Intellectual Property (IP) Protection Versus IP Abuses -

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Intellectual property (IP) protection versus IP abuses: Therecent development of Chinese IP abuse rules andrecommendations for foreign technology-driven companies

Yijun TianUniversity of Technology Sydney Law School, New South Wales, Australia

Keywords:Intellectual propertyIP abuseAntitrustIP commercializationChinaForeign investmentTechnology-driven company

a b s t r a c t

This paper will focus on the recent development of the Chinese IP abuse legislation and itspotential impact on IP protection and the operation of technology-driven foreign enter-prises in China. Firstly, it will provide a brief overview of the TRIPS’s requirements on IPRabuse and technology transfer, and the recent development of IP abuse laws at thedomestic level, particularly in the US and the EC. Secondly, by drawing a comparison withsimilar laws in the US and the EC, this paper will critically examine the recent developmentof the Chinese laws regarding technology transfer and IP abuse prevention, including boththe recently enacted Anti-Monopoly Law 2008 (AML) and other prior-AML regulations.Thirdly, the paper will examine both opportunities and potential risks these laws maybring to foreign IP holders/technology-driven companies when operating in China,particularly focusing on the impact of the IP-related provision in the AML. Recent devel-

opment in antitrust litigation in which Microsoft is a party, including the recent anti-monopoly investigation against Microsoft in China, will also be examined. Lastly, it willprovide some practical suggestions for foreign IP holders and technology-driven companiesto operate in China, such as useful defences against potential IP abuse claims, and otherstrategies for exibly applying the IP abuse rules and better participating in future IP abuselegislative process in China.

ª 2009 Dr. Yijun Tian. Published by Elsevier Ltd. All rights reserved.

1. Introduction

The World Development Report 1999 stated:

For countries in the vanguard of the world economy, the balancebetween knowledge and resources has shifted so far towards the former that knowledge has become perhaps the most important factor determining the standard of living – more than land, than

tools, than labour. Today’s most technologically advanced econ-omies are truly knowledge-based .1

Along with advances in technology we have entered an eraof the ‘knowledge economy’. Knowledge, education, andintellectual capital are no longer exogenous factors that falloutside our economic system. As Stanford economistProfessor Paul Romer described in his New Growth Theory,

1 Ernst & Young, The Knowledge Economy (1999) Ministry of Economic Development, New Zealand, http://www.med.govt.nz/pbt/infotech/knowledge_economy/knowledge_economy-04.html ; at 2 November 2008.

av a i l ab l e a t www.sc i enced i r ec t . com

ww w.co m pse con l i ne . co m /pub l i c a t i ons / p ro dc l aw.h t m

0267-3649/$ – see front matter ª 2009 Dr. Yijun Tian. Published by Elsevier Ltd. All rights reserved.doi:10.1016/j.clsr.2009.05.005

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‘knowledge’ has become the ‘basic form of capital’ and ‘thethird factor of production in leading economies’. 2 ‘Economicgrowth’ is now driven more by the ‘accumulation of knowl-edge’. 3 Thus, the circulation and distribution of knowledge,including the transfer of technology, becomes an increasinglyinuential factor in economic growth. This consequently justies the ‘fundamental and catalysing role’ of Intellectual

Property Rights (IPRs) in the current knowledge economy,since IP rules can directly determine the manner of knowledgedistribution, the cost of using intellectual resources, andpublic access to technology and a variety of intellectualresources generally. 4 As one commentator pointed out, IPRsconstitute the ‘legal foundation’ upon which the ‘globalknowledge-based economy’ is built. 5

However, overly strong IP protection may trigger the expan-sion of monopoly power of IPR holders. This may limit the pub-lic’s rights to access information and technology, limit thepublic’s enjoyment of intellectual products, and adverselyimpact on scientic research and the application of new tech-nology. 6 In particular, monopoly pricing makes some informa-tion and other IP products no longer affordable for some publicusers, researchers and late comers to the IPR market, andconsequently represents a deterrent to further creation orinnovation. Thus, it is important to coordinate the relationshipbetween IP laws and antitrust laws, and to make them work inharmony to enhance the efcient transfer of technology, inno-vation,andthesustainablegrowthofnationaleconomicactivity.

In fact, the interrelationship between IP and antitrust lawsand their impact on the transmission of advances in tech-nology and innovation has been one of the central issues ininternational IP debates for many years. In the current IPexpansion environment, the laws on IP abuse prevention andtechnology transfer are playing an increasingly important rolein striking a sound balance between economic freedom andthe protection of competition, and ensuring IPR holders andtechnology-driven companies to commercialize their IPRs inan appropriate and sustainable way.

The Agreement on Trade-Related Aspects of Intellectual PropertyRights (TRIPS Agreement), as one of most important

international IP treaties, has set preventing the ‘abuse of Intellectual Property Rights’ and enhancing ‘internationaltechnology transfer’ as one of its key principles. 7 The TRIPSAgreement explicitly provides that the World Trade Organiza-tion (WTO) member states may adopt any appropriatemeasures to prevent the ‘abuse of IPRs’ and any conducts thatunreasonably restrains trade or the transfer of technology

internationally. 8

China isan important member of the WTO with nearly one-quarter of the world’s population. It has become one of thefastest growing economies in the world. 9 China’s GDP rose to$7.8 trillion in 2008, and its economy has become the ‘second-largest economy in the world after the U.S.’ – measured ona purchasing power parity (PPP) basis. 10 Any international IPcommercialization, anti-monopoly or IP abuse preventionstrategy cannot afford to simply ignore a nation with suchamarket.However,untilnow,fewstudieshavebeendonetotheChinese legislative regime on IP abuse and technology transfer.

2. Requirement under TRIPS and majorforms of IP abuses

The TRIPShas been the most signicant development in theinternational IP arena in the twentieth century and an‘ineluctable consequence of increased global economic inter-dependence’. 11 It is often deemed a compromise betweendeveloping and developed nations in international tradenegotiation. Developing nations promise to provide strong IPprotection to foreign IP products. In return, developed nationspromise to provide concessions to developing nations inlabour-intensive industries, such as agriculture and textiles. 12

In response to development concerns, Articles 7 and 8 of the TRIPSlay down the important principles and objectives of the Agreement. Article 7 requires that the protection andenforcement of IPRs should ‘contribute to the promotion of technological innovation and to the transfer and dissemination of technology’, the enhancementof ‘social andeconomic welfare’,as well as a sound balance of rights and obligations of

2 Ibid. As the commentators noted, ‘[f]or the last two hundredyears, neo-classical economics has recognised only two factors of production: labour and capital’ and ‘[k]nowledge, productivity,education, and intellectual capital were all regarded as exoge-nous factors that is falling outside the system’. The article alsointroduced the differences of Romer’s theory and neo-classicaleconomic theory. Ibid.

3 Ibid. See also WTO, Intellectual Property: Protection and Enforce-ment, para 1 at http://www.wto.org/english/theWTO_e/whatis_e/tif_e/agrm7_e.htm ; at 2 November 2008. (stating: ‘[i]deas andknowledge are an increasingly important part of trade. Most of the value of new medicines and other high technology productslies in the amount of invention, innovation, research, design andtesting involved’).

4 See Drahos, Peter, ‘Intellectual Property Rights in the Knowl-edge Economy’ in David Rooney (ed), Handbook on the KnowledgeEconomy (2005) 139, 140 http://cgkd.anu.edu.au/menus/PDFs/Rooney%20Chapter%2011.pdf at 2 November 2008.

5 Chartrand, Harry Hillman, Copyright & the New World EconomicOrder (1999) Intellectual Property Law Server http://www.intelproplaw.com/Copyright/Forum/msg/498.shtml at 8 March2009.

6 Tian, Yijun. Re-thinking Intellectual Property (2009) , at 73.

7 See the TRIPS Agreement, Arts 7–8.8 See the TRIPS Agreement, Art 8.2.9 Jones, Paul. ‘‘Licensing in China: The New Anti-Monopoly Law,

The Abuse of IP Rights and Trade Tensions,’’ XLIII (2) les Nouvelles: Journal of the Licensing Executives Society International 106 (June,2008) (stating that the AML is widely described by Chinese of-cials and academics as China’s ‘‘Economic Constitution’’).

10 CIA. (5 March 2009). China. The World Factbook, at https://www.cia.gov/library/publications/the-world-factbook/print/ch.html at 10March 2009.

11 See Okediji, Ruth L. ‘Back to Bilateralism? Pendulum Swings inInternational Intellectual Property Protection’ (2003–2004)1University of Ottawa Law & Technology Journal 125 , 127. Manycommentators regarded the TRIPS Agreement as ‘the highestexpression to date of binding IP law in the international arena’.See Lovoi, Jeanmarie, ‘Note: Competing Interests: Anti-PiracyEfforts Triumph Under TRIPS But New Copying TechnologyUndermines The Success’ (1999) 25 Brooklyn Journal of InternationalLaw 445, 461.

12 See Schiappacasse, Mikhaelle. ‘Intellectual Property Rights inChina: Technology Transfers and Economic Development’ (2004)2 Buffalo Intellectual Property Law Journal 164, 171.

c o m p u t e r l a w & s e c u r i t y r e v i e w 2 5 ( 2 0 0 9 ) 3 5 2 – 3 6 6 353

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http://www.intelproplaw.com/Copyright/Forum/msg/498.shtml


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producers and users of technological knowledge. 13 Moreover,Article 8 of the TRIPSexplicitly provides:

Appropriate measures, provided that they are consistent with the provisions of this Agreement, maybe needed to prevent theabuseof intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect

the international transfer of technology.

It is clear that this article allows member states to adoptanymeasures theythink appropriate to prohibit IPRabuse andany other conduct that may unreasonably restrain trade orinternational technology transfer. 14 As a United Nations studyhas pointed out, this article to a large extent reects the viewof many developing countries, such as India, during theUruguay Round negotiations, that a ‘main objective of TRIPSshould be to provide mechanisms to restrain competitive abusesbrought about by reliance on IPR protection’.15

This maybe thersttime that theterm ‘abuse of IntellectualProperty Rights’appearsin an international agreement. It is alsothe rst time that the international community put ‘IP abuse’,‘innovation promotion’, ‘anti-competition’ and ‘technologytransfer’ issues altogether in one international document.

The TRIPS Agreement also includes specic provisions onanti-competitive matters. For instance, Article 31 specied theconditions for compulsory licensing of patents as parts of measures to remedy anticompetitive practices. Moreover,TRIPS includes a special section on the ‘control of anticom-petitive practices in contractual licences’, which focuses onanticompetitive licensing practices and conditions thatrestrain trade. 16 Article 40 of TRIPS imposes an obligation onmember states to act on ‘licensing practices or conditionspertaining to IPRs, which restrain competition’ if they ‘haveadverse effects on trade and may impede the transfer anddissemination of technology’. 17

It is clear that these provisions have a narrower scope of application than Article 8. They contain rules which, withhave regard to only some of the conduct of IPR holders that islisted in Article 8, and may establish obligations on memberstates that are not mandated by Article 8. As some commen-tators have observed, the TRIPS Agreement has not placedsignicant limitations on the authorityof WTOmember statesto ‘take steps to control anticompetitive practices’. 18 Forexample, the TRIPS Agreement does not limit the remedialmeasures that each member state may impose. In addition to‘compulsory licensing’, member states may apply otherremedies against antitrust infringement, such as injunction,damages and nes. 19 Since the TRIPS Agreement only sets upgeneral principles for dealing with IP abuse, anticompetitive

activities and technology transfer issues, it mainly relies onmembers’ states themselves to make specic law and policiesto ‘dene the concept of abuses through appropriate domesticmeasures’ 20 and to regulate the activities of IPR holders whencommercializing their IP products/services.

It is clear that the scope of IP abuse under Article 8 of theTRIPS Agreement is very broad. As the United Nations TRIPS and

Development Resources Bookhas recognised, member states mayconsider conduct of IPR holders to be abusive ‘ regardless of whether the enterprise in question dominates the market ornot, and regardless ofwhether there is an anticompetitiveuse orsimply a use of an IPR which defeats its purpose, e.g., thepurpose of innovation or of dissemination of technology’. 21 Inthe other words, it is not limited to prohibitions under theantitrust law (i.e. abuse of dominant market position), but maycover any ‘illegitimate use of IP’ which is ‘contrary to the basisand/or the objectives of IPR protection’. 22 There are varioustypes of IP abuse, such as using IP lawsuits as a tool againstcompetitors, using IP licensing agreements against newentrants to the market, and using contract law to expand thescope or term of IPR protection. 23 However, most existing legislationandlegalguidelinesmainlyfocusesonrestraintsofIPlicensing arrangements, and technology transfer issues.

Although it is the idea of developing countries’ to includeprovisions for prohibiting IPR abuse and promoting tech-nology transfer as part of the objectives and principles of TRIPS,24 regulators in most developing countries have notdeveloped sophisticated laws and policies to enforce antitrustlaw in IP areas. In fact, some countries, such as China, haveonly set up their antitrust laws recently. By contrast, indeveloped countries, particularly in the US and the EU,sophisticated laws and policies on coordinating the relation-ship between IP and antitrust laws and enhancing technologytransfer have developed over the past two decades.

For example, in Europe, the Europe Commission (EC) issuedits rst united Technology Transfer Block Exemption Regulation –Commission Regulation 240/1996 (‘TTBER 1996’) – in 1996 whichprovide a general guideline on how to apply anti-competitionprovisions of the Treaty of Rome to certain categories of tech-nology transfer agreements. 25 The EC conducted a regulatoryreview on the application effects of the TTBER 1996and enactedits New Technology Transfer Block Exemption Regulation (‘TTBER

13 See TRIPS Agreement, Art 7.14 See TRIPS Agreement, Art 8.2.15 UNCTAD-ICTSD, Resource Book on TRIPS and Development, at

page 127 at http://www.iprsonline.org/unctadictsd/ResourceBookIndex.htm at 16 December 2008.

16 TRIPS Agreement, Sec 8, Art 40.17 TRIPS Agreement, Sec 8, Art 40.1. See also TRIPSResource Book,

at 554.18 UNCTAD-ICTSD,Resource Book,above n 15, 128.19 Frederick M. Abbott, Are the Competition Rules in the WTO TRIPS

Agreement Adequate? , 7 J Int’l Econ. LNo. 3, 2004, at 693.

20 UNCTAD-ICTSD,Resource Book,above n 15, 548.21 Ibid.22 Ibid.23 Gilbert, Richard & Shapiro, Carl. ‘Antitrust Issues in the

Licensing of Intellectual Property: The Nine No-No’s Meet theNineties’ at http://faculty.haas.berkeley.edu/shapiro/ninenono.pdf at 10 December 2008, 307–332. (summarized some anti-com-petitive licensing practices).

24 UNCTAD-ICTSD, Resource Book, above n 15, 543 (introducing negotiation history of article 8).

25 Commission Regulation (EC) No 240/96 of 31 January 1996 on theapplication of Article 85(3) of the Treaty to certain categories of tech-nology transfer agreements (OJ L 31, 9.2.1996, p. 2), (TTBER 1996).


http://www.iprsonline.org/unctadictsd/ResourceBookIndex.htm


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2004’) –Commission Regulation 123/2004 – inApril2004, 26 in orderto simplify the TTBER 1996 and to improve the certainty of application of IP licensing agreements. In the US, the U.S.Department of Justice (DOJ) issued a ‘‘watch list’’ forprohibiting anticompetitive restraints in patent licensing agreements inthe 1970s. 27 Moreover, in April 1995, the DOJ and the FederalTrade Commission (FTC) enacted a jointed document Antitrust

Guidelines for the Licensing of Intellectual Property (the Guidelines1995), which provides some general approaches (such as Ruleof Reason Approach) and principles for determining IP-relatedmonopolistic activities. 28 In 2007, the DOJ and FTC issueda more detailed document – Antitrust Enforcement & IPRs:Promoting Innovation and Competition (hereinafter ‘ the Report2007’) in order to facilitate the understanding andapplicationof the 1995 Guidelines and to improve the degree of certaintyinvolved in IP licensing arrangements.

The legislative experiences of the US and EC are arguablyvery valuable for developing countries that do not havesophisticated legal experiences in enforcing antitrust laws inIPR areas, such as China. Thus, when examining the devel-opment of the Chinese IP abuse and technology transfer laws,it is necessary to compare with the existing IP licensing andtechnology transfer regulations in the EC and the US.

3. Recent developments in IP abuse andtechnology transfer laws in China

As noted above, China is the second-largest economy in theworld and has nearly one-quarter of the world’s population.China, as a new rising economy, does not need to worry aboutthe issue – ‘locked by old technology’. Thus, any internationalenterprises, particularly technology-driving companies,cannotafford to simply ignore a nation with such a big market. It isimportant for foreign IPR holders and technology-drivencompanies to have a sound understanding of the Chinese lawson technology transferandIP abuse in orderthattheycanavoidpotential legal risk and commercialize their IPRs in an appro-priate way.

AfterChina entered theWTO in 2001 it sped up its efforts tobecome a part of the international IPR community, andenacteda number of laws andother regulations on technologytransfer, anti-competition and IP abuse prevention. Inparticular, the last 12 months have seen China enact its rstantitrust law – Anti-Monopoly Law 2008 (AML).In line with the

requirements of Article 8 of the TRIPS Agreement, the AMLincludes a special article on IP protection and IP abuseprevention (Article 55). It is the rst time that China hasexplicitly included the term – ‘the abuse of intellectual prop-erty rights’ – in its domestic law. Nevertheless,in order to havea comprehensive picture on the development of China’slegislation on technology transfer and IP abuses, it is impor-

tant to examine both the AML and prior-AML laws and regu-lations on technology transfer and IP abuses. Both the AMLand non-AML laws are currently valid, and serve as importantcomponents of the current Chinese IP Abuse regime.

3.1. Non-AML laws

Before the AML came into effect, a small range of domesticlaws in China contained certain provisions on technologytransfer and various forms of ‘IP abuse’. 29 General speaking,prior to the AML, provisions focused on IP abuse could befound in four groups of laws and regulations. These were

contract law, foreign trade law, anti-unfair competition law,and intellectual property law.

3.1.1. Contract laws 1999 and interpretation 2005 versusnine No-NosThe legal group of laws involve the laws on contract. TheContractLaw1999 containedsomespecicprovisionsonIPabusecaused by technology/technology transfer contracts. It explic-itly provided that any technology contract, which ‘ illegallymonopolizes technology, impairs technological progress/advancementor infringes onthetechnologyofathirdparty,wouldbeinvalid’. 30

Itfurtherprovidedthatthescopeofthepatentexplorationortheuse of the technical secret by the transferor and the transferee,

which is set forth in technology transfer contracts, should not‘restrict technological competition and technological development ’.31

The Contract Law 1999 arguably reected the concerns on IPabusecausedbytechnologycontracts,butitwastoogeneralandhasnot providedspecic provision orstandards fordetermining whether a technological contract has ‘illegally monopolizedtechnology or impaired technological progress ’.

Six years later, in the Interpretation of theSupreme People’sCourt Concerning Some Issues on Application of Law for theTrial of Cases on Disputes over Technology Contracts, whichcame into force in January 2005 (hereinafter the ‘Interpretation2005’),32 the Supreme People’s Court listed six specic circum-stances/situations which would be deemed as ‘illegally

monopolizingtechnologyand impairing technologicalprogress’in Article 329 of the Contract Law 1999, including: 33

26 See European Union’s new Technology Transfer Block ExemptionRegulation (‘‘TTBER 2004’’) (Commission Regulation (EC) No. 772/2004of 27 April 2004 on the application of Article 81(3) of the Treaty tocategories of technology transfer agreements , OJ No. 123, 27.04.2004)OJ L 123, 27.4.2004, at 11–17.http://europa.eu/scadplus/leg/en/lvb/l26108.htm The TTBER 2004replaces Commission Regulation (EC) No240/96 of 31 January 1996 on the application of Article 85(3) of theTreaty to certain categories of technology transfer agreement s (OJ L 31,9.2.1996, p. 2).

27 See Robert C. Lind, Anya V. Kleymenova, Marie Miauton andPaul Muysert., Report on Multiparty Licensing, Charles River Asso-ciates Ltd. 22 April, 2003, at page 23.

28 U.S. Department of Justice (DOJ) & the Federal TradeCommission (FTC), Antitrust Guidelines for the Licensing of Intellec-tual Property , April 6, 1995, at http://www.usdoj.gov/atr/public/guidelines/0558.htm at 10 December 2008.

29 Zhang Hui, Gao Guozheng and Guo Bingna, ‘Impacts of theChinese Anti-Monopoly Law on Intellectual Property: MoreExpectation?’ In China IP Law Website at http://www.chinaiprlaw.cn/le/2008080213416.html at 12 December 2008.

30 Contract Law of the People’s Republic of China 1999 (Contract Law1999), see section 329, at http://www.lehmanlaw.com/resource-centre/laws-and-regulations/contract.html at 12 January 2009.

31 Contract Law 1999 , section 343.32 Chinese title of the document:

.33 See the Interpretation of the Supreme People’s Court concerning

Some Issues on Application of Law for the Trial of Cases on Disputesover Technology Contracts 2005 (‘Interpretation 2005’), section 10.


http://europa.eu/scadplus/leg/en/lvb/l26108.htm


http://www.usdoj.gov/atr/public/guidelines/0558.htm


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1) Restricting one party from making new research and devel-opment on the basis of the contractual subject technology;

2) Restrictingoneparty fromobtaining similartechnologyfromcompetitors of the technology provider in the contract;

3) Restricting the technology accepter from reasonablyexploring/commercializing the contractual subject tech-nology (including unreasonable restrictions on the quantity,

varieties, price, sales channel or export market of thecontractual subject technology);

4) Restricting the technology accepter to accept attached condi-tions dispensable for exploiting the technology ( including purchasing dispensable technologies , raw materials, products,equipment, services or accepting dispensable persons);

5) Unreasonably restricting the channels or origins for thetechnology accepter to purchase raw materials, parts andcomponents, products or equipment, and so forth;

6) Prohibiting the technology accepter from making objectionsto the effectiveness of the IP of the contractual subject tech-nology, or attaching conditions to the objections made’.

It is clear that the approach of the list adopted in the interpretation 2005 is quite similar with the approach that the USadopted in its Patent Licensing regulation in the 1970s. In ordertobetter facilitate theapplicationof theantitrust lawin IPareas,in the 1970s the US Antitrust Division of the Department of Justice announced a ‘‘watch list’’ of nine specied licensing practices that would be viewed as anticompetitive restraints of trade in licensing agreements, including patent pools. They areoften referred to as the ‘‘Nine No-No’s’’: 34

1) Royalties not reasonably related to sales of patentedproducts;

2) Restraints on licensees’ commerce outside the scope of thepatent (tie-outs);

3) Requiring the licensee to purchase unpatented materialfrom the licensor (tie-ins);

4) Mandatory package licensing;5) Requiring the licenseeto assign to the patentee patentsthat

may be issued to the licensee after the licensing arrange-ment is executed (exclusive grant backs);

6) Licensee veto power over grants of further licences;7) Restraints on sales of unpatented products made with

a patented process;8) Post-sale restraints on resale; and9) Setting minimum prices on resale of the patent products.

The DOJ intended to apply specic regulations to preventpatent holders from ‘extending their patent monopolies tounpatented supplies’, such as the control over furtherimprovements of their innovations, price determination, andthe control over market allocations. 35 This ‘specic listing’

approach was easy to understand and enforce. But manycommentators criticized that the list was overly ‘specic’ andunnecessary, and some provisions on the list have never beenused. 36 They argued that most Patent licensing arrangementshave pro-competitive effects and claimed that ‘unconstrainedpatent licensing increases the value of patents and encourageslicensing and innovation’. 37

Since the in the Interpretation 2005 adopteda listing approachwhich is similar with that of the US-Nine-No-No’s regulation, itwould arguably import both advantages and disadvantages of this approach. Like the US regulation, the provisions in theInterpretation 2005 are relatively specic and easy to apply, butthey mainly focus on the rights and obligations of the partieswithin technology contracts, particularly the protection of thetechnology accepters (assignees/licensees). They have not paidmuch attention to the impacts of the technology owners’behaviour on other competitors (non-licensees), and how thesecompetitors’ rights in the market can be protected. Neither theNineNo-No’s regulation nor the Interpretation 2005 has providedany exemptions or immunity for reasonable licensing arrange-ments, which have been included in the prohibition lists butmay have pro-competitive effects. Moreover, none of themprovided a detailed guideline on how to determine whether anact of IPR holder has ‘ restrict[ed] technological competition andtechnological development ’, or provided a general approach fortheir agencies to evaluate or determine the IP-abuse conducts.Thus, they have failed to strike a sound balance between pre-venting monopolistic activities and improving the legalcertainty for the use of IP licenses.

3.1.2. Foreign trade law versus EU regulation 2004The second group is the law and regulation related to foreigntrade. Trading with foreign countries has provided an impor-tant opportunity for China to engage with the broader inter-national community, and to better understand internationallegal practices. Thus, it is not surprising that many importantlegislative attempts often initiate from foreign trade lawareas. This includes legislative attempts addressing tech-nology transfers and IP licensing issues. In particular, afterChina’s access to the WTO in 2001, remarkable progress wasmade in improving its legal regime, including its laws onforeign trade, technology transfers, and competition. 38

The Regulations on Technology Import and Export Administra-tion of the People’s Republic of China 2002 (hereinafter the

34 See Lind, Kleymenova, et al., above n 27, 23.35 Gilbert & Shapiro, above n 23.

36 Ibid, 286. Gilbert and Shapiro further state: ‘In actuality, of thesixteen cases led by the division’s Intellectual Property Sectionbetween the late 1960s and the late 1970s, only half specicallyaddressed any of the nine practices. Moreover, almost all of thesecases were litigated under a rule of reason rather than per seillegality’.

37 Ibid.38 These legislative efforts have also been recognized by the U.S.

government. The USTR, in its 2004 Report to Congress on China’sWTO Compliance, stated: ‘China has undertaken substantialefforts in this regard, as it has revised or adopted a wide range of laws, regulations and other measures. While some problemsremain, China did a relatively good job of overhauling its legalregime.’ See USTR, 2004 USTR Report to Congress on China’sWTO Compliance, 4, http://www.ustr.gov/assets/Document_Library/Reports_Publications/2004/asset_upload_le281_6986.pdf ; at 10 January 2009, at 5.


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Regulations 2002) 39 may be the rst regulation in China whichdeals with illegitimate restraints in technology contracts.Article 29 of the Regulation 2002 explicitly lists seven types of restrictive clauses that a technology import contract shall notcontain. 40 Most of these clauses have been adopted by thelater Interpretation 2005 (introduced above) to interpret thespecic circumstances/situations of ‘ illegally monopolizing

technology and impairing technological progress ’ under Article 329of the Contract Law 1999 .41

Moreover, in compliance with the TRIPS Agreement, theamended Foreign Trade Law 2004 includes a special chapter on‘Foreign-trade-related IP protection’. 42 Article 30 of the lawexplicitly prohibited any of three acts committed by IPRholders: (1)hindering the licensee from questioning the validityof the IPR involved in the license agreement; (2) conducting forced package licensing; or (3) providing exclusive sale backconditions in the license agreement, etc. and, at the same time,endangering the fair competition order of foreign trade. 43

Generally speaking, these provisions 44 are similar with thecounterparts of the EC’s new Technology Transfer Block Exemp-tion Regulation of April 2004 (‘‘TTBER 2004’’).45 The TTBER 2004set up its strict restrictions prohibiting: (1) exclusive grant-back obligations of a licensee’s own severable improvements;(2) no-challenge clauses in respect of the validity of the IPRsand (3) restrictions on the licensee’s ability to exploit its own

technology or on its ability to develop new technology (wherethe license is granted to a non-competitor). 46

Moreover, the EC has noted that, in most cases, technologylicensing agreements ‘have positive effects that outweigh theirrestrictive effectson competition’. 47 Thus, the TTBER 2004setsup new ‘block exemption’ provisions in order to strike a soundbalance between the IPR protection and the protection of competition and to create ‘an area of certainty for mostlicensing agreements’. 48 The EC also enacted a very detailedTTBER Guideline 2004 to facilitate the implementation theTTBER 2004, which includes both general approaches andspecic examples for helping agencies to determine IP abuseand monopolistic activities. 49

By contrast, neither the Regulation 2002 nor the Foreign TradeLaw 2004 has provided any useful exemptions for activities ontheir licensing practice prohibition lists. It does not seem thatthe pro-competitive effects of certain restraint arrangementsin technology licensing agreements has been recognized andreected in these legislations. Moreover, none of themprovided any EC-style detailed guidelines for facilitating theunderstanding and application of these prohibitions either.

3.1.3. Anti-unfair competition versus antitrust lawThe third group is anti-unfair competition law. The Anti-unfairCompetition Law of the People’s Republic of China 1993 includessome general provisions on ‘tying’ arrangement. It explicitly

39 The Regulations of the People’s Republic of China on Administrationof Import and Export of Technologies have been adopted by the 46thRegular Meeting of the State Council and are hereby published.These Regulations shall be implemented starting from January 1,2002 (‘Regulation 2002’), at http://www.lehmanlaw.com/resource-centre/laws-and-regulations/contract/regulations-on-technology-import-and-export-administration-of-the-peoples-republic-of-china-2002.html at 12 January 2009.

40 Article 29 of the Regulation 2002 provides:A technology importcontract shall not contain any of the following restrictive clauses:

(1) Requiring the receiving party to accept any additional condition

unnecessary for the technology import, including buying anyunnecessary technology, raw material, product, equipment orservice;

(2) Requiring the receiving party to pay exploitation fee fora technology when the term of validity of the patent right inwhich has expired or the patent right of which has beeninvalidated, or to undertake other relevant obligations;

(3) Restricting the receiving party from improving the technologysupplied by the supplying party, or restricting the receiving party from using the improved technology;

(4) Restricting the receiving party from obtaining technologysimilar to that supplied by the supplying party from othersources or from obtaining a competing technology;

(5) Unduly restricting the receiving party from purchasing rawmaterial, parts and components, products or equipment from

other channels or sources;(6) Unduly restricting the quantity, variety, or sales price of the

products the receiving party produces; or(7) Unduly restricting the receiving party from utilizing the

channel for exporting products manufactured using theimported technology.

41 See Interpretation 2005, section 10.42 See Foreign Trade Law 2004 , Chapter V Foreign-trade-related

Intellectual Property Protection.43 Foreign Trade Law, article 30, [Chinese and English] at http://

www.seabay.cn/freightknowledge/20050615/1968347.html at 12 January 2009. See also English version at http://www.lehmanlaw.com/resource-centre/laws-and-regulations/foreign-investment/foreign-trade-law-2004.html at 12 January 2009.

44 Provisions in the Foreign Trade Law 2004 , the Regulations 2002and the Interpretation 2005.

45 See European Union’s new Technology Transfer Block ExemptionRegulation (‘‘TTBER 2004’’) (Commission Regulation (EC) No. 772/2004of 27 April 2004 on the application of Article 81(3) of the Treaty tocategories of technology transfer agreements , OJ No. 123, 27.04.2004)OJ L 123, 27.4.2004, at 11–17.http://europa.eu/scadplus/leg/en/lvb/l26108.htm at 12 January 2009. The TTBER 2004replaces Commis-sion Regulation (EC) No 240/96 of 31 January 1996 on the application of Article 85(3) of the Treaty to certain categories of technology transferagreements (OJ L 31, 9.2.1996, p. 2).

46 See TTBER 2004, Article 5, Section 1(a) (b) (c) and Section 2. Seealso Jones, ‘Licensing in China’, above n 9 at 14 (providing a summary of core prohibition provisions in the TTBER 2004).

47 The EC ofcial website explicitly states: ‘Such agreements willusually improve economic efciency and be pro-competitive asthey can reduce duplication of research and development,strengthen the incentive for the initial research and develop-ment, spur incremental innovation, facilitate diffusion andgenerate product market competition.’ See EUROPA, Technologytransfer agreements at http://europa.eu/scadplus/leg/en/lvb/l26108.htm at 12 January 2009.

48 Ibid. See also TTBER 2004, Arts 4, Ss 1(c) and 2 (b). See alsoCommission Notice – Guidelines on the application of Article 81 of the ECTreaty to technology transfer agreements [Ofcial Journal C 101 of 27.04.2004] (TTBER Guideline 2004 2004 2004). http://europa.eu/scadplus/leg/en/lvb/l26108.htm at 12 January 2009.

49 See TTBER Guideline 2004 at 2–42. The TTBER Guideline 2004provides very detailed instructions on applications of the TTBER2004 and Art 81 of the EC Treaty in general.






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prohibits sellers from selling products to consumers by forcing themto purchaseadditionalproducts that theyare unwilling topurchase, or by imposing unreasonable conditions. 50 It is note-worthy that, as somehave commentatorspointedout,the Anti-Unfair Competition Law in China does ‘not deal with matterspertaining to antitrust issues’ (such as the abuse of dominantposition), 51 but mainly focuses on maintaining a sound market

order and protecting the rights of managers and consumers. 52

More details on China’s recent development in antitrust laws –i.e. Anti-Monopoly Law 2008 – will be discussed later.

3.1.4. Patent misuseThe last group is IP law. Like patent laws in other countries, theChinese Patent Law 2000 contains some general provisions on‘compulsory licensing’ as one of the possible remedies for IPabuse. 53 The Patent Law 2000 allows any applicant, which isqualied to exploit the invention or utility model, to makerequestsfor ‘authorization fromthe patenteeof an invention orutilitymodel toexploitits orhispatentonreasonable terms’. 54 If an applicant has not been successful in obtaining the relevantauthorization within a reasonable period of time, upon theapplication of the applicant, the patent administrative depart-ment of theState Council may grant theapplicanta compulsorylicense to exploit the patent for invention or utility model.

It is also noteworthy that the Patent Law 2000 was recentlyamended, and the Patent Law 2009 further claries and revisedthe requirements on compulsory licensing. Article 50 of thePatent Law 2009 entitles the State Intellectual Property Ofce(SIPO) to grant a compulsory license in three circumstances:

1) The patentee’s exploitation of the patented technology isfound to be insufcient within a prescribed timeframe;

2) The patentee’s exploitation of the patented technology isfound to be eliminating or restricting competition; or

3) The application is for the making and exportation of a patented medicineto certaincountriesandregions forthebenet of public health in accordance with internationaltreaties. 55

However, like other regulations introduced above, the newpatent law has not provided specic guidelines on the appli-cation of ‘compulsory licensing’ provisions, such as how todetermine ‘elimination or restriction of competition’.

3.1.5. Summary: achievements and limitationsIn summary, the provisions in the existing Chinese laws(prior-AML laws) have covered some major forms of IP abuseactivities, such as monopoly pricing, restrictions on thenumber of products, market division, cross-licensing andpatent cooperation agreements, exclusive provisions (i.e.provisions to prevent licensees from questioning the validityof the IP in licensing agreements, and provisions to prohibitcompulsory licensing), tying sales and so forth. 56

However, they do have their limitations. Firstly, the legis-lation is either too general or too narrow. Some only providegeneral requirementson prohibitedIP licensing arrangements,such as Foreign Trade Law and Patent Law , but fail to providedetailed guidelines to explain howto applythese requirementsin practice. Some only focus on very narrow subject matter orsingleformsofIPabuse.Forexample,the ContractLaw1999 andthe Regulation 2002 mainly focus on the protection of tech-nology accepters in technology contracts or technologyimporting contracts. The Anti-Unfair Competition Law onlyfocuseson tying sale.Unlike the counterparts in the US and EUlaws,they havedistinguished licensing transactionsthat occurbetween competing and non-competing undertakings. 57

Secondly, they have failed to explain the general approach thatthe competent agencies employ in their evaluations of licensing agreements under the applicable antitrust law, andthe way that they determine IP abuses. Thirdly, none of themprovides the immunity forthe licensing arrangements that areon the prohibition lists but have pro-competitive overweightanti-competitiveeffects.Consequently, theyhave arguablynotstrucka sound balancebetween IP licensees andlicensers, andhave notcreated sufcientlegalcertainty forthe application of

50 It is noteworthy that, as some foreign practitioners haveobserved, ‘the Anti-Unfair Competition Law in China does notdeal with matters pertaining to antitrust issues, but as the marketdevelops in China, it is likely to gain importance’. See LEHMAN,What is the situation between IPRs and unfair competition in China? athttp://www.lehmanlaw.com/resource-centre/faqs/intellectual-property/general-ip/what-is-the-situation-between-iprs-and-unfair-competition-in-china.html at 12 December 2008.

51 Ibid.52 See Anti-unfair Competition Law of the People’s Republic of China

1993, Article 1. (Providing ‘This law is drawn up in order to safe-guard the healthy development of the socialist market economy,encourage and protect fair market competition, prohibit unfaircompetition, safeguard the legal rights and interests of managersand consumers’).

53 See Patent Law of the People’s Republic of China (2000 Revision)(Adopted at the 4th Session of the Standing Committee of theSixth National People’s Congress on March 12, 1984, Articles 48and 49. Article 48: Where any entity which is qualied to exploitthe invention or utility model has made requests for authoriza-tion from the patentee of an invention or utility model to exploitits or his patent on reasonable terms and such efforts have notbeen successful within a reasonable period of time, the patentadministrative department of the State Council may, upon theapplication of that entity, grant a compulsory license to exploitthe patent for invention or utility model. Article 49: Wherea national emergency or any extraordinary state of affairs occurs,or where the public interest so requires, the patent administra-tive department of the State Council may grant a compulsorylicense to exploit the patent for invention or utility model.

54 Patent Law 2000, Article 48.

55 Patent Law 2009, Article 50. Granting a compulsory license‘‘for the making and exportation of a patented medicine tocertain countries and regions for the benet of public health inaccordance with international treaties’’ is a newly introducedcircumstance, which the old law does not have. See also, Zeldin,Wendy. ‘China: Major Amendment of Patent Law’, in Law Libraryof Congress: News and Events, 27 Feb 2009, at http://www.loc.gov/lawweb/servlet/lloc_news?disp3_1059_text at 12 March 2009.

56 Zhang, Gao and Guo, above n 29.57 For example, the TTBER 2004 distinguished licensing trans-

actions that occur between competing and non-competing undertakings. It provides the immunity for licensing arraign-ments that do not contain ‘certain ‘‘hardcore’’ restrictionsbetween non-competitors with market shares below 30% andbetween competitors with market shares below 20%’ See Gilbert,Richard. ‘‘Converging Doctrines? US and EU Antitrust Policy forthe Licensing of Intellectual Property’’ 2004, at 3, at http://works.bepress.com/richard_gilbert/3,at 12 January 2009.


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IP licensing arrangements. Lastly, as introduced above, theseprovisions spread across various types of laws. This loosestructure renders it difcult for foreign investors and tech-nology companies to get a clear picture of China’s require-ments on technology transfer and IP abuse. This has arguablyincreased the uncertainties of law applications and the oper-ations of foreign undertakings in China.

3.2. AML and its IP provision

After 13 years of discussion and three revisions, China’s Anti-Monopoly Law (AML) was promulgated on 30 August 2007 andhas come into effect on 1 August last year. It is the rst anti-monopoly law in China. It has been viewed as an ‘economicconstitution’, 58 and a ‘milestone of the country’s efforts in promoting a fair competition market and cracking down onmonopoly activities’. 59 The AML is an important supplement tothe current IP abuse regulations.

3.2.1. General prohibition and exemptions: AML versusEC treatyLike itscounterparts in the EC Treaty of Rome, theAML containsthree general prohibitions. Chapter II of the AML containsa prohibition on ‘ monopolistic agreement ’. Articles 13 and 14provide a prohibited list of agreements that have monopolisticeffects, including six types of agreements among competing undertakings (horizontal relationship) 60 and three types of agreements between undertakings and their trading partners(vertical relationships). 61 Chapter III of the AML providesa prohibition on the ‘ abuse of a dominant market position ’.62

Chapter IV focuses on ‘concentration activities’ .63 Moreover, theAML provides a number of exceptions relating to the purposesof the agreements. 64 One notable caveat in Chapter II of theAML is Article 15, which authorizes a competent anti-monopoly authority to approve exemptions from Articles 13and 14 if certain monopoly agreements among the operatorsare benecial to:

1) Improve technology or research and develop new products;2) Upgrade product quality, reduce costs, improve efciency,

unify product specications and standards, or realize divi-sion of work based on specialization;

3) Improve operational efciency and enhance competitive-ness of small and medium-sized undertakings;

4) Serve public welfare such as conserving energies, protect-

ing the environment, and providing disaster relief.5) Mitigate serious decrease in sales volume or obviously

excessive production during economic recessions;6) Safeguard the justiable interests in the foreign trade or

foreign economic cooperation; or7) Other circumstances as stipulated by laws and the State

Council.

It further provided that, where a monopoly agreementfalls within any of the circumstances listed in items 1through 5, in order to obtain the immunity fromexempt fromthe prohibitions in Articles 13 and 14, the operators mustadditionally prove that the agreement can ‘enable consumersto share the interests derived from the agreement’, and will‘not severely restrict the competition in relevant market’. It isclear that these provisions are designed to encourage foreigninvestment in research and development sectors, and toencourage the transfer of core/new technology from foreigncountries to China. At the same time, it takes into accountthe interests of consumers and importance of a soundcompetition order.

The structure of the AML provisions is quite similar withthe counterparts of the EC laws. The EC competition law dealswith IP under the general provisions of the Treaty of Rome (ECTreaty). 65 The EC Treaty also sets up three general prohibi-tions on antitrust activities. Put simply, Article 81 of the ECTreaty focus on ‘anti-competition treaty’. Article 81 (1)contains a prohibition on ‘ monopolistic agreement ’, including ve types of agreements among competing undertakingswhich may have anti-competitive effects. Article 82 of the ECTreaty mainly focus on prohibiting ‘abuse of a dominantposition’, and Articles 86 and 87 deal with ‘concentration’. 66

Like AML, the EC Treaty also sets up the immunity forlicensing arrangements which may have monopolistic nature.Article 81 (3) provides that the EC may permit exemptionsfrom Article 81 (1) where the licensing arrangement meetsfollowing four requirements:

58 Jones, above n9, 1.59 Peng, Nie. ‘China’s First Anti-monopoly Law Takes Effect’,

Xinhua News Agency , Saturday, August 2, 2008 at http://english.gov.cn/2008-08/02/content_1062473.htm at 1 December 2008. Manyforeign governments or organizations, such as governments andbusiness councils of the US and the EU, feel optimistic about theAML, and believe that the AML is a ‘milestone in Chinese economicpolicy’ and a signicant step of China towards a real marketeconomy. See Student, Richard. ‘China’s New Anti-Monopoly Law:Addressing Foreign Competitors and Commentators’ in 11 Minne-sota Journal of International Law 503, at 503.

60 AML, Art 13.61 AML, Art 14.62 It not only details that seven types of acts that abuses domi-

nant market position, such as predation, refusal to deal, exclusivedealing, tied sales and price discrimination, but also set out thespecic factors for determining the dominant market position of an undertaking. See AML, Arts 17 and 18.

63 AML, Art 40. (such as (1) a business merger, (2) an acquisitionof control over other business operators via asset or equitypurchase, or (3) situations where a business operator acquirescontrol or decisive inuence over other business operators bycontract or any other means).

64 AML, Art 15.

65 See IP/IT Update, Competition Law at http://www.ipit-update.com/compec.htm at 2 February 2009 (Stating: ‘EC law competi-tion law derives from arts. 81–89 of the Treaty of Rome’).

66 EC Treaty, Articles 81, 82, 86, 87 at http://ec.europa.eu/comm/competition/antitrust/legislation/entente3_en.html at 18 January2009.


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1) Contributes to improving the production or distribution of goods or to promoting technical or economic progress;

2) Allow consumers a fair share of the resulting benet;3) Be indispensable to the attainment of the rst two

requirements; 67 and4) Raise no possibility of eliminating competition in respect of

a substantial part of the products in question. 68

If we compared the EC Treaty and China’s AML, it is notdifcult to nd that, not only the structure of monopolisticprohibitions provisions butalso the contentsof the exemptionprovision of these two regulations are essentially the same.For example, both regulations provide exemptions formonopolistic agreements which contribute to technologicalprogress, consumer and public welfare, and economic ef-ciency or growth. This may be further evidence of China’sembrace of international concerns, and that China has drewon lessons from foreign legislative experiences.

However, it is noteworthy that the exemption regime of ECcompetition laws is far more sophisticated than that of theAML. As mentioned above, in addition to the EC Treaty, theCommission has enacted detailed ‘‘block exemption’’ regula-tions and guidelines. The EC has issued the Technology TransferBlock Exemption Regulation (in 1996 and 2004 respectively) inorder to provide general guidelines on how to apply anti-competition provisions of the Treaty of Rome in practice. 69 Itfurther issued the TTBER Guideline 2004in order to facilitatethe applications of the EC Treaty and TTBER 2004. Comparedwith these legal guidelines, the exemption provisions in theAML is arguably oversimplied and not that easy to apply.(More details on the problems of the AML enforcement will bediscussed later).

3.2.2. Two fold meaning of Article 55: IP exemption versus IPabuse preventionUnlike the EC Treaty, in addition to the above general prohi-bitions and exemptions, the AML contains a special provision(Article 55) relating to IP. Article 55 provides:

This Law is not applicable to the undertakings which useIPRs according to the laws and administrative regulationsrelevant to intellectual property, but is applicable to theundertakings which ‘abuse IP’ and ‘eliminate or restrictmarket competition’.

The provision sets out the basic relationship between the

AML and IP laws.70

It arguably has a profound implication onthe IPRs protection and enforcement in China. It is clear that

the meaning of Article 55 is two-fold. On the one hand, itprovides a broad exemption forlegitimate use of IPR. Article 55implies that the laws governing IPRs are considered to be‘equivalent in status’to the AML. 71 It provides IPRholders witha safe harbor/immunity for their legitimate conducts onexercising their IPRs. In the other words, the prohibitionprovisions in the AML do not apply to the legitimate conducts

of the IPR holders under the IP laws. 72 Since it is a generalinternational practice to provide a safe harbour/immunity foran undertaking’s lawful conduct in accordance with its legit-imate IPRs, Article55 is deemed as ‘ further evidence that reectsChina’s embrace of global concerns’. 73

On theother hand, theAML does prohibit theabuse of IPRs.As some commentators observed, although the language of Article 55 is ‘very general’, it has clearly presented a conceptsimilar to ‘patent misuse’ under U.S. law, which prohibitsa patent holder from ‘seek[ing] to leverage its lawfulmonopoly IP rights to extend them beyond the proper scope of the patent’. 74 The AML explicitly prohibits any conduct thatmay constitute an abuse of IP and may ‘eliminate or restrictmarket competition’. However, the language of Article 55 isoverly general. Neither has it provided a clear denition of the‘IPabuse’,nor has it detailed potential liabilityor penalty for IPabuses. And judicial interpretations and more specic imple-menting regulations on the AML have not yet appeared. Thesearguably create legal uncertainties for business operations of foreign technology-driven undertakings in China. 75

67 EC Treaty, Art 81 (3) (a).68 EC Treaty, Art 81 (3) (b).69 See Commission Regulation (EC) No 240/96 of 31 January 1996

on the application of Article 85(3) of the Treaty to certain cate-gories of technology transfer agreements (OJ L 31, 9.2.1996, p. 2)(TTBER 1996); European Union’s new Technology Transfer BlockExemption Regulation (‘‘TTBER 2004’’) (Commission Regulation (EC)No. 772/2004 of 27 April 2004 on the application of Article 81(3) of theTreaty to categories of technology transfer agreements , OJ No. 123, 27.04.2004) OJ L 123, 27.4.2004, at 11–17.http://europa.eu/scadplus/leg/en/lvb/l26108.htm at 12 January 2009. The TTBER 2004 wasissued to replace the TTBER 1996.

70 Jones, ‘Licensing in China’, above n9, 2.

71 Ibid, 3.72 In the other word, Art 55 appears to recognize that the simple

exercise of IP rights, without more, will not be a violation of theAML. See also Masoudi, Gerald F. ‘Some comments on the abuseof dominance provisions of China’s draft anti-monopoly law’ –remarks presented to the UIBE Competition Law Center Confer-ence on Abuse of Dominance: Theory and Practice, Beijing, China, July 21, 2007 at http://www.usdoj.gov/atr/public/speeches/225357.htm (Gerald F. Masoudi, Deputy Assistant Attorney General,Antitrust Division, U.S. Department of Justice), para 2., 9. (Note:the article 54 that Masoudi referred to (the draft of the AML) in hisremark is the article 55 of the AML enacted on 30 August 2008.The report further states: ‘Since the right to exclude others fromusing the invention is the essence of an intellectual propertyright, the unilateral decision of the right holder to exclude someor all applicants from using its protected intellectual property isthe most simple exercise of IP rights and should not be subject toantimonopoly attack as an abuse’).

73 Bingham’s Antitrust and Trade Regulation Group, China PassesNew Antitrust Law With Additional Scrutiny on Foreign M & As , 5 Sep2007, at http://www.bingham.com/Media.aspx?MediaID ¼ 5667 at10 January 2009.

74 See Wang, Peter J, Harris Jr., H. Stephen, and Zhang, Yizhe.‘New Chinese Anti-Monopoly Law’ in Jones Day Commentaries, Asia ,October 2007, at http://www.jonesday.com/pubs/pubs_detail.aspx?pubID ¼ S4662 at 2 September 2008. (Note: The Chinesecharacters used in the law – IP ‘lanyong’ – can be translated aseither ‘‘abuse’’ or ‘‘misuse’’).

75 Ibid. (stating: ‘While the AML is a milestone in Chineseeconomic policy, its substance has been particularly newsworthyfor alleged weaknesses which may have a negative impact onforeign rms and investors doing business in China’).




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4. Potential problems current IP abuseregulation regime in China

After an overview of existing IP abuse and technology transferlegislations in China, the paper will next examine the poten-tial problems with this legislation and the legal risks that

foreign investors or technology-driven companies may face.General speaking, the current legal framework may have atleast ve problems.

4.1. Lack of unied legal guideline on IP andantitrust law

Unlike the US and the EC, until now, China does not havea single regulation and legal guideline that systematicallydealt with IP abuse, technology transfers and the interrela-tionship between IP and antitrust law. As introduced above,the provisions related to IP abuse could be found across

various legislation, such as contract law, foreign trade lawsand patent law, and antitrust law. The recently enacted AMLdoes not have a prevision to clarify the interrelation betweenAML and other existing legislations related to IP abuse andtechnology transfers. Although the AML contains a specialprovision on IPR and a number of exemptions for legitimateuse of IPRs, it has not claried whether these exemptions canalso be applied to the prohibition provisions under othernon-AML legislations, such as prohibitions under the ContractLaw 1999 and the Interpretation 2005 (as introduced above).The lack of a unied regulation or legal guidelines for coor-dinating all existing IP abuse legislations would arguablycreate uncertainty regarding the applications of laws and

business operations of foreign technological companies/investors in China.

4.2. Unclear provision on prohibitions

The scope of prohibitions in prior-AML laws is unclear. Forexample, the Chinese Contract Law 1999 and its Interpretation2005 adopted the US- Nine-No-Nos-style approach and listeda number of prohibitions on rendering technology transfers.The Foreign Trade Law 2004 adopted the EU-TTBERapproachand set up three core prohibitions on technology transferlicensing arrangements in international trade. But, again,none of them have provided a clear legal guideline for theapplications of the prohibition provisions, such as providing examples to facilitate the determination of the prohibitedactivities – an approach that both the EU and the US IPlicensing guidelines have adopted (as introduced in Section3.1). Consequently,the laws left toomuch discretionary powerto the court and governmental agencies, and created manylegal uncertainties forthe operationof foreignIP companies inChina.

The scope of general prohibitions under the AML is unclearalso. Due to the lack of judicial interpretation, questions havebeen raised concerning the relationship between Article 55and the general prohibitions of the AML. For example, isArticle 55 merely designed to clarify the application of theAML (its general prohibitions) in the IP context, or does it

creates a wider prohibition? 76 Some commentators believethat Article 55 may have widened the scope of generalprohibitions under the AML, and extended the scope of theprohibition on abusing a dominant market position to activi-ties that non-dominant companies carry out in an IPcontext. 77 It is clear that the existence of IPRs does not alwaysconfer an IP-based undertaking a dominant market position.

Thus, if Article 55 is explained in a broad sense, the subjectmatter of the AML prohibition would arguably not only coverundertakings with dominant positions but also cover certainundertakings without dominant positions . Using Microsoft’sbusiness operation in China as an example, Microsoft oftenargues that it does not have the preconditions of monopolisticactivities because ‘genuine Microsoftproducts have a very lowmarket share in China’ due to widespread piracies. 78 However,once Article 55 is interpreted widely to include non-dominantIP companies, the ‘test of dominant position’ may become irrele-vant in determining monopolistic conducts of IP companies.Consequently, the ‘piracy defence’ alone will not be sufcientto provide Microsoft with the immunity for monopolisticviolations.

In a word, the loose structure of the Chinese technologytransfer and IP abuse, and the lack of legal guidelines for lawapplications have arguably created the uncertainties for theoperations of foreignundertakings in China, andmayresult inthe diminution of foreign IP holders’ incentives in licensing their IPRs and transferring their core technology to China.

4.3. Potential impacts on competition and innovation

On the one hand, the vagueness of Article 55 of the AML mayhave an effect that prevents IP undertakings from engaging inany ‘abusive’ activates, such as price discrimination anddiscrimination in respect of terms and conditions of IPlicensing agreements. 79 Article 55 may imply that, once an IPlicence is granted to the original licensee, similar licencesmust also be granted to any other rms/licensees in themarket in the future. As such, some commentators pointedout, by obligating IP holders to treat ‘similar third parties ina similar way’, the AML may potentially create a compulsoryIP licensing system. 80 Such a system may have signicantnegative impacts on encouraging innovation. It is clear thatthe right of IPR holders to refuse to grant a license to otherrms has been regarded as a ‘core part’ of their exclusive

76 Kirstie Nicholson & Zirou Liu, ‘Avoid competition problemsin China’ in Managing Intellectual Property , July/August 2008, athttp://www.managingip.com/Article/1968516/Avoid-competition-problems-in-China.html at 12 November 2008.

77 Ibid. The AML explicitly states ‘this Law . is applicable to theundertakings which abuse IP and eliminate or restrict marketcompetition’, and has explicated that it is only apply to compa-nies abusing a dominant market position. See AML, Art 55.

78 Fong, Tanya. ‘Microsoft introduces novel piracy defence’, ALBLegal News, Australia, 2 September 2008, at http://au.legalbusinessonline.com/news/breaking-news/29332/details.aspx at10November2008 (see the statement of Microsoft global VP Zhang Yaqin).

79 Nicholson & Liu, above n 79.80 Ibid.


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rights under the IP laws and this is directly tied to ‘creating incentives for innovation’. 81 Depriving such a right from IPholders on the ground of harming competition may result ina diminution of their investment incentives on research anddevelopment of IP products, and, in turn, may ‘slow innova-tion, harming consumers and reducing productivity gains forthe economy as a whole’. 82

On the other hand, general speaking, the Chinese laws ontechnology transfers and IP abuse mainly focused on prohi-bitions of IP abuse and conduct of eliminating technologytransfers and competition. Except the AML, none of them hasprovided any clear exemptions for IP licensing arrangementswhich may have an effect on eliminating technology transferand competition. Although the AML provides containexemptions/immunity for IPR holders, it has not clariedwhether these exemptions/immunity can also be extended tothe prohibitions in other non-AML laws. As such, it does seemthat the current Chinese IP abuse regime has not strucka sound balance between IP licensees and licensors, and thismay arguably diminish the incentives of foreign IP companiesto license their IPRs to the Chinese companies.

4.4. Potential impacts on IPR infringement proceedings

The Current IP abuse law regime may have potential impactson IP infringement proceedings in China. As introducedabove, the scope of prohibitions on IP licensing arrangementsin prior-AML laws are very broad. Thus, they may serve assound grounds for the Chinese domestic companies to bring actions/counterclaims against foreign undertakings and IPlicensors, particularly when the Chinese companies face IPinfringement claims brought by foreign undertakings. Due tothe lack of exemptions/defences in existing Chinese laws,foreign companies may often be in a very disadvantageousposition in litigation.

In fact, the AML may also have similar effects. Manymultinational companies fear that domestic IP companiesmay use Article 55 to restrain foreign IP holders fromenforcing their IPRs against their competitors in China. 83

They may attempt to avoid or at least delay infringementactions brought against them by using Article 55 asa ‘defence’, and claim that the bringing of the infringementaction against them constitutes an abuse of IPRs or a restric-tion of market competition. For example, if a company hasbeen accused of patent infringement in China, it may claimthat the alleged patent is preventing competition, and thenrequest competent national anti-monopoly agency toconduct an anti-monopoly investigation – a very time-consuming procedure. As such, some commentators believethat the enactment of the AML has paved the way for soft-ware rms in China to bring antitrust lawsuits against foreignsoftware companies, such as Microsoft, for their businesspractices in China.

4.5. Increases of potential IP abuse lawsuits

Article 55 of the AML may have potential impacts on IPproceedings in China. On the one hand, the enactment of theAML not only allows medium and small enterprises to bettercompete with big enterprises (which have dominant marketpositions), but also strengthens the protection given to publicconsumers from the threat of monopolistic conduct by big undertakings, such as monopoly pricing. This also means thatbig undertakings may have to face up an increasing number of antitrust lawsuits in China. In fact, on 31 July 2008, one daybefore the AML took into effect,Dong Zhengwei, a partner withBeijing-based Zhongyin law rm, has submitted a document –‘Application and Proposal for Protecting CitizenProperty Rights ’84 – tothe anti-monopoly enforcement agency, and requires for initi-ating an anti-monopoly investigation against the global soft-ware giant Microsoft. 85 He alleged that Microsoft was using itsdominant market position to manipulate software prices inChina, and breached articles 6, 17 and 19 of the AML (on theground of abuse of market dominance). 86 He further called fora US$1billion ne for Microsoft’s violation of China’s AML byvirtue of article 47 of the AML. 87 The Ministry of Commerce(MOFCOM) replied on 15 August 2008 and informed that theapplication was transferred to its Treaty and Law Division toprocess. 88 If the investigation of the Chinese MOFCOM iscompleted and the anti-monopoly lawsuit is led in IP courts,China will becomethefthjurisdictiontakingaim atMicrosoft’sbusiness practices, after the U.S., EC, Japan and South Korea.

4.6. Potential problems on enforcement of IP abuse laws

In addition to lack of a single legal guideline on applications of

IPabuse laws,China does nothavea singleagencydealingwithIP abuse violations. This may arguably result in uncertainty of thelaw enforcement. In fact, even thenewlyenacted AMLdoesnot have a single enforcement agency. Regarding theenforcement agencies,the AMLspecies that theState Councilshall create two new entities to develop and enforce the law,namely: (1) Anti-Monopoly Commission (AMC) 89 , and (2) Anti-Monopoly Enforcement Agency (AMEA). 90 The AMC does nothave substantive enforcement powers. Its responsibilities

81 Masoudi, above n 75, 9. (Note: the article 54 that Masoudireferred to (the draft of the AML) in his remark is the article 55 of the AML enacted on 30 August 2008).

82 Ibid.83 Wang, Harris and Zhang, above n 77.

84 Chinese Title of the document –.

85 Xinhua News Agency, ‘Chinese Lawyer applying for an anti-mo-nopoly investigation against Microsoft and suggesting impose 1billion USD ne’, [in Chinese] 17 August 2008, at http://news.xinhuanet.com/legal/2008-08/17/content_9424867.htm at 10November 2008.

86 Ibid. Arts 17 and 19 are all in Chapter III Abuse of MarketDominance of the AML.

87 Ibid. Article 47 provides: ‘Where any business operator abusesits dominant market status in violation of this Law, it shall beordered to cease doing so. The anti-monopoly authority shallconscate its illegal gains and impose thereupon a ne of 1% upto 10% of the sales revenue in the previous year’. See ALM, Art 47.

88 Gao, Lingyun & Tan, Xiaolan, ‘Civil Lawyer initiating antitrustlawsuits against Microsoft’, [in Chinese] in Southern City Daily 8August 2008 http://sc.stock.cnfol.com/080820/123,1764,4631746,00.shtml at 10 January 2009.

89 AML, Art 9.90 AM, Art 10.


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mainly include: formulating competition policies and guide-lines, evaluating competition condition, and coordinating enforcement activities. 91 The State Council of China hasalready established an AMC at the end of July 2008 –one weekbefore the AML took into effect. 92 By contrast, the AMEA hasstrong enforcement powers. 93 These include the power toinspect and investigate business and non-business premises,

and the power to obtain relevant evidence, such as seizing documents, accounting records, electronic data, and bankaccount records. The AMEA may even conduct all theseenforcement actions without a court order. 94

However, the AML has not detailed the structure of theAMEA.According to thesource close to thelaw-making process,three government agencies, rather than a single body, will beresponsible for the enforcement of the AML: (1) the Ministry of Commerce (MOFCOM); (2) the National Development andReformCommission (NDRC);and(3) theState Administrationof Industry and Commerce (SAIC). They focus on different issuesrespectively. 95 Under the new structure, the MOFCOM isresponsible for merger review. The NDRC is responsible formonopolyagreements, particularly price-xing issue. The SAICis responsible for abuses of dominant position. 96 It will beinteresting to see how this trinity model will work in practice.Some commentators have expressed their concerns on thepotential problems of the new trinity structures, 97 and believethat the trinity enforcement model ‘creates a complicatedinstitutional framework whereconictsare probable’. 98 Indeed,there may be an overlap between the duties of these threeagencies, which mayresultin confusing applicants. In fact, suchconfusion has already been caused. When Mr. Dong Zhengweisubmitted his application for initiating an anti-monopolyinvestigation againstMicrosoft in China lastyear (as introduced

above), instead of sending his application to a single enforce-ment agency, he sent theapplication to theMOFCOM, theNDRCand the SAIC. 99

5. Strategies for foreign investors and

technology-driven companiesDue to the signicance of the Chinese IPR market and thecomplicity of the Chinese IP abuse law regime, any foreigninvestors and technology-driving rms, who are interested inthe fast-growing Chinese market, arguably need to have a goodunderstanding of therequirementsof theChinese IP abuse lawsand incorporate these requirements into their future strategicplans. 100 They should take into account both opportunities andlegal risks/uncertainties brought by these legislations. Thepaper will next introduce some defences that IPR holders mayuseforpotential IPabuse lawsuits, aswellas some strategies forforeign companies, particularly late comers of the Chinese

market, to make most of the current IP abuse laws in order toacquire a better market position in China.

5.1. Defences for foreign investors and technology-driven companies under the AML

As introduced above, prior to the AML, IP abuse regulationsmainly focussedon the ‘prohibition’ of IP-abuse conducts,suchas licensing arrangements that may restrict or eliminate tech-nology transferand competition.They didnotprovideanyclearexemptions for licensing arrangements which have monopo-listic nature but have pro-competitive effects which outweighanti-competitive effects. But, as noted above, the AML doesprovide for the immunity for IPR holders, particularly licensersto exploit their IPRs, in order to strike a sound balance betweenencouraging innovation and protecting competition.

5.1.1. The defence of piracy and the non-dominant positionOne of most important defences, which has been frequentlyreferred by major IP companies, may be the defence onwidespread piracy and non-dominant position. As mentionedabove, when faced with the allegation that Microsoft hasabused its dominant market position to impose monopolyprice to consumers, Microsoft has argued that it doesnot havea dominant market position due to high piracy rate. 101 Forexample, according to the statistics of the Business SoftwareAlliance (BSA), the software piracy rate in China was 82% in2007.102 Microsoft, therefore,often claims that it does not haveactual power to conduct any monopolistic activities (such asto pricing control) due to widespread piracy in China.

91 AML, Art 9 (i)-(v).92 Peng, above n59.93 AML, Arts 10 and 39.94 AML, Art 39. See also, Wang, Harris and Zhang, above n 77.

Many commentators believe that ‘the AMC itself is a compromisebetween the outcry for one unied enforcement agency and themaintenance of the existing division of powers among differentauthorities under the State Council’. Ibid.

95 Wang, Harris and Zhang, above n 77. And many commenta-tors view ‘the vagueness of these AML provisions as anacknowledgement of the concurrent enforcement of the AML bythree existing government agencies’. Ibid.

96 Moreover, the NDRC has completed a draft of the anti-pricemonopoly law regulation in July 2008, which was a component of the anti-monopoly law. The SAIC had set up an independentbureau in charge of investigation and punishment of the unfaircompetition, commercial bribery, smuggling and other cases thatbroke relevant commercial laws. See Peng, above n59.

97 Jiang Yuxia, ‘China’s anti-monopoly law commission in force’,Xinhua News Agency ( www.chinaview.cn ) 16 July 2008, at http://news.xinhuanet.com/english/2008-07/16/content_8553183.htm .Moreover, Huang Yong, an anti-monopoly consultant at theMinistry of Commerce, said ‘It is hoped that a unied institutioncomes out in the coming years, which will be better in accordancewith the country’s situation’. See Peng, above n59.

98 Adrian Emch (Sidley Austin), ‘The Anti-monopoly Law and ItsStructural Shortcomings’ in Global Competition Policy Magazine, 8August 2008 at http://papers.ssrn.com/sol3/papers.cfm?abstract_id ¼ 1221922 or http://www.globalcompetitionpolicy.org/index.php?&id ¼ 1338&action ¼ 907.

99 Xinhua News Agency, ‘Chinese Lawyer . ’, above n 89.100 Bingham’s Antitrust and Trade Regulation Group, above n76.101 Fong, above n 81.102 Business SoftwareAlliance (BSA), Fifth AnnualBSA andIDC GlobalSoftware Piracy Study 2007 , at http://global.bsa.org/idcglobalstudy2007/studies/2007_global_piracy_study.pdf at 16 November2008. See also BSA, New Study Projects Signicant Economic BenetsFromReducing SoftwarePiracy , Washington, D.C. – January 22,2008, athttp://www.bsa.org/country/News%20and%20Events/News%20Archives/en/2008/en-01222008-idcstudy.aspx at 15 November 2008.


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As such, unless Article 55 of the AML is interpreted broadlyto include non-dominant IP companies, IP companies maystill use ‘widespread piracy’ as an effective defence againstanti-trust challenges.

5.1.2. Defence of national developmentIt is noteworthy that the AML introduced a few exemptions/

defences – such as a national development defence – forcertain agreementswhich have monopolistic effects. As notedabove, Article 15 of the AML entitles the competent anti-monopoly authority to grant exemptions from the prohibi-tions on certain monopoly agreements, if the operators of these agreements are benecial to national development,such as technology progress, improving business operationalefciency, enhancing competitiveness of small and medium-sized undertakings, and serving public welfare. 103

It is clear that these provisions have effects on encouraging foreigninvestmentin theresearchanddevelopmentsector,andencourage the transfer of core/new technology from foreigncountriesto China.Manyforeigntechnology-drivencompanies,such as Microsoft, Intel, Google and Dell, have now made hugeinvestments in China,and are expected to continue to do so. Assome commentators have observed, these foreign companiesareadopting a long-term viewthat theChinesegovernment willnot restrict their business operations in China so long as theiractivitiesdo notconict with or underminethe developmentof theChineseeconomy. 104 Thus,theyarepreparedto‘continuetobring their coretechnologies toChina andwill continueto shareand/or license themto Chinese domestic companies’, so longasChina adopts practical measures to improve its IPR protectionenvironment. 105 Therefore,thosetechnology-drivencompaniesmay use Article 15 as potential defence for IP abuse claimsagainst them. For example, they may claim that their businessoperations in China are benecial to ‘improve technology orresearchanddevelopnewproducts’(Article15(i)).Again,wecanuse Microsoft asanexample.As wehave seen,Microsoft has setup the China Research & Development Group in China. 106 Mostrecently, in November 2008, Microsoft announced that it willinvest more than $1 billion on its research and developmentcenter in China over the next three years. 107 Thus, Microsoftmay arguably use Article 15 (i) as a defence for any potential IPabuse lawsuits in China.

However, it is noteworthy that the applications of thesenational development exemptions are subject to two precon-ditions (as introduced above). The operators of agreementsmust prove that theagreement (1)can ‘enable consumers to sharethe interests derivedfromtheagreement’,and(2)will‘not severely

restrict the competition in relevantmarket’. 108 Thus, in addition toenhance the development of national economy (byinvesting inthe research and development sectors, and introducing core/new technology to China), business operators have to take intoaccount the interests of consumers and must not severely jeopardize the sound competition order in China. It should alsobe noted that the exemptions listed in Article 15 are subject to

approvalfromacompetentanti-monopolyauthority.Untilnow,it has been unclear which specic agency (the MOFCOM, theNDRC or the SAIC) is the competent anti-monopoly authorityunder Article 15, and will therefore have a nal power todetermine the availability of the immunity of Article 15 underthe AML. This will arguably create another uncertainty for theenforcement of the AML.

5.2. Other strategies for foreign investors andtechnology-driven companies

5.2.1. Risks versus opportunitiesIn the current IP expansion environment, the Chinese IP abuselaw regimemay help to strike a sound balance of benets of fordifferent stakeholders in IP laws, which the IP laws alone maynotbe able to strike.Thebroad prohibitionprovisionsin currentChinese IP abuse and technology transfer laws would arguablyserve as an effective avenue forpublic users, consumers, small-medium enterprises (including late comers to the Chinesemarket) for defending their rights, and being successful in legalactions against IP giants. For example, the AML, as importantlegislation designed to maintain and improve the fair competi-tion order in the Chinese market, arguably brings more oppor-tunitiesthan legal risks for investors fromdifferentcountries. Itarguably provides an opportunity for foreign software compa-niesto morefairlyparticipate in market competitioninChina. Itenables them, particularly late comers of China’s IP market, toinitiate an anti-monopoly investigation/lawsuit againstmonopolistic activities of software giants that have achieveddominant positions in Chinese market.

Again, we may use Microsoft as an example. In addition topotential legal actions brought by China’s domestic compa-nies or consumers, Microsoft has to pay attention to potentiallegal actions of other foreign companies operating in China.As we have seen previously, Microsoft has become entangledwith antitrust disputes around the world for more thana decade. In Europe, after losing its antitrust case in 2004,Microsoft has been repeatedly ned. 109 Since the 2004 deci-sion, Microsoft has been nedmorethan $2.4 billion in total by

103 AML, Art 15. See above Section 3.104 Liu, Ying. ‘BCCC cautiously optimistic over impact on FDI of new Anti-Monopoly Law’, China IP, Issue 21, 2008, at http://www.chinaipmagazine.com/en/journal-show.asp?id ¼ 401 at 15November 2008.105 Ibid.106 Seethewebsiteof theMicrosoft,China Research& DevelopmentGroup at http://www.microsoft.com/china/CRD/EN/aboutus.mspxat 16 November 2008.107 Hardcastle, Elaine. ‘Microsoft to spend $1 bln on R&D inChina’, Reuters , Beijing, November 13, 2008 at http://www.sciam.com/article.cfm?id ¼ microsoft-to-spend-1-bln at 16 November2008.

108 AML, Art 15.109 On 24 March 2004, the EC ruled that ‘Microsoft abused itsWindows monopoly and ned the company 497.2 million eurosas well as ordering it to reveal more of its software code andlimiting it’s bundling of its software into Windows XP. See Jen-nings, John P. ‘Comparing the US and EU Microsoft AntitrustProsecutions: How Level is the Playing Field?’ in Erasmus Law andEconomics Review2, No. 1 (March 2006), 79.


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the European Commission. 110 In Asia, Japan’s Fair TradeCommission found Microsoft in violation of Article 19 of itsAntimonopoly Act for provisions in its licensing agreementwith PC makers that unduly restrict their business operationsin July 2004.111 Korea’s Fair Trade Commission levied a ne of $32 million USD against Microsoft in 2005, and orderedMicrosoft to ‘create versions of Windows XP that did not

include Windows Media Player and Windows Messenger’. 112

As such, it will be unsurprising if any foreign technologicalcompanies owned domiciled in these countries initiate anti-trust lawsuits against the business operations of Microsoft inChina in order to help them to maintain and expand theirmarket share in China. It is clear that a sound and faircompetitive environment, which is underpinned by the AML,is not only good for domestic companies but also good forforeign companies, particularly late comers of the Chinesemarket.

Moreover, public consumers will eventually benet also.Fair competition would arguably provide consumers withmore affordable price and more purchase options (i. e.choosing alternative software products from various foreignsoftware companies). And this will arguably contribute toprevention of piracy in an indirect way in the long run. Onceconsumers can nd cheap and high quality IP products, theywill not choose unauthorized IP products.

5.2.2. Comprehensive understanding of existing IP abuserules in ChinaForeign investors and technology-driving rms should noticethat there are a number of laws and regulations addressing the technology transfer and IP abuses issues in China. Asdiscussed above, China does not have a single regulation andlegal guidelinedealing with IP abuse and technology transfers.Relevant provisions can be found in different legislations,such as contract law, foreign trade laws and antitrust law.Foreign undertakings should have a comprehensive under-standing of theChinese IP abuseregulatory regime.In order toappropriately exploit their IPRs in China, they should not onlyunderstand the AML, but also other relevant legislations, aswell as the interrelation between these regulations.

They should understand both opportunities and legalrisks/uncertainties brought by these regulations. They shoulduse these regulations exibly and make the application of these regulations consistent with their future strategic plans.

For example, big foreign technology companies, such asMicrosoft, should make most of exemptions and defences inthe AML (i.e. national development defence) to maintain theirleadership in the Chinese market. Small and medium foreignenterprises, particularly late comers of the Chinese market,may make most of the prohibition provisions in the AML andother technology transfer regulations in order to overcome the

marketentry obstaclescreated by dominant IP giants.In doing so, improve their competitiveness and comparative economicadvantages in the Chinese IP market.

5.2.3. Participation in the Chinese legislative processForeign companies should play a more active role in theChinese IP abuse legislative process, and make the Chinesegovernment understand their concerns and difculties. Infact, in recent years, the Chinese government and its regula-tors have been quite open to draw on legislative andenforcement experiences from other countries. For example,in the process of the AML law-making, the Chinese govern-ment has widely invited comments and feedback on AMLconsultation drafts from various international stakeholders,including advice from both governmental and non-govern-mental groups in the US and the EU. 113 And foreign legislativeexperiences have been reected in both the structure and thecontents of the AML. As the above discussion demonstrates,the structure of general prohibition provisions and thecontents of exemption provisions in the AML are quite similarwith similar provisions in the EC Treaty and the TTBER 2004.These effects have also been recognized by some foreignregulators. Gerald F. Masoudi (the Deputy Assistant AttorneyGeneral of the Antitrust Division of the US Department of Justice) in an AML consulting conference pointed out that theChinese government has demonstrated its openness to ‘theideas and experiences of antitrust law enforcers’worldwide. 114

Foreign undertakings, therefore, should continue to playan active role in future legal reform in China. For example,they may contribute to the interpretation of the AML,including the denition of ‘IP abuse’ and the general approachfor determining IP abuses. They may also require futureregulators to issues EC/US style legal guidelines to facilitatethe applications of the AML and other regulations related to IPabuse and technology transfers and to clarify the interrelationbetween IP and antitrust law. They may either directlyparticipate in the discussion of the draft of legislation and judicial interpretations or impose their impacts through Non-Governmental Organizations (NGOs) or governmentalagencies in their own countries.

6. Conclusion and future perspectives

This paper has examined the TRIPS’s requirements and recentdevelopment of the Chinese IP abuse legislation, including both the AML and prior-AML regulations on technologytransfer and IP abuse prevention. By comparing with thecounterparts of the US and the EU laws, the paper examined

110 Keizer, Gregg. ‘EU nes Microsoft another $1.3B’ in ComputerWorld , at http://www.computerworld.com/action/article.do?command ¼ viewArticleBasic&articleId ¼ 9065018 at 10 November2008. (Pointing out: ‘Microsoft had already been ned a total of $1.16billion by theEU in two previous levies, including the original March2004 rulingand a 2006penalty fornon-compliance. Includingtoday’sne, the company will have been hit with penalties that total justunder $2.5 billion’).111 Microsoft, Microsoft Corporation’s Response to the Japanese FairTrade Commission’s Recommendation , at www.microsoft.com/presspass/press/2004/Jul04/07-26JFTCResponsePR.asp at 10November 2008.112 Keizer, Gregg. ‘China denies reports of Microsoft antitrustinvestigation – Microsoft says it’s ‘in compliance’ with Chineselaw’, in Computer World , at http://www.computerworld.com/action/article.do?command ¼ viewArticleBasic&articleId ¼ 9100818at 10 January 2009.

113 Jones, ‘Licensing in China’, above n9, 3.114 Masoudi, above n 75, para 2.


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both achievements and limitations of these regulations. Itparticularly focused on the main problems of existing IPabuses laws in China, and potential risks for foreign IPholders/technology-driven companies when operating inChina. Some recent antitrust lawsuits, such as lawsuits inwhich Microsoft is a party, have also been examined. Lastly, itprovided some practical suggestions for foreign IP holders and

technology-driven companies to operate in China, including useful defences against potential IP abuse claims, and othergeneral strategies for better participating in China’s future IPabuse legislative process.

As the biggest developing country in the world, China’slegislative experiences are likely to inform the IP abuse legis-lation in other developing countries. However, generallyspeaking, the current Chinese legislative regime on IP Abuseand technology transfer, particularly its AML, is mainlyimported from the western countries, such as the EC and theUS. The existing problems and legal uncertainties of thecurrent Chinese IP abuse rules (introducedabove) show that itmay still be too early to tell whether such a legal transplantwill eventually succeed.

In 2002, the UK IPR Commission conducted a comprehen-sive study on IPRs and development policy, and concludedthat: ‘the interests of developing countries are best served bytailoring their intellectual property regimes to their partic-ular economic and social circumstances’. 115 The same holdstrue for IP abuse regulations. Thus, it is imperative fordeveloping countries to always critically import IP abuse andtechnology transfer laws in developed nations, and makesure the imported laws would suit their individual social,economic and legal environments. It would be desirable if future regulators could set a law review mechanism in orderto make a timely response to the uncertainties of existing IP

abuse laws and to reect the needs of all stakeholders in themarket.

In the current IP expansion environment, sound IP abuseregulationsatthedomesticlevelwouldarguablynotonlyhelptocreate a sound legal and market competition environment forboth domestic and foreign undertakings, but also maycontribute to optimize a country’s economic structure and

enhancethedevelopmentof nationalinnovativeeconomy. 116 Ina long term,theymayalsoserve asimportantsourcesof lawsforfuture IP abuse legislation at the international level, such asfuture amendment of the IPR abuse provision in the TRIPSAgreement . In doing so, contribute to harmonization of interna-tional competition and IP abuse laws, enhance the even-distri-bution of knowledge, and safeguard free trade and faircompetition worldwide.

Dr George Yijun Tian ( [email protected] ) is a currentLecturer at the University of Technology Sydney (UTS) Law Schooland one of core members of the China Law Research Group at theFaculty. He is also a Postdoctoral Research Associate of the Cyber-

space Law and Policy Center at the University of New South Wales(UNSW) Law School, and Research Fellow of the Center for IP Law atthe China University of Political Science and Law (CUPL).

An early draft the paper was presented at the 2009 Interna-tional IP Scholar Roundtable Conference, Drake University LawSchool, Des Moines, USA, 27–28 February 2009. The authorwould liketo thank ProfessorsPeter K.Yu (DrakeUniversityLawSchool), Doris E. Long (John Marshall Law School), Llewellyn J.Gibbons (University of Toledo College of Law), Dan Svantesson(Bond University Law School), and Jason Harris (University of Technology Sydney LawSchool) for their valuable comments totheearlydraftofthis paper.Particularly thank toJason Harrisforhelping with proofreading also.

115 U.K. IPR Commission, Report of the Commission on IntellectualProperty Rights: IntegratingIntellectual PropertyRightsand DevelopmentPolicy (2002) at http://www.iprcommission.org/at 12 March 2009.

116 This is alsoconsistentwith achieving theoriginal goals of IP lawsin enhancing innovation, sustainable economic development, andpublicconsumerwelfare.See as,US Constitution,ArticleI, Section8,Clause 8.


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Intellectual Property (IP) Protection Versus IP Abuses -