The revision of China’s anti-monopoly law – Abuse of Dominance, Intellectual Property Rights, and Administrative Powers

The Chinese Anti-Monopoly Law (AML) was enacted in 2008, and it has undergone several revisions since then. The latest revision, which took effect on 1 June 2021, includes provisions related to the abuse of dominance, intellectual property rights (IPR), and administrative powers.

The revised AML strengthens the regulation of abusive practices by dominant companies, including the abuse of IPR. The new provisions clarify that dominant companies cannot use their IPR to exclude or restrict Competition and that the exercise of IPR should be based on fairness, reasonableness, and non-discrimination.

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”) all have relatively few changes. As a result, we will evaluate all three draft regulations concurrently.

Abuse of Dominance Regulation

In the updated AML and the Abuse of Dominance Regulation, there is only one substantive law change in the section on abuse of dominance.

The updated AML specifically forbids dominant enterprises from engaging in one of the abuses outlined in the AML by leveraging big data and algorithms, technology, and platform restrictions. This rule does not prohibit a new type of abusive behavior but rather focuses on the tools used by organizations (particularly Internet players) to perpetrate abusive behavior. The rule also demonstrates the present emphasis on Internet enforcement.

As a result, a new rule in the Abuse of Dominance Regulation prohibits platform operators from engaging in self-preferencing (i.e., favoring their products in terms of display or ranking over other products) or using non-public information from competitors selling on their platforms to develop or push their products.

This new rule, possibly inspired by the European Commission’s Google shopping and Amazon marketplace investigations, may be considered to “create new law” to some extent, given the underlying conceptions of harm do not entirely fit into the present AML list of abusive conduct.

IPR Abuse Regulation

The existing version of the IPR Abuse Regulation is the only legislation adopted by one of SAMR’s predecessor bodies, the State Administration for Industry and Commerce, in 2015.

Notably, a distinct guidance on applying AML in the IPR field, effective in 2020, coexists with the IPR Abuse Regulation.

Even though the previous law was established by a different body a few years ago, the new IPR Abuse Regulation has only minor changes. The following are the most significant changes.

Secondly, the IPR Abuse Regulation appears to be wary of “package licensing” (i.e., the licensing of several patents or other IPRs as a bundle). As a result, a dominant licensor is banned from coercing licensees into accepting “package licensing” without their will (unless justified by transaction patterns, consumer habits, product functionality, or other reasons).

Similarly, a new clause to control licensing by “collection societies” – i.e., organizations that administer copyright for a large number of copyright owners (such as music rights management bodies) – includes a “package licensing” prohibition against licensees’ will (unless justified). This punishment appears extremely harsh, given that one of the primary benefits of a collecting society is its ability to lower transaction costs through portfolio licensing. On this point, the new clause contradicts many Chinese court decisions that denied licensees’ petitions to license only some of the Chinese Audio-Visual Copyrights Association’s music rights rather than the whole collection.

Second, there are two new laws on setting and implementing IPR-related standards. These provisions include a prohibition on the holder of a standard essential patent (“SEP”), who has made a FRAND commitment, from seeking or enforcing a court or authority injunction to prevent a patent implementer from using the patent. In contrast, the SEP holder and the patent implementer are in good faith licensing negotiations. The IPR Abuse Regulation provides little additional clarity on how this generic approach might be applied to the numerous current SEP conflicts in the telecommunications, automobile, and other sectors.

Administrative Monopoly Regulation

The Administrative Monopoly Regulation carries out the provisions of the AML that prohibit anti-competitive behavior by government agencies.

The regulation differs little from the version that is currently in effect. The main changes reflect amendments made to the AML itself, namely that SAMR now has formal powers to investigate other government bodies (including the ability to request the head of the respective government body and its hierarchically superior organ to appear for discussions/interview), as well as a co-decision right to accept “remedies” proposed by the infringing government body.

The FCRS rules are continuing in their current form. As mentioned in our initial piece (see here), the FCRS has been incorporated into the AML framework. This event demonstrates the rising relevance of antitrust in China and supports the FCRS.

Although administrative monopoly regulations (including the FCRS) primarily apply to government organizations, businesses should not disregard them.

First, when requesting a benefit from government organizations that could be considered preferential treatment (e.g., an individual tax cut), businesses should consider whether the benefit complies with the AML’s administrative monopoly requirements. They would be unprepared otherwise for the residual risk of losing the benefit.

Second, corporations may apply administrative monopoly rules proactively if their business suffers as a result of a distortion of Competition caused by government regulations or actions (including notably local government bodies). Generally, an “advocacy approach” to changing distortive laws and practices improves when supported by a strong statute such as the AML.

Conclusion & to-do’s

The updated AML and the Abuse of Dominance Rules target dominant e-commerce and other platform operators in terms of abuse of dominance. According to them, the changes indicate that new damage theories, such as self-preferencing, may be utilized in China. Some dominating corporations, on the other hand, will be unaffected by the revisions in the amended AML and the Abuse of Dominance Regulation.

Regarding IPR misuse, the IPR Abuse Regulation has had a rather limited impact. The IPR Abuse Regulation, in conjunction with the 2020 IPR antitrust guideline, creates a complex regulation body for corporations in IPR-intensive industries.

The main takeaway from the revised AML and the Administrative Monopoly Regulation in terms of government restrictions to Competition is that they demonstrate the AML’s beefed-up status in the national policy pecking order, as well as the continued focus on addressing government restrictions to competition (in particular restrictions imposed by local governments).

Companies should:

  • Ensure that their intellectual property or licensing departments are in sync with their antitrust law colleagues to ensure complete compliance with the IPR Abuse Regulation and other AML implementing laws.
  • Conduct a high-level antitrust screening if they engage in “package licensing” (e.g., portfolio licensing) as a licensor or licensee;
  • Determine whether any benefits granted by Chinese government bodies (such as tax breaks) withstand AML and FCRS scrutiny – especially when new important decisions are made (e.g., where to build a factory)
  • Consider conducting an AML study for those (e.g., local) government competition restrictions that hinder a level playing field with (e.g., local) competitors, and include the AML analysis in any prospective “advocacy approach.”

Further compliance screening is advised for potentially dominant e-commerce and other platform operators.