2 March, 2016
The State Council issued the Opinions on Certain Policies and Measures Supporting the Development and Opening-up of Key Border Areas (“Opinions on Supporting Border Areas”), where 31 measures were put forward to support the development and opening-up of key border areas.
To facilitate the development of the telecommunication industry, the Ministry of Industry and Information Technology (“MIIT”) readjusted the Classification Catalogue of Telecommunication Services for the third time.
The National Development and Reform Commission (“NDRC”) issued the Anti-monopoly Guidelines on the Abuse of Intellectual Property Rights (Draft for Comments) (“IPR Guidelines”), which provides guidance as to whether IPR-related agreements and behaviors of various kinds contravene the Anti-monopoly Law of the People’s Republic of China (“Anti-monopoly Law”).
1. State Council issued the Opinions on Supporting Border Areas
On December 24, 2015, the State Council issued the Opinions on Supporting Border Areas, where 31 measures were put forward to support the development and opening-up of key border areas in 8 aspects: (i) further promotion of the “Thriving the Economy of Border Areas and Enriching the Residents’ Lives” program; (ii) reform of administrative system and regime; (iii) adjustment of trade structure; (iv) promotion of featured and competitive industry; (v) further opening-up of the tourism industry; (vi) improving infrastructure construction; (vii) increase of financial and tax support; and (viii) encouraging financial innovation. The Opinions on Supporting Border Areas highlights that different policies should be applied to different industries, studies should be made in terms of establishing funds for industrial development (venture capital) of border areas, and support should be given to the development of featured and competitive industries in border areas. Additionally, the Opinions on Supporting Border Areas specified that, by making orderly progress on border trade and improving border policies, it is encouraged to transform border trade in small amount into comprehensive and diversified trade and to explore possible development of offshore trade.
The List of Key Border Areas is published as an attachment to the Opinions on Supporting Border Areas. The 123 key border areas included in the List of Key Border Areas are spread out over 9 provincial administrative regions bordered other countries on land, including Guangxi, Yunnan, Tibet, Xinjiang, Gansu, Inner Mongolia,
Heilongjiang, Jilin, and Liaoning. Within these key border areas, there are 5 key development and opening-up pilot areas, 72 national border ports, 28 border cities, 17 border economic cooperative zones and 1 cross-border economic cooperative zone.
After implementation of the Reform and Opening-up Program, the Fourth Meeting of the Seventh National People’s Congress approved the “Ten Year Layout for National Economy and Social Development and the Eighth Five Year Plan”. Proposals were introduced for the first time to select certain cities and areas bordering other countries on land for the Reform and Opening-up Program and to promote the foreign trade and economic and technical exchanges in these cities and areas. These development programs for border cities were first announced in the Circular of Further Opening-up of Heihe and 3 Other Border Cities issued by the State Council in March 1992. Since then, the numbers of border cities joining development programs have been increasing, and border economic cooperative zones have been established. China also announced policies of “Development of the Western Regions” and “Revitalization of the Old Industrial Base in Northeast Regions”, launched the program of “Thriving the Economy of Border Areas and Enriching the Residents’ Lives”, and strongly supported development of border areas by implementing preferential financial and tax policies.
However, due to the geographical restrictions, weak foundations, a lack of talent and various other factors, the level of development and opening-up in border areas lags that of the country as a whole and the coastal regions. New policies and measures became a pressing demand. With expansion of the “Go Global” strategy, the NDRC, Ministry of Foreign Affairs and Ministry of Commerce (“MOFCOM”) jointly issued the “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road”, further aligning development in border areas with China’s visions to facilitate its economic cooperation with neighboring countries. With the focus of mutual benefits, the new round of development and opening-up of border areas will combine the advantages of border areas and neighboring countries and regions, and build an industrial linkage, through which adjacent regions will share common prosperity and development.
1.2 Legal Review
The Opinions on Supporting Border Areas introduces various measures to improve the investment environment in key border areas. For example, in terms of reform of the administrative system and regime, proposals of such Opinions include: (i) further opening-up of areas for investment; (ii) introduction of international rules and standards; (iii) supporting well-conditioned key border areas to learn from applicable and useful trial experiences of Pilot Free Trade Zones including the China (Shanghai) Pilot Free Trade Zone (“Shanghai FTZ”); (iv) conducting trial of the foreign investment management model of "Pre-establishment National Treatment Plus Negative List"; and (v) implementation of commercial system reform to facilitate the improvement of business registration with administrations for industry and commerce in key border areas.
In terms of foreign access, the Opinions on Supporting Border Areas specifically provides that: (i) financial, educational, cultural, and medical service sectors in key border areas should be gradually opened to domestic and foreign investors; (ii) restrictions on foreign investment in service sectors such as nursing services for children and elder people, architectural design services, accounting and auditing services, trading and logistics services, and e-commerce should be gradually relaxed; (iii) sport tourism and touring performing arts should be actively developed, and foreign investors should be allowed to hold shares of performing arts brokerage companies controlled by Chinese investors; and (iv) eligible foreign-funded financial institutions should be supported to set up branch offices in key border areas.
In addition, the Opinions on Supporting Border Areas also introduces measures to provide convenience to foreigners in their exit and entry of and their employment in China. Specifically, these measures include: (i) implementation of visa-on-arrival policy at national border ports and authorization to well-conditioned foreign affairs offices at the provincial (regional) or municipal (prefectural) levels to complete legalization formalities; (ii) enhancing commercial negotiation and cooperation with neighboring countries, boosting and allowing border residents who hold valid documentation recognized by both countries to freely access designated areas around the borders of both countries; (iii) provision of entry and exit convenience for investors of major foreign-related projects, and setting up "green channels" for personnel engaged in cooperative projects between China and neighboring countries; (iv) exploring the possibility of and facilitating the establishment of consular offices in border cities by neighboring countries; (v) promoting mutual recognition of license plates of vehicles engaged in cross-border transportation to facilitate transportation; and (vi) allowing employment of foreigners in accordance with PRC laws.
1.3 Next Step
As a policy document issued by the national-level governments, policies contained in the Opinions on Supporting Border Areas still require promulgation of practical regulations, rules and provisions by authorities at both national and local levels.
2. MIIT readjusted
Catalogue of Telecommunication Services
On December 25, 2015, MIIT issued the Classification Catalogue of Telecommunication Services (2015 Edition) which will come into force on March 1, 2016.
China adopts a classification system on telecommunication services operation based on telecommunication services types. Governmental approvals are required for telecommunication service operation.
Since the first edition of Classification Catalogue of Telecommunication Services issued in September 2000 as an attachment to the Telecommunication Regulations of the PRC, the
Ministry of Information Industry (the predecessor of MIIT) had twice readjusted the Classification Catalogue of Telecommunication Services in 2001 and 2003.
To accommodate development of new technology and new business in the telecommunication industry, the MIIT readjusted the Classification Catalogue of Telecommunication Services for the third time, and publicized the Classification Catalogue of Telecommunication Services (2013 Edition) (Draft for Comment) on May 23, 2013 for public comments. After collecting and considering public comments, the MIIT further readjusted the Classification Catalogue of Telecommunication Services and issued to the public the Classification Catalogue of Telecommunication Services (2015 Edition) on December 25, 2015.
2.2 Legal Review
The readjustment maintains the fundamental classification structure of the previous version, namely, telecommunication services are divided into two main categories of basic telecommunication services and value-added telecommunication services.
b. Basic telecommunication services
The basic telecommunication services remained its previous division of Class 1 and Class 2. The Classification Catalogue of Telecommunication Services (2015 Edition) has adjusted and subdivided the services of IP phones, cellular mobile communication, satellite communication, internet data transmission, internet access facilities.
c. Value-added telecommunication services
The Classification Catalogue of Telecommunication Services (2015 Edition) has combined and readjusted the subcategories under the previous Class 1 and Class 2 of value-added telecommunication services. The new Class 1 value-added telecommunication services is defined as services based on facilities and resources, while the new Class 2 value-added telecommunication services is defined as services based on public application platform. In the meantime, the Classification Catalogue of Telecommunication Services (2015 Edition) clarifies details of the content distribution internet services, the encoding and code conversion services, and subdivides the internet date center services, call center and information services. Specifically, the call center services (B24) has been divided into domestic call center services (B24-1) and offshore call center services (B24-2) for the purposes of further encouraging development of offshore call center services.
To accommodate development of new technology and business in telecommunication industry, the Classification Catalogue of Telecommunication Services (2015 Edition) subdivides the information services into 5 subcategories: (i) the information dissemination platform and delivery services; (ii) the information searching services; (iii) the information community services; (iv) the information instant interaction services; and (v) the information protection and processing services, based on the specific forms of services and in accordance with the organization, delivery and other technical characteristics of information services.
2.3 Next Step
China did not commit to open call center services when it joined WTO in 2001. Since January 6, 2014, call center services in Shanghai FTZ were opened to foreign investors for trial purposes without limiting foreign ownership. Considering that the Catalogue for Guidance on Foreign-invested Industries (Revised in 2015) only identified offshore call center services through outsourcing as the “encouraged” class without mentioning domestic call center services, it is worth noting whether foreign investors will be allowed to set up wholly foreign-owned enterprises or joint ventures to provide domestic call center services after implementation of the Classification Catalogue of Telecommunication Services (2015 Edition).
China committed to open online information and/or data processing (including transaction processing) in the Protocol on the Accession of China. Given the rapid development of information service, certain types of information services set out in the Classification Catalogue of Telecommunication Services (2015 Edition) may be beyond the scope of “online information and/or data processing (including transaction processing)”. In such cases, it depends on future legislation whether foreign investors will be allowed to establish wholly foreign-owned enterprises or joint ventures in China to provide information services that are beyond the scope of “online information and/or data processing (including transaction processing)”. We noticed that there have been no restrictions on foreign ownership of one of the information services
opened for trials in Shanghai FTZ – the application store services – since January 6, 2014. We expect that in the future, if and when pilot projects in Shanghai FTZ are admitted, wholly foreign-owned enterprises or joint ventures may be allowed to establish and provide application store services in China.
3. The NDRC published the IPR Guidelines
On December 31, 2015, the NDRC published the IPR Guidelines, which explain the definition of relevant markets and determination of dominant market positions in the context of anti-monopoly law enforcement in the domain of IPR, enumerate with respect to seven types of IPR agreements the factors which may be considered when determining whether competition is excluded or restrained in concrete cases, provide the criteria for the presumption of applicability of the exemption under Article 15 of the Anti-monopoly Law, and enumerate with respect to six types of conducts involving IPR the factors which may be considered when determining an abuse of a dominant market position.
In 2015, the NDRC engaged in the drafting of six anti-monopoly guidelines pursuant to the delegation in Article 9 of the Anti-monopoly Law and the work plan of the Anti-monopoly Committee of the State Council. The IPR Guidelines are one of the six guidelines.
The State Administration for Industry and Commerce (“SAIC”) promulgated the Provisions on Prohibiting the Abuse of Intellectual Property Rights to Exclude and Restrain Competition (“IPR Provisions”) on April 7, 2015 (effective on August
1, 2015). However, since the responsibilities of the SAIC regarding anti-monopoly do not cover law enforcement with respect to price-related monopolistic activities, the IPR Provisions do not apply to such activities. The IPR Provisions also stopped short of explaining the various factors which may be considered when determining a violation of the Anti-monopoly Law with respect to different types of IPR agreements and abuses of dominant market positions. The IPR Guidelines issued by the NDRC cover price-related monopolistic conducts and specify in detail the factors to be considered in determining monopolistic activities in the domain of IPR.
3.2 Legal Review
The IPR Guidelines have a broader scope than the IPR Provisions as the IPR Guidelines cover price-related monopolistic activities. The IPR Guidelines are also more detailed than the IPR Provisions in that the IPR Guidelines provide particular explanations for different types of agreements and activities.
a. Market definition and dominant market positions
With respect to the definition of relevant markets, the IPR Guidelines emphasize that the relevant technology markets of the IPR should be considered in addition to the relevant product markets of the products in which the IPR are utilized. With respect to the determination of dominant market positions, in addition to restating the principle that ownership of IPR alone does not constitute a dominant market position, the IPR Guidelines further enumerate the factors which may be considered when determining dominant market positions in cases involving IPR and also
enumerate the factors which may be further considered where standard-essential patents are involved.
b. Price-related monopolistic activities
With respect to price-related monopolistic activities, before the issuance of the IPR Guidelines, the relevant legal provisions were unclear as to whether the provisions on fixing resale prices or setting minimum resale prices in the Anti-monopoly Law shall be applied to IPR agreements that restrict the prices which the licensee may sell the products in which the IPR are utilized; the IPR Guidelines expressly stipulate that the provisions on fixing resale prices or setting minimum resale prices in the Anti-monopoly Law shall apply to such activities.
c. IPR agreements that might exclude or restrain competition
The IPR Guidelines separately discuss seven types of IPR agreements: (i) joint Research and Development, (ii) patent pool, (iii) cross-licensing, (iv) formulation of standards, (v) exclusive grant-back, (vi) no-challenge clause, and (vii) agreements that confine the use of IPR by a licensee to a particular field, that restrict the quantities, sales channels, sales scope or transaction counterparties of the products whose production or sale involve the use of IPR, that prohibit a licensee from obtaining a license of competitive IPR from a third party or using such competitive IPR, or that prohibit a licensee from producing or selling products that compete against the products of the licensor. For each type of agreement, the IPR Guidelines enumerate the factors which may be considered when determining whether competition is excluded or restrained.
d. Agreements presumed to be exempted
According to the IPR Provisions, so long as the relevant agreement does not belong to any kind of monopolistic agreement enumerated in Articles 13 and 14 of the Anti-monopoly Law, an agreement may be deemed as not monopolistic if its parties compete against each other and together possess a market share of no more than 20% in the relevant market or if its parties are trading counterparties and each possesses a market share of no more than 30% in its respective market. The IPR Guidelines adopt higher criteria for an agreement to enjoy a presumption of exemption; it is stipulated that an agreement is presumed to be exempted under Article 15 of the Anti-monopoly Law if its parties compete against each other and together possess a market share of no more than 15% in the relevant market, or if its parties do not compete against each other and each possesses a market share of no more than 25% in its respective market.
e. Abuses of dominant market positions
The IPR Guidelines separately discussed six types of abuses of dominant market positions: (i) licensing at unfairly high prices, (ii) refusal to grant licensing, (iii) tying, (iv) imposing unreasonable transaction terms, (v) discriminatory treatment, and (vi) coercion by an owner of standard-essential patents upon a licensee by means of injunctive relief. For each type of abuses, the IPR Guidelines enumerate the factors which may be considered when determining whether there is an abuse of a dominant market position.
3.3 Next Step
The published IPR Guidelines contain a chapter heading of “IPR Involved Concentration of Business Operators”, but the content of that chapter is not published. It is worth our continued attention as to what provisions pertaining to concentration will be in the IPR Guidelines that will be eventually implemented.
Moreover, in terms of the hierarchy of legislations, the IPR Guidelines are merely a normative document the NDRC promulgates pursuant to the Anti-monopoly Law, and the IPR Guidelines are not entirely consistent with the IPR Provisions, which the SAIC previously promulgated. We shall pay attention to whether there will be a certain level of tension between the two anti-monopoly law enforcement departments when they separately enforce the law against monopolistic activities that abuse IPR in the future.
For further information, please contact:
Catherine Miao, Partner, Jun He