Understand the prospects of China's competition law related for intellectual

property from the perspective of technical standards

Wang-xiao ye

Researcher at the Law Institute of Chinese Academy of Social Sciences

Email ： wangxiaoye88@yahoo.com.cn

1. German court judgments of Standard-

Spundfass (causes) • Some large enterprises of German chemical industry propose a plan to

develop a new kind of synthetic materials barrels, in order to smooth down inside, different residues. Four enterprises in German have made efforts to develop such new products, the synthetic materials technology of production of one of the enterprises, which is protected by Patent Law has been selected as the standard barrel. The products of this enterprise thus become the industry standard.

• According to the agreement, the enterprise in possession of the industry standard has an obligation to free the remaining three companies’ permission to use its patents. If other production enterprises product this patented products, they need to pay royalties to rights holders. X-defendants in the case whose request to pay to the rights to use the patent was rejected, but they continued to produce and sell the patented products.

• The patentee prosecuted X and requested a court decision to ask the defendant to pay damages. X counterclaim patentee restrict competition, in violation of Germany "against restricting competition law" and requested permission from the court to compel the plaintiff in his free use of patents which have become industry standards.

• The core of this case: whether the court compel the plaintiff to license the defendant use their intellectual property rights based on competition law.

1. German court judgments of Standard-

Spundfass (Controversy and conclusions ) • The academia and the business community of German including the

plaintiffs in this case insisted that German Patent Law has explicit provisions on compulsory licensing of patents, in principle the case can be applied "against restricting competition law".

• German Federal Supreme Court has ruled that the intellectual property law and competition law are not totally consistent with the legislative intent. Intellectual property law does not become an obstacle to the application of competition law in principle. Intellectual property law can not hinder their mandatory license of competition law.

• According as "against restricting competition law," Article 20, paragraph 1, Federal Supreme Court consider that in this case the patent became the industry standard, the obligee has an obligation to permit competitors to use its patent rights.

• Inference: Once becoming an industry standard technology, it should be enacted as ISO standards, for the industry is open to any enterprise. Therefore, even if the obligee is no discrimination case, the court's decision should be made mandatory license.

1. German court judgments of Standard-Spundfass ： The prerequisite for compulsory

licensing of intellectual property rights • Intellectual property rights have become an indispensable prerequisite for entering

the market.• It is Exceptional circumstances of Spundfass case that the patent associated with the

case has become the factual standard of production of synthetic chemical industry material barrel. That is to say, if the enterprises product synthetic materials barrels, in addition to the use of the patented technology, they have no other alternative technologies. In other words, the patent itself constitute a technology market, and the obligee occupies 100% of the rights shares in the market. In such cases, whether other enterprises can obtain a patent license will be a key condition to enter the market.

• It is not very reasonable that Monopoly refused permission. The purpose of the country conferring intellectual property rights to somebody is to promote innovation and technology diffusion. Namely it is to promote alternative competition of technologies and products by holding out imitation competition. The reason of the obligee refusing permission is not conducive to promoting alternative competition ， yet not conducive to the innovative activities, but for the purpose of restricting competition, and preventing competitors from entering the market. The refusal to permit is absent of rationality and fair.

• Even a dominant firm has an ascendancy in the market, it also has the right to refuse permission at the same time granting permission; However, their rights and freedoms must be subject to the limitation, and their refusing permission must have a objective and justice reason. Since the purpose of the patent law is to promote competition and innovation, in this case associated with discriminatory behaviour the obligee‘s refuse permission need high impartiality.

2. one of the inspirations of Spundfass:The exercise of intellectual property rights need

to be subject to competition law restricting.• Intellectual property law and competition law have complementarities in functions, but

there are important differences between them. Intellectual property does not pose obstacles to the implementation of compulsory licensing based on competition law.

• Some people say that in 2004 the European Commission fined Microsoft's decision puts a huge question for the world: Is it to protect competition or to encourage innovation? Some people consider that intellectual property from the market forces should be treated humanely by anti-monopoly law ， otherwise it will undermine the innovation force.

• The protection of intellectual property rights and anti-monopoly law does not essence conflict, only gaining intellectual property rights can not guarantee that the obligee could be made the allegations against the anti-monopoly law. Microsoft has put that its copyright should be exempted from the antitrust laws. U.S. Circuit Court Judge said: Copyright can not get exemption from antitrust laws, it's like baseball players bat can not get the same exemption from the law of tort.

• Dominance enterprise in the market easily include upstream and downstream of its located market into its sphere of influence by relying on intellectual property rights, and stifled market competition in a great area. Based on the anti-monopoly law the implementation of compulsory licensing of intellectual property rights, not restrict innovation and development of enterprises such as Microsoft, but rather to provide competitive platform for competitors.

• It is an exception that the obligee of intellectual property rights were mandatory license being violated anti-monopoly law.

3. the challenge of China's current legal

system from Spundfass case • The prerequisite of Germany federal court judgment about the Spundfass

case is "no restrictions Competition." If Spundfass case occurred in the United States, the Court will make a similar judgment. According to article 2 of "Sherman Act" ， attempted monopolization is illegal. However, if Spundfass case occurred in China, since there is no systematic anti-monopoly law ， it is very difficult for China's courts or other law enforcement agencies in accordance with the ideas to deal with difficult cases.

• On January 24, 2003, Cisco Company prosecuted China's Huawei Company and its subsidiaries to violate their intellectual property in the United States. The case that Cisco Company prosecuted Huawei Company is similar with Germany Spundfass case. Cisco gets a quasi-monopoly in the relevant market by source code of software and technology file, and occupy a market share of 80%in the router market. Reling on its intellectual property which has become a de facto industry standard (ie, a software source code) ， Cisco can easily restrict competitors from entering the market.

• Because Chinese legal circles and business circles in China to hope and concern to the anti-trust law. Chinese enterprises need the anti-monopoly law to protect their rights to participate in market competition. Cisco Systems v. Huawei and Germany Spundfass case are the challenges to our current legal system.

4. China's existing laws related to intellectual property rights to restrict competition and

Analysis • "Contract Law" of 1999 said: “The contract of illegally monopolizing technology, impeding

technological progress and technological achievements in the technology of others, or violating is null and void.”The Supreme People's Court in 2004 issued" on trial Jimmy technology contract disputes and the interpretation of the case law applicable to certain issues "said:

• Limit a party to the contract on the subject of the contract based on technical to research the new technology or to restrict their use of improved technologies, the conditions of inequality that the two sides exchanged improved technologies, including one of its own to improve the technology available to other free, non-reciprocal transfer to the other, free monopolizing or sharing improved intellectual property rights;

• Restrict a party to obtain technology which competes with or is similar provider’s technology from other sources;

• Hinder a party based on market demand, in term of reasonable manner to full implement the contract subject of technology, including obviously unreasonable restrictions on technology acceptance party’s implementing contract bid technology to manufacture goods, or the quantity, variety, price, distribution channels and export markets of the services provided;

• Request for technical acceptance to receive the implementation of technical conditions which is not essential, including the purchase of non-essential technology, raw materials, products, equipment, services and reception of non-essential personnel;

• Unreasonable restrictions on technical acceptance purchasing raw materials, components, the channel or source of products or equipment; • Prohibit the recipient of the technology side to challenge the validity of intellectual property subject to the contract or the technical objection additional conditions.

• "Foreign Trade Law” of 2004 said: if the obliges of intellectual property have one of these act such as to stop permitted person questioned the effectiveness of contracts licensing intellectual property, mandatory package licensing, stipulate granting exclusive conditions in the permit conditions in the contract, and hurt unfair competition and foreign trade order, the State Council department in charge of foreign trade can take the necessary steps to eliminate hazards.

4. China's existing laws related to intellectual property rights to restrict competition and

Analysis• Lack of the basic concepts of relevant market, market dominance• German federal court's sentence to Spundfass case began from the analysis of the relevant

market start ， and pointed out that the patent of obligee itself is a upper market and barrels of synthetic material produced by patent is the downstream market . Unable to correctly define the relevant market, it is not accurately determined the market position of the parties ， also difficult to judge whether it is reasonable to restrict competition and intellectual property-related restrictions or unreasonable restrictions.

• Today ， the anti-monopoly law usually give the same treatment to Intellectual property accorded to the general property rights in any country. When the existence of an intellectual property products to compete effectively, obligee generally has the right of freedom of contract; If a monopoly intellectual property rights, the freedom of contract of obligee will be largely limited.

• The lack of a comprehensive provision about intellectual property restricting competition

• The Supreme People's Court "Explanation" points out the many restrictive clauses in the licensing of intellectual property rights. However, the list is not comprehensive, for example patent consortium, Cross License and so on don’t be made out provision. Only reference to Trips Agreement, the "Foreign Trade Law" pointed out three kinds of restricting competition related intellectual property rights, and said nothing about that under many circumstances the price restrictions, quantitative restrictions and geographical constraints were regarded as core cartels.

• Existing legislation does not have analysis of how restricting competition in the field of intellectual property issues. Transfer of intellectual property rights and intellectual property rights in today's world are given positive evaluation, and intellectual property rights to restrict competition would generally apply the principle of reasonableness, For example, geographical constraints. When evaluating intellectual property restrictive clauses, the interests of both parties should be balanced, for example, questioned the analysis of terms.

5. The prospects for China's intellectual property rights related to anti-monopoly

legislation • Section 54 of the draft anti-monopoly law of 2006 which State Department referred to

the National People's Congress said: " the exercise of intellectual property rights of operators in accordance with the relevant intellectual property laws and administrative regulations, does not apply this Act; However, the operator’s abuse of intellectual property rights, , apply this law. "This shows that intellectual property rights should not generally be exempt from anti-trust laws; in particular behaviors of the abuse of intellectual property rights, ruling out and restricting competition can not be exempted from the anti-monopoly law.

• Despite the general property rights and intellectual property rights have the equal position, but Compared with the general property intellectual property has the apparent characteristics that it is shared and easily violated. To provide guidance to law enforcement agencies, and enhance the legal certainty and predictability in parties’ legal behavior, the State should make special provisions about intellectual property rights permit to restricting competition, for example, the Ordinance of 2004 No. 772 of the commission of European Community.

• The anti-monopoly law related to intellectual property rights should include the basis evaluation for intellectual property restricting competition, and point out basic means how to analyze restricting competition in intellectual property licensing, and regulate whether restrictive clauses usually appearing in licensing of intellectual property apply rational principles or principles of the law itself, and analyze what kind serious harm to competition they could cause in the application of the principle of reasonable restrictions on competition, and so on.

• Thank you ！