IP rights in China in an Anti-monopoly Law Era

Overseas patent holders may seek to prevent a large Chinese domestic producer from making a product with a slight improvement, which amounts to patent infringement under the current principle of equivalents or the doctrine of constructive purpose. However, if the Chinese producer can establish that there is a substantial negative effect, they might seek a special commission to conduct an anti-monopoly investigation. If it can be proven that the IP essentially created an unfair monopoly, the patent could be overridden. In addition to the traditional revenge invalidation or cancellation routes, Chinese industry may soon have a chance to challenge IP positions which they consider unfairly strong. The use of a non-compete clause in technology agreements might be another example.

In the future, an enforcement section will be established and there will be implementing regulations which should hopefully shed more light on interpretation of the new law. It is still too early to speculate on how ¡°abusing IP rights¡± and ¡°excluding or restricting competition¡± will be interpreted. It has been considered standard legislative practice to keep the terms of the laws wide enough at the level of the People's Congress to allow enough space for later judicial interpretation from the Supreme Court or administrative rules from the State Council. It can reasonably be presumed that the interpretation will not be biased towards Chinese industry, as monopoly created by IP rights has been justified for over a century in international jurisdictions, and for 20 years in China.

Another area of concern is the national security review provision which may impact IP owners engaging in foreign investment in China. The law allows the Chinese Government to review foreign acquisitions of domestic enterprises, something it already has the power to do under regulations issued last year by the Ministry of Commerce. The Government has already begun reviewing technology transactions which fall into ¡°restricted¡± or ¡°prohibited¡± categories. It seems that the Government will take a proactive stance in examining technology transactions where a foreign company's IP position may be a potential threat to ¡°state security¡±. Although the interpretation of ¡°state security¡± is not clear, it is widely believed that the Government wants Chinese shareholders to play a dominant role in industries in relating to ¡°the national economy and the people's livelihood¡±. Currently this includes such industries as telecommunications, natural resources and civil transportation. This is likely to make an IP owner wary of some technology transactions which may attract the attention of the Chinese Government, even though they may fall into the category of ¡°free for trade¡±.

The other area of interest will be the effect on licensing strategies of IP rights owners. The new law will ask whether an IP licensing restraint is likely to have an adverse effect on competition, and if so, whether the restraint is necessary to achieve competition benefits, or whether the efficiencies outweigh the adverse effects. A foreign market leader may find that it will be necessary to build up an ¡°evidence bank¡± to prove its purpose in some licensing agreements. Otherwise some terms and conditions in the licensing agreement, in particular those clauses designed to shape markets, may be considered to be restrictions on rightful competition.