Intellectual Property Antitrust Laws Enforcement Guidelines Guofu Tan

Intellectual Property & Antitrust Laws: Enforcement Guidelines Guofu Tan University of Southern California Department of Economics guofutan@usc. edu USC CTLB Conference on the Application of Competition Policy to Technology and IP Licensing November 10, 2017

• Competition and intellectual property (IP) protections are complements, in encouraging innovation and enhancing consumer welfare (Spulber, 2013). – IP laws provide incentives for innovation, focusing on providing inventors with a return on their innovation. • A large economics literature on innovation incentives and pricing mechanisms for IP licensing – Antitrust laws promote innovation and consumer welfare by prohibiting certain actions that may harm competition with respect to existing or new ways of serving consumers. • IP licensing arrangements are typically welfare-enhancing and procompetitive. Nevertheless, antitrust concerns may arise. 2

Antitrust Guidelines • Antitrust Guidelines for the Licensing of Intellectual Property, issued by the U. S. Department of Justice and the Federal Trade Commission, January 12, 2017 • Anti-Monopoly Guidelines on Abuse of Intellectual Property Rights, issued by the Anti-Monopoly Commission of the State Council, China (Draft for comments, March 23, 2017) (国务院反垄断委员会关于滥用知识产权的反垄断指南（征求意见稿） 2017 年 3月 23 日) – Once formally published, the Chinese Guidelines shall act as the common guidelines for the NDRC, the MOFCOM and the SAIC. 3

Principles • Both Guidelines recognize that “the intellectual property laws and the antitrust laws share the common purpose of promoting innovation and enhancing consumer welfare. ” • The principles of analysis require the Chinese agencies to – follow the same standard of regulation as other forms of property rights within the basic legal framework of analysis under the Anti-Monopoly Law (AML); – take into account the specific features of the IPRs (e. g. , the scope and nature); – although the IPRs are an exclusive right, an undertaking shall not be presumed to be in dominance in the relevant market merely for holding the IP rights; – acknowledge the pro-competitive effects of licensing on economic efficiency and innovation in the relevant markets. 4

Coverage of the Guidelines • Analytical framework • Defining relevant markets • A set of factors/conditions to be considered for assessing pro- & anti-competitive effects • Monopoly agreements associated with IP rights • Abuse of dominance in the context of IP rights – including standard-essential patents (SEPs) • Mergers involving IP rights 5

Defining Relevant Markets • When rights to IP are marketed separately from the products in which they are used, it may be necessary to analyze the competitive effects of a licensing arrangement in a technology market. • Technology markets: the IP that is licensed and its close substitutes. • Both Guidelines recognize the importance of defining technology markets and possibly R&D markets, in addition to product markets. 6

Illustrating Examples • The Chinese Guidelines offer a list of factors that the agencies shall consider, but do not explain or illustrate why and how each factor is relevant and important. • The US Guidelines use examples (10 examples and 90 footnotes) to illustrate how the US agencies analyze some common situations. 7

Excessive Pricing • The necessity and applicability of the article on excessive pricing in the Chinese Guidelines. – 具有市�支配地位的��者，可能�用其市�支配地位，以不公平的高价�可知�� �，排除、限制�争。分析其是否构成�用市�支配地位，可以考�以下因素：（一）� 可�的�算方法，及知����相关商品价�的�献；（二）��者�知����可作 出的承�；（三）知���的�可�史或者可比照的�可��准… – The Guidelines do not offer any specific methodologies (or examples) in how to determine fair and reasonable royalty rates. • The US Guidelines do not mention anything about FRAND or other commitments made by licensors. 8

Antitrust Safe Harbor • The Chinese Guidelines distinguish IP agreements between “competitors” and the ones among “non-competitors” – In order to benefit from this safe harbor, (1) the combined market share of competing undertakings in the relevant market may not exceed 20%; (2) the market share of any non-competing undertaking in the relevant market may not exceed 30%. • The US Guidelines state that “… the Agencies will not challenge a restraint in an IP licensing arrangement if (1) the restraint is not facially anticompetitive and (2) the licensor and its licensees collectively account for no more than 20% of each relevant market significantly affected by the restraint. ” 9

Summary • Incentives derived from IP protection and competition are the primary and complementary motivators of innovation. • The policy goal is to promote an environment in which inventors have the proper incentives and rewards meanwhile consumers can benefit from innovation. • Need to find the right balance between IP laws and antitrust laws. • When enforcing antitrust laws, need to take into account the special features of IP. • Both the US and Chinese Guidelines are quite useful, and details matter. 10