Intellectual Property Tactics Implemented in China by Transnational ompany and Its Regulation
Abstracts: The intellectual property tactics adopted by the transnational companies include: first, to establish R&D institute in China; second, to rush to apply for registration of patents, trademarks and designs in China; third, to impose pressure on the government to protect intellectual property by federating and allying, or making full use of local remedy. These tactics possibly produced two negative effects: monopoly and abuse of monopoly power based on technological predominance; and limiting local companies’ competitiveness through claims for protecting intellectual property. This essay emphasize the necessity to restrict and eliminate the negative effects of such tactics through antimonopoly and intellectual property law. What China need do now is to carry such restrictions through its legislation, implementation and judgment.
Key words: transnational company, intellectual property, abuse, regulate
Background for China’s Legislation
China has experienced dramatic development in the growth of a rule-based approach to its market and the operation of economic law. These law reform efforts have sought to keep pace with the speed at which the market economy has grown in China over this time. However the development of a sophisticated system of competition law has tended to lag well behind rapid market developments that have been occurring.
The Chinese legal system has changed considerably over the past tow decades, but particularly since 1992. Increased interaction with the world economy and the dynamic of globalization and has brought a range of powerful foreign influences to bear. However, the record of Chinese legal reform in the areas of economy reveals a relatively consistent pattern by which foreign legal norms and institutional arrangements are adjusted to meet local political and ideological imperatives.
China’s accession to the GATT and WTO imposes further impetus on this process. The GATT/WTO disciplines of non-discrimination, transparency and non-trade-distorted will require wideranging changes in the areas of legal system. There is every indications that China’s policymakers see China’s WTO accession agreement as a means to fulfilling broader goals. One broader strategic goal is to faci-litate the peaceful emergence of China as a great trading nation—and to avoid the trade tensions associated with the emergence of major new traders in the past. Another goalis to accelerate the process of domestic reform.
The legal reforms undertaken by the Chinese government since 1978 reflect the interplay of foreign legal norms with a local context. At the very outset of the legal reform process, legal reformers were admonished to learn from China’s past and from the experience of foreign countries. As the economic reforms accelerated, China’s legal specialists looked increasingly to Europe and North America for inspiration. The process of borrowing form abroad accelerated during the second decade of legal reform as a wider array of legal scholars and officials recognized that China’s economic reforms required the Chinese legal system to conform more fully with the international system.
In most western countries, different views have been expressed about the regulation of competition ranging from the almost complete abandonment of the government’s intervention in this area at one extreme to those advocating stronger government intervention at the other extreme. But in China, the focus of legislative debate is on how and whether to take back the authorisation of monopoly in some industries, especially to the state-owned enterprises. On the other hand, some multinational companies who have obtained the dominate status in China’s market also object to the competition legislation.
While the Anti-Unfair Competition Law, Price Law, Foreign Trade Law, and many other Chinese laws and regulations touch on some of these issues, existing measures are not enforced as a coherent competition policy. Proposals for a comprehensive Antimonopoly Law surfaced in 1987, and drafters from various agencies and academic institutions began drafting in 1994. The resulting draft reflects divergent, often inconsistent goals. Until now, the decade-long drafting of China’s Antimonopoly still cannot see the exact ending time.
China’s vast domestic market is becoming larger and deeper by the day. This makes enforcement of its competition law ever more important. When China enacts its Antimonopoly Law, that legislation will be applicable to the largest population as well as the fastest growing economy in the world.
China Competition Legislation
Up to now, China has only one effective competition law, the Anti-Unfair Competition Law of PRC, which was promulgated on September 2, 1993. Article 1under Chapter 1 of the Anti-Unfair Competition Law provides that the objective of the law is to safeguard wholesome development of socialist market economy, to encourage and to protect fair competition, to curb unfair competition, and to protect rights and interests of business and consumers.
China has been a transitional economy for some time, which means, in the legal context, it often has many simplified codes that are temporary or experimental. The Anti-Unfair Competition Law is one example. It prohibits a wide range of “unfair competition practices” like: counterfeiting, bribery, false advertising, misappropriation of trade secrets, trade libel, improper sales schemes using prizes, adminis trative monopolies, lockouts from local market, predatory pricing, abuse of dominate market position by public utilities, and bid rigging.
The Anti-Unfair Competition Law includes some contents of modern competition law, but actually it is still a little like trade-constraint law in the common law countries. Likewise, rules governing the abuse of dominant market position, and the related rules governing predatory pricing and discrimination, could allow the competition law authorities to determine what is the right-or, fair-price to charge. But the principles and methodology of the western competition law are still not introduced into the legislation and enforcement.
The anticipated enactment of the PRC Antimonopoly Law will be a major milestone in China's legal development. The endgame to the decadelong drafting of China's Antimonopoly Law may finally be at hand. The Ministry of Commerce (MOFCOM) submitted a final draft to the State Council earlier 2005, and the State Council is reportedly vetting the law for adoption by the National People's Congress (NPC). Chinese observers now predict the law's enactment in the near future, possibly in 2007.
The draft Antimonopoly Law is clearly patterned after the German/EU competition law model, and somewhat affected by the American antitrust law and the other Asian competition legislation enacted earlier. We could find in the draft the prescriptions of horizontal restrictive practices, cartel, predatory pricing and discrimination, abuse of dominant market status and so on.
The most controversial provision in the draft Antimonopoly Law will be rules against administrative monopolies. Likewise, European law prohibits state aid measures preventing the formation of a single market. In the Untied States, the famous “state action doctrine” dels with the same issues, albeit on a much smaller scale because there is much less government involvement in the American economy. The contradiction on this issue is severe in China. The competition law authorities in China will have to tackle government monopolies or government instrumentalities operating in the marketplace.
Clearly, China has an industrial policy through which it wishes to create national champions that would be globally competitive. China believes strongly in this policy and thinks it is only fair for China to catch up with the world in this way. Pending enactment of the draft Antimonopoly Law including its merger control rules, China has already implemented rules governing acquisitions by foreign companies. Foreign firms are justifiably concerned, as a government competition report criticized Microsoft, Kodak, Tetra Pak and others as monopolies.
PRC competition policy may yet emerge as a scalpel for removing truly anticompetitive practices, a cudgel for threatening competitors of favored firms, a gaping sieve that fails to catch anticompetitive conduct, or all three. It is too soon to tell. At this stage, foreign firms active in China should begin assessing their own business practices (and those of their competitors) in anticipation of the Antimonopoly Law's enactment. Conduct barred by foreign competition rules may eventually be actionable under the Antimonopoly Law. Enforcement may depend more on the context—the industry, locale, the affected parties, and their political sponsors—than on the literal antitrust rules. Capricious enforcement and unclear rules will chill competition, undermining its benefits to China's consumers. In the end, the credibility and effect of Chinese antitrust law will depend on the choices made by China's fledgling antitrust authorities.
M&A Practices in China
A fascinating phenomenon of mergers, acquisitions, consolidations and restructuring is taking place in China. Thousands of rapidly growing businesses, riding on the wave of China’s unprecedented economic expansion, represent the latent potential for acquisition and restructuring of existing investments.
China is in the midst of transitioning its planned economy, which has traditionally been dominated by mammoth stateowned enterprises (“SOEs”), to a market economy (albeit one with “Chinese characteristics,” as famously stated by Deng Xiaoping during the launc of China's marketopening efforts in the late 1970s) that includes private enterprises (increasingly, “privatized” SOEs) and foreign invested enterprises. Bolstering this transition has been the gradual emergence of a body of commercial laws and regulations that today includes, among others, a Company Law, Contract Law, Consumer Rights Law, Product Quality Law, Anti-Unfair Competition Law, and Pricing Law. For example, the March 2003 M&A Regulation expressly requires government review for certain M&A activities where certain “market share” hurdles are met.
Gone are the days when foreign companies wishing to invest in China were limited to greenfield investments. They may now purchase operating Chinese businesses and may restructure their existing investments in China through mergers, spin-offs, and holding companies that were impossible only a few years ago. These developments are not confined to foreign investors. Domestic Chinese companies are also merging and acquiring one another, and the more successful among them have begun to buy out foreign investors. The result of all of these developments is a rapidly expanding mergers-and-acquisitions (M&A) market in China.
For M&A transactions, the most significant impact of China’s WTO entry may be the country’s implementation of its commitments to open, or raise the limits on the maximum foreign investment permitted in, several important service sectors, notably telecommunications, insurance, and banking. China has also agreed to eliminate prohibitions on foreign distribution activities in China, which will effectively broaden the authorized business scopes of many existing foreign invested enterprises and permit investment in a much wider range of distribution and retail activities. The result will be an M&A market that is larger and increasingly relevant to both foreign and domestic companies in China.
However, as discussed earlier, acquisition of Chinese companies and assets is a relatively recent development, and related rules and implementation regulations are in the process of development or subject to further clarification. In addition, the increasing political pressure in China to review sizable acquisitions of Chinese companies by foreign investors invokes caution and may add additional difficulties to the already complicated acquisition process. However, the opening of the M&A floodgate in China is irrevocable, and new ground will continue to be broken as multinationals continue to adapt to the local M&A market.