China: A Rational Thinking On The Refusal To License Intellectual Property Under China's Antitrust Legal Framework

Last Updated: 2 December 2015
Article by Zhan Hao and Song Ying

1. Introduction

This article will address the perplexing issue of refusal to license a patent or copyright to other undertakings conducted by intellectual property proprietors under China's antitrust legal framework. The issue of refusal to license is at the interface of Intellectual Property Rights (IPRs) and antitrust law. It argues from theoretical perspective that refusal to license is a right inherent in patent rights or copyright, and that compulsory license based on antitrust law should only be ordered in exceptional circumstances. It further illustrates the legislations applicable in China and how they should be applied to disputes regarding refusal to license. We will further examine a high-profile antitrust case related to license of Standard Essential Patents (SEPs), namely, the Huawei v. IDC case, which is seen as the model case dealing with IP antitrust matters. In the final analysis the author shares caveats for assessing issues regarding refusal to license under China's antitrust legal framework.

2. Coordination between IPRs and Antitrust Law

The purpose of antitrust law is to encourage competition so as to maximize consumer welfare by promoting lower prices, better quality, and more choices. The target is achieved by imposing limits on behavior of firms with market power. The goal of IPRs is to incentivize innovation by bestowing on inventors an exclusive right to use its IPRs such as patent or copyright in a limited period. Ultimately the goal of IPRs is to advance consumer welfare by propelling dynamic competition. It should therefore be recognized that IPRs and antitrust law have no fundamental conflicts in light of their converging goals.

The means by which IPRs and antitrust law depend to realize their common targets are different and in some instances, on the outset, contradictory. It is therefore not surprising that conflicts between IPRs and antitrust law could frequently happen especially in disputes regarding refusal to license issues. One should however bear in mind that IPRs and antitrust law are not fundamentally conflicted; the simple approach of contending supremacy of either competition or IPR protection seems too emotional or imprudent.

In the case of a patent for example, a patent holder's refusal to license is exactly the proper exercise of patent rights which reflects not only the immanent demand of patent right's exclusivity, but also the fundamental doctrine of "freedom of contract". Patent laws in most jurisdictions already institute limits on the exercise of patent rights; for instance, the Patent Law of P.R.C mainly provided 6 limits on the exercise of patent rights: (1) time-limit for patent rights; (2) system of patent invalidity; (3) system of patent exhaustion; (4) exceptions to infringement of patents; (5) popularization and application of invent of state-owned entities; (6) and system of compulsory licensing. Therefore, patent holders have no obligation to license its patents to others as a general principle. The ban on refusal to license which is the reasonable exercise of the rights conferred by patent law, on antitrust grounds, could be tolerated only in very exceptional cases.

By assessing whether or not a specific scenario should be defined as an "exceptional circumstances", theoretically speaking, a comparative approach of outweighing the pro-competitive effects and the anti-competitive effects of refusal to license is plausible. The approaches of analysis under the antitrust framework however, vary in different jurisdictions..

3. Refusal to License under China's Antitrust Legal Framework

In dealing with issues regarding application of antitrust law in IPRs, the Anti-Monopoly Law of P.R.C. (AML) has only one general provision which addresses this issue. Article 55 of the AML stipulated that"This Law shall not apply to the exercise of intellectual property by undertakings pursuant to the relevant laws and administrative regulations on intellectual property; however, this Law shall apply to the abuse of intellectual property by undertakings to eliminate or restrict competition."

Article 55 of the AML basically establishes the principle for application of the AML in IP related behaviors; specifically the exercise of IPRs in accordance with relevant laws and regulations should not be determined as a violation of the AML. It is however possible that exercise of IPRs violated the AML if two conditions are satisfied. First, the relevant behavior is an abuse of IPRs; and second, the relevant behavior will lead to the effect of eliminating or restricting competition. In other words, simple abuse of IPRs will not be regulated by the AML, but by IP laws. AML only regulates abuse of IPRs which has the effect of excluding or restricting competition.

It is important to be cognizant however that an abuse of IPRs which leads to the effect of eliminating or restricting competition does not necessarily violate the AML, but only means a possibility. Whether an abuse constitutes a violation of the AML should be assessed on a case-by-case basis. Besides, the AML have not designed a special and specific legal framework for IP related behaviors. The assessment should be conducted under the same framework that regulates abuse of dominant positions as stated in Article 17 of the AML.

In contrast Article 55 of the AML is only a general provision and does not clearly interpret how provisions on abuse of dominance should be properly applied to IP-related behaviors. The State Administration on Industry and Commerce (SAIC) enacted a supplemental antitrust regulation for the abuse of IPRs, namely, the Regulation on the Prohibition of Conduct Eliminating or Restricting Competition by Abusing Intellectual Property Rights (the Regulation), which entered into force on August 1, 2015. The Regulation clarifies how Article 17 of the AML should be applied to issues regarding refusal to license.

Article 7 of the Regulation provides that"Where its IPRs constitute an essential facility for production and business operation, an undertaking in a dominant position shall not refuse to confer license to other undertakings to use such IPRs under reasonable conditions, without legitimate reasons. When determining whether an intellectual IPR constitute an essential facility, factors that need to be considered include: (1) such IPR has no reasonable substitutes in the relevant market and is necessary for other undertakings to compete in the relevant market; (2) refusal to license will have a negative impact on competition or innovation in the relevant market, harm consumer welfare or social welfare; (3) licensing such IPR will not cause unreasonable harm to the IPR proprietor."

Consequently, according to Article 7 of the Regulation, only where the following five conditions are all satisfied, refusal to license of patent holder could be determined as violation of the AML, which could be understood as an "exceptional circumstances" under China's antitrust legal framework: (1) the patent holder possessing a dominant position in the relevant market; (2) the concerning IPR constitutes essential facility (strict criteria are also provided in the Regulation); (3) there is an existence of behavior of refusal to license; (4) there are no legitimate reasons for the refusal; (5) the effect of eliminating or restricting of competition.

Although it seems the legal framework for assessing refusal to license in China is relatively simple, additional intricate issues make antitrust assessment of the refusal behavior more complex in practice. For example, some issues may often arise such as: how to define the relevant market in refusal to license disputes; how to calculate the market share of patent holder; and what grounds could be count as legitimate reasons for such refusal; and finally, how to apply the essential facility doctrine.

4. High-profile Settled Case in China

The AML in China was established in 2008 as such it has a very short history in comparison to the Sherman Act in U.S. and its counterpart in EU. Currently there are no completed cases pertaining to the refusal to license in China, except that there is one case regarding refusal to license case which is still pending before Ningbo Intermediate Court. Nevertheless, there is a high-profile case related to license of Standard Essential Patents (SEPs), which is the Huawei v. IDC case in Guangdong High Court. This case is studied and frequently referred to by many who face or may potentially face an antitrust assessment of IP related behavior. Given the model effect of the said case on IP antitrust cases as such; details of the case are discussed in this section.

Huawei v. IDC case

Huawei is one of the largest telecommunications equipment makers in China and across the world. IDC is a non-practicing entity (NPE) holding certain numbers of 2G, 3G, and 4G SEPs. In September 2009, IDC joined in the European Telecommunications Standards Institute ("ETSI") and committed to license its SEPs on FRAND terms.

In December 2011, Huawei filed a complaint against IDC and its subsidiaries before the Shenzhen Intermediate People's Court ("Shenzhen Court"), accusing IDC of abusing its market dominant position, requesting discriminatory royalty rates, and tying the licensing of SEPs with non-SEPs.

The Shenzhen Court supported Huawei's allegations by finding that IDC had abused its dominant market position by tying SEPs with non-SEPs and initiating investigations in U.S. with the aim of hindering Huawei from using the SEPs.Moreover, the Shenzhen Court held that IDC failed to comply with its FRAND commitments in connection with its SEPs.

Following the decision of the Shenzhen Court, IDC filed an appeal to the Guangdong High People's Court ("Guangdong High Court"). In October 2013, the Guangdong High Court upheld the previous decision made by the Shenzhen Court.However, the Guangdong Court found that the bundling of SEPs and non-SEPs could be justified on efficiency grounds, and therefore IDC's tying practice did not violate the AML.

Admittedly, the Huawei v. IDC case, which is the first time that the AML is applied to the behavior of exercise of IPRs, and the court's approach of defining relevant market and dominant position is advanced and novel in China. Some viewpoints shared by the court are controversial though, from the author's view; for instance, the Guangdong Court confirmed Huawei's definition of relevant market as every licensing market of each SEP which constitutes an independent relevant product market; and each country of the relevant product market constitutes an independent relevant geographical market. The Guangdong Court made such conclusion based on the theory that every single SEP is unique and non-substitutable, and should not be replaced by other technologies.

This decision by the Court is highly controversial, because the Guangdong High Court reached this conclusion without examining whether competition standards exist. The author contends that licensing of specific SEP should not be defined as independent relevant product market where competing standards exist, given that concerning SEP is substitutable with SEPs of competing standards.

5. Caveats for Assessing Refusal to License

As mentioned, the Huawei v. IDC case has a strong precedential effect, as people will be inclined to apply the views of the court on specific issues or to arrive at inferences pertaining to non-SEP cases. In this connection, to avoid the improper application of the judgment of the Huawei case when dealing with the antitrust assessment of refusal to license, several caveats are illustrated below.

First, the approach of defining relevant market in the Huawei case is quite controversial and specific to SEP cases, and should not be directly employed in non-SEP cases.

Second, generally SEP holders have the obligation to license, while non-SEP holders do not. Therefore, refusal to license a SEP may constitute abuse of dominance under Article 17 of the AML, while refusal to license a non-SEP itself, even by a patent holder with dominant position, should not be presumably considered as an abuse.

Third, non-SEPs usually do not constitute essential facility while SEPs frequently do satisfy criteria of essential facility, because SEPs are frequently being indispensable for others to compete in the relevant market.

Fourth, refusal to license non-SEP usually will not be detrimental to the consumer's welfare because its licensing usually promotes only competition by imitation which is excluded by IPR and will not substantially enhance consumer welfare or innovative competition.

6. Conclusion

This article introduces the conflict and coordination between IPRs and antitrust law, and specifically addresses how to rationally assess the refusal to license under China's antitrust legal framework. Given the demonstrating effect, the Huawe v. IDC case is introduced in detail, and some caveats are shared to safeguard against the improper influence of the Huawei case. Admittedly, there are many remaining issues to be discussed as a follow up to this article. This article however was geared towards enlightening others for future in depth research.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions