NDRC Circulates Draft Guidelines on Abuse of IPR

On 31 December 2015, the Price Supervision and Anti-monopoly Bureau of the National Development and Reform Commission (“NDRC”) circulated the Anti-monopoly Guidelines on the Abuse of Intellectual Property Rights (“Draft to Solicit Comments”) for public comment. The draft guidelines address each of the three main types of anti-competitive conduct detailed in the Anti-Monopoly Law of the People’s Republic of China 2007 (“2007 Anti-Monopoly Law”):

  • Monopoly agreements.
  • Abuse of a dominant market position.
  • Concentrations of undertakings.

Each section contains a list of factors to consider in evaluating the impact of potentially suspect conduct on competition.

Under the draft guidelines, IPR agreements that could eliminate or restrict competition and be regarded as monopoly agreements under the 2007 Anti-Monopoly Law include:

  • Joint development agreements.
  • Patent pool arrangements.
  • Cross licensing agreements.
  • Agreements that:
    • formulate standards;
    • impose price restrictions;
    • provide exclusive grant back arrangements;
    • contain “unquestionable” or non-negotiable terms;
    • restrict the use of IPR in a specific field, geographic location or sales channel;
    • restrict the use of IPR with a specific trade partner or with third parties; or
    • specify production or sales volumes.

IPR agreements will not be considered as monopoly agreements where the parties meet one of the following conditions:

  • The market share of parties in a competitive relationship does not exceed 15 percent in the relevant market.
  • The market share of parties in a non-competitive relationship does not exceed 25 percent in any relevant market.

To determine whether a business operator is exploiting its IPR to abuse a dominant market position, the draft guidelines employ the following two-step approach:

  • Identifying the relevant market and whether the IPR holder has a dominant market position.
  • Determining if the IPR holder is abusing its market dominance.

The section on concentrations of undertakings is incomplete in the draft. 

Market Reaction

Scott Yu, Partner, Zhong Lun Law Firm, Beijing

“As China has become a key ‘glocal’ battleground for IP intensive industries, the draft IP antitrust guidelines reflect Chinese antitrust enforcers’ nuanced approach in balancing the need to encourage innovation through IP protection and the need to curb certain anti-competitive behaviour by essential IP holders.”

Action Items

General Counsel for companies with significant IP portfolios should review their client’s licensing agreements and other IPR arrangements in view of the guidelines (and, in particular, the relevant lists of factors to be used by NDRC officials in evaluating the impact of these arrangements on competition). In certain cases, General Counsel may wish to recommend discussing concerns directly with the NDRC and other AML regulators to gain an increased level of certainty into their interpretations of the guidelines and the company’s justifications for any potential anti-competitive conduct.