CLIP of the month: Patent settlements and antitrust in PRC


This month’s “CLIP” is in fact a three-part series, relating to the approach taken by the relevant authorities in the People’s Republic of China (PRC) to patent settlement agreements.

As we previously explored here, the PRC is becoming an increasingly important jurisdiction to watch for cases where antitrust and intellectual property protection intersect. This series of articles by authors Ying Song and Zhu Libo from AnJie law firm takes as its jumping-off point a recent judgment striking down a settlement agreement on antitrust grounds. Unlike the majority of UK/EU/US cases on settlement agreements, this case did not arise in the pharmaceutical sector; rather, it relates to a settlement of patent litigation relating to technology in the power transformers market.

In simple terms (for full detail, see Part 1 of the series), the dispute over the legality of the settlement under antitrust law arose when the patentee sought to enforce its rights under the contract, including a requirement that the alleged infringer purchase all of its requirements of the relevant type of equipment from the patentee. A key concern appears to have been that the agreement extended beyond the scope of the patent rights in question.  It is clear from recent EU case law that the scope of the settlement relative to the patent is one of the relevant criteria for assessing the competition law risks of a settlement agreement, although the focus in the case law has been on establishing that even agreements within the scope of the patent may infringe, given the uncertainty over whether the patent is in fact valid or infringed. However, in the EU/UK context, the more important factor is the existence of an ‘inducement’ of some kind to accept the restriction on the implementer’s freedom of action (sometimes called a ‘reverse payment’): the thinking is that without such evidence, the agreement can be assumed to reflect the parties’ assessments of the strength of the patent.  This decision from the Supreme People’s IP Court (SPIPC) does not appear to have focused on inducement; however, the fact that the settlement resulted in a previously independent competitor starting to purchase exclusively from the patentee suggests an analysis based on market-sharing and is a useful reminder that patent settlement agreements may be a cover for more ‘traditional’ antitrust harm.

Part 2 of the series focusses on another recent case, this time in the pharma sector. The authors note that AstraZeneca v Jiangsu Aosaikang Pharmaceutical is the first anti-monopoly case in the PRC relating to reverse payment agreements. Unusually (from a UK/EU perspective), this case arose against the backdrop of a ‘drop-hands’ settlement agreement, under which the previous patentee (BMS) allowed affiliates of the defendant to enter the market in return for withdrawing a patent invalidity action.  However, the SPIPC considered it relevant that compensation passed from the patentee to the implementer, and that the patent was withdrawn as a result.  According to the counterfactual analysis carried out by the Court, the defendant may not have agreed to withdraw the invalidation request without that compensation.  This resulted in potential harm to the wider market.

Finally, Part 3 sums up the series with a useful overview of the approach to patent settlement agreements in the PRC.

This series of articles allows readers to observe the similarities – and some critical differences – between the UK/EU approach to patent settlements and the emerging approach in the PRC.  Undoubtedly this remains a jurisdiction to watch, and to consider carefully for any multi-jurisdictional settlements.