Concentration of undertakings involving intellectual property

The office of the State Council’s Anti-Monopoly Commission issued the Anti-monopoly Guidelines on Abuse of Intellectual Property (Draft for Comment) on 23 March 2017. The draft document has a chapter dedicated to the concentration of undertakings involving intellectual property (IP), which embodies a law enforcement model of applying the general principles and analytical framework for anti-monopoly review of concentrations between undertakings and also takes into consideration the characteristics of IP where the concentrations under review involve IP.

The draft for comment was formulated after years of painstaking efforts by all three competition authorities in China. It is likely that the final version will retain the provisions on concentration of undertakings involving IP. The fourth chapter of the draft, which covers concentration of undertakings involving IP, will provide important guidance for commercial practices regarding corporate mergers and acquisitions (M&A). If a company’s proposed M&A involving IP satisfies the conditions for anti-monopoly notification in China, the company should take into account the possible impact of IP issues on the anti-monopoly review of the concentration.

First of all, the draft for comment clarifies that the structural change of IP must be regarded as a kind of concentration of undertakings and the standards for evaluation. Such structural changes include transfer and exclusive license of IP. It is noteworthy that, generally speaking, in case of exclusive license of IP, only when such exclusive license has the same effect as the transfer of IP for a certain period of time may it be regarded as a concentration of undertakings.

Liu Dongping is a partner at East & Concord Partners