Antitrust issues in patent law amendments

By Ken Dai, Dentons
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The Patent Law (Draft Amendments) was released for comment on 4 January 2019. In the Reasons of Amendments Necessity, it is stated that new problems surrounding the abuse of patent right are being found as the Chinese economy and society evolve.

戴健民-Ken-Dai-大成律师事务所合伙人-Partner-Dentons
Ken DAI
Partner
Dentons

The Anti-Monopoly Law has specific provisions on the behaviour of eliminating or restricting competition through abuse of Intellectual Property Rights (IPR), with article 55 stating that, “Where the operators are found to eliminate or restrict competition through the abuse of the [IPR], this law applies”. In Chinese administrative and judicial practice, such abuse cases are not rare, and include the 2015 Qualcomm case ruled by the National Development and Reform Commission (NDRC) and the Huawei v IDC case in 2013. The anti-monopoly promulgation pertaining to the abuse of patent right in this draft therefore surely warrants attention.

Prevention of the abuse of patent rights. In the draft, article 20 is added, laying down a principle preventing the abuse of patent rights: “The applicant shall make application and the patentee shall exercise the patent right with good faith, and shall not abuse the patent right in prejudice of public interests or other people’s legitimate rights and interests, or to eliminate or constrain competition.” A similar provision, namely article 14, was added in the 2015 Patent Law Amendments (Draft for Review). The difference is that this draft consolidates two sentences into one.

This author understands that the principle of good faith shall be followed both in patent application and patent right exercising, and the abuse of the patent right in prejudice of public interests and other people’s legitimate rights, or to eliminate or constrain competition, is forbidden in both cases.

Two types of anti-monopoly problem that might occur during the application for patent and the exercise of the patent right, yet which haven’t been found in Chinese administrative and judicial practice, will now be analyzed, along with how these problems should be regulated under Chinese law, and regulations through which the amendments will be deliberated.

Abuse of the extension of patent term. Article 43.2 added a provision that the patent term for innovative drugs will be extended for no longer than five years, and the total patent term for innovative drugs shall not be longer than 14 years after market entry. With this addition, however, there is a risk that the patentee might abuse the extension of the patent term to eliminate or constrain competition. There are already punishments against such behaviour in foreign jurisdictions, the case of AstraZeneca abusing the market dominance, as trialled in an EU court in 2012, being the most typical one.

In this case, AstraZeneca made misleading statements to the patent authority regarding the time it obtained the first marketing authorization, which enabled it to have extra patent protection, delaying the entry to the market of generics. The EU court found this behaviour as not being a fair competition act, and against competition law.

The extension of the patent term is an added provision in the draft, but article 20 has paved the way for the act of obtaining patent term extension through false statements. Moreover, the extension of the patent term as compensation, may it be included in the patent application or in the patent right exercise, will fall within the scope of article 20.

Patent ambush. Another monopoly act that might occur in relation with patent application and patent right exercise, and could be regulated under article 20 of the draft, is patent ambush. Patent ambush is a situation where the applicant or the patentee withholds information, including its patent, patent application or application right, from the standard-setting organizations when developing the standards, and files the application or sues the implementer of the standards for infringement, and requests the payment of patent royalty, upon its technology being included in the standards. This act is challenged by the antitrust law enforcements both in the US and EU. Rambus Inc v FTC is such a case.

In the Rambus case, the Court of Appeals in the US ruled that if and where the competition authority demonstrated that Rambus, which is obligated to disclose the patent information, would have its technology ruled out by the standards due to an alternative technology available if the party discloses such information, the non-disclosure would be in violation of the provisions on attempted monopoly under the US Sherman Act.

There is no such attempted monopoly provision in China. Patent ambush regulation is urgently needed due to the development of the Chinese telecommunications industry and the deepening involvement of Chinese companies in the standardization organizations and standard-setting process. The anti-monopoly issues in the Standard Essential Patents (SEP) area in China are mostly in relation to the abuse of patent rights, and the current regulation cannot cover patent ambush behaviour in practice.

There is a tendency to introduce the good faith principle in judicial practice. For example, the Guidelines on the Trials of Standard Essential Patents Disputes, released by Guangdong Provincial Higher People’s Court, requests a review on whether the SEP holder follows the good faith principle when participating in activities in relation with SEPs. The Patent Infringement Judgment (2017), released by Beijing Higher People’s Court, explicitly defines patent ambush as obtaining the patent right with bad faith, falling into the scope of abuse of the patent right plea in patent infringement cases.

Article 20 in the draft explicitly promulgates that the applicant shall apply for the patent right with good faith and shall not abuse the right, which means that that applicant shall make true representations to the patent authority, and make sure that its statement about the patent right and patent application to the standardization organizations shall be consistent, and that the applicant shall not abuse the right to eliminate or restrict competition. This principle provision pays the way for patent ambush regulation.

A number of major innovations are found in the articles of the draft, which demonstrate the resolution of China to step up IPR protection and show that it has given thought to the impact of eliminating or constraining competition through patent right abuse. Nevertheless, more refined provisions with further clarification are needed to regulate problems such as the patent term extension for innovative drugs and patent ambush.

Ken Dai is a partner at Dentons

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