Competition law developments in East Asia - March 2016

This month’s editors: Maxime Vanhollebeke, Emir Pohan, Pearl Yeung, Serena Gingell, Michael Kim, Sophie Chen, Yui Ota, Lydia Fung and Arthur So.

Below is an excerpt from our monthly Competition Report.  More detailed commentary on these issues and other recent competition law developments in the Asian region is to be found in this month’s edition of our report available on a free subscription basis (see further below).

The release this month of draft guidelines on the application of the Antimonopoly Law in the automotive industry provides a glimpse of the evolving approach of China’s competition law authorities towards vertical restrictions. Importantly, the policies and enforcement priorities reflected in this document are likely to inform the approach in other sectors, potentially affecting the terms of distribution and supply of many consumer and industrial goods.

So far, most Antimonopoly Law enforcement in relation to distribution practices has concentrated on resale price restrictions. This is consistent with existing implementing guidelines released by the authorities, which do not consider vertical restraints other than resale price maintenance under Article 14 of the law. The draft guidelines released this month suggest that authorities are now prepared to expand their scope of enforcement to challenge other vertical restraints – mainly territorial protection, customer allocation, and exclusive sourcing obligations. The approach reveals a broader policy aim to achieve market integration, consistent with the single market objective underpinning the provisions on the abuse of administrative powers in the Antimonopoly Law. Particularly, the stringent approach towards restrictions on passive sales is also reminiscent of that under EU law.

The draft guidelines also illustrate for the first time the authorities’ proposed approach to exemptions under Article 15 of the Antimonopoly Law. Parties with market shares below 25 to 30 per cent are better placed to benefit from an exemption relating to certain vertical restraints, and certain forms of resale price maintenance are also likely to be exempt in some narrow circumstances.

The revised Guidelines on the Unfair Exercise of Intellectual Property Rights under the Monopoly Regulation and Fair Trade Act took effect on 23 March. This follows a public consultation held by the Korea Fair Trade Commission (KFTC) in December of last year. The guidelines set out principles relating to the exercise of intellectual property rights under the Act. This is the fourth amendment adopted since 2010, following a string of investigations by the KFTC of abusive practices and of mergers in the technology sector.

As was the case with previous revisions, the amendments principally relate to licensing practices concerning standards-essential patents. In a press release of 30 March, the KFTC explains that the changes are meant to address a concern that the previously guidelines were overly restrictive, particularly as regards de facto standard essential patents (SEPs), i.e. those patents on a technology that has become the de facto standard on the market without there being a formal adoption of the standard by a standard setting organisation. Under the revised guidelines, the KFTC will review refusals to license de facto SEPs based on the standards for reviewing non-SEPs. As regards other SEPs, only those in relation to which the patent owner was required to make a commitment to license them against fair, reasonable and non-discriminatory (FRAND) terms at the time the technology was adopted as part of the standard will be subject to the Guidelines. Refusals to license those SEPs would still be assessed using broadly similar criteria as under the previous guidelines, although this is an area where the text has evolved following the public consultation: there is now an express recognition that refusals to license SEPs will only be abusive in exceptional circumstances, and the criteria for the case-by-case assessment now refer to anticompetitive effects and to whether it is practically, legally or economically impossible to source alternative technology.