On June 24, 2024, China’s Supreme People’s Court (SPC) released the “Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Disputes over Monopoly” (最高人民法院关于审理垄断民事纠纷案件适用法律若干问题的解释). As it relates specifically to patents, the Interpretation states that drug patent reverse payment agreements may violate the Anti-Monopoly Law. Reverse payments involve a drug patent holder paying an alleged infringer or potential infringer, usually a generic manufacturer, to stop the alleged or potential infringement so that the drug patent holder can maintain sales of the patented drug.

Specifically, Article 20 of the Interpretation states,

Where the plaintiff has evidence to prove that the agreement reached and implemented by the generic drug applicant and the patent right holder of the generic drug meets the following conditions at the same time, and claims that the agreement constitutes a monopoly agreement as provided for in Article 17 of the Anti-Monopoly Law, the People’s Court may support the claim:

(1) The generic drug patent right holder gives or promises to give the generic drug applicant obviously unreasonable monetary or other forms of compensation;

(2) The generic drug applicant undertakes not to question the validity of the patent rights of the generic drug or delay entering the relevant market of the generic drug.

If the defendant has evidence to prove that the compensation referred to in the preceding paragraph is only to make up for the costs of resolving disputes related to the patents of the generic drugs or has other legitimate reasons, or that the agreement complies with Article 20 of the Anti-Monopoly Law and claims that it does not constitute a monopoly agreement as stipulated in Article 17 of the Anti-Monopoly Law, the people’s court shall support it.

Article 17 of the Anti-Monopoly Law reads,

Competing undertakings are prohibited from concluding the following monopoly agreements:

(1) those that fix or change the price of goods;

(2) those that limit the quantity of goods manufactured or marketed;

(3) those that divide the sales markets or markets for raw materials;

(4) those that restrict the purchase of new technology or new equipment or restrict the development of new technology or new product;

(5) those that jointly boycott transactions;

(6) other monopoly agreements as determined by the State Council anti-monopoly law enforcement agency.

Article 20 of the Anti-Monopoly Law reads,

Where undertakings can demonstrate that a monopoly agreement concluded has one of the following circumstances, the provisions of Article 17, Article 18, paragraph 1, and Article 19 of this Law do not apply:

(1) to improve technologies or to research and develop new products;

(2) to improve product quality, lower cost, or increase efficiency by unifying the specifications or standards of products or by implementing specialized division of labor;

(3) to increase the operating efficiency of small and medium-sized undertakings or to increase their competitiveness;

(4) to achieve energy conservation, environmental protection, disaster relief, and such other public interests;

(5) to mitigate the sharp decline in sales volume or obvious overproduction due to an economic recession;

(6) to safeguard the legitimate interests in foreign trade or in foreign economic cooperation;

(7) other circumstances prescribed by laws or the State Council.

Other IP-related provisions of the Interpretation follow:

Article 4: Anti-monopoly civil disputes of the first instance shall be under the jurisdiction of the Intellectual Property Courts and the Intermediate People’s Courts designated by the Supreme People’s Court.

Article 33: When the people’s court determines the dominant market position of an operator accused of abusing intellectual property rights in accordance with Article 23 of the Anti-Monopoly Law, it may focus on the following factors:

(1) the substitutability of specific intellectual property subject matter in the relevant market, the number of substitute subject matter and the cost of switching to substitute subject matter;

(2) the substitutability of the goods provided by the use of the specific intellectual property rights and the market share of the goods;

(3) The ability of the transaction counterparty to check and balance the operator that owns the specific intellectual property rights;

(4) innovation and technological changes in relevant markets;

(5) Other factors related to the exercise of intellectual property rights that need to be considered.

If an operator claims that it cannot be presumed to have a dominant market position simply because it owns intellectual property rights, the people’s court should support its claim.

Article 38: Where an operator with a dominant market position meets all of the following conditions at the same time, the People’s Court may preliminarily determine that it has committed “refusal to trade with a counterparty” as provided for in Article 22, Paragraph 1, Item 3 of the Anti-Monopoly Law:

 

(1) An operator directly refuses to trade with a transaction counterparty, proposes transaction conditions that are obviously unacceptable to the transaction counterparty, or unreasonably delays the transaction, resulting in failure to conclude the transaction;

 

(2) It is economically, technically, legally and safely feasible for the business operator to conduct transactions with the transaction counterparty;

 

(3) The refusal to deal excludes or restricts competition in the upstream or downstream markets.

 

If an operator with a dominant market position refuses, without justifiable reasons, to make its products, platforms or software systems compatible with specific products, platforms or software systems provided by other operators, refuses to open up its technology, data or platform interfaces, or refuses to license its intellectual property rights, the People’s Court may comprehensively consider the following factors when making a determination in accordance with the provisions of Article 22, paragraph 1, item 3 of the Anti-Monopoly Law:

 

(1) the economic, technical, legal and security feasibility of the operator’s implementation of compatibility, openness or licensing;

 

(2) The substitutability and reconstruction cost of the product, platform or software system, technology, data, intellectual property, etc.;

 

(3) The degree to which other operators rely on the products, platforms or software systems, technologies, data, intellectual property rights, etc. of the operator in order to carry out effective competition in the upstream or downstream markets;

 

(4) the impact of refusing compatibility, openness or licensing on innovation and the introduction of new products;

 

(5) the impact of implementing compatibility, openness or licensing on the business operations and lawful rights and interests of the business operator;

 

(6) Whether the refusal to be compatible, open or licensed substantially excludes or restricts effective competition in the relevant market;

 

(7) Other factors that may be considered.

 

In any of the following circumstances, the People’s Court may determine that it constitutes a legitimate reason as provided for in Item 3, Paragraph 1, Article 22 of the Anti-Monopoly Law:

 

(1) The transaction cannot be conducted or the transaction conditions or results are obviously unfair due to objective reasons such as force majeure or change of circumstances;

 

(2) The transaction counterparty has lost or may lose the ability to perform the transaction due to serious deterioration of its business conditions, transfer of property or withdrawal of funds to evade debts, etc., or has a bad credit record, has lost its business reputation, or has committed a crime, etc., which affects the safety of the transaction;

 

(3) The transaction counterparty refuses to accept appropriate transaction conditions or fails to comply with the reasonable request made by the operator;

 

(4) Transactions with the counterparty will seriously undermine the legitimate interests of the operator;

 

(5) Other reasons that can prove the legitimacy of the conduct.

 

The full text of the Interpretation can be found here (Chinese only).