computer law & security review 25 (2009) 352–366

available at www.sciencedirect.com

www.compseconline.com/publications/prodclaw.htm

Intellectual property (IP) protection versus IP abuses: The

recent development of Chinese IP abuse rules and
recommendations for foreign technology-driven companies

Yijun Tian
University of Technology Sydney Law School, New South Wales, Australia

abstract

Keywords: This paper will focus on the recent development of the Chinese IP abuse legislation and its
Intellectual property potential impact on IP protection and the operation of technology-driven foreign enter-
IP abuse prises in China. Firstly, it will provide a brief overview of the TRIPS’s requirements on IPR
Antitrust abuse and technology transfer, and the recent development of IP abuse laws at the
IP commercialization domestic level, particularly in the US and the EC. Secondly, by drawing a comparison with
China similar laws in the US and the EC, this paper will critically examine the recent development
Foreign investment of the Chinese laws regarding technology transfer and IP abuse prevention, including both
Technology-driven company the recently enacted Anti-Monopoly Law 2008 (AML) and other prior-AML regulations.
Thirdly, the paper will examine both opportunities and potential risks these laws may
bring 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 will
provide some practical suggestions for foreign IP holders and technology-driven companies
to operate in China, such as useful defences against potential IP abuse claims, and other
strategies for flexibly applying the IP abuse rules and better participating in future IP abuse
legislative process in China.
ª 2009 Dr. Yijun Tian. Published by Elsevier Ltd. All rights reserved.

1. Introduction tools, than labour. Today’s most technologically advanced econ-

The World Development Report 1999 stated:
For countries in the vanguard of the world economy, the balance
between 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
omies are truly knowledge-based.1
Along with advances in technology we have entered an era
of the ‘knowledge economy’. Knowledge, education, and
intellectual capital are no longer exogenous factors that fall
outside our economic system. As Stanford economist
Professor 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.

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
 computer law & security review 25 (2009) 352–366
‘knowledge’ has become the ‘basic form of capital’ and ‘the
third factor of production in leading economies’.2 ‘Economic
growth’ 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 increasingly
influential factor in economic growth. This consequently
justifies the ‘fundamental and catalysing role’ of Intellectual
Property Rights (IPRs) in the current knowledge economy,
since IP rules can directly determine the manner of knowledge
distribution, the cost of using intellectual resources, and
public access to technology and a variety of intellectual
resources generally.4 As one commentator pointed out, IPRs
constitute the ‘legal foundation’ upon which the ‘global
knowledge-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 the
public’s enjoyment of intellectual products, and adversely
impact on scientific 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 public
users, researchers and late comers to the IPR market, and
consequently represents a deterrent to further creation or
innovation. Thus, it is important to coordinate the relationship
between IP laws and antitrust laws, and to make them work in
harmony to enhance the efficient transfer of technology, inno-
vation, and the sustainable growth of national economic activity.
In fact, the interrelationship between IP and antitrust laws
and their impact on the transmission of advances in tech-
nology and innovation has been one of the central issues in
international IP debates for many years. In the current IP
expansion environment, the laws on IP abuse prevention and
technology transfer are playing an increasingly important role
in striking a sound balance between economic freedom and
the protection of competition, and ensuring IPR holders and
technology-driven companies to commercialize their IPRs in
an appropriate and sustainable way.
The Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS Agreement), as one of most important
2
Ibid. As the commentators noted, ‘[f]or the last two hundred
years, 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 also
introduced the differences of Romer’s theory and neo-classical
economic 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 and
knowledge are an increasingly important part of trade. Most of
the value of new medicines and other high technology products
lies in the amount of invention, innovation, research, design and
testing involved’).
4
See Drahos, Peter, ‘Intellectual Property Rights in the Knowl-
edge Economy’ in David Rooney (ed), Handbook on the Knowledge
Economy (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 Economic
Order (1999) Intellectual Property Law Server http://www.
intelproplaw.com/Copyright/Forum/msg/498.shtml at 8 March
2009.
6
Tian, Yijun. Re-thinking Intellectual Property (2009), at 73.
353
international IP treaties, has set preventing the ‘abuse of
Intellectual Property Rights’ and enhancing ‘international
technology transfer’ as one of its key principles.7 The TRIPS
Agreement explicitly provides that the World Trade Organiza-
tion (WTO) member states may adopt any appropriate
measures to prevent the ‘abuse of IPRs’ and any conducts that
unreasonably restrains trade or the transfer of technology
internationally.8
China is an important member of the WTO with nearly one-
quarter of the world’s population. It has become one of the
fastest 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 on
a purchasing power parity (PPP) basis.10 Any international IP
commercialization, anti-monopoly or IP abuse prevention
strategy cannot afford to simply ignore a nation with such
a market. However, until now, few studies have been done to the
Chinese legislative regime on IP abuse and technology transfer.
2. Requirement under TRIPS and major
forms of IP abuses
The TRIPS has been the most significant development in the
international IP arena in the twentieth century and an
‘ineluctable consequence of increased global economic inter-
dependence’.11 It is often deemed a compromise between
developing and developed nations in international trade
negotiation. Developing nations promise to provide strong IP
protection to foreign IP products. In return, developed nations
promise to provide concessions to developing nations in
labour-intensive industries, such as agriculture and textiles.12
In response to development concerns, Articles 7 and 8 of
the TRIPS lay down the important principles and objectives of
the Agreement. Article 7 requires that the protection and
enforcement of IPRs should ‘contribute to the promotion of
technological innovation and to the transfer and dissemination of
technology’, the enhancement of ‘social and economic welfare’,
as well as a sound balance of rights and obligations of
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 offi-
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 10
March 2009.
11
See Okediji, Ruth L. ‘Back to Bilateralism? Pendulum Swings in
International Intellectual Property Protection’ (2003–2004)1
University of Ottawa Law & Technology Journal 125, 127. Many
commentators regarded the TRIPS Agreement as ‘the highest
expression to date of binding IP law in the international arena’.
See Lovoi, Jeanmarie, ‘Note: Competing Interests: Anti-Piracy
Efforts Triumph Under TRIPS But New Copying Technology
Undermines The Success’ (1999) 25 Brooklyn Journal of International
Law 445, 461.
12
See Schiappacasse, Mikhaelle. ‘Intellectual Property Rights in
China: Technology Transfers and Economic Development’ (2004)
2 Buffalo Intellectual Property Law Journal 164, 171.
354 computer law & security review 25 (2009) 352–366
producers and users of technological knowledge.13 Moreover,
Article 8 of the TRIPS explicitly provides:
Appropriate measures, provided that they are consistent with the
provisions of this Agreement, may be needed to prevent the abuse
of 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 adopt
any measures they think appropriate to prohibit IPR abuse and
any other conduct that may unreasonably restrain trade or
international technology transfer.14 As a United Nations study
has pointed out, this article to a large extent reflects the view
of many developing countries, such as India, during the
Uruguay Round negotiations, that a ‘main objective of TRIPS
should be to provide mechanisms to restrain competitive abuses
brought about by reliance on IPR protection’.15
This may be the first time that the term ‘abuse of Intellectual
Property Rights’ appears in an international agreement. It is also
the first time that the international community put ‘IP abuse’,
‘innovation promotion’, ‘anti-competition’ and ‘technology
transfer’ issues altogether in one international document.
The TRIPS Agreement also includes specific provisions on
anti-competitive matters. For instance, Article 31 specified the
conditions 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 on
anticompetitive licensing practices and conditions that
restrain trade.16 Article 40 of TRIPS imposes an obligation on
member states to act on ‘licensing practices or conditions
pertaining to IPRs, which restrain competition’ if they ‘have
adverse effects on trade and may impede the transfer and
dissemination of technology’.17
It is clear that these provisions have a narrower scope of
application than Article 8. They contain rules which, with
have regard to only some of the conduct of IPR holders that is
listed in Article 8, and may establish obligations on member
states that are not mandated by Article 8. As some commen-
tators have observed, the TRIPS Agreement has not placed
significant limitations on the authority of WTO member states
to ‘take steps to control anticompetitive practices’.18 For
example, the TRIPS Agreement does not limit the remedial
measures that each member state may impose. In addition to
‘compulsory licensing’, member states may apply other
remedies against antitrust infringement, such as injunction,
damages and fines.19 Since the TRIPS Agreement only sets up
general principles for dealing with IP abuse, anticompetitive
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/ResourceBook
Index.htm at 16 December 2008.
16
TRIPS Agreement, Sec 8, Art 40.
17
TRIPS Agreement, Sec 8, Art 40.1. See also TRIPS Resource 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?, 7J Int’l Econ. L No. 3, 2004, at 693.
activities and technology transfer issues, it mainly relies on
members’ states themselves to make specific law and policies
to ‘define the concept of abuses through appropriate domestic
measures’20 and to regulate the activities of IPR holders when
commercializing their IP products/services.
It is clear that the scope of IP abuse under Article 8 of the
TRIPS Agreement is very broad. As the United Nations TRIPS and
Development Resources Book has recognised, member states may
consider conduct of IPR holders to be abusive ‘regardless of
whether the enterprise in question dominates the market or
not, and regardless of whether there is an anticompetitive use or
simply a use of an IPR which defeats its purpose, e.g., the
purpose of innovation or of dissemination of technology’.21 In
the other words, it is not limited to prohibitions under the
antitrust law (i.e. abuse of dominant market position), but may
cover any ‘illegitimate use of IP’ which is ‘contrary to the basis
and/or the objectives of IPR protection’.22 There are various
types of IP abuse, such as using IP lawsuits as a tool against
competitors, using IP licensing agreements against new
entrants to the market, and using contract law to expand the
scope or term of IPR protection.23 However, most existing
legislation and legal guidelines mainly focuses on restraints of IP
licensing arrangements, and technology transfer issues.
Although it is the idea of developing countries’ to include
provisions 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 not
developed sophisticated laws and policies to enforce antitrust
law in IP areas. In fact, some countries, such as China, have
only set up their antitrust laws recently. By contrast, in
developed countries, particularly in the US and the EU,
sophisticated laws and policies on coordinating the relation-
ship between IP and antitrust laws and enhancing technology
transfer have developed over the past two decades.
For example, in Europe, the Europe Commission (EC) issued
its first united Technology Transfer Block Exemption Regulation –
Commission Regulation 240/1996 (‘TTBER 1996’) – in 1996 which
provide a general guideline on how to apply anti-competition
provisions of the Treaty of Rome to certain categories of tech-
nology transfer agreements.25 The EC conducted a regulatory
review on the application effects of the TTBER 1996 and enacted
its New Technology Transfer Block Exemption Regulation (‘TTBER
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 the
Nineties’ 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 the
application 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).
 computer law & security review 25 (2009) 352–366
2004’) – Commission Regulation 123/2004 – in April 2004,26 in order
to 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’’ for prohibiting
anticompetitive restraints in patent licensing agreements in
the 1970s.27 Moreover, in April 1995, the DOJ and the Federal
Trade Commission (FTC) enacted a jointed document Antitrust
Guidelines for the Licensing of Intellectual Property (the Guidelines
1995), which provides some general approaches (such as Rule
of Reason Approach) and principles for determining IP-related
monopolistic activities.28 In 2007, the DOJ and FTC issued
a more detailed document – Antitrust Enforcement & IPRs:
Promoting Innovation and Competition (hereinafter ‘the Report
2007’) in order to facilitate the understanding and application of
the 1995 Guidelines and to improve the degree of certainty
involved in IP licensing arrangements.
The legislative experiences of the US and EC are arguably
very valuable for developing countries that do not have
sophisticated legal experiences in enforcing antitrust laws in
IPR 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 and
technology transfer regulations in the EC and the US.
3. Recent developments in IP abuse and
technology transfer laws in China
As noted above, China is the second-largest economy in the
world and has nearly one-quarter of the world’s population.
China, as a new rising economy, does not need to worry about
the issue – ‘locked by old technology’. Thus, any international
enterprises, particularly technology-driving companies, cannot
afford to simply ignore a nation with such a big market. It is
important for foreign IPR holders and technology-driven
companies to have a sound understanding of the Chinese laws
on technology transfer and IP abuse in order that they can avoid
potential legal risk and commercialize their IPRs in an appro-
priate way.
After China entered the WTO in 2001 it sped up its efforts to
become a part of the international IPR community, and
enacted a number of laws and other regulations on technology
transfer, anti-competition and IP abuse prevention. In
particular, the last 12 months have seen China enact its first
antitrust law – Anti-Monopoly Law 2008 (AML). In line with the
26
See European Union’s new Technology Transfer Block Exemption
Regulation (‘‘TTBER 2004’’) (Commission Regulation (EC) No. 772/2004
of 27 April 2004 on the application of Article 81(3) of the Treaty 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 The TTBER 2004 replaces Commission Regulation (EC) No
240/96 of 31 January 1996 on the application of Article 85(3) of the
Treaty to certain categories of technology transfer agreements (OJ L 31,
9.2.1996, p. 2).
27
See Robert C. Lind, Anya V. Kleymenova, Marie Miauton and
Paul 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 Trade
Commission (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.
355
requirements of Article 8 of the TRIPS Agreement, the AML
includes a special article on IP protection and IP abuse
prevention (Article 55). It is the first time that China has
explicitly included the term – ‘the abuse of intellectual prop-
erty rights’ – in its domestic law. Nevertheless, in order to have
a comprehensive picture on the development of China’s
legislation 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 AML
and non-AML laws are currently valid, and serve as important
components of the current Chinese IP Abuse regime.
3.1. Non-AML laws
Before the AML came into effect, a small range of domestic
laws in China contained certain provisions on technology
transfer and various forms of ‘IP abuse’.29 General speaking,
prior to the AML, provisions focused on IP abuse could be
found 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 versus
nine No-Nos
The legal group of laws involve the laws on contract. The
Contract Law 1999 contained some specific provisions on IP abuse
caused by technology/technology transfer contracts. It explic-
itly provided that any technology contract, which ‘illegally
monopolizes technology, impairs technological progress/advancement
or infringes on the technology of a third party, would be invalid’.30
It further provided that the scope of the patent exploration or the
use 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 reflected the concerns on IP
abuse caused by technology contracts, but it was too general and
has not provided specific provision or standards for determining
whether a technological contract has ‘illegally monopolized
technology or impaired technological progress’.
Six years later, in the Interpretation of the Supreme People’s
Court Concerning Some Issues on Application of Law for the
Trial of Cases on Disputes over Technology Contracts, which
came into force in January 2005 (hereinafter the ‘Interpretation
2005’),32 the Supreme People’s Court listed six specific circum-
stances/situations which would be deemed as ‘illegally
monopolizing technology and impairing technological progress’
in Article 329 of the Contract Law 1999, including:33
29
Zhang Hui, Gao Guozheng and Guo Bingna, ‘Impacts of the
Chinese Anti-Monopoly Law on Intellectual Property: More
Expectation?’ In China IP Law Website at http://www.chinaiprlaw.
cn/file/2008080213416.html at 12 December 2008.
30
Contract Law of the People’s Republic of China 1999 (Contract Law
1999), 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 Disputes
over Technology Contracts 2005 (‘Interpretation 2005’), section 10.
356 computer law & security review 25 (2009) 352–366
1) Restricting one party from making new research and devel-
opment on the basis of the contractual subject technology;
2) Restricting one party from obtaining similar technology from
competitors of the technology provider in the contract;
3) Restricting the technology accepter from reasonably
exploring/commercializing the contractual subject tech-
nology (including unreasonable restrictions on the quantity,
varieties, price, sales channel or export market of the
contractual 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 the
technology accepter to purchase raw materials, parts and
components, products or equipment, and so forth;
6) Prohibiting the technology accepter from making objections
to 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 inter-
pretation 2005 is quite similar with the approach that the US
adopted in its Patent Licensing regulation in the 1970s. In order
to better facilitate the application of the antitrust law in IP areas,
in the 1970s the US Antitrust Division of the Department of
Justice announced a ‘‘watch list’’ of nine specified licensing
practices that would be viewed as anticompetitive restraints of
trade in licensing agreements, including patent pools. They are
often referred to as the ‘‘Nine No-No’s’’:34
1) Royalties not reasonably related to sales of patented
products;
2) Restraints on licensees’ commerce outside the scope of the
patent (tie-outs);
3) Requiring the licensee to purchase unpatented material
from the licensor (tie-ins);
4) Mandatory package licensing;
5) Requiring the licensee to assign to the patentee patents that
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; and
9) Setting minimum prices on resale of the patent products.
The DOJ intended to apply specific regulations to prevent
patent holders from ‘extending their patent monopolies to
unpatented supplies’, such as the control over further
improvements of their innovations, price determination, and
the control over market allocations.35 This ‘specific listing’
34
See Lind, Kleymenova, et al., above n 27, 23.
35
Gilbert & Shapiro, above n 23.
approach was easy to understand and enforce. But many
commentators criticized that the list was overly ‘specific’ and
unnecessary, and some provisions on the list have never been
used.36 They argued that most Patent licensing arrangements
have pro-competitive effects and claimed that ‘unconstrained
patent licensing increases the value of patents and encourages
licensing and innovation’.37
Since the in the Interpretation 2005 adopted a listing approach
which is similar with that of the US-Nine-No-No’s regulation, it
would arguably import both advantages and disadvantages of
this approach. Like the US regulation, the provisions in the
Interpretation 2005 are relatively specific and easy to apply, but
they mainly focus on the rights and obligations of the parties
within technology contracts, particularly the protection of the
technology accepters (assignees/licensees). They have not paid
much attention to the impacts of the technology owners’
behaviour on other competitors (non-licensees), and how these
competitors’ rights in the market can be protected. Neither the
Nine No-No’s regulation nor the Interpretation 2005 has provided
any exemptions or immunity for reasonable licensing arrange-
ments, which have been included in the prohibition lists but
may have pro-competitive effects. Moreover, none of them
provided a detailed guideline on how to determine whether an
act of IPR holder has ‘restrict[ed] technological competition and
technological development’, or provided a general approach for
their 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 legal
certainty for the use of IP licenses.
3.1.2. Foreign trade law versus EU regulation 2004
The second group is the law and regulation related to foreign
trade. Trading with foreign countries has provided an impor-
tant opportunity for China to engage with the broader inter-
national community, and to better understand international
legal practices. Thus, it is not surprising that many important
legislative attempts often initiate from foreign trade law
areas. This includes legislative attempts addressing tech-
nology transfers and IP licensing issues. In particular, after
China’s access to the WTO in 2001, remarkable progress was
made in improving its legal regime, including its laws on
foreign 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
36
Ibid, 286. Gilbert and Shapiro further state: ‘In actuality, of the
sixteen cases filed by the division’s Intellectual Property Section
between the late 1960s and the late 1970s, only half specifically
addressed any of the nine practices. Moreover, almost all of these
cases were litigated under a rule of reason rather than per se
illegality’.
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’s
WTO Compliance, stated: ‘China has undertaken substantial
efforts in this regard, as it has revised or adopted a wide range of
laws, regulations and other measures. While some problems
remain, China did a relatively good job of overhauling its legal
regime.’ See USTR, 2004 USTR Report to Congress on China’s
WTO Compliance, 4, http://www.ustr.gov/assets/Document_Library/
Reports_Publications/2004/asset_upload_file281_6986.pdf; at 10
January 2009, at 5.
 computer law & security review 25 (2009) 352–366
Regulations 2002)39 may be the first regulation in China which
deals 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 not
contain.40 Most of these clauses have been adopted by the
later Interpretation 2005 (introduced above) to interpret the
specific circumstances/situations of ‘illegally monopolizing
technology and impairing technological progress’ under Article 329
of the Contract Law 1999.41
Moreover, in compliance with the TRIPS Agreement, the
amended Foreign Trade Law 2004 includes a special chapter on
‘Foreign-trade-related IP protection’.42 Article 30 of the law
explicitly prohibited any of three acts committed by IPR
holders: (1) hindering the licensee from questioning the validity
of the IPR involved in the license agreement; (2) conducting
forced package licensing; or (3) providing exclusive sale back
conditions in the license agreement, etc. and, at the same time,
endangering the fair competition order of foreign trade.43
39
The Regulations of the People’s Republic of China on Administration
of Import and Export of Technologies have been adopted by the 46th
Regular 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 import
contract 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 any
unnecessary technology, raw material, product, equipment or
service;
(2) Requiring the receiving party to pay exploitation fee for
a technology when the term of validity of the patent right in
which has expired or the patent right of which has been
invalidated, or to undertake other relevant obligations;
(3) Restricting the receiving party from improving the technology
supplied by the supplying party, or restricting the receiving
party from using the improved technology;
(4) Restricting the receiving party from obtaining technology
similar to that supplied by the supplying party from other
sources or from obtaining a competing technology;
(5) Unduly restricting the receiving party from purchasing raw
material, 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 the
imported 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.
357
Generally speaking, these provisions44 are similar with the
counterparts of the EC’s new Technology Transfer Block Exemp-
tion Regulation of April 2004 (‘‘TTBER 2004’’).45 The TTBER 2004
set 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 IPRs
and (3) restrictions on the licensee’s ability to exploit its own
technology or on its ability to develop new technology (where
the license is granted to a non-competitor).46
Moreover, the EC has noted that, in most cases, technology
licensing agreements ‘have positive effects that outweigh their
restrictive effects on competition’.47 Thus, the TTBER 2004 sets
up new ‘block exemption’ provisions in order to strike a sound
balance between the IPR protection and the protection of
competition and to create ‘an area of certainty for most
licensing agreements’.48 The EC also enacted a very detailed
TTBER Guideline 2004 to facilitate the implementation the
TTBER 2004, which includes both general approaches and
specific examples for helping agencies to determine IP abuse
and monopolistic activities.49
By contrast, neither the Regulation 2002 nor the Foreign Trade
Law 2004 has provided any useful exemptions for activities on
their licensing practice prohibition lists. It does not seem that
the pro-competitive effects of certain restraint arrangements
in technology licensing agreements has been recognized and
reflected in these legislations. Moreover, none of them
provided any EC-style detailed guidelines for facilitating the
understanding and application of these prohibitions either.
3.1.3. Anti-unfair competition versus antitrust law
The third group is anti-unfair competition law. The Anti-unfair
Competition Law of the People’s Republic of China 1993 includes
some general provisions on ‘tying’ arrangement. It explicitly
44
Provisions in the Foreign Trade Law 2004, the Regulations 2002
and the Interpretation 2005.
45
See European Union’s new Technology Transfer Block Exemption
Regulation (‘‘TTBER 2004’’) (Commission Regulation (EC) No. 772/2004
of 27 April 2004 on the application of Article 81(3) of the Treaty 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 replaces 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 transfer
agreements (OJ L 31, 9.2.1996, p. 2).
46
See TTBER 2004, Article 5, Section 1(a) (b) (c) and Section 2. See
also Jones, ‘Licensing in China’, above n 9 at 14 (providing
a summary of core prohibition provisions in the TTBER 2004).
47
The EC official website explicitly states: ‘Such agreements will
usually improve economic efficiency and be pro-competitive as
they can reduce duplication of research and development,
strengthen the incentive for the initial research and develop-
ment, spur incremental innovation, facilitate diffusion and
generate product market competition.’ See EUROPA, Technology
transfer 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 also
Commission Notice – Guidelines on the application of Article 81 of the EC
Treaty to technology transfer agreements [Official 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 2004
provides very detailed instructions on applications of the TTBER
2004 and Art 81 of the EC Treaty in general.
358 computer law & security review 25 (2009) 352–366
prohibits sellers from selling products to consumers by forcing
them to purchase additional products that they are unwilling to
purchase, or by imposing unreasonable conditions.50 It is note-
worthy that, as some have commentators pointed out, the Anti-
Unfair Competition Law in China does ‘not deal with matters
pertaining to antitrust issues’ (such as the abuse of dominant
position),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 misuse
The last group is IP law. Like patent laws in other countries, the
Chinese Patent Law 2000 contains some general provisions on
‘compulsory licensing’ as one of the possible remedies for IP
abuse.53 The Patent Law 2000 allows any applicant, which is
qualified to exploit the invention or utility model, to make
requests for ‘authorization from the patentee of an invention or
utility model to exploit its or his patent on reasonable terms’.54 If
an applicant has not been successful in obtaining the relevant
authorization within a reasonable period of time, upon the
application of the applicant, the patent administrative depart-
ment of the State Council may grant the applicant a compulsory
license to exploit the patent for invention or utility model.
It is also noteworthy that the Patent Law 2000 was recently
amended, and the Patent Law 2009 further clarifies and revised
the requirements on compulsory licensing. Article 50 of the
Patent Law 2009 entitles the State Intellectual Property Office
(SIPO) to grant a compulsory license in three circumstances:
1) The patentee’s exploitation of the patented technology is
found to be insufficient within a prescribed timeframe;
50
It is noteworthy that, as some foreign practitioners have
observed, ‘the Anti-Unfair Competition Law in China does not
deal with matters pertaining to antitrust issues, but as the market
develops in China, it is likely to gain importance’. See LEHMAN,
What is the situation between IPRs and unfair competition in China? at
http://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 unfair
competition, safeguard the legal rights and interests of managers
and consumers’).
53
See Patent Law of the People’s Republic of China (2000 Revision)
(Adopted at the 4th Session of the Standing Committee of the
Sixth National People’s Congress on March 12, 1984, Articles 48
and 49. Article 48: Where any entity which is qualified to exploit
the invention or utility model has made requests for authoriza-
tion from the patentee of an invention or utility model to exploit
its or his patent on reasonable terms and such efforts have not
been successful within a reasonable period of time, the patent
administrative department of the State Council may, upon the
application of that entity, grant a compulsory license to exploit
the patent for invention or utility model. Article 49: Where
a 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 compulsory
license to exploit the patent for invention or utility model.
54
Patent Law 2000, Article 48.
2) The patentee’s exploitation of the patented technology is
found to be eliminating or restricting competition; or
3) The application is for the making and exportation of
a patented medicine to certain countries and regions for the
benefit of public health in accordance with international
treaties.55
However, like other regulations introduced above, the new
patent law has not provided specific guidelines on the appli-
cation of ‘compulsory licensing’ provisions, such as how to
determine ‘elimination or restriction of competition’.
3.1.5. Summary: achievements and limitations
In summary, the provisions in the existing Chinese laws
(prior-AML laws) have covered some major forms of IP abuse
activities, such as monopoly pricing, restrictions on the
number of products, market division, cross-licensing and
patent cooperation agreements, exclusive provisions (i.e.
provisions to prevent licensees from questioning the validity
of the IP in licensing agreements, and provisions to prohibit
compulsory 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 provide
general requirements on prohibited IP licensing arrangements,
such as Foreign Trade Law and Patent Law, but fail to provide
detailed guidelines to explain how to apply these requirements
in practice. Some only focus on very narrow subject matter or
single forms of IP abuse. For example, the Contract Law 1999 and
the Regulation 2002 mainly focus on the protection of tech-
nology accepters in technology contracts or technology
importing contracts. The Anti-Unfair Competition Law only
focuses on tying sale. Unlike the counterparts in the US and EU
laws, they have distinguished licensing transactions that occur
between competing and non-competing undertakings.57
Secondly, they have failed to explain the general approach that
the competent agencies employ in their evaluations of
licensing agreements under the applicable antitrust law, and
the way that they determine IP abuses. Thirdly, none of them
provides the immunity for the licensing arrangements that are
on the prohibition lists but have pro-competitive overweight
anti-competitive effects. Consequently, they have arguably not
struck a sound balance between IP licensees and licensers, and
have not created sufficient legal certainty for the application of
55
Patent Law 2009, Article 50. Granting a compulsory license
‘‘for the making and exportation of a patented medicine to
certain countries and regions for the benefit of public health in
accordance with international treaties’’ is a newly introduced
circumstance, which the old law does not have. See also, Zeldin,
Wendy. ‘China: Major Amendment of Patent Law’, in Law Library
of 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’’ restrictions
between non-competitors with market shares below 30% and
between competitors with market shares below 20%’ See Gilbert,
Richard. ‘‘Converging Doctrines? US and EU Antitrust Policy for
the Licensing of Intellectual Property’’ 2004, at 3, at http://works.
bepress.com/richard_gilbert/3,at 12 January 2009.
 computer law & security review 25 (2009) 352–366
IP licensing arrangements. Lastly, as introduced above, these
provisions spread across various types of laws. This loose
structure renders it difficult 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 arguably
increased 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 and
has come into effect on 1 August last year. It is the first anti-
monopoly law in China. It has been viewed as an ‘economic
constitution’,58 and a ‘milestone of the country’s efforts in
promoting a fair competition market and cracking down on
monopoly activities’.59 The AML is an important supplement to
the current IP abuse regulations.
3.2.1. General prohibition and exemptions: AML versus
EC treaty
Like its counterparts in the EC Treaty of Rome, the AML contains
three general prohibitions. Chapter II of the AML contains
a prohibition on ‘monopolistic agreement’. Articles 13 and 14
provide a prohibited list of agreements that have monopolistic
effects, 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 provides
a prohibition on the ‘abuse of a dominant market position’.62
Chapter IV focuses on ‘concentration activities’.63 Moreover, the
AML provides a number of exceptions relating to the purposes
of the agreements.64 One notable caveat in Chapter II of the
AML is Article 15, which authorizes a competent anti-
monopoly authority to approve exemptions from Articles 13
and 14 if certain monopoly agreements among the operators
are beneficial to:
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. Many
foreign governments or organizations, such as governments and
business councils of the US and the EU, feel optimistic about the
AML, and believe that the AML is a ‘milestone in Chinese economic
policy’ and a significant step of China towards a real market
economy. 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, exclusive
dealing, tied sales and price discrimination, but also set out the
specific 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 acquisition
of control over other business operators via asset or equity
purchase, or (3) situations where a business operator acquires
control or decisive influence over other business operators by
contract or any other means).
64
AML, Art 15.
359
1) Improve technology or research and develop new products;
2) Upgrade product quality, reduce costs, improve efficiency,
unify product specifications and standards, or realize divi-
sion of work based on specialization;
3) Improve operational efficiency 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 justifiable interests in the foreign trade or
foreign economic cooperation; or
7) Other circumstances as stipulated by laws and the State
Council.
It further provided that, where a monopoly agreement
falls within any of the circumstances listed in items 1
through 5, in order to obtain the immunity from exempt from
the prohibitions in Articles 13 and 14, the operators must
additionally prove that the agreement can ‘enable consumers
to share the interests derived from the agreement’, and will
‘not severely restrict the competition in relevant market’. It is
clear that these provisions are designed to encourage foreign
investment in research and development sectors, and to
encourage the transfer of core/new technology from foreign
countries to China. At the same time, it takes into account
the interests of consumers and importance of a sound
competition order.
The structure of the AML provisions is quite similar with
the counterparts of the EC laws. The EC competition law deals
with IP under the general provisions of the Treaty of Rome (EC
Treaty).65 The EC Treaty also sets up three general prohibi-
tions on antitrust activities. Put simply, Article 81 of the EC
Treaty focus on ‘anti-competition treaty’. Article 81 (1)
contains a prohibition on ‘monopolistic agreement’, including
five types of agreements among competing undertakings
which may have anti-competitive effects. Article 82 of the EC
Treaty mainly focus on prohibiting ‘abuse of a dominant
position’, and Articles 86 and 87 deal with ‘concentration’.66
Like AML, the EC Treaty also sets up the immunity for
licensing arrangements which may have monopolistic nature.
Article 81 (3) provides that the EC may permit exemptions
from Article 81 (1) where the licensing arrangement meets
following four requirements:
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 January
2009.
360 computer law & security review 25 (2009) 352–366
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 benefit;
3) Be indispensable to the attainment of the first two
requirements;67 and
4) 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 not
difficult to find that, not only the structure of monopolistic
prohibitions provisions but also the contents of the exemption
provision of these two regulations are essentially the same.
For example, both regulations provide exemptions for
monopolistic agreements which contribute to technological
progress, consumer and public welfare, and economic effi-
ciency or growth. This may be further evidence of China’s
embrace of international concerns, and that China has drew
on lessons from foreign legislative experiences.
However, it is noteworthy that the exemption regime of EC
competition laws is far more sophisticated than that of the
AML. As mentioned above, in addition to the EC Treaty, the
Commission has enacted detailed ‘‘block exemption’’ regula-
tions and guidelines. The EC has issued the Technology Transfer
Block Exemption Regulation (in 1996 and 2004 respectively) in
order to provide general guidelines on how to apply anti-
competition provisions of the Treaty of Rome in practice.69 It
further issued the TTBER Guideline 2004 in order to facilitate
the applications of the EC Treaty and TTBER 2004. Compared
with these legal guidelines, the exemption provisions in the
AML is arguably oversimplified and not that easy to apply.
(More details on the problems of the AML enforcement will be
discussed later).
3.2.2. Two fold meaning of Article 55: IP exemption versus IP
abuse prevention
Unlike 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 use
IPRs according to the laws and administrative regulations
relevant to intellectual property, but is applicable to the
undertakings which ‘abuse IP’ and ‘eliminate or restrict
market competition’.
The provision sets out the basic relationship between the
AML and IP laws.70 It arguably has a profound implication on
the IPRs protection and enforcement in China. It is clear that
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 Block
Exemption Regulation (‘‘TTBER 2004’’) (Commission Regulation (EC)
No. 772/2004 of 27 April 2004 on the application of Article 81(3) of the
Treaty 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 was
issued to replace the TTBER 1996.
70
Jones, ‘Licensing in China’, above n9, 2.
the meaning of Article 55 is two-fold. On the one hand, it
provides a broad exemption for legitimate use of IPR. Article 55
implies that the laws governing IPRs are considered to be
‘equivalent in status’ to the AML.71 It provides IPR holders with
a safe harbor/immunity for their legitimate conducts on
exercising their IPRs. In the other words, the prohibition
provisions in the AML do not apply to the legitimate conducts
of the IPR holders under the IP laws.72 Since it is a general
international practice to provide a safe harbour/immunity for
an undertaking’s lawful conduct in accordance with its legit-
imate IPRs, Article 55 is deemed as ‘further evidence that reflects
China’s embrace of global concerns’.73
On the other hand, the AML does prohibit the abuse of IPRs.
As some commentators observed, although the language of
Article 55 is ‘very general’, it has clearly presented a concept
similar to ‘patent misuse’ under U.S. law, which prohibits
a patent holder from ‘seek[ing] to leverage its lawful
monopoly IP rights to extend them beyond the proper scope of
the patent’.74 The AML explicitly prohibits any conduct that
may constitute an abuse of IP and may ‘eliminate or restrict
market competition’. However, the language of Article 55 is
overly general. Neither has it provided a clear definition of the
‘IP abuse’, nor has it detailed potential liability or penalty for IP
abuses. And judicial interpretations and more specific imple-
menting regulations on the AML have not yet appeared. These
arguably create legal uncertainties for business operations of
foreign technology-driven undertakings in China.75
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 the
AML. See also Masoudi, Gerald F. ‘Some comments on the abuse
of 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 his
remark is the article 55 of the AML enacted on 30 August 2008.
The report further states: ‘Since the right to exclude others from
using the invention is the essence of an intellectual property
right, the unilateral decision of the right holder to exclude some
or all applicants from using its protected intellectual property is
the most simple exercise of IP rights and should not be subject to
antimonopoly attack as an abuse’).
73
Bingham’s Antitrust and Trade Regulation Group, China Passes
New Antitrust Law With Additional Scrutiny on Foreign M & As, 5 Sep
2007, at http://www.bingham.com/Media.aspx?MediaID¼5667 at
10 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?pubID¼S4662 at 2 September 2008. (Note: The Chinese
characters used in the law – IP ‘lanyong’ – can be translated as
either ‘‘abuse’’ or ‘‘misuse’’).
75
Ibid. (stating: ‘While the AML is a milestone in Chinese
economic policy, its substance has been particularly newsworthy
for alleged weaknesses which may have a negative impact on
foreign firms and investors doing business in China’).
 computer law & security review 25 (2009) 352–366
4. Potential problems current IP abuse
regulation regime in China
After an overview of existing IP abuse and technology transfer
legislations 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 at
least five problems.
4.1. Lack of unified legal guideline on IP and
antitrust law
Unlike the US and the EC, until now, China does not have
a single regulation and legal guideline that systematically
dealt 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 laws
and patent law, and antitrust law. The recently enacted AML
does not have a prevision to clarify the interrelation between
AML and other existing legislations related to IP abuse and
technology transfers. Although the AML contains a special
provision on IPR and a number of exemptions for legitimate
use of IPRs, it has not clarified whether these exemptions can
also be applied to the prohibition provisions under other
non-AML legislations, such as prohibitions under the Contract
Law 1999 and the Interpretation 2005 (as introduced above).
The lack of a unified regulation or legal guidelines for coor-
dinating all existing IP abuse legislations would arguably
create 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. For
example, the Chinese Contract Law 1999 and its Interpretation
2005 adopted the US-Nine-No-Nos-style approach and listed
a number of prohibitions on rendering technology transfers.
The Foreign Trade Law 2004 adopted the EU-TTBER approach
and set up three core prohibitions on technology transfer
licensing arrangements in international trade. But, again,
none of them have provided a clear legal guideline for the
applications of the prohibition provisions, such as providing
examples to facilitate the determination of the prohibited
activities – an approach that both the EU and the US IP
licensing guidelines have adopted (as introduced in Section
3.1). Consequently, the laws left too much discretionary power
to the court and governmental agencies, and created many
legal uncertainties for the operation of foreign IP companies in
China.
The scope of general prohibitions under the AML is unclear
also. Due to the lack of judicial interpretation, questions have
been raised concerning the relationship between Article 55
and the general prohibitions of the AML. For example, is
Article 55 merely designed to clarify the application of the
AML (its general prohibitions) in the IP context, or does it
361
creates a wider prohibition?76 Some commentators believe
that Article 55 may have widened the scope of general
prohibitions under the AML, and extended the scope of the
prohibition on abusing a dominant market position to activi-
ties that non-dominant companies carry out in an IP
context.77 It is clear that the existence of IPRs does not always
confer an IP-based undertaking a dominant market position.
Thus, if Article 55 is explained in a broad sense, the subject
matter of the AML prohibition would arguably not only cover
undertakings with dominant positions but also cover certain
undertakings without dominant positions. Using Microsoft’s
business operation in China as an example, Microsoft often
argues that it does not have the preconditions of monopolistic
activities because ‘genuine Microsoft products have a very low
market share in China’ due to widespread piracies.78 However,
once Article 55 is interpreted widely to include non-dominant
IP 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 sufficient
to provide Microsoft with the immunity for monopolistic
violations.
In a word, the loose structure of the Chinese technology
transfer and IP abuse, and the lack of legal guidelines for law
applications have arguably created the uncertainties for the
operations of foreign undertakings in China, and may result in
the 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 may
have an effect that prevents IP undertakings from engaging in
any ‘abusive’ activates, such as price discrimination and
discrimination in respect of terms and conditions of IP
licensing agreements.79 Article 55 may imply that, once an IP
licence is granted to the original licensee, similar licences
must also be granted to any other firms/licensees in the
market in the future. As such, some commentators pointed
out, by obligating IP holders to treat ‘similar third parties in
a similar way’, the AML may potentially create a compulsory
IP licensing system.80 Such a system may have significant
negative impacts on encouraging innovation. It is clear that
the right of IPR holders to refuse to grant a license to other
firms has been regarded as a ‘core part’ of their exclusive
76
Kirstie Nicholson & Zirou Liu, ‘Avoid competition problems
in China’ in Managing Intellectual Property, July/August 2008, at
http://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 the
undertakings which abuse IP and eliminate or restrict market
competition’, 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’, ALB
Legal News, Australia, 2 September 2008, at http://au.legalbusiness
online.com/news/breaking-news/29332/details.aspx at 10 November
2008 (see the statement of Microsoft global VP Zhang Yaqin).
79
Nicholson & Liu, above n 79.
80
Ibid.
362 computer law & security review 25 (2009) 352–366
rights under the IP laws and this is directly tied to ‘creating
incentives for innovation’.81 Depriving such a right from IP
holders on the ground of harming competition may result in
a diminution of their investment incentives on research and
development of IP products, and, in turn, may ‘slow innova-
tion, harming consumers and reducing productivity gains for
the economy as a whole’.82
On the other hand, general speaking, the Chinese laws on
technology transfers and IP abuse mainly focused on prohi-
bitions of IP abuse and conduct of eliminating technology
transfers and competition. Except the AML, none of them has
provided any clear exemptions for IP licensing arrangements
which may have an effect on eliminating technology transfer
and competition. Although the AML provides contain
exemptions/immunity for IPR holders, it has not clarified
whether these exemptions/immunity can also be extended to
the prohibitions in other non-AML laws. As such, it does seem
that the current Chinese IP abuse regime has not struck
a sound balance between IP licensees and licensors, and this
may arguably diminish the incentives of foreign IP companies
to license their IPRs to the Chinese companies.
4.4. Potential impacts on IPR infringement proceedings
The Current IP abuse law regime may have potential impacts
on IP infringement proceedings in China. As introduced
above, the scope of prohibitions on IP licensing arrangements
in prior-AML laws are very broad. Thus, they may serve as
sound grounds for the Chinese domestic companies to bring
actions/counterclaims against foreign undertakings and IP
licensors, particularly when the Chinese companies face IP
infringement claims brought by foreign undertakings. Due to
the lack of exemptions/defences in existing Chinese laws,
foreign companies may often be in a very disadvantageous
position in litigation.
In fact, the AML may also have similar effects. Many
multinational companies fear that domestic IP companies
may use Article 55 to restrain foreign IP holders from
enforcing their IPRs against their competitors in China.83
They may attempt to avoid or at least delay infringement
actions brought against them by using Article 55 as
a ‘defence’, and claim that the bringing of the infringement
action against them constitutes an abuse of IPRs or a restric-
tion of market competition. For example, if a company has
been accused of patent infringement in China, it may claim
that the alleged patent is preventing competition, and then
request competent national anti-monopoly agency to
conduct an anti-monopoly investigation – a very time-
consuming procedure. As such, some commentators believe
that the enactment of the AML has paved the way for soft-
ware firms in China to bring antitrust lawsuits against foreign
software companies, such as Microsoft, for their business
practices in China.
81
Masoudi, above n 75, 9. (Note: the article 54 that Masoudi
referred 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.
4.5. Increases of potential IP abuse lawsuits
Article 55 of the AML may have potential impacts on IP
proceedings in China. On the one hand, the enactment of the
AML not only allows medium and small enterprises to better
compete with big enterprises (which have dominant market
positions), but also strengthens the protection given to public
consumers from the threat of monopolistic conduct by big
undertakings, such as monopoly pricing. This also means that
big undertakings may have to face up an increasing number of
antitrust lawsuits in China. In fact, on 31 July 2008, one day
before the AML took into effect, Dong Zhengwei, a partner with
Beijing-based Zhongyin law firm, has submitted a document –
‘Application and Proposal for Protecting Citizen Property Rights’84 – to
the 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 its
dominant market position to manipulate software prices in
China, and breached articles 6, 17 and 19 of the AML (on the
ground of abuse of market dominance).86 He further called for
a US$1billion fine for Microsoft’s violation of China’s AML by
virtue of article 47 of the AML.87 The Ministry of Commerce
(MOFCOM) replied on 15 August 2008 and informed that the
application was transferred to its Treaty and Law Division to
process.88 If the investigation of the Chinese MOFCOM is
completed and the anti-monopoly lawsuit is filed in IP courts,
China will become the fifth jurisdiction taking aim at Microsoft’s
business 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
IP abuse laws, China does not have a single agency dealing with
IP abuse violations. This may arguably result in uncertainty of
the law enforcement. In fact, even the newly enacted AML does
not have a single enforcement agency. Regarding the
enforcement agencies, the AML specifies that the State Council
shall 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 not
have substantive enforcement powers. Its responsibilities
84
Chinese Title of the document –
.
85
Xinhua News Agency, ‘Chinese Lawyer applying for an anti-mo-
nopoly investigation against Microsoft and suggesting impose 1
billion USD fine’, [in Chinese] 17 August 2008, at http://news.
xinhuanet.com/legal/2008-08/17/content_9424867.htm at 10
November 2008.
86
Ibid. Arts 17 and 19 are all in Chapter III Abuse of Market
Dominance of the AML.
87
Ibid. Article 47 provides: ‘Where any business operator abuses
its dominant market status in violation of this Law, it shall be
ordered to cease doing so. The anti-monopoly authority shall
confiscate its illegal gains and impose thereupon a fine of 1% up
to 10% of the sales revenue in the previous year’. See ALM, Art 47.
88
Gao, Lingyun & Tan, Xiaolan, ‘Civil Lawyer initiating antitrust
lawsuits against Microsoft’, [in Chinese] in Southern City Daily 8
August 2008 http://sc.stock.cnfol.com/080820/123,1764,4631746,00.
shtml at 10 January 2009.
89
AML, Art 9.
90
AM, Art 10.
 computer law & security review 25 (2009) 352–366
mainly include: formulating competition policies and guide-
lines, evaluating competition condition, and coordinating
enforcement activities.91 The State Council of China has
already established an AMC at the end of July 2008 –one week
before the AML took into effect.92 By contrast, the AMEA has
strong enforcement powers.93 These include the power to
inspect and investigate business and non-business premises,
and the power to obtain relevant evidence, such as seizing
documents, accounting records, electronic data, and bank
account records. The AMEA may even conduct all these
enforcement actions without a court order.94
However, the AML has not detailed the structure of the
AMEA. According to the source close to the law-making process,
three government agencies, rather than a single body, will be
responsible for the enforcement of the AML: (1) the Ministry of
Commerce (MOFCOM); (2) the National Development and
Reform Commission (NDRC); and (3) the State Administration of
Industry and Commerce (SAIC). They focus on different issues
respectively.95 Under the new structure, the MOFCOM is
responsible for merger review. The NDRC is responsible for
monopoly agreements, particularly price-fixing issue. The SAIC
is responsible for abuses of dominant position.96 It will be
interesting to see how this trinity model will work in practice.
Some commentators have expressed their concerns on the
potential problems of the new trinity structures,97 and believe
that the trinity enforcement model ‘creates a complicated
institutional framework where conflicts are probable’.98 Indeed,
there may be an overlap between the duties of these three
agencies, which may result in confusing applicants. In fact, such
confusion has already been caused. When Mr. Dong Zhengwei
submitted his application for initiating an anti-monopoly
investigation against Microsoft in China last year (as introduced
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 compromise
between the outcry for one unified enforcement agency and the
maintenance of the existing division of powers among different
authorities 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 an
acknowledgement of the concurrent enforcement of the AML by
three existing government agencies’. Ibid.
96
Moreover, the NDRC has completed a draft of the anti-price
monopoly law regulation in July 2008, which was a component of
the anti-monopoly law. The SAIC had set up an independent
bureau in charge of investigation and punishment of the unfair
competition, commercial bribery, smuggling and other cases that
broke 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 the
Ministry of Commerce, said ‘It is hoped that a unified institution
comes out in the coming years, which will be better in accordance
with the country’s situation’. See Peng, above n59.
98
Adrian Emch (Sidley Austin), ‘The Anti-monopoly Law and Its
Structural Shortcomings’ in Global Competition Policy Magazine, 8
August 2008 at http://papers.ssrn.com/sol3/papers.cfm?abstract_
id¼1221922 or http://www.globalcompetitionpolicy.org/index.
php?&id¼1338&action¼907.
363
above), instead of sending his application to a single enforce-
ment agency, he sent the application to the MOFCOM, the NDRC
and the SAIC.99
5. Strategies for foreign investors and
technology-driven companies
Due to the significance of the Chinese IPR market and the
complicity of the Chinese IP abuse law regime, any foreign
investors and technology-driving firms, who are interested in
the fast-growing Chinese market, arguably need to have a good
understanding of the requirements of the Chinese IP abuse laws
and incorporate these requirements into their future strategic
plans.100 They should take into account both opportunities and
legal risks/uncertainties brought by these legislations. The
paper will next introduce some defences that IPR holders may
use for potential IP abuse lawsuits, as well as some strategies for
foreign companies, particularly late comers of the Chinese
market, to make most of the current IP abuse laws in order to
acquire 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 regulations
mainly focussed on the ‘prohibition’ of IP-abuse conducts, such
as licensing arrangements that may restrict or eliminate tech-
nology transfer and competition. They did not provide any clear
exemptions for licensing arrangements which have monopo-
listic nature but have pro-competitive effects which outweigh
anti-competitive effects. But, as noted above, the AML does
provide for the immunity for IPR holders, particularly licensers
to exploit their IPRs, in order to strike a sound balance between
encouraging innovation and protecting competition.
5.1.1. The defence of piracy and the non-dominant position
One of most important defences, which has been frequently
referred by major IP companies, may be the defence on
widespread piracy and non-dominant position. As mentioned
above, when faced with the allegation that Microsoft has
abused its dominant market position to impose monopoly
price to consumers, Microsoft has argued that it does not have
a dominant market position due to high piracy rate.101 For
example, according to the statistics of the Business Software
Alliance (BSA), the software piracy rate in China was 82% in
2007.102 Microsoft, therefore, often claims that it does not have
actual power to conduct any monopolistic activities (such as
to pricing control) due to widespread piracy in China.
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 Software Alliance (BSA), Fifth Annual BSA and IDC Global
Software Piracy Study 2007, at http://global.bsa.org/idcglobal
study2007/studies/2007_global_piracy_study.pdf at 16 November
2008. See also BSA, New Study Projects Significant Economic Benefits
From Reducing Software Piracy, Washington, D.C. – January 22, 2008, at
http://www.bsa.org/country/News%20and%20Events/News%20
Archives/en/2008/en-01222008-idcstudy.aspx at 15 November 2008.
364 computer law & security review 25 (2009) 352–366

As such, unless Article 55 of the AML is interpreted broadly restrict the competition in relevant market’.108 Thus, in addition to
to include non-dominant IP companies, IP companies may enhance the development of national economy (by investing in
still use ‘widespread piracy’ as an effective defence against the research and development sectors, and introducing core/
anti-trust challenges. new technology to China), business operators have to take into
account the interests of consumers and must not severely
5.1.2. Defence of national development jeopardize the sound competition order in China. It should also
It is noteworthy that the AML introduced a few exemptions/ be noted that the exemptions listed in Article 15 are subject to
defences – such as a national development defence – for approval from a competent anti-monopoly authority. Until now,
certain agreements which have monopolistic effects. As noted it has been unclear which specific agency (the MOFCOM, the
above, Article 15 of the AML entitles the competent anti- NDRC or the SAIC) is the competent anti-monopoly authority
monopoly authority to grant exemptions from the prohibi- under Article 15, and will therefore have a final power to
tions on certain monopoly agreements, if the operators of determine the availability of the immunity of Article 15 under
these agreements are beneficial to national development, the AML. This will arguably create another uncertainty for the
such as technology progress, improving business operational enforcement of the AML.
efficiency, enhancing competitiveness of small and medium-
sized undertakings, and serving public welfare.103
5.2. Other strategies for foreign investors and
It is clear that these provisions have effects on encouraging
technology-driven companies
foreign investment in the research and development sector, and
encourage the transfer of core/new technology from foreign
5.2.1. Risks versus opportunities
countries to China. Many foreign technology-driven companies,
In the current IP expansion environment, the Chinese IP abuse
such as Microsoft, Intel, Google and Dell, have now made huge
law regime may help to strike a sound balance of benefits of for
investments in China, and are expected to continue to do so. As
different stakeholders in IP laws, which the IP laws alone may
some commentators have observed, these foreign companies
not be able to strike. The broad prohibition provisions in current
are adopting a long-term view that the Chinese government will
Chinese IP abuse and technology transfer laws would arguably
not restrict their business operations in China so long as their
serve as an effective avenue for public users, consumers, small-
activities do not conflict with or undermine the development of
medium enterprises (including late comers to the Chinese
the Chinese economy.104 Thus, they are prepared to ‘continue to
market) for defending their rights, and being successful in legal
bring their core technologies to China and will continue to share
actions against IP giants. For example, the AML, as important
and/or license them to Chinese domestic companies’, so long as
legislation designed to maintain and improve the fair competi-
China adopts practical measures to improve its IPR protection
tion order in the Chinese market, arguably brings more oppor-
environment.105 Therefore, those technology-driven companies
tunities than legal risks for investors from different countries. It
may use Article 15 as potential defence for IP abuse claims
arguably provides an opportunity for foreign software compa-
against them. For example, they may claim that their business
nies to more fairly participate in market competition in China. It
operations in China are beneficial to ‘improve technology or
enables them, particularly late comers of China’s IP market, to
research and develop new products’ (Article 15 (i)). Again, we can
initiate an anti-monopoly investigation/lawsuit against
use Microsoft as an example. As we have seen, Microsoft has set
monopolistic activities of software giants that have achieved
up the China Research & Development Group in China.106 Most
dominant positions in Chinese market.
recently, in November 2008, Microsoft announced that it will
Again, we may use Microsoft as an example. In addition to
invest more than $1 billion on its research and development
potential legal actions brought by China’s domestic compa-
center in China over the next three years.107 Thus, Microsoft
nies or consumers, Microsoft has to pay attention to potential
may arguably use Article 15 (i) as a defence for any potential IP
legal actions of other foreign companies operating in China.
abuse lawsuits in China.
As we have seen previously, Microsoft has become entangled
However, it is noteworthy that the applications of these
with antitrust disputes around the world for more than
national development exemptions are subject to two precon-
a decade. In Europe, after losing its antitrust case in 2004,
ditions (as introduced above). The operators of agreements
Microsoft has been repeatedly fined.109 Since the 2004 deci-
must prove that the agreement (1) can ‘enable consumers to share
sion, Microsoft has been fined more than $2.4 billion in total by
the interests derived from the agreement’, and (2) will ‘not severely

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?id¼401 at 15
November 2008.
105 108
Ibid. AML, Art 15.
106 109
See the website of the Microsoft, China Research & Development On 24 March 2004, the EC ruled that ‘Microsoft abused its
Group at http://www.microsoft.com/china/CRD/EN/aboutus.mspx Windows monopoly and fined the company 497.2 million euros
at 16 November 2008. as well as ordering it to reveal more of its software code and
107
Hardcastle, Elaine. ‘Microsoft to spend $1 bln on R&D in limiting it’s bundling of its software into Windows XP. See Jen-
China’, Reuters, Beijing, November 13, 2008 at http://www.sciam. nings, John P. ‘Comparing the US and EU Microsoft Antitrust
com/article.cfm?id¼microsoft-to-spend-1-bln at 16 November Prosecutions: How Level is the Playing Field?’ in Erasmus Law and
2008. Economics Review 2, No. 1 (March 2006), 79.
 computer law & security review 25 (2009) 352–366
the European Commission.110 In Asia, Japan’s Fair Trade
Commission found Microsoft in violation of Article 19 of its
Antimonopoly Act for provisions in its licensing agreement
with PC makers that unduly restrict their business operations
in July 2004.111 Korea’s Fair Trade Commission levied a fine of
$32 million USD against Microsoft in 2005, and ordered
Microsoft 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 technological
companies owned domiciled in these countries initiate anti-
trust lawsuits against the business operations of Microsoft in
China in order to help them to maintain and expand their
market share in China. It is clear that a sound and fair
competitive environment, which is underpinned by the AML,
is not only good for domestic companies but also good for
foreign companies, particularly late comers of the Chinese
market.
Moreover, public consumers will eventually benefit also.
Fair competition would arguably provide consumers with
more affordable price and more purchase options (i. e.
choosing alternative software products from various foreign
software companies). And this will arguably contribute to
prevention of piracy in an indirect way in the long run. Once
consumers can find cheap and high quality IP products, they
will not choose unauthorized IP products.
5.2.2. Comprehensive understanding of existing IP abuse
rules in China
Foreign investors and technology-driving firms should notice
that there are a number of laws and regulations addressing
the technology transfer and IP abuses issues in China. As
discussed above, China does not have a single regulation and
legal guideline dealing 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 the Chinese IP abuse regulatory regime. In order to
appropriately exploit their IPRs in China, they should not only
understand the AML, but also other relevant legislations, as
well as the interrelation between these regulations.
They should understand both opportunities and legal
risks/uncertainties brought by these regulations. They should
use these regulations flexibly and make the application of
these regulations consistent with their future strategic plans.
110
Keizer, Gregg. ‘EU fines Microsoft another $1.3B’ in Computer
World, at http://www.computerworld.com/action/article.do?
command¼viewArticleBasic&articleId¼9065018 at 10 November
2008. (Pointing out: ‘Microsoft had already been fined a total of $1.16
billion by the EU in two previous levies, including the original March
2004 ruling and a 2006 penalty for non-compliance. Including today’s
fine, the company will have been hit with penalties that total just
under $2.5 billion’).
111
Microsoft, Microsoft Corporation’s Response to the Japanese Fair
Trade Commission’s Recommendation, at www.microsoft.com/
presspass/press/2004/Jul04/07-26JFTCResponsePR.asp at
November 2008.
112
Keizer, Gregg. ‘China denies reports of Microsoft antitrust
investigation – Microsoft says it’s ‘in compliance’ with Chinese
law’, in Computer World, at http://www.computerworld.com/
action/article.do?command¼viewArticleBasic&articleId¼9100818
at 10 January 2009.
365
For example, big foreign technology companies, such as
Microsoft, should make most of exemptions and defences in
the AML (i.e. national development defence) to maintain their
leadership in the Chinese market. Small and medium foreign
enterprises, particularly late comers of the Chinese market,
may make most of the prohibition provisions in the AML and
other technology transfer regulations in order to overcome the
market entry obstacles created by dominant IP giants. In doing
so, improve their competitiveness and comparative economic
advantages in the Chinese IP market.
5.2.3. Participation in the Chinese legislative process
Foreign companies should play a more active role in the
Chinese IP abuse legislative process, and make the Chinese
government understand their concerns and difficulties. In
fact, in recent years, the Chinese government and its regula-
tors have been quite open to draw on legislative and
enforcement 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 AML
consultation drafts from various international stakeholders,
including advice from both governmental and non-govern-
mental groups in the US and the EU.113 And foreign legislative
experiences have been reflected in both the structure and the
contents of the AML. As the above discussion demonstrates,
the structure of general prohibition provisions and the
contents of exemption provisions in the AML are quite similar
with similar provisions in the EC Treaty and the TTBER 2004.
These effects have also been recognized by some foreign
regulators. Gerald F. Masoudi (the Deputy Assistant Attorney
General of the Antitrust Division of the US Department of
Justice) in an AML consulting conference pointed out that the
Chinese government has demonstrated its openness to ‘the
ideas and experiences of antitrust law enforcers’
worldwide.114
Foreign undertakings, therefore, should continue to play
an active role in future legal reform in China. For example,
they may contribute to the interpretation of the AML,
including the definition of ‘IP abuse’ and the general approach
for determining IP abuses. They may also require future
regulators to issues EC/US style legal guidelines to facilitate
the applications of the AML and other regulations related to IP
abuse and technology transfers and to clarify the interrelation
between IP and antitrust law. They may either directly
participate in the discussion of the draft of legislation and
judicial interpretations or impose their impacts through Non-
Governmental Organizations (NGOs) or governmental
agencies in their own countries.
6. Conclusion and future perspectives
This paper has examined the TRIPS’s requirements and recent
development of the Chinese IP abuse legislation, including
10
both the AML and prior-AML regulations on technology
transfer and IP abuse prevention. By comparing with the
counterparts of the US and the EU laws, the paper examined
113
Jones, ‘Licensing in China’, above n9, 3.
114
Masoudi, above n 75, para 2.
366 computer law & security review 25 (2009) 352–366
both achievements and limitations of these regulations. It
particularly focused on the main problems of existing IP
abuses laws in China, and potential risks for foreign IP
holders/technology-driven companies when operating in
China. Some recent antitrust lawsuits, such as lawsuits in
which Microsoft is a party, have also been examined. Lastly, it
provided some practical suggestions for foreign IP holders and
technology-driven companies to operate in China, including
useful defences against potential IP abuse claims, and other
general strategies for better participating in China’s future IP
abuse legislative process.
As the biggest developing country in the world, China’s
legislative experiences are likely to inform the IP abuse legis-
lation in other developing countries. However, generally
speaking, the current Chinese legislative regime on IP Abuse
and technology transfer, particularly its AML, is mainly
imported from the western countries, such as the EC and the
US. The existing problems and legal uncertainties of the
current Chinese IP abuse rules (introduced above) show that it
may still be too early to tell whether such a legal transplant
will eventually succeed.
In 2002, the UK IPR Commission conducted a comprehen-
sive study on IPRs and development policy, and concluded
that: ‘the interests of developing countries are best served by
tailoring their intellectual property regimes to their partic-
ular economic and social circumstances’.115 The same holds
true for IP abuse regulations. Thus, it is imperative for
developing countries to always critically import IP abuse and
technology transfer laws in developed nations, and make
sure 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 order
to make a timely response to the uncertainties of existing IP
115
U.K. IPR Commission, Report of the Commission on Intellectual
Property Rights: Integrating Intellectual Property Rights and Development
Policy (2002) at http://www.iprcommission.org/at 12 March 2009.
abuse laws and to reflect the needs of all stakeholders in the
market.
In the current IP expansion environment, sound IP abuse
regulations at the domestic level would arguably not only help to
create a sound legal and market competition environment for
both domestic and foreign undertakings, but also may
contribute to optimize a country’s economic structure and
enhance the development of national innovative economy.116 In
a long term, they may also serve as important sources of laws for
future IP abuse legislation at the international level, such as
future amendment of the IPR abuse provision in the TRIPS
Agreement. 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 fair
competition worldwide.
Dr George Yijun Tian (George.Tian@uts.edu.au) is a current
Lecturer at the University of Technology Sydney (UTS) Law School
and one of core members of the China Law Research Group at the
Faculty. 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 at
the 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 Law
School, Des Moines, USA, 27–28 February 2009. The author
would like to thank Professors Peter K. Yu (Drake University Law
School), 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 Law School) for their valuable comments to
the early draft of this paper. Particularly thank to Jason Harris for
helping with proofreading also.
116
This is also consistent with achieving the original goals of IP laws
in enhancing innovation, sustainable economic development, and
public consumer welfare. See as, US Constitution, Article I, Section 8,
Clause 8.