The revision of the Chinese Anti-Monopoly Law – abuse of dominance, of IPR and of administrative powers

There are relatively few changes in the draft regulations implementing the revised Anti-Monopoly Law in the areas of abuse of dominance, abuse of IPRs, and abuse of administrative powers.  While mainly platform operators are likely affected by the changes in the abuse of dominance area, the amendments in the IPR area may affect a wider range of companies – as licensors or licensees. Although the amended rules on abuse of administrative powers only apply to restrictions of competition by government entities, companies should be aware of the potential use of these rules – both defensively and offensively.

Introduction

There are relatively few changes in the draft Regulation Prohibiting Conduct Abusing a Dominant Market Position (“Abuse of Dominance Regulation”), the draft Regulation Prohibiting Conduct Abusing Intellectual Property Rights to Eliminate or Restrict Competition (“IPR Abuse Regulation”), and the draft Regulation Preventing Conduct Abusing Administrative Powers to Eliminate or Restrict Competition (“Administrative Monopoly Regulation”). As result, we will consider the three draft regulations together.

Abuse of Dominance Regulation

There is only one substantive law change in the abuse of dominance section in the revised AML and in the Abuse of Dominance Regulation each.

In particular, the revised AML prohibits dominant companies from using big data and algorithms, technology and platform rules to engage in one of the types of abuses listed in the AML.  This rule does not prohibit a new kind of abusive conduct, but merely focuses on the instruments with which companies (in particular, Internet players) bring about the abusive conduct.  The rule also showcases the current enforcement focus on the Internet.

In turn, the Abuse of Dominance Regulation has a new rule prohibiting platform operators from engaging in self-preferencing (i.e., favouring their own products in terms of display or ranking over other products) or using non-public information by competitors selling on their platforms to develop or push their own products.

Possibly inspired by the European Commission’s Google shopping and Amazon marketplace investigations, this new rule may be found to “create new law” to an extent, as the underlying theories of harm do not fully fit into the list of abusive conduct in the current AML.

IPR Abuse Regulation

Among the regulations to be amended by SAMR, the existing version of the IPR Abuse Regulation is the only regulation adopted by one of its predecessor authorities, the State Administration for Industry and Commerce, in 2015. 

Interestingly too, a separate guideline on the application of the AML in the IPR field from 2020 continues to co-exist with the IPR Abuse Regulation.

Despite the fact that the prior regulation was adopted by a different authority a few years back, the amendments in the new IPR Abuse Regulation are still limited.  The most important changes are the following.

First, the IPR Abuse Regulation appears to take quite a skeptical view towards  “package licensing” (i.e., the licensing of several patents or other IPRs as a bundle).  As such, a licensor in a dominant position is prohibited from forcing licensees to accept “package licensing” against their will (unless justified by transaction patterns, consumer habits, product functionality, or other reasons).

Similarly, a new provision to regulate licensing by “collecting societies” – i.e., organizations handling the copyright management for a vast number of copyright owners (such as music rights management bodies) – includes a “package licensing” prohibition against the will of licensees (unless justified).  This treatment seems quite harsh, as one of the main benefits of a collecting society is that it is able to reduce transaction costs by engaging in portfolio licensing.  On this point, the new provision goes against an important number of Chinese court judgments which rejected licensees’ requests to license only some of the music rights – not the entire catalogue – of the Chinese Audio-Visual Copyrights Association.

Second, there are two new provisions on IPR-related standard setting and implementation.  These provisions include a prohibition on the holder of a standard essential patent (“SEP”) – which made a FRAND commitment – to seek or enforce an injunction by a court or authority to stop a patent implementer from using the patent while the SEP holder and the patent implementer are in good faith licensing negotiations.   There is little additional detail in the IPR Abuse Regulation on how this relatively general principle can be applied in practice to the many ongoing SEP disputes in the telecommunications, automotive and other sectors.

Administrative Monopoly Regulation

The Administrative Monopoly Regulation implements the AML’s provisions prohibiting anti-competitive conduct by government bodies. 

The regulation contains only few changes compared to the version currently in force.  The main changes reflect the amendments made in the AML itself, namely that SAMR obtains formal powers to investigate other government bodies (including the power to request the head of the respective government body and its hierarchically superior organ to appear for discussions/interview), and a co-decision right to accept “remedies” which the infringing government body proposes.

The rules for the FCRS seem to continue applying in unchanged form. That said, as noted in our first post (see here), the FCRS has been incorporated into the AML framework.  This circumstance not only shows the increased importance of antitrust in China but, conversely, also strengthens the FCRS itself.

Although the administrative monopoly rules in a large sense (including the FCRS) only apply to government entities, companies should not ignore these rules. 

First, when seeking to obtain a benefit by government bodies which could be deemed as preferential treatment (e.g., individual tax break), companies should examine whether the benefit is compliant with the AML’s administrative monopoly rules.  Otherwise, they would be unprepared for the residual risk of losing the benefit.

Second, companies may also use the administrative monopoly rules pro-actively if their business suffers due to a distortion of competition brought about by the rules or practices of government bodies (including notably local government bodies).  In general, an “advocacy approach” to change distortive rules and practices benefits if it has the backing of a strong law like the AML. 

Conclusion & to-do’s

In terms of abuse of dominance, the focus of the revised AML and the Abuse of Dominance Regulation clearly lies on dominant e-commerce and other platform operators.  For them, the changes mean that new theories of harm, such as self-preferencing, may be used in China going forward.  In contrast, dominant companies in other sectors will unlikely be impacted by the changes in the revised AML and the Abuse of Dominance Regulation.

In terms of abuse of IPRs, the changes brought about by the IPR Abuse Regulation are relatively limited.  Together with the 2020 IPR antitrust guideline, the IPR Abuse Regulation provides a complex body of law for companies in IPR-intensive industries.

In terms of government restrictions to competition, the main takeaway from the revised AML and the Administrative Monopoly Regulation is that they show the beefed-up status of the AML in the national policy pecking order, and the continued focus on tackling government restrictions to competition (in particular restrictions imposed by local governments).

Companies should:

  • ensure their IP or licensing departments are synced up with the antitrust law colleagues to ensure full compliance with the IPR Abuse Regulation and other AML implementing rules

  • at least conduct a high-level antitrust screening if they engage in “package licensing” (e.g., portfolio licensing) either as licensor or licensee

  • assess whether any benefits granted by government bodies in China (such as tax breaks) hold up to AML and FCRS scrutiny – especially when new important decisions are taken (e.g., where to build a factory)

  • consider running an AML analysis for those (e.g., local) government restrictions to competition which prevent a level playing field with (e.g., local) competitors, and incorporate the AML analysis in any potential “advocacy approach.”

For potentially dominant e-commerce and other platform operators, additional compliance screening is recommended.

Our next posts will discuss the key developments in the merger control area. 

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If you would like to obtain a courtesy copy of our inhouse English/Chinese translation of the revised AML, please contact us.

 

 

Authored by Adrian Emch, Qing Lyu, and Jingwen Hou.

 

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