Why Settlement Agreements In Patent Litigation Were Deemed As Monopoly Agreements? Analysis Of The Judgement And Criteria For Determining Monopoly Agreement By The Supreme People’s Court.

Key Issues:

• What are the criteria for determining a horizontal monopoly agreement? 
• Will a settlement agreement reached by the parties to settle a patent dispute constitute a monopoly agreement? 
• Should the motive, purpose and context of the contracting parties be considered in determining monopoly agreements? 
• Can the Supreme People’s Court (“SPC”) determine a settlement agreement is void that has been found valid by the People’s Court in another case, based on the Anti-Monopoly Law (“AML”)?

Preamble

Recently, AnJie Law Firm’s (“AnJie”) attorneys represented the appellant, a power equipment company, in a horizontal monopoly agreement dispute concerning “transformer changer” that heard by the Intellectual Property Court of the Supreme Court (“IP Court of the SPC”). AnJie successfully obtained a verdict in the second instance, which reversed the first instance judgement and invalidated the settlement agreement in question as it violates AML. [Docket No.: (2021) Zui Gao Fa Zhi Min Zhong No. 1298, A Horizontal Monopoly Agreement Dispute Concerning Transformer Changer]. In this case, the agreement in question is a settlement agreement entered by the parties to settle a patent dispute in another case. In the hearing, the IP Court of the SPC particularly examined whether a patent dispute settlement agreement constitutes a monopoly agreement and what are the criteria for determining a monopoly agreement, among others. 

In the “Interview on the Third Anniversary of the Establishment of the IP Court of the SPC” published by People’s Daily Online on February 28, 2022, ZHU Li, the Deputy Chief Judge of the IP Court of the SPC, particularly remarked on the case when presenting the work of the IP Court of the SPC since its establishment: “in the case of a horizontal monopoly agreement dispute concerning transformer changer, the court determined the settlement agreement in question constituted a horizontal monopoly agreement and therefore the whole agreement was void. The Court has strictly regulated the acts of restricting the production quantity or sales volume of commodities, dividing the sales market or the raw material supply market, fixing or changing the price of commodities in the guise of an “patent infringement settlement agreement.”

Horizontal monopoly agreement is a core violation strictly regulated by AML in many jurisdictions. In the judicial and administrative enforcement practice in China, there have been a number of cases involving horizontal monopoly agreements. However, this case should be the first one in China’s anti-monopoly litigation to discuss in detail whether a settlement agreement in a civil litigation constitutes a monopoly agreement, how the elements of a horizontal monopoly agreement should be determined, and how to solve the conflict between the adjudicative documents of the previous patent dispute and that of the latter anti-monopoly civil litigation. 

1. Case Background and Hearing
2. Case Background

In this case, the plaintiff, a power equipment company (“PEC“), and the defendant, a transformer charger company (“TCC“), are both engaged in the production and sale of transformer tap changers and are competitive operators. in 2015, TCC filed a lawsuit in the People’s Court (“Patent Lawsuit“) on the ground that the technical features of the shielding cover product of a certain type of transformer tap changer (“Transformer Charger“) produced and sold by PEC fell into the scope of protection of the rights of a certain patent right held by it. TCC requested the court to order PEC to cease the production of such product and compensate for its economic losses.

During the trial of the patent infringement dispute, PEC applied to China National Intellectual Property Admission for a declaration of invalidity of the patent right in question and applied to the court hearing the case for a stay of the trial. In 2016, TCC and PEC entered a settlement agreement. Thereafter, TCC applied for the withdrawal of the Patent Lawsuit, and PEC applied for the withdrawal of the request for invalidation of the patent right involved.

2. Main Contents and Performance of the Settlement Agreement

The main contents agreed by the parties in the settlement agreement involved in the case are as follows:

1. The transformer charger in question was divided by type, and it was agreed that except for one type of the transformer charger in question, PEC shall not manufacture or commission any third party (or purchase from it) other than TCC to manufacture all other types of transformer charger bodies and related parts in question. Meanwhile, PEC shall be the overseas market agent for TCC’s shareholding company, and undertakes not to manufacture on its own in the overseas market, nor to act as agent for similar products of other enterprises.
2. For the quotation of the transformer charger involved in the case entrusted to TCC, PEC should first confirm TCC’s price of main part of transformer charger before deciding the quotation by itself, and then quote the price to TCC with the purchase of the main part. In addition, the parties agreed that, for substitutable imported chargers and special chargers, if one party informs the other party of the price information, the transaction price of the informed party cannot be lower than that of the actively informed party.
3. If PEC breaches the above agreement, it shall compensate TCC all losses incurred therefrom and separately pay a high amount of liquidated damages.

After the parties reached the settlement agreement involved in the case, PEC did not fulfill the said agreement, and TCC filed a lawsuit to the People’s Court in January 2017 on the ground that PEC had violated the settlement agreement by selling the transformer charger involved in the case to a third party. TCC requested the court to order PEC pay liquidated damages. In this contract dispute case, the People’s Court of the first and second instance both found the settlement agreement in question was legal and valid, without examining whether the settlement agreement in question violated the AML. After the above judgment came into effect, the People’s Court of the first instance initiated the enforcement of the effective judgment of the case and enforced the execution money from PEC.

In June 2018, TCC again filed a lawsuit with the People’s Court on the ground that PEC had breached the settlement agreement by selling the transformer charger in question to a third party, and requested PEC to pay liquidated damages. During the trial of the case, PEC applied to suspend the trial on the grounds that the validity of the settlement agreement in question was disputed and filed a separate lawsuit accordingly. In June 2019, the trial court ruled on suspension of the trail.

3. Litigation Procedure and Holding

In May 2019, PEC filed a lawsuit with the People’s Court (“Court of First Instance“), requesting to confirm that the settlement agreement in question was void due to its violation of the AML and that TCC should compensate PEC for economic losses and reasonable expenses for the litigation. After hearing the case, Court of First Instance issued a judgment in December 2020, holding that the settlement agreement did not violate the AML and dismissing all PEC’s claims.

PEC appealed to the SPC against the trial judgment, requesting that the trial judgment be reversed and that all of PEC’s claims in the trial be upheld instead. After hearing the case, the SPC issued a judgment in February 2022, holding that the relevant provisions of the settlement agreement in question constituted a horizontal monopoly agreement by restricting the production quantity or sales volume of commodities, dividing the sales market or the raw material supply market, fixing or changing the price of commodities which are expressly prohibited by Article 13(1) of the AML, and that the settlement agreement in question was void.

As mentioned above, the agreement that PEC sued to confirm as void due to the violation of AML was a settlement agreement entered between it and TCC in another case to settle their patent dispute. During the trial of this case, the Intellectual Property Court of the SPC focused on the issues of whether the context of the agreement signed affected the determination of the monopoly agreement; whether the settlement agreement reached in the patent dispute constituted a monopoly agreement; and the elements of a monopoly agreement. The Court’s analytical approach is worth studying.

2. Approach to Determining Whether a Settlement Agreement Reached as a Result of a Patent Dispute Constitutes a Monopoly Agreement
3. The core criterion for determining a monopoly agreement is whether it has the effect of excluding or restricting competition, and the context in which the agreement was entered into is only a reference factor
4. Court of First Instance: The settlement agreement in question was signed for the purpose of settling patent infringement disputes, not for the purpose of restricting market competition, and should not be deemed as a monopoly agreement

The court of first instance held that the purpose of the settlement agreement was to resolve the patent infringement dispute between the parties and to avoid the recurrence of that dispute, and that the settlement agreement did not aim to induce the parties to enter into an alliance to compete in the competitive market. On this basis, the Court of First Instance, after analyzing the terms of the agreement and the effect of its performance, held that the terms of the settlement agreement in question did not have the attributes of a monopoly agreement and should not be deemed as a monopoly agreement.

In this regard, PEC appealed that AML regulates the acts that exclude or restrict competition in the market, and neither the circumstances that constitute horizontal monopoly agreement, which are explicitly prohibited by the law in the form of enumeration, nor the factors that should be considered in determining other circumstances that constitute horizontal monopoly agreement, mentioned the context or subjective purpose of the parties to reach the agreement. Therefore, it was an error in the application of the law to hold that the settlement agreement in question did not constitute a horizontal monopoly agreement based on the context of its conclusion.

2. The Intellectual Property Court of the Supreme Court: To determine whether the settlement agreement in question constitutes a monopoly agreement, the core criterion should be whether the agreement has the effect of excluding or restricting competition. The context in which the agreement was signed is not sufficient to determine or deny how the settlement agreement in question influences market competition

The IP Court of the SPC held that according to Article 13(2) of the AML, a monopoly agreement is an agreement, decision or other concerted act to exclude or restrict competition. Therefore, whether the agreement reached between operators is a monopoly agreement prohibited by AML should be based on the core criterion of whether the agreement has the effect of excluding or restricting competition. The context of the settlement agreement and the subjective motives of the parties in entering into the settlement agreement are only reference factors, and it is not sufficient to determine or deny the effect of the settlement agreement on market competition. 

2. The scope of the patent settlement agreement exceeds the scope of protection of patent rights and/or the dispute involved, which in fact pursues the effect of excluding or restricting competition and violates AML
3. Court of First Instance: The settlement agreement in question restricts the production and sale of specific types of products by the parties to the agreement, in order to avoid falling into the scope of protection of the rights of the patentee, and should not be deemed as a monopoly agreement

The Court of First Instance held that the commitment of PEC to produce only one type of transformer charger in the settlement agreement in question was because other types of transformer chargers might fall into the scope of protection of the patent right in question, and therefore the terms of the relevant agreement were to avoid being sued again for patent infringement and should not be deemed as a monopoly agreement.

In this regard, PEC appealed, claiming that the aforementioned determination of the trial judgment had omitted facts, and that the scope of the agreement in the settlement agreement in question far exceeded the scope of protection of the rights of the patent in question and the scope of dispute in patent infringement cases, which had the obvious effect of excluding and restricting market competition and constituted a horizontal monopoly agreement.

2. The IP Court of the SPC: The settlement agreement in question lacks substantial relevance to the scope of protection of the patent right in question, and the agreement has the effect of excluding and restricting competition and constitutes a horizontal monopoly agreement

The IP Court of the SPC held that the settlement agreement in question lacked substantial relevance to the scope of protection of the patent right of correction in question, and that its core did not lie in the protection of the patent right, but in the exercise of the patent right as a cover, in fact pursuing the effect of horizontal monopoly agreement, which was an abuse of patent right and violated the provisions of AML. Specific bases include:

1. The technical effect of the patent right in question mainly lies in reducing the manufacturing cost of the charger and enhancing the stability and reliability of the use of the charger, which belongs to the improvement of the transformer charger in question and is not a basic patent that cannot be avoided. The scope of protection of the patent right in question does not involve the specific shape or type of the transformer charger in question, while the settlement agreement in question divides the product by the type of the transformer charger.
2. In overseas markets, the settlement agreement in question divides the products into chargers produced by the transformer charger company’s participating companies and chargers produced by other companies, limiting the scope of chargers produced by PEC, but this limitation is not substantially related to the scope of protection of the patent in question.
3. The settlement agreement in question divided the market in which the transformer charger in question was located, and in doing so, restricted the sales price, production quantity, sales quantity, sales type and sales territory of the products covered by the agreement, which excluded and restricted competition among operators.

In addition, the IP Court of the SPC also pointed out that since the settlement agreement in question was not substantially related to the scope of protection of the patent right in question, and the content of the settlement agreement in question exceeded the disputed content of the patent infringement dispute, whether the products involved in the settlement agreement in question included the products suspected of infringing the patent right in the patent infringement dispute did not, in principle, affect the judgment of whether the settlement agreement in question constituted a monopoly agreement.

3. The standard of review of monopoly agreements specified in this case is the same as the standard of anti-monopoly review of reverse payment agreements in another Supreme Court case

It is worth mentioning that on December 17, 2021, the Supreme Court ruled on the application for withdrawal of appeal in the case of AstraZeneca v. Jiangsu Aosaikang Pharmaceutical [Docket No.: (2021) Zui Gao Fa Zhi Min Zhong No. 388] and made the first preliminary anti-monopoly review of the “reverse payment agreement for pharmaceutical patents.”

In the case, the disputed agreement is the settlement reached between the third-party Bristol -Myers Squibb (“BMS”) and Jiangsu Vcare PharmaTech Co., Ltd (“Vcare”) to settle the patent dispute in respect of “Saxagliptin”. In accordance with the settlement, Vcare shall withdraw the request for patent invalidation within five days from the effective date of the settlement, and BMS and the subsequent patentee (AstraZeneca in the case) undertake not to claim responsibility of any action of Vcare and its affiliates (Aosaikang in the case) which infringe the disputed patent after January 1, 2016 (the duration of the disputed patent right will expire on March 5, 2021). 

Vcare withdrew the request for invalidation after the reaching of the settlement, and its affiliate Aosaikang applied for registration, manufactured, used, authorized for sale and sold Salagliptin tablets after the aforesaid agreed date. AstraZeneca filed a lawsuit to the Intermediate People’s Court of Nanjing City, Jiangsu Province (“Nanjing Intermediate Court”), accusing that Aosaikang infringed its patent. The Nanjing Intermediate Court held that Aosaikang, as an affiliate of Vcare, is entitled to exploit the disputed patent pursuant to the settlement, and dismissed all claims of AstraZeneca. AstraZeneca filed an appeal to the SPC, but applied to withdraw the appeal later on the basis of the settlement with Osaikang. 

In the process of reviewing the withdrawal of the appeal application, the IP Court of the SPC found that the Settlement Agreement in question was in line with the appearance of a “drug patent reverse payment agreement”, i.e. the drug patent right holder promises to compensate the generic applicant for direct or indirect benefits (including disguised compensation such as reducing the generic applicant’s non-benefits), and the generic applicant promises not to challenge the validity of the drug-related patent rights or delay entering the market of the patented drug. The applicant promises not to challenge the validity of the patent right of the drug or delay the entry into the market of the patented drug. The IP Court of the SPC pointed out that the arrangement of such agreements is generally special and often hidden, which may have the effect of excluding or restricting competition and may constitute a monopoly agreement regulated by the AML, and the core judgment criterion is whether the agreement in question is suspected of excluding or restricting competition in the relevant market.

In this case, the IP Court of the SPC clarified the analysis path for the antitrust review of the “reverse payment agreement for pharmaceutical patents”: by comparing the actual situation where the agreement was signed and fulfilled with the hypothetical situation where the agreement was not signed or fulfilled, the focus was on the possibility of the generic applicant’s invalidation request not being withdrawn. The possibility that the patent right related to the drug is invalidated by the invalidation request, and then use it as a basis to analyze whether and to what extent the agreement in question has caused competitive harm for the relevant market.

In AstraZeneca v. Aosaikang, and the horizontal monopoly agreement dispute case concerning transformer changer, the parties entered into the disputed agreements for the same background, that is, for the purpose of settling patent disputes. The core standard adopted by the IP Court of the SPC in determining whether the concerned agreement constitutes a monopoly agreement in the two cases is the same, i.e., whether the relevant agreement has the effect of eliminating or restricting competition. The analytical approach adopted by the IP Court of the SPC in the two cases may also be applied or referred to in determining whether other settlements of patent disputes executed under other circumstances constitute monopoly agreements. 

3. Other Important Legal Issues 
4. To determine whether an agreement constitutes a horizontal monopoly agreement explicitly listed in AML, a comprehensive analysis of the agreement, rather than a mechanical comparison between the agreement and the law, shall be adopted.

As to whether the settlement agreement in question constitutes a horizontal monopoly agreement, the IP Court of the SPC held that, in determining whether the agreement in question conforms to the forms of horizontal monopoly agreements listed in Article 13(1) of AML, it is not appropriate to compare the content of the agreement with the five types of horizontal monopoly agreements listed in the same paragraph, but to analyze the content of the agreement as a whole from the perspective of market competition order, and to consider the content of the relevant provisions of the agreement and their relevance, and the actual or potential effects of excluding or restricting competition. The agreement should be analyzed as a whole from the perspective of the market competition order, and the content and relevance of the relevant provisions of the agreement, and the actual or potential effect of the exclusion or restriction of competition should be considered comprehensively.

Upon a comprehensive analysis of the content of the settlement agreement, the IP Court of the SPC held that the settlement agreement in question agreed on the terms of stopping the production of specific varieties of goods, limiting the sales of specific varieties of goods, coordinating and fixing prices, and reinforcing the effect of dividing the sales market, limiting the production and sales quantities of goods, and fixing the prices of goods by means of information liaison and penalties for breach of contract. Therefore, the relevant provisions constitute horizontal monopoly agreements to restrict the quantity of commodity production, divide the sales market and fix commodity prices, which are expressly prohibited by Article 13 of AML, and the settlement agreement in question is invalid in its entirety.

2. The principle of “per se violation” applies to horizontal monopoly agreements explicitly listed in the Anti-monopoly Law, and the burden of proof should be on the defendant that the agreement in question does not have the effect of excluding or restricting competition.

The first instance judgment found that the settlement agreement in question, if performed, did not have the monopoly effect regulated by Article 13 of AML, and held that the electric PEC should bear the burden of proof that the performance of the settlement agreement in question might lead to the monopoly effect. In this regard, PEC appealed and claimed that the settlement agreement constituted a horizontal monopoly agreement under Article 13(1) of AML and that the “per se violation principle” applied and that PEC did not need to provide evidence to prove its competitive effect; on the contrary, TCC should bear the burden of proof that the agreement did not have the effect of excluding or restricting competition. Therefore, the trial verdict was wrong in allocating the burden of proof.

The IP Court of the SPC pointed out that, according to Article 7 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in Hearing Cases of Civil Disputes Arising from Monopoly Acts” (“Judicial Interpretation of Civil Disputes on Monopoly”), the five types of monopoly agreements expressly listed in the Article 13(1) of AML, including restricting the production quantity or sales volume of commodities, dividing the sales market or the raw material supply market, fixing or changing the price of commodities, are typical horizontal monopoly agreements that have the effect of eliminating or restricting competition. Once formed, such agreements generally have the actual or potential effect of harming market competition, unless the defendant can prove that the agreement has the effect of promoting competition and that the effect exceeds its effect of excluding or restricting competition.

Specifically in this case, the IP Court of the SPC held that the relevant burden of proof in the first instance judgment was improperly allocated and should be corrected. PEC had proved that the settlement agreement in question constituted a horizontal monopoly agreement to limit the quantity of production of goods, divide the sales market and fix the price of goods as prohibited by Article 13(1) of AML. Therefore, the burden of proof should be on TCC to prove that the settlement agreement in question does not have the effect of excluding or restricting competition. Since TCC did not have sufficient evidence to prove that the settlement agreement in question had the effect of promoting competition and that the effect exceeded its effect of excluding or restricting competition, the settlement agreement in question should be found to have the effect of excluding or restricting competition.

3. If a party to a monopoly agreement claims reasonable expenses from other parties to the agreement for investigating and ceasing the monopoly, the people’s court will analyze the case on a case-by-case basis

In this case, PEC claimed that the settlement agreement was invalid, and TSC should bear the compensation therefrom. PEC, therefore, claimed that TSC should compensate PEC for economic losses and reasonable expenses for safeguarding rights. With respect to the economic losses claimed by PEC, the IP Court of the SPC took the same view as the monopoly dispute case of “Brick and Tile Association” [Docket No.: (2020) Zui Gao Fa Zhi Min Zhong No. 1382] it handled previously, that is, a participant in a horizontal monopolistic agreement has no right to claim compensation. Therefore, the IP Court of the SPC did not support the economic losses claimed by PEC. 

The IP Court of the SPC, while rejecting the request of the electric equipment company regarding the compensation of economic losses, supported the request of the electric equipment company regarding the compensation of reasonable expenses for the maintenance of rights in this case, on the following explicit basis:

• Article 14(2) of the Judicial Interpretation of Civil Disputes on Monopolies provides that “upon the plaintiff’s request, the people’s court may include the reasonable expenses paid by the plaintiff for investigating and stopping the monopoly in the scope of compensation for damages.”
• The reasonable expenses claimed by PEC for the defense of its rights in this case are the expenses for hiring a lawyer for this lawsuit. PEC filed a lawsuit requesting to confirm that the settlement agreement in question was invalid due to the violation of AML, and requested damages, and the attorney’s fees it claimed to have spent for this lawsuit were expenses paid to stop the monopoly.
• Although the request for damages is not supported, in view of the fact that horizontal monopoly agreements are usually hidden, the support for reasonable expenses is conducive to the initiative of the participants of the monopoly agreement to reveal the monopolistic behavior, which helps to timely discover and stop the monopolistic behavior, protect fair competition in the market and maintain the order of market competition, so the reasonable expenses claimed by PEC in this case will be considered.
• Considering the complexity of this case and the participation of the attorney representing PEC in this litigation, the reasonable expenses claimed by PEC are still reasonable.

The decision of the IP Court of the SPC in this case makes it clear that, after a horizontal monopoly agreement is reached, although a party to the monopoly agreement has no right to claim damages from other participants of the agreement in accordance with AML, a party to the monopoly agreement may claim reasonable expenses paid to other participants of the agreement for investigating and stopping the monopoly, and the People’s Court may support it according to the specific situation.

4. The parties have filed a contract dispute lawsuit and a monopoly dispute lawsuit against the same agreement, which do not constitute repeated litigation

After the settlement agreement in question was reached, TCC filed contract dispute lawsuits in 2017 and 2018 on the ground that PEC did not fulfill the settlement agreement by selling the transformer charger in question to a third party. In the two contract dispute lawsuits and the transformer charger horizontal monopoly agreement dispute cases, the parties filed lawsuits based on the settlement agreement in question, and in the 2017 contract dispute case, the effective judgment has determined that the settlement agreement in question is legal and valid, and TCC has obtained the liquidated damages through the execution procedure.

Therefore, for the transformer charger horizontal monopoly agreement dispute case, it involves the question of whether the prior contract dispute case and the monopoly dispute case constitute “repeated litigation”. According to the opinion of the IP Court of the SPC in another ruling, since the legal relationship and the subject matter of the lawsuit are different, the transformer charger horizontal monopoly agreement dispute does not constitute a duplication of litigation with the prior contract dispute case.

In the monopoly agreement dispute case of Shangqiu Longxing Pharmaceutical Co., Ltd. v, Hubei Tuosi Medical Co., Ltd. [Docket No.: (2021) Zui Gao Fa Zhi Min Xia Zhong No.187] heard by the IP Court of the SPC on August 19, 2021, the focus of dispute between the parties was whether the monopoly agreement dispute case and the contract dispute case with an effective ruling that has been previously heard by a people’s court constitutes repeated lawsuits. In the case, the IP Court of the SPC ruled that, as contract dispute case and monopoly agreement dispute case of the same contract involve a contractual legal relationship and anti-monopoly legal relationship respectively. They have different subject matters. Even if the parties involved are the same or the claim of the later case substantially negates the ruling of the former case, they do not constitute repeated lawsuits. However, it is appropriate in principle that these cases should be jointly tried by one court. 

4. Cases in Foreign Jurisdictions, Insights and Practical Significance of this Case
5. Cases in Foreign Jurisdictions: How to Determine Whether a Reverse Payment Agreement Violates AML

In patent disputes, the parties often settle the case by settlement. However, whether the settlement or settlement agreement of the relevant patent dispute will violate AML has become a key issue of concern for the antitrust enforcement agencies and judicial authorities in the United States, the European Union and jurisdictions, and the issue has gradually been addressed in the judicial practice in China.

The EU has established its own review discourse (including the analysis of purpose limitation and effect limitation) through relevant cases (especially the reverse payment case), which can be found in the Lundbeck reverse payment case and the Servier reverse payment case. The Lundbeck reverse payment case, due to its similarity to the transformer charger horizontal monopoly agreement dispute, was included in the compilation of cases prepared by the Anti-Monopoly Bureau of the State Administration of Market Supervision and Administration, which was provided as a reference material to the panel of the Supreme Court in the second trial proceedings.

The U.S. courts have developed in judicial practice an antitrust analysis model based on the per se violation principle and the reasonableness principle for such monopoly agreement cases. On this basis, for the sake of efficiency, the principle of expedited review has been developed on the basis of the traditional principle of reasonableness, which is a simplified principle of reasonableness. In response to the conflict between patent law and antitrust law embodied in reverse payment agreement cases, the courts have also specifically applied the special patent scope test principle.

Among other things, the patent scope test principle emphasizes the consideration of the exclusivity of patent rights when conducting antitrust review of reverse payment agreements. The U.S. Court of Appeals for the Second Circuit, the Eleventh Circuit, and the Federal Court of Appeals have used the patent exclusivity test, taking into account the legislative purpose and standards of the patent and antitrust laws.

The purpose of the settlement agreement is determined by categorizing whether the settlement agreement is in the context of a “patent infringement litigation settlement” and applying the different principles of review described above.

• If the settlement agreement is in the context of a patent infringement litigation settlement, the rules of the exclusive scope of patent rights test apply. Assuming that the patent in dispute is valid, determine the scope of protection of the rights of the patent in dispute and the scope of exclusivity of the agreement, compare the two scopes, and determine whether the agreement exceeds the scope of protection of the patent rights. If it exceeds, it constitutes monopoly; if it does not, it does not constitute monopoly.
• If the settlement agreement is not in the context of a patent infringement litigation settlement, it is judged mainly on the basis of the antitrust law, and the principle of reasonableness, the principle of per se violation, and the principle of expeditious review are applied by situation according to the analysis of the reasonableness of the provisions of the settlement agreement for restrictive conduct and the impact on competition.

In general, the exclusive scope of patent rights test rule takes into account the unique nature of pharmaceutical patent antitrust litigation in reverse payment and enables judges to apply it in a way that more fully takes into account the scope of patent rights protection in their decisions.

In summary, the U.S. court’s analysis of whether a “reverse payment” agreement constitutes a monopoly agreement is summarized as follows:

Analysis Principles	Judgment Logic
Principle of per se violation	Some of the reverse payment agreements are themselves agreements that only have the effect of restricting competition (e.g., horizontal market division agreements), which can be directly ruled as a violation of the antitrust law.
Reasonable Principle	First determine whether a restriction of competition is both economic and efficient; and if so, whether it can be further found to be reasonable and justified.
Expediated Review Principles	（The presumption (through common sense) that a reverse payment agreement that clearly prevents competition is illegal can be rebutted by defense and proof, after which the judge must conduct a full and reasonable analysis.
Patent Scope Test Principles	Reverse payment agreements do not violate antitrust laws when the anticompetitive effects of the agreement do not extend beyond the patent rights.

It should be said that the above-mentioned extraterritorial cases and doctrines are worthy of our consideration.

2. Insights and Practical Implications of this Case: Antitrust Compliance Recommendations in Patent Settlement

This adjudication by the Supreme Court is well reasoned and logically clear, giving a clear judicial view on some key frontier issues, and the determination of the monopoly agreement strictly follows the intent of AML, while also incorporating domestic and international judicial and law enforcement practices, reflecting the level of adjudication by the highest judicial authority in China in civil anti-monopoly litigation.

Antitrust and patents are a pair of long-standing entangled legal issues, and the antitrust risks faced in patent settlement agreements are enormous. AnJie provides the following compliance advice for companies’ reference in practice:

• In the process of negotiating with a competitor for settlement of a patent dispute, attention should be paid to the necessity and confidentiality of the scope of information exchange, especially in relation to competitively sensitive information such as the cost, price or customers of the product (or technology), to avoid being found to have committed a violation of AML when other evidence is combined (e.g., having increased the price of the product at the same or similar time as the competitor). 
• The restrictive clauses agreed in the settlement agreement should be strictly examined to confirm whether the relevant content exceeds the scope of protection of the patent right in question and/or the scope of the dispute, especially for the content of the clauses involving restrictions on the use, production and sale of certain types of products by the parties to the agreement, such as whether the scope of products agreed to be produced by the infringing party necessarily fall within the scope of protection of the patent in question.
• Analyze, with the assistance of in-house professionals or external legal counsel, whether the content agreed to in the settlement agreement constitutes a monopoly agreement and/or an abuse of dominant market position, especially whether the relevant content may go beyond the scope of protection of patent rights and/or the scope of the dispute.
• For the settlement agreement reached in the patent right litigation procedure, according to the specific circumstances of the case, companies may apply to the People’s Court to confirm the validity of the settlement agreement. People’s Court will make a ruling to confirm the validity of the settlement agreement after examination.

*Thanks Caili ZHAN and Chenyi WANG for their contributions in English translation.

For further information, please contact:

Song Ying, Partner, AnJie law firm
songying@anjielaw.com

Zhu Libo, AnJie law firm
zhulibo@anjielaw.com