China's top court considers pay-for-delay settlement agreements for the first time
The Supreme People's Court has identified certain relevant factors when assessing such agreements from an Anti-monopoly Law perspective.
A drug patent holder had pleaded to withdraw its patent infringement claims before the Supreme People's Court (SPC). In reviewing the withdrawal application, the SPC found a settlement agreement for another legal proceedings which, from the court's view, appeared to be a "pay-for-delay" agreement.
The SPC noted that pay-for-delay agreements may be anti-competitive and a competition law violation. The most important factor of the antitrust assessment was the possibility of the patent concerned being declared invalid without signing the "pay-for-delay" agreements, taking into account, for instance, whether the compensation under such agreements exceeds a reasonable amount. The court also identified the theories of harm involving such agreements, whereby the patent holder could substantially extend its exclusive position and delay/exclude market entry.
That being said, the SPC held that a prima facie review would be sufficient in such a non-antitrust lawsuit, and determined that there was no necessity/urgency to consider in depth the grounds on which the drug patent concerned had expired - nor was there sufficient evidence in this case to do so.
Pay-for-delay settlement agreements were identified as a potential antitrust enforcement target in China's 2014 national IP strategy, but there have been no further guidance or relevant decisional practice until this case. The China competition authority, to date, has yet to initiate such an investigation.
More information can be found here.
Heightened scrutiny of RPM continues in China
On 9 February 2022, a multinational dental medical device manufacturer's Chinese entity was fined RMB 9.12 million for resale price maintenance (RPM) practices from 2008 to 2020, representing 3% of its 2020 total China-wide revenue.
The Beijing antitrust authority found that the company included a resale pricing clause in its distribution agreements and also required that its distributors implement minimum resale prices, through face-to-face meetings, WeChat and verbal communications. It also set distributor KPI policies, monitored distributors' resale prices, and rewarded and penalized distributors who did not follow its RPM requirements.
This decision follows several record fines in 2021 and another case in medical device sector in 2016, reinforcing that RPM continues to be a top antitrust enforcement priority in China - and particularly in the healthcare/medical sector, where the majority of antitrust fines by penalty amount have involved RPM cases.
More information can be found here.
China announces five year antitrust enforcement plan
The antitrust authority will be stepping up oversight over the platform economy, technology development, data security and livelihood sectors such as utilities, healthcare and medicine. The antitrust authority identified these as key areas vulnerable to antitrust violations, and also reflects upon antitrust enforcement actions over 2021.
According to the figures published by the authority, a total fine of RMB 23.586 billion/USD 3.71 billion were imposed in 176 behavioral cases in 2021. Among others, platform economy, medicine, public utilities, and building materials were heavily investigated industry sectors. In terms of merger control, the regulator dealt with 727 merger filings, including one that was prohibited and four remedy cases. One hundred and seven cases were penalized for a failure to notify.
In the five-year plan issued in January 2022 by the State Council, China's top government body, the following types of antitrust violations were flagged as high enforcement risks:
- Platform economy: data/algorithm-related antitrust issues, killer acquisitions, exclusive dealing, discrimination, and tie-in/bundling, etc.
- Technology development: abuse of standard essential patents (SEPs).
- Livelihood sectors: abusive practices including without limitation unfair high price, predatory pricing, restrictive/exclusive dealing, tie-in/bundling, and imposition of unreasonable trading conditions, etc.
More information can be found here.
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