Ethan Ma Weighs in on Potential Impact of China's New Licensing Rules

China Law & Practice | May.18.2015

​Orrick intellectual property partner Ethan Ma recently spoke with China Law & Practice regarding the Provisions for the Prohibition of Acts of Abusing Intellectual Property Rights to Eliminate or Restrict Competition (Provisions). Recently published by China’s State Administration for Industry and Commerce (SAIC) and scheduled to take effect August 1, the Provisions are designed to further protect IP rights in the country and prevent anti-competitive acts.

The most divisive item in the Provisions is Article 7, which states that dominant business operators must agree to license their IP to others in the market when deemed necessary. This rule applies not only to standard essential patents (SEPs), but to all forms of IP. According to Ma, “Article 7's applicability to SEPs is understandable, but it may be controversial when applied to other areas of patents, such as those for research tools that are critical for pharmaceutical companies to conduct drug research.” He added that these rules will make it easier for authorities to keep the pharmaceutical industry in check.

Ma went on to describe other items in the Provisions. “Another useful reference or tool provided by the rules is the safe harbor rule,” he said. This is found in Article 5, which permits agreements between competitors that have a combined market share of less than 20 percent. "These companies won't need to worry about antitrust investigations, though the development fits into the overall environment of the many ongoing and coming probes," he said.

Many wonder whether the Provisions will negatively affect the dominant foreign players in the Chinese market. However, Ma concluded, “At the end of the day, if a company has good technology that works or a drug that is respected, all the investigations and regulations will not shift the market dynamic so significantly.”