exercising intellectual property rights.

The dominant market position shall be determined or presumed in accordance with the provisions of Articles 18 and 19 of the Anti-Monopoly Law . A business's ownership of intellectual property rights may be one of the factors for determining its dominant market position, but it shall not be presumed that the business has a dominant market position in the relevant market merely because it owns intellectual property rights.

Article 7 A business that has a dominant market position shall not, without any justification, refuse to license other businesses to use its intellectual property right under reasonable conditions to preclude or restrict competition if the intellectual property right is part of the necessity facilities for production and trading.

In the determination of the conduct as mentioned in the preceding paragraph, the following factors shall be considered at the same time:

(1) The intellectual property right cannot be substituted reasonably in the relevant market, and the intellectual property right is necessary for other businesses to participate in competition in the relevant market.

(2) Refusing to license the intellectual property right will have an adverse effect on competition or innovation in the relevant market, and damage the interests of consumers or public interest.

(3) Licensing the intellectual property right will not cause any unreasonable damage to the business.

Article 8 A business that has a dominant market position shall not, without any justification, impose the following restrictions on transactions to preclude or restrict competition in the course of exercising intellectual property rights:

(1) Requiring the transaction counterparty to trade exclusively with it.

(2) Requiring the transaction counterparty to trade exclusively with a business designated by it.

Article 9 A business that has a dominant market position shall not, without any justification, conduct tie-in sale meeting all of the following conditions to preclude or restrict competition in the course of exercising intellectual property rights:

(1) The tie-in sale or package sale of different products is conducted in violation of the trading practices or consumption habits or in disregard of the products' functions.

(2) The tie-in sale extends the business's dominant position in the tying product market to the tied product market, precluding or restricting the competition of other businesses in the tying product or tied product market.

Article 10 A business that has a dominant market position shall not, without any justification, attach the following unreasonable restrictions to preclude or restrict competition in the course of exercising intellectual property rights:

(1) Requiring the transaction counterparty to exclusively grant back the technologies improved by the latter.

(2) Prohibiting the transaction counterparty from questioning the validity of its intellectual property rights.

(3) Restricting the transaction counterparty from using competing products or technologies without infringing upon any intellectual property rights after the licensing agreement expires.

(4) Continuing to exercise any intellectual property rights with an expired term of protection or determined as invalid.

(5) Prohibiting the transaction counterparty from trading with any third party.

(6) Requiring the transaction counterparty to attach any other unreasonable restriction.

Article 11 A business that has a dominant market position shall not, without any justification, apply differential treatment to transaction counterparties meeting the same conditions to preclude or restrict competition in the course of exercising intellectual property rights.

Article 12 A business shall not preclude or restrict competition by means of patent pool in the course of exercising intellectual property rights.

A patent pool member shall not enter into a monopolistic agreement as prohibited by Article 13 or 14 of the Anti-Monopoly Law by using any sensitive information on competition such as patent pool exchange yield and market division, unless the business is able to prove that the agreement complies with Article 15 of the Anti-Monopoly Law.

A patent pool management organization that has a dominant market position shall not, without any justification, commit any of the following conduct to abuse its dominant market position by means of patent pool to preclude or restrict competition:

(1) Restricting a patent pool member from licensing any patent as an independent licensor outside the patent pool.

(2) Restricting a patent pool member or a licensee from, independently or in conjunction with a third party, developing any technology competing with a patent in the pool.

(3) Compelling a licensee to exclusively grant back any technology improved or developed by the latter to the patent pool management organization or a patent pool member.

(4) Prohibiting a licensee from questioning the validity of a patent in the pool.

(5) Applying differential treatment to patent pool members meeting the same conditions or to licensees in the same relevant market in trading conditions.

(6) Any other conduct of abusing its dominant market position as determined by the State Administration for Market Regulation.

For the purposes of these Provisions, “patent pool” means a contractual arrangement through which two or more patentees jointly license in a certain form the patents owned by them respectively to any third party. It may be conducted through a specialized company in the form of an equity joint venture established for the purpose or by authorizing a patent pool member or an independent third party to manage the patents.

Article 13 A business shall not preclude or restrict competition by taking advantage of developing and implementing standards (including the compulsory requirements of national technical specifications, here and below) in the course of exercising intellectual property rights.

A business that has a dominant market position shall not, without any justification, commit any of the following conduct to preclude or restrict competition in the course of development and implementation of standards:

(1) In the course of participating in the development of standards, it intentionally fails to disclose information on its rights to the standard development organization, or, though having expressly abandoned its rights, claims its patent rights against the party that implements the standard after its patent is involved in a certain standard.

(2) After its patent becomes a standard-essential patent, it, in violation of the principles of fairness, reasonableness and non-discrimination, rejects licensing, conducts tie-in sale of products, attaches any other unreasonable trading conditions in trading, or otherwise precludes or restricts competition.

For the purposes of these Provisions, “standard-essential patent” means the patent essential for the implementation of a standard.

Article 14 Where a business is suspected of abusing intellectual property rights to preclude or restrict competition, the administrative authority for anti-monopoly law enforcement authority shall conduct investigation in accordance with the Anti-Monopoly Law and the Interim Provisions on Prohibiting Monopoly Agreements and the Interim Provisions on Prohibiting Abuse of Dominant Market Positions.

For the purpose of these Provisions, the anti-monopoly law enforcement authorities shall include the State Administration for Market Regulation and the market regulatory departments of all provinces, autonomous regions, and municipalities directly under the Central Government.

Article 15 A business's suspected abuse of intellectual property rights to preclude or restrict competition may be analyzed and determined in the following steps:

(1) Determining the nature and form of exercise of intellectual property rights by the business.

(2) Determining the nature of correlation between the businesses exercising intellectual property rights.

(3) Defining the relevant market involved in the exercise of intellectual property rights.

(4) Determining the market position of a business exercising intellectual property rights.

(5) Analyzing the impact of a business's exercise of intellectual property rights on competition in the relevant market.

In the analysis and determination of the nature of correlation between businesses, the characteristics of exercising intellectual property rights need to be considered. Where intellectual property right licensing is involved, the original competing businesses have a trading relationship under a licensing contract, but are competitors in the market of products which both the licensor and the licensee use the intellectual property right to produce. However, if the parties are not competitors when entering into the licensing agreement, and competition between them occurs only after they enter into the agreement, the agreement shall not be deemed an agreement between competitors, unless there is any substantive modification of the original agreement.

Article 16 The impact of a business's exercise of intellectual property rights on competition shall be analyzed and determined by considering the following factors:

(1) The market positions of the business and the transaction counterparty.

(2) The market concentration in the relevant market.

(3) The difficulty in entering the relevant market.

(4) The practices and customs and the development stage of the industry.

(5) The time and extent of effect of restrictions on yield, territory, and consumers, among others.

(6) The impact on promotion of innovation and technology.

(7) The business's innovation capacity and the speed of technological changes.

(8) Other factors related to the determination of the impact of exercise of intellectual property rights on competition.

Article 17 Where a business's abuse of intellectual property rights to preclude or restrict competition constitutes a monopolistic agreement, the administrative authority for anti-monopoly law enforcement authority shall order the business to desist from the illegal act, confiscate any illegal income, and impose a fine of not less than 1% but not more than 10% of the sales amount of the previous year; or, if the monopolistic agreement has not been implemented, may impose a fine of not more than 500,000 yuan on the business.

Where a business's abuse of intellectual property rights to preclude or restrict competition constitutes the abuse of a dominant market position, the administrative authority for anti-monopoly law enforcement authority shall order the business to desist from the illegal act, confiscate any illegal income, and impose a fine of not less than 1% but not more than 10% of the sales amount of the previous year on the business.

The administrative authority for anti-monopoly law enforcement authority shall, in determining the specific amount of a fine, consider the nature, circumstances, extent, and duration, among others, of the illegal act.

Article 18 These Provisions shall be subject to interpretation by the State Administration for Market Regulation.

Article 19 These Provisions shall come into force on August 1, 2015.

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