Ahead of the latest version of China’s Anti-Monopoly Law (AML) coming into effect on 1 August 2022, the State Administration for Market Regulation (SAMR) has released a draft document on compulsory licensing. Local experts say the changes favour licensees over licensors. Stakeholders have until the end of July to submit responses to the proposals.

The draft, entitled Provisions on Prohibiting the Abuse of Intellectual Property Rights to Exclude and Restrict Competition, defines ‘dominant market players’, adds a provision on using intellectual property to form a monopoly with others and clarifies regulations on the abuse of dominant market positions in SEP licensing.

In particular, the draft states:

  • Market participants shall not join forces with other companies in a bid to exclude particular participants from competition without a justifiable reason (Article 15);

  • SEP owners shall not violate FRAND commitments, license the SEP at an unfairly high price or refuse to license without providing justifiable reasons (Article 16); and

  • SEP holders shall not, without having engaged in good faith negotiation, request the court for rulings prohibiting the use of relevant intellectual property rights (Article 16).

The draft strengthens legal liability, with fines of up to 10% of the previous year’s sales for the abusive use of intellectual property rights. It also introduces individual liability. Specifically:

  • Where a business operator abuses its IP rights, the AML Enforcement Agency shall order it to cease the violation, confiscate its illegal gains and impose a fine of not less than 1%, but not more than 10%, of the sales achieved in the previous year (or a fine of not more than RMB 5 million if it had no sales in the previous year). If a monopoly agreement reached by the parties has not yet been implemented, a fine of not more than RMB 3 million may be imposed (Article 21);

  • Where the legal representative, person in charge or business operator is personally liable for concluding a monopolistic agreement, he/she may be fined not more than 1 million RMB (Article 21);

  • Where an operator abuses IP rights to exclude or restrict competition in a particularly serious manner, the SAMR may determine the specific amount of fine at a rate of not less than twice and not more than five times the amount of the regular fine(Article 25).

“I think if you really look at the text, given the anti-monopoly theme, certain provisions seem relatively more friendly to licensees,” says Annie Xue Ying, senior counsel and partner at Beijing-based GEN Law Firm.

For Xue, the amendments reflect what has happened in the past few years at the antitrust IP nexus. Faced with patentees’ pursuit of injunctive relief in overseas forums, some Chinese licensees are lodging antitrust lawsuits in China as a counter measure. In response to this, the draft focuses on the term FRAND multiple times and explicitly identifies as abusive practices patentees seeking injunctions, without first carrying out good faith negotiations, to force through excessive pricing and other unfair terms.

“The increased liability of SEP owners may put SEP users in a better position in cases of dispute,” reflects Xiaofan Chen, a partner at AWA Asia in Beijing.

Xue believes that IP holders must engage with authorities to ensure their voices are heard before any changes are made: “If you don't tell these decision makers your concerns, they won't be able to fully consider your opinion. They are very willing to listen and this is why they consult the industry in the legislative process.”

Possible areas to focus on, Xue suggests, are the definition of “good faith negotiation” and what action is regarded as “improper”, as clear guidance on the two terms has yet to be published. In the meantime, she recommends that companies document the progress of negotiations during patent licensing and sales processes in order to demonstrate how they acted in “good faith”.

Xinlan Zeng

Author | Senior Correspondent

IAM(15 July 2022)