Red flags in US competition law on the exercise of IP rights

Intellectual property (IP) users may, in the course of exercising their rights, also abuse their IP rights. When, in the exercise of IP rights, market competition is restricted or eliminated, regulation of such abuse by antitrust/anti-monopoly and other such competition laws is necessary. This column will give a brief description of the rules in relevant US law, in the hopes that they will be of value in the establishment of relevant rules in China.

Illegal restriction

Cross-licensing and patent pool arrangements. With respect to collective pricing or output restrictions in a patent pool arrangement, if such restrictive acts do not as a whole contribute to increasing socioeconomic benefits, their existence will be deemed an illegal restriction of market competition. If either a cross-licensing or a patent pool arrangement is used to effect pure price maintenance or a partitioning of the market, it will be deemed as a per se violation of the law.

With respect to a market competitor that has been excluded from a patent pool, if it cannot demonstrate that the other participants in the patent pool collectively have a dominant position in the relevant market, US law enforcement authorities have a tendency to apply the rule of reason when evaluating the reasonableness of the existence of the patent pool.

Resale price maintenance. In the judgment in Dr Miles Medical Co v John D Park & Sons Co, the court established the exhaustion doctrine. Once the licensee of an IP owner has sold a product incorporating its IP onto the relevant market, the owner loses its right to control pricing, or the resale price. Accordingly, resale price maintenance itself is a per se violation of the law.

Rose Xu is a partner and Ason Zhang is an associate at Chang Tsi & Partners