Multinationals' IP Rights Potentially Challenged by New Competition Law

May 31, 2005

The Ministry of Commerce (MOFCOM) official who heads the new Anti-Monopoly Investigations Office accused foreign multinational companies (MNCs) of intellectual property (IP) abuse. Shang Ming, who also directs MOFCOM’s Department of Treaty and Law, acknowledged that the National People’s Congress (NPC) has not yet enacted an anti-monopoly law. Shang accused MNCs, nonetheless, of injuring the development of China's enterprises by limiting competition in China's domestic market. No current law proscribes IP abuse.

The Ministry of Commerce (MOFCOM) official who heads the new Anti-Monopoly Investigations Office accused foreign multinational companies (MNCs) of intellectual property (IP) abuse. Shang Ming, who also directs MOFCOM’s Department of Treaty and Law, acknowledged that the National People’s Congress (NPC) has not yet enacted an anti-monopoly law. Shang accused MNCs, nonetheless, of injuring the development of China's enterprises by limiting competition in China's domestic market. No current law proscribes IP abuse.

The latest draft of the Anti-Monopoly Law, which MOFCOM has sent to the State Council for review and submission to the NPC, has a provision proscribing IP abuse and permitting enforcement action against IP abusers. This provision does not define what behavior constitutes IP abuse, making Shang’s statements particularly relevant and troubling. WTO members may proscribe IP abuse, but the provision in the WTO Agreement on Trade Related Aspects of Intellectual Property (TRIPs) that permits such proscription only provides an illustrative list of specifically impermissible activities.

Three American Bar Association (ABA) professional sections reviewed and commented on the draft Anti-Monopoly Law, submitting the comments to the Chinese government. The ABA analysts criticized the draft's apparent endorsement of the essential facilities doctrine and its vague provisions governing "refusals to deal." They concluded that the "continued absence of any definition of what conduct may be regarded as an 'abuse' of IP rights...appear[s] to increase the likelihood that the law may be applied to obligate owners of IP rights to license those rights to all competitors." Given Shang Ming's comments about purported IP abuse by multinationals, it seems likely that the Chinese government will adopt a competition law that will be a barrier to market access for foreign firms. The law also seems likely to limit IP protections available to foreign companies. Because the government will enact this new law in an area of law that China's WTO commitments do not explicitly regulate, other WTO members may have problems fighting these moves.