FRAND (And Industrial Policy) in China

Interoperability, Intellectual Property, Competition Policy and Antitrust, Patents and Standards

Article Snapshot

Author(s)

Daniel Sokol and Wentong Zheng

Source

in Cambridge Handbook of Technical Standardization Law, Vol. 1: Antitrust and Patents, Jorge L. Contreras, ed., New York: Cambridge Univ. Press, 2017, pp. 306-318

Summary

Some patents must be licensed under fair, reasonable, and non-discriminatory (FRAND) terms. China’s Anti-Monopoly Law (AML) empowers Chinese authorities to decide cases involving such licenses. Because the Chinese economy is so large, Chinese decisions will affect licensing worldwide.

Policy Relevance

Chinese policies favoring Chinese firms might affect the outcome of Chinese FRAND cases. Such a short-sighted policy will harm China.

Main Points

  • The Chinese AML became effective in 2008; key economic goals of the AML (such as promoting consumer welfare) conflict with key political goals (such as promoting the socialist market economy).
     
  • Compared to the United States and Europe, China has injects a considerable amount of industrial policy into its competition policy, including policies that favor Chinese firms.
     
  • The Chinese legal system lacks transparency, potentially masking any tendency by authorities to disguise political decisions as antitrust decisions.
     
  • Article 55 of the AML prohibits attempts to restrict market competition by abusing intellectual property (IP) rights.
     
  • Globally, standards are usually set by private standard-setting organizations; however, in China, technical standards are set by the state.
     
  • In 2014, Chinese regulators ruled that only “indispensable” patented technologies could be incorporated in standards, and the technology would not be included in the standard unless the patent holder agrees to license the patent royalty free, or on FRAND terms.
     
  • Before the 2014 regulation was passed, some Chinese courts ruled that patent owners must license patents at prices significantly lower than normal if the patented technology was needed to comply with a standard; it is not clear how those cases would be decided today.
     
  • The outcome of the two FRAND cases decided by Chinese courts suggests that the courts were influenced by political pressure to favor Chinese firms over Western patent-holders.
     
  • Firms will be less willing to invest in China if they believe that the Chinese antitrust system is rigged against them; also, policies that disfavor patent owners will ultimately harm Chinese patent owners and hold back innovation in China.
     

 

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