What Changes Have Been Proposed By The Follow-Up Regulations?
As discussed in the previous blog on what changes have been introduced to the AMA, the State Administration of Market Regulation (SAMR) released six draft regulations for public comment. By a news release on SAMR’s official website on September 27, 2022, for a specified period of one month for public comments, SAMR received 299 comments on the revised Regulations on the Prohibition of Monopoly Agreements, the revised Regulations on the Prohibition of Abuse of Dominant Market Positions, and the revised Regulations on Prohibition of Abuse of Intellectual Property for Excluding or Restraining Competition. It is believed that SAMR will soon have all such revised regulations issued or adopted by the State Council, with or without changes.
The changes proposed by such revised regulations are quite extensive and intended to clarify many provisions of the AMA. Below is only a summary of some of the proposed changes.
1. Raise of the Threshold for Merger Review
The current threshold for mandatory merger reviews has proved to be too low. By the current State Council Provisions on the Criteria for Filing of Merger Review, if, for the last financial year, at least two of the merger participants each have a turnover exceeding RMB400 Million in China, and the total of the global turnovers of all merger participants exceeds RMB10 Billion or the total of the Chinese turnovers of all merger participants exceeds RMB2 Billion, filing for merger review shall be mandatory. It is reported that MOFCOM and SAMR received a total of 4,165 filings for merger review from August 1, 2008 to December 31, 2021, with 3 mergers disallowed and 52 mergers approved with conditions. An important point to note here is that, by some reporting, the filings for merger reviews are hiking in recent years, with 824 filings in 2021.
As such, the threshold has been proposed to raise as follows: Filing for merger review shall be mandatory if, for the last financial year, at least two of the merger participants each have a turnover exceeding RMB800 Million in China, and a total of global turnovers of all merger participants exceeds RMB12 Billion or the total of the Chinese turnovers of all merger participants exceeds RMB4 Billion.
Of course, this does not mean that there will be no other cases where filing for merger review is mandatory. In fact, by the amended AMA, SAMR even has the authority to initiate an investigation against any merger that is suspected of excluding or restraining competition.
2. Attempt to Define Safe Harbour
As discussed in our previous blog, the amended AMA uses the concept of “market share” in specifying a safe harbour for vertical agreements. The revised Regulations on the Prohibition of Monopoly Agreements, therefore, attempt to define such market share and therefore define the Safe Harbour.
By this published draft, if a business operator proves that the business operator has, (and when combined with the counterparty(ies) to the agreement at issue still has), a market share of less than 15% in the relevant market, the agreement will not be considered a monopoly agreement and will not be prohibited. Of course, the business operator still must satisfy that there is no contrary evidence to prove the exclusion or restraining of competition by such an agreement.
3. Introduction of the Concept of Potential Competitor
The aforesaid draft on monopoly agreements also introduces the concept of “potential competitor” into the Chinese competition law to identify horizontal agreements.
A potential competitor is not a current competitor in the product or service market, but a business operator who “has a plan and the feasibility to enter the relevant market within a period of time”.
The introduction of this concept from international practice could produce a significant impact on the identification of horizontal agreements and will expand the scope of the Chinese competition law.
4. Expansion of Relevant Market to Cover “Innovation Market”
In the revised draft of Regulations on Prohibition of Abuse of Intellectual Property for Excluding or Restraining Competition, the “relevant market” is considered to include the “relevant technology market”, which is further considered to include the “relevant innovation market”.
“Innovation market” refers to the research and development market. This is a clear recognition that competition not only exists in product sales, but also in product research and development.
This is also a clear expansion of the application of the competition law. The guidelines for IP-related anti-monopoly enforcement are expected to be updated accordingly and include further details on how to enforce the anti-monopoly law in the “innovation market”.
5. Outlawing of the License-back Clause?
The aforesaid draft Regulations on Prohibition of Abuse of Intellectual Property for Excluding or Restraining Competition also contain provisions on multiple IP-related competition law issues, such as licensing clauses, essential patents and essential facilities. It is especially worth noting its provisions on the license-back clause.
A license-back clause is very typical in an IP license agreement, which requires the licensee to license back to the licensor improvements to the intellectual property and/or other rights generated from practising the licensed intellectual property.
A license-back clause, if on a non-exclusive basis, may be okay under the Chinese competition law. If a license-back clause is made on an exclusive or sole basis, however, it would be treated as unreasonable conditions attached to licensing and considered anti-competitive under this draft Regulation.
Looking for something to read next? Check out the other posts in the blog series on new developments in the anti-monopoly law in the people’s republic of China.
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