Monopolistic act is closely related to dominant market position. People usually misunderstand the AML as the "anti-big-business law". In China, there is also a saying, "a person with a weapon will produce the killing thoughts".1 Modern competition law has long made it clear that it is not against "powerful" dominant positions, but only against "abusive" conduct. Of course, such abusive conduct prohibited by the law assumes that the dominant position is the prerequisite. In the modern market economy, the intellectual property rights ("IPR"), represented by patented technology, often constitutes the element or even the foundation of a dominant position, and such exclusive right also tends to raise more competition concerns in monopoly agreement and concentration of undertakings cases. The AML aims to not only encourage the innovative development of IPRs, but also deter any possible abuse of IPRs.

On June 27, 2022, the SAMR promulgated the Provisions on Prohibition of Abuse of the Dominant Market Position (Draft for Public Comments) ("New Abuse Regulation") and the Provisions on Prohibition of Abuse of Intellectual Property Rights to Exclude or Restrict Competition (Draft for Public Comments) ("New IPR Regulation") in order to implement the new AML. In summary, in response to the central government's policy of "strengthen the anti-monopoly force and prevent the disorderly expansion of capital", the amendment of the New Abuse Regulation mainly focuses on platform economy. While in response to the new AML adding "encouraging innovation" as a legislative purpose, the New IPR Regulation introduces the concept of innovation (research and development) market in the part of the definition of relevant market, and clarifies that conducts including abuse of injunctions in SEP cases may constitute abuse of the dominant market position.

  1. The New Abuse Regulation: Comprehensively Increasing Anti-Monopoly Rules in Platform Economy

In accordance with the new AML, corresponding adjustments have been made to the New Abuse Regulation in anti-monopoly regulation of platform economy, investigation procedures and legal liabilities,2 "market concentration" has been added as a dimension for the analysis of the competition situation of the relevant market, and breakthroughs have been made in identifying the abuse of dominant market position in the field of platform economy.

The new AML introduces only one change in Chapter III "Abuse of Dominant Market Position", that is, new provisions on the regulation of the abuse of dominant market positions in the field of platform economy. The New Abuse Regulation also add Article 19 to reiterate such principle and goes further by adding factors for identifying a dominant market position of platform companies and regulation of the abusive conduct of "self-preferencing".

  1. Adding Factors for Identifying the Dominant Market Position in the Field of Platform Economy

In compliance with the policy of the central government, relevant guidelines of the Anti-Monopoly Committee of the State Council and the latest development of practice, Article 11 of the New Abuse Regulation revises "new economic forms such as Internet" to "platform economy", and add "transaction amount" and "the ability to control traffic" as factors for identifying the dominant market position of the undertakings in the field of platform economy. Since the end of 2020, platform economy has become the key area for the implementation of the "strengthen the anti-monopoly force" policy, Alibaba and other platform companies have been subject to sky-high fines for abusing dominant market position. The two newly-added factors have distinctive characteristics of platform economy and represent a summary of the experience of recent years' anti-monopoly law enforcement practice in the field of platform economy. Specifically speaking, platform companies mainly play the role of intermediaries in the process of providing Internet products or services, and do not directly sell goods or services. Therefore, when calculating the market share, the amount and volume of transactions can better reflect the market position of the relevant undertakings. From the perspective of the competitors in the relevant market, the ability to control traffic based on the extensive "traffic monetization" business model of the platform is an intuitive reflection of its "gatekeeper" position.

  1. Introducing Provisions for Regulation of Self-Preferencing

The first paragraph of Article 20 provides that "an undertaking of platform with a dominant market position is prohibited from giving itself the following preferential treatments by using data, algorithms, technology, and platform rules, etc., when competing with other undertakings using the platform without justifiable reasons: (1) giving priority to the display or ranking of its products; and (2) using the non-public data of the undertakings using the platform to develop its own products or assist in its own decision-making". In the drafting notes, the SAMR stated that the revision of this provision draws on "research findings and extraterritorial legislative and enforcement practice". So far, there have been relevant extraterritorial legislative and enforcement practice. For example, the German Act against Restraints of Competition explicitly defines self-preferencing of platforms as an independent type of abusive conduct. 3 The European Commission, the French Autorité de la concurrence and the Korean Fair Trade Commission have respectively imposed penalties on Google and Naver for a series of self-preferencing treatments.4 Some large platform companies such as Amazon, Facebook and Apple are also being investigated and accused of self-preferencing by anti-monopoly enforcement authorities in various jurisdictions. However, in terms of theoretical research findings, whether "self-preferencing" is an independent abusive conduct is still a controversial issue in China, and the boundaries between it and the traditional types of abusive conduct such as refusal to deal, tying, and discriminatory treatment are not clear.

Therefore, whether this provision will be retained and applied in practice is still an open question. If it is retained, the rule that "self-preferencing" conduct falls within the scope of the catch-all provision of Article 22 of the AML will be established legally, but the specific elements of such conduct may still need to be clarified by law enforcement or judicial practices. In the meantime, the types of self-preferencing conduct and the justifications that can be asserted under the existing provisions may need to be further expanded, for example, whether the interoperability restriction commonly seen in practice is also a form of self-preferencing conduct, and whether business model innovation could be a justification, etc. It is worth noting that the amendment in the New Abuse Regulation at least indicates the law enforcement authority' attention on platforms' self-preferencing conduct. Even if this provision is not eventually incorporated into regulations, it is possible that the law enforcement authority may apply the catch-all provision to regulate platforms' self-preferencing conduct in specific law enforcement cases, as in the Tetra Pak case (2016) where loyalty rebates were deemed as "other acts of abuse of dominant market position".

  1. The New IPR Regulation: Further Specifying the Boundary of Illegality of Abuse of IPRs

According to the new AML and the Antitrust Guidelines of the Anti-Monopoly Commission under the State Council for The Field of Intellectual Property Rights ("Guidelines for IPRs"), the New IPR Regulation improves the anti-monopoly regulatory framework on abuse of IPRs, adds articles on regulating the organizers and substantive helpers of monopoly agreements relating to IPRs, details the specific rules for regulating the abuse of dominant market position relating to IPRs, adds special articles on the notification, review and additional restrictive conditions for concentration of undertakings relating to IPRs, and makes corresponding adjustments to the investigation procedures, legal liabilities, etc. Although these adjustments involve a large number of provisions, they are not the main revisions.

In terms of substance, the New IPR Regulation have mainly made three revisions: introduction of the concept of innovation (research and development) market, removal of safe harbor provisions, and listing of high-risk illegal activities related to SEPs and copyright collective management.

  1. Introduction of the Concept of Innovation (Research and Development) Market

Article 4 of the New IPR Regulation improves the definition of the relevant technology market in accordance with the relevant provisions of the AML and the Guidelines of the Anti-Monopoly Committee under the State Council for the Definition of the Relevant Market, and introduces the concept of innovation (research and development) market - "a market formed by undertakings through competition in the research and development of new technologies or new products in future", for the purpose of identifying the trend of the relevant technology market or relevant product market in the future based on the current research and development ("R&D") status of new technologies or new products. In IP-intensive industries, the R&D capability and the related product innovation and technology updating capabilities are the core competitiveness of undertakings in the long-term development. The competition among undertakings in the field of IP goes through the R&D, application, upgrading and other aspects of the IP, and competition at each level may interact with each other.

From the perspective of the relevant extraterritorial practices, both the United States' Antitrust Guidelines for the Licensing of Intellectual Property and the EU's Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements emphasize that, in individual cases, an IP licensing agreement may have significant impacts on competition at the innovation level, for example, delaying the market entry of improved products or new products, which may affect the future competition status of the relevant product market and technology market. The introduction of the concept of innovation (R&D) market is in line with the commercial practice in the field of IP. The New IPR Regulation also draw on the experiences of the AML enforcement authority in previous merger cases such as Dow Chemical/DuPont (2017), Monsanto/Bayer (2018), Aleris/Novelis (2019), GE Healthcare Life Sciences/Danaher (2020), so that the analysis of the relevant impacts on competition can be more comprehensive.

  1. Removal of the "Safe Harbor" Clause in the part of Monopoly Agreements

The new AML adds a new "safe harbor" rule, which provides that vertical monopoly agreements concluded by and between undertakings and counterparties that meet certain conditions are presumed not to harm competition. However, the new AML does not clarify whether horizontal monopoly agreements between competitors are subject to the "safe harbor" rule. According to the original provisions, monopoly agreements involving IPRs, no matter horizontal or vertical, can apply the "safe harbor" rule as long as certain conditions are met. Such provision may not be in line with the relevant provisions of a higher-level legislation, namely the AML, it has therefore been deleted in this draft and monopoly agreements involving IPRs may be subject to the "safe harbor" rule in accordance with the general provisions of the AML and the forthcoming Provisions on Prohibition of Monopoly Agreements. However, the safe harbor rule stipulated in the Guidelines for IPRs is currently still applicable to both horizontal and vertical monopoly agreements. Moreover, by referring to the extraterritorial experience of the application of "safe harbor" rule to monopoly agreements involving IP, on the one hand, it generally applies to agreements between competitors and agreements between non-competitors, though the respective applicable standards may be different. On the other hand, horizontal and vertical agreements involving IPRs (such as R&D agreements, professional agreements, etc.) will generally more significantly promote market competition and innovation, and thus the standard applied to monopoly agreements involving IPRs may be more lenient.

  1. Clarification of the Analysis Methods for Situations Involving Higher-Risk IP Abuse

Also, by reference to the Guidelines for IPRs, the New IPR Regulation streamline and supplement the provisions on certain key situations with higher risk of abuse of IP, mainly focusing on listing of conducts in relation to SEPs and copyright collective management, and limited adjustments are made to clauses on patent pooling.

  1. Standard Essential Patents

SEPs may be involved in different types of monopolistic acts. The participation of competitors in the standard-setting process is usually needed and may thus involve horizontal monopoly agreements. An enterprise owning SEPs may have a dominant market position based on the indispensability of a certain SEP, and thus may lead to abusive conducts. The New IPR Regulation splits the original provision into two provisions: one provision specifies the monopolistic acts that may be involved in the standard-setting process, which includes jointly excluding the opportunities or plans of particular undertakings to participate in standard-setting, jointly excluding particular undertakings from implementing relevant standards, and agreeing not to implement competitive standards, and includes a catch-all provision as well; the other provision specifically supplements the possible abuse of dominant market position involved in standard-setting and implementation of SEP, and similarly includes a catch-all provision. This provision reflects that the authority is actively exercising the right to identify the abuse of dominant market position granted by the item (g) of the first paragraph of Article 22 of the new AML and Article 17 of the old AML.

One of the revisions is noteworthy. Article 16 of the New IPR Regulation adds "improperly requesting the court or relevant departments to make or issue a judgment, ruling or decision prohibiting the use of related IPRs, and forces the licensee to accept unfairly high price or other unreasonable restrictions without negotiation in good faith" as one of the specific abusive conducts in the IP field, and responds to several relevant cases during the implementation of the AML (the Qualcomm case (2015), the IDC case (2014) and the Vringo litigation). For Chinese enterprises involved in IP disputes with foreign holders of SEPs in recent years, the New IPR Regulation will be a favorable legal weapon. In the meantime, the New IPR Regulation will also play an important role in cases involving SEPs emerged in China in the Supreme People's Court ("SPC"), Shenzhen Intermediate People's Court and Wuhan Intermediate People's Court since 2020.5

  1. Copyright Collective Management Organization

The New IPR Regulation also set forth provisions for the monopoly agreements and abusive conducts that may occur during the activities carried out by copyright collective management organizations, such as prohibiting exchange of competitive sensitive information, market division and boycott among members of the organizations, and prohibiting organizations with dominant market position from implementing abusive conducts such as unfair pricing, refusal to deal, restrictions on market entry and exit, tying and discriminatory treatment during copyright licensing process. Copyright collective management organizations, like patent pools, can reduce licensing costs and promote the dissemination of works and the protection of copyrights. However, on the other hand, due to the high risk of abuse of such organizations' statutory monopoly position, it is quite difficult to distinguish the boundary between the proper use of copyright and abuse of dominant market position in practice. In 2018, eight KTV enterprises filed an anti-monopoly litigation against China Audio-Video Copyright Association ("CAVCA"). Finally, the SPC ruled that although the CAVCA had a dominant market position, there was no evidence proving that it implemented abusive conducts of refusal to deal and imposing additional unreasonable transaction conditions.6

  1. Implications for Competition Strategies

In light of the revisions to the above two regulations, it not only completes the overall analytical framework, but also refines the specific rules. In the meantime, it reflects the AML enforcement's focus on the field of platform economy and the monopolistic acts involving IPRs. In the long run, digital economy and IP economy will become a powerful pillar of China's economy. Therefore, the regulated development of platform economy and IP-intensive industries will be a continuing hot topic.

In line with the style of the new AML, the two draft amendments reflect the legislators' intention to strike a balance between encouraging innovation and regulating the abuse of platforms and IPRs, which has important implications for corporate risk management and market strategies. An accurate and comprehensive understanding of the new rules of abuse of dominant market position and IPRs will help to obtain competitive advantages at the strategic and tactical levels of competition on both the offensive and defensive sides, regardless of the size of market players.

Footnotes

1 A similar saying in English is "opportunity makes a thief".

2 See Jet Deng and Ken Dai, A Practical Review of the Amended Anti-Monopoly Law of China: Highlighting Nine Areas with Twenty-three Changes, available at https://www.lexology.com/library/detail.aspx?g=4e974b81-b256-45f4-8590-4533f33e7541.

3 See Section 19a (2). 1 of the German Act against Restraints of Competition, http://www.gesetze-im-internet.de/englisch_gwb/index.html. Section 19a (2) In the case of a declaratory decision issued pursuant to subsection (1), the Bundeskartellamt may prohibit such undertaking from 1. favouring its own offers over the offers of its competitors when mediating access to supply and sales markets, in particular a) presenting its own offers in a more favourable manner; b) exclusively pre-installing its own offers on devices or integrating them in any other way in offers provided by the undertaking.

4 See the Google Shopping Case (EU 2017): https://ec.europa.eu/commission/presscorner/detail/en/IP_17_1784 ; the Google Case (France 2021): http://www.autoritedelaconcurrence.fr/sites/default/files/attachments/2021-07/21-d-11_ven.pdf; the Naver Case (Korea 2020): https://www.ftc.go.kr/www/selectReportUserView.do?key=10&rpttype=1

5 These cases include the Huawei/Conversant case, the ZTE/Conversant case, the Xiaomi/IDC case, the OPPO/Sharp case, and the Samsung/Ericsson case, with one case in the Supreme People's Court, two in the Shenzhen Intermediate People's Court, and two in the Wuhan Intermediate People's Court.

6 See (2020) Civil Judgment No.1452 of the Supreme People's Court.

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