TIPS^®  Taiwan Intellectual Property Special

China Updates

China Adopts Anti-monopoly Law

The Anti-monopoly Law of the People’s Republic of China, was adopted at the 29th meeting of the standing Committee of the 10th National People’s Congress of the People’s republic of China on August 30, 2007. The law will become effective as of August 1, 2008.

The Law, with eight chapters and 57 provisions, prohibits monopolistic arrangements, such as cartels or other forms of collusion, and has the rights to exclude or restrict the competition and concentration of undertakings. It also regulates the investigation and prosecution of monopolistic practices, and the protection of specific monopolistic arrangements, i.e. the promotion of innovation and technological improvement. The following “monopolistic conducts” are prohibited by the anti-monopoly law:

1. Monopolistic agreement among undertakings:

2. Abuse of dominant market positions by undertakings,

3. Concentration of undertakings that eliminates or restricts competition or might be eliminating or restricting competition Currently, foreign investors are required to seek approval from the Ministry of Commerce in a foreign merger operation involving the acquisition of or investment in a domestic company, e.g. if the transaction will lead to the transfer of operating rights of a famous Chinese brand to a foreign company.

With the introduction of the Anti-monopoly law, foreign companies seeking mergers or acquisitions are also required to notify and seek approval from the Anti-monopoly law enforcement authority. In other words, foreign acquisitions of Chinese companies will be subject to stringent new checks, according to the Law. Foreign mergers and foreign investments directed to domestic companies will not only be subject to anti-monopoly checks, but also be subject to various national security checks in accordance with other relevant laws and regulations.

An Anti-monopoly commission (AMC) will be established to govern the operations prescribed in the Anti-monopoly law, and the AMC will appoint relevant government departments to undertake the enforcement. Therefore, the cooperation between these departments will be essential in the enforcement of anti-monopoly law, which largely affects foreign companies. To protect the interests of the companies, the law also prohibits the law enforcement departments from leaking confidential trade information acquired during investigation, and it also specifies that “government departments should not take advantage of their power to curb competition.

Nonetheless, it does not clarify the potential conflict between different departments as they may hold different positions. Hence, the final authority still lies in the hand of the State (Party).

Lastly, an Anti-monopoly law in a free-trade country, is a legislative system that protects consumers. However, even with the development and maturity of the Chinese economy in the past decade, China still has a socialist market economy that is largely controlled by the State (Party). A recent government intervention in the business dispute between China’s Beijing Huilian Group, and Taiwan’s ShinKong Enterprise, is shocking evidence of a local company using government power to manipulate the rights of a foreign investor. Therefore, foreign companies should be cautious when making investments in China.

Analysis on Patent Application Trend in Mainland China in the First Half of 2007
According to the statistics on the number of patent applications and patent granting cases published by SIPO in the first half of 2007, the Mainland China itself witnesses continuous growth in respect of the number of patent applications, despite the reduction of growth rate, while the growth rate for PCT application remains unchanged. The detailed data is shown as follows:

1. Comparison of numbers of patent applications for first half 2007 and first half 2006:

2. Mainland China enjoys a relatively higher growth rate in local patent applications for invention from foreign applicants. Under a condition that both the growth rates of local and foreign patent applications for invention are reducing, the growth rate of local patent applications for invention (8.1%) is still 3% approximately higher than that of foreign patent applications for invention (5.4%), among which, the local patent applications for invention have occupied 56.8% of the total patent applications for invention in the first half year, 14% higher in comparison with that of foreign ones (43.2%). There exist two possible causes behind the results: first, local enterprises turn to patent applications for invention from intended applications for utility model due to technical development; second, stimulated by various encouraging policies provided by different regions in Mainland China, enterprises from foreign countries submit applications for invention in the name of local enterprises for subsidies.

3. The growth rate of local applications for invention is all contributed by service patent applications. Service patent applications increase by 20% while non-service patent applications decrease by 1.4% compared to the corresponding periods of previous year. It is obvious that enterprises in Mainland China enjoy more advantages in patent applications compared with individuals thanking to the guidance of relevant policies and measures. Thus, continuous high growth rate for service patent applications still on.

4. The number of patent applications of three kinds approved increases rapidly. The first half of 2007 sees a growth rate of 40.5 percent in the number of patent applications approved as compared with that of the same period of previous year, equivalent to the speed at which cases involving trademarks are adjudicated in Mainland China, showing an improved ability in examination and approval of patent applications.

Overall, the growth rate of patent applications that Mainland China accepts applications will step into a new adjustment stage with the growth rate of total number reducing while the one of local service patent applications rising rapidly due to the enhancement of intellectual property protection works in the enterprises and scientific research institutes as well as the increasing awareness for protecting self-owned intellectual property. Besides, while the process of adjudication of patent is speeded up constantly along with the improvement of patent inquisition ability, the situation that the patent inquisition cases are backlogged has been improved, which will undoubtedly contribute to the healthy growth of the patent system in Mainland China in the future.

With regard to the number of PCT applications accepted in Mainland China, it has been in a high growth rate. The statistics data of the first half of 2007 is as follows:

To analyze the distribution areas in Mainland China that contribute to the PCT patent applications, more than 50% of the application cases are from Guangdong Province, and only four regions including Guangdong, Beijing, Shanghai and Jiangsu areas are those with the applications exceeding one hundred, showing that such four regions are also the most successful area in encouraging innovations in Mainland China.