IP red flags

A confluence of trends confirming the abuse of intellectual property rights as an antitrust target via article 55 of the Anti-Monopoly Law, the courts and enforcement arms has unnerved foreign multinationals that sell or license their technology in China, writes Colin Galloway

When China’s Anti-Monopoly Law (AML) came into effect in August 2008, many foreign investors were concerned the introduction of the law would mark a watershed in the way Chinese authorities regulated foreign multinational companies (MNCs). One of the main areas of concern related to intellectual property (IP). In particular, article 55 of the law stated that the AML “shall apply where a business operator abuses its intellectual property rights (IPR) in order to eliminate or restrict competition”, making it the only competition law statute internationally to single out IPR as an antitrust target. It was an ominous sign.

Although the years following the promulgation of the law saw only a handful of antitrust investigations or lawsuits involving IP, today the AML appears finally to have come of age. Since early 2013, China’s National Development and Reform Commission (NDRC) and State Administration for Industry and Commerce (SAIC) have launched a string of antitrust investigations involving domestic and foreign companies on the basis of alleged abuse of IPR by dominant companies.

The most prominent foreign multinationals caught in the AML net include US telecoms company Qualcomm, which is currently the subject of an NDRC investigation involving tactics – dawn raids, search warrants and subpoenas – more often associated with regulators in the US and Europe. Qualcomm is accused of abusing its monopoly in 2G and 3G mobile telecoms standards to impose excessive and discriminatory pricing on patent licensees, among other things. Swedish food packaging company Tetra Pak is subject to a similar investigation by the SAIC.