Official: Balance needed between patent protection and monopolistic practices

The National Development and Reform Commission, one of the three agencies that deal with antitrust activity and investigations, is drawing up guidelines covering monopolistic conduct and the abuse of intellectual property rights, an official involved in the effort said on Thursday.

The Anti-Monopoly Committee of the State Council, the top antitrust supervisor, has ordered the NDRC to draw up the draft guidelines within one year, said the official, who attended the first preparatory meeting held on Wednesday.

The guidelines will affect IPR products and service providers, a broad group that includes the information technology and telecommunications industries, the medical sector, vehicles, machinery and seeds for the agriculture sector and other technology-intensive activities.

In April, the State Administration of Industry of Commerce, one of the three regulators, announced a set of rules collectively called the Prohibition of Abuse of IPR to Eliminate or Restrict Competition, which will take effect on Aug 1.

China's Anti-Monopoly Law is enforced by three agencies: the Ministry of Commerce handles merger provisions and the SAIC focuses on non-price-related activity, while the NDRC takes on pricing monopolies.

The NDRC's guidelines will carry the authority of the cabinet's Anti-Monopoly Committee, which will represent the three antitrust regulators. The SAIC's new rules will serve as the basis for those guidelines, said the NDRC official who requested anonymity.

"Patent protection is important for promoting innovation, but the abusive use of IPR is rampant worldwide. Meanwhile, excessive antitrust enforcement may also hurt innovation. It's important to strike a balance," he said.

Jessica Su, an antitrust scholar and associate professor at the Institute of American Studies at the Chinese Academy of Social Sciences, said the SAIC's rules address only the non-price-related abuse of IPR.

The NDRC's guidelines are expected to cover three major types of monopolistic conduct: IPR-related monopoly agreements, abuse of dominant market positions and business concentration. The latter occurs when a few companies overwhelmingly dominate an industry or activity.

China has stepped up its antitrust law enforcement in the past two years and many of the cases have been related to the abuse of IPR. The NDRC has been actively investigating antitrust cases in the IPR field over the past few years, including the investigations into InterDigital Inc and chipmaker Qualcomm Inc. The SAIC's antitrust investigations into Microsoft Corp also fall into this category.

Steve Harris, Washington-based partner of Winston & Strawn LLP, a global law firm, said that the intersection of antitrust regulations and IPR is a complex and controversial issue, not only in China but around the world.

According to Harris, the SAIC rules are in some ways consistent with the approaches taken to certain issues by antitrust agencies in some other large economies, but in a number of important respects, the rules differ in ways that raise serious concerns about the extent to which China's Anti-Monopoly Law may be used to lessen protections that patents and other IPR receive in most leading jurisdictions.

Antitrust laws have been implemented for many years in developed countries, and regulators in China could use other countries' experience as a guide, said Su.

As for the issue of multiple regulators, Zhu Jingwen, a Hong-Kong based partner of Winston & Strawn, said: "The jurisdiction issue once again goes back to the long-debated question of whether China's three antitrust enforcement agencies should merge into a single agency that would apply a singe uniform set of rules."

Nissan-Dongfeng JV 'facing penalties'

Nissan Motor Corp's joint venture with Dongfeng Motor Corp is facing an antitrust investigation and penalties are likely to be announced soon, according to sources close to the issue.

The National Development and Reform Commission's antitrust probe into the joint venture is in its final stages, two industry sources familiar with the case told China Daily.

An official with the NDRC declined to comment. But the official said that the NDRC will draw up guidelines to promote fair competition in the vehicle industry, based on the Anti-Monopoly Law.

The agency has done some research, but formulation of the guidelines has yet to start.

Deng Zhisong, an antitrust attorney with the Beijing-based Dacheng Law Office, said this document will constitute China's first industry-specific antitrust guidelines.

"Once the guidelines take effect, they could cause disruptive changes to the industry's business model," said Deng, but customers will benefit from increased competition and lower prices.

Since September, a number of global automakers and their dealers in China have been fined by the NDRC for fixing the prices of vehicles and replacement parts.

In the new-car and after-sales markets, the conduct of international automakers has frequently violated the nation's antitrust law, including its provisions on price-fixing, territorial restrictions and customer restrictions, said experts.

The latest case was Mercedes-Benz, a luxury car unit of Daimler AG, which was fined 350 million yuan ($57.1 million), a record for an individual vehicle company in China.

The NDRC fined FAW-Volkswagen Automobile Co Ltd 249 million yuan and it also fined eight Audi dealerships a total of 29 million yuan in September.

The China unit of Chrysler Group LLC was fined 32 million yuan and three of its dealerships were fined a combined 2 million yuan.

In August, 12 Japanese auto suppliers were fined a total of 1.24 billion yuan for manipulating prices.