Basic IP Principles of Antitrust Law

2010/12/16By Huang Yong, Director of the Centre for Competition Law, University of International Business and Economics,[Anti-Monopoly]

IP is considered the most effective tool to promote innovation. Law creates and protects intellectual property with the core purpose of endowing inventors with exclusive rights for their inventions in a certain period to motivate innovation. However, some traditional views hold that intellectual property is a legal monopoly right conferred by the state and this monopoly right would restrict competition. Therefore, the relationship between intellectual property and antitrust law is tensional and conflicting.
 
In a common law system, legislation abandons these traditional views, holding that both intellectual property and antitrust laws are to encourage innovation. For example, the Antitrust Guidelines for the Licensing of Intellectual Property issued by the U.S. Federal Trade Commission and the Department of Justice in 1995 pointed out: the common purpose of intellectual property and antitrust law is to encourage innovation and raise consumer welfare. In addition, intellectual property licensing is generally pro-competition and anti-trust law could analyze the rational principles for intellectual property licensing.
 
However, conflicts between intellectual property and antitrust law occur frequently in practice, the argument on "“patent pools” for instance.
 
A “patent pool” refers to licensing arrangements that two or more patent holders license their patents to each other or co-license their patents to a third party. A “patent pool” is usually established based on standardized products integrated with high-tech, such as the 3C DVD “patent pool”, 3G patent platform, etc. It can effectively solve the “Patent Thicket” problem, improve the efficiency of the patent licensing and promote technological innovation,Therefore; “patent pooling” is considered an important way to promote the application of new technologies.
 
However, a “patent pool” “goes bad” sometimes. It has become the tool to impede technological innovation and restrict competition for some companies and groups. For example, rivals may take advantage of “patent pool” to control the price or output of downstream products, which will hinder efficiency and destroy fair competition. When a “patent pool” is merely used for price control or market segmentation, the per se rule would apply. For another example, exclusive license or refusal to license caused by a “patent pool” may constitute boycott behavior. If “patent pool” members jointly monopolize the market, and the exclusive license or refusal to license prevent other competitors from effective competition in the relevant market, it might be against the law. In 2004, for example, China’s DVD companies filed an antitrust lawsuit against the 3C DVD “patent pool” of the United States, accusing the “patent pool” for price control, illegal tying, joint boycott and attempt to monopolize the market.
 
In view of the positive and negative impacts of “patent pools”, the U.S. Department of Justice and Federal Trade Commission jointly issued a report entitled “Antitrust Enforcement and Intellectual Property: Promotion of Innovation and Competition” in April 2007. The report stressed the application of rational principle: Given the apparent effectiveness and the potential anti-competitive effects of “patent pools”, the authorities would apply the rational principle to analyze “patent pooling.”
 
Concerning the relationship between intellectual property and antitrust law and regulatory principles, Article 55 of China’s Anti-monopoly Law sets principles to restrict the acts of IP abuse and competition elimination, “This law is not applicable to undertakings who exercise their intellectual property rights in accordance with the laws and administrative regulations on intellectual property rights. However, this Law shall be applicable to the undertakings that eliminate or restrict market competition by abusing their intellectual property rights.”
 
Though China’s antitrust law is still in its infancy, its attitude towards intellectual property has gained some objectivity and advancement. The antitrust law clarifies the consistency of intellectual property system and anti-trust law in the goal of promoting innovation. In the future, we should adhere to the following principles when applying antitrust law in the field of intellectual property:
 
First, acts of restricting competition with intellectual property should be treated under the framework of antitrust law. When intellectual property and anti-competitive acts are combined and cause damage to competition, the principles and methods of antitrust law rather than other IP laws should apply to make competition analysis. If intellectual property violations do not have impact on market competition, IP laws should apply instead of antitrust law.
 
Second, intellectual property licensing is conducive to promoting resource integration, improving efficiency and promoting innovation. Therefore, the rational principle should apply when analyzing acts of restricting competition involved with intellectual property. Application of rational principle requires a comprehensive analysis based on specific facts and consideration over the two factors including benefits of promoting competition and affects of limiting competition.
 
Third, expertise should be strengthened in the application of antitrust law in the field of intellectual property. China is stepping up efforts to develop the guidelines for antitrust law enforcement. The guidelines will clarify the relationship between intellectual property and antitrust law, basic principles for the application of antitrust law in intellectual property issues and specific operational rules on this basis, which will provide guidance for the enforcement of antitrust law in the field of intellectual property.
 
Fourth, the same standards should be adopted for both domestic and foreign business. Biased law enforcement for either side will affect the development of China’s technology import and innovation.
 
Lastly, the coordination between the antitrust law system and IP system should be strengthened. Antitrust and intellectual property protection is consistent in target, but has potential conflict or duplication in implementation. Therefore, from all aspects including legislation, adjudgement and law enforcement, interface and coordination of the two laws is essential. Since a “patent pool” is professional and technical, issues such as the definition of core patent, inflow and outflow mechanism, etc, are more suitable for the provisions of the patent law system.

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