Legal News

Is China Investigating Microsoft For Antitrust Violations?

China software antitrust

Both the English and the Chinese web have been rife with news of a Chinese government antitrust investigation regarding Microsoft’s pricing of its software products.

The reports initially stated the PRC State IP Office was investigating foreign software companies for selling software at higher prices in China than in their home jurisdictions. This has been a common complaint in China and many foreign software companies have been concerned China’s new Anti-Monopoly Law would be used to attack legal IP monopolies obtained through copyright, patent and trademark law.

However, to use the anti-monopoly law to attack high prices would undermine the foundations of IP protection.

The news of such an investigation therefore raises serious concerns.

It appears however that these reports are false. Microsoft has stated it is unaware of any such investigation and the PRC State IP Office has issued a statement to the effect that it was not conducting any investigation and such reports were “seriously untrue.”

This reported denial makes perfect sense, for the following reasons:

1. The Anti-Monopoly Law has not yet come into force. That will not occur until August 1, 2008.

2. Regulations have not yet been issued.

3. The State Intellectual Property Office has the duty to conduct anti-piracy investigations. It does not have authority in the anti-monopoly area and there is no proposal to grant it such authority.

4. Copyright, patent and trademark are legal monopolies. Article 55 of the Anti-Monopoly law is consistent with the law of most developed countries in that it grants an anti-monopoly exemption for such legally obtained IP monopolies. As in most such laws, the exemption does not apply if the holder of the right abuses its monopoly power in a manner that harms competition. Note that this provision does not protect consumers. The only protection is for competition. High prices do not harm competition, they help competition. This is because they encourage others to enter into the market for the same product. There have been no indications China intends to act against this basic principle of anti-monopoly law.

We will have to wait and see on the truth of this report. Right now though, we are betting there is no such investigation.

4 responses to “Is China Investigating Microsoft For Antitrust Violations?”

  1. Yeah, the whole idea that SIPO might be dealing with this was the give-away, however, I would put good money on Microsoft being high on the list of priorities once this new law comes properly into effect. They’ll probably want to use a few other companies as a speed-bag first though.
    I chatted with Prof. Steven Anderman who acted as an advisor to the Chinese government in the drafting of the anti-monopoly law at this year’s QMIPRI conference on this very subject. The law is structured similar to the prohibitions on anti-competitive behaviour in the EC treaty, with separate prohibitions on agreements which restrict competition (art. 81 (1)) and abuse of a dominant position (art. 82), so maybe they will be used in a similar way?
    EC law recognises no ‘rule of reason’ arguments , the beneficial effects of otherwise anti-competitive agreements are accounted for through the exemptions available under 81 (3) and the Block Exemption Regulation. No exemptions are available for abuse of a dominant position.
    Whilst the refusal to supply registered IP was judged to be not an abuse of a dominant position in Volvo v. Veng, EC Commission v. Microsoft overturned this somewhat, with Microsoft’s tieing of Windows Media Player and refusal to supply information necessary for competitors to inter-operate their products with Windows both being judged to be abusive. It is important to note that the empahsis in the Microsoft was not on protecting the competition, but on protecting the consumers – the idea being that Microsoft’s use of the monopoly granted by IP that had become an ‘industry standard’ in an upstream market (operating systems) was acting to eliminate competition from downstream markets (media players, servers) and was thus preventing the entrance of new products onto subsidiary markets and thus detrimental to the consumer.
    However, I don’t think much of this applies to charging higher prices across the market in China – you would have to show that the pricing was high enough to consititute a refusal to supply on reasonable terms – something that is obviously not the case. The biggest worry for Microsoft in the way in which these laws will be applied in China is sure to be Microsoft’s ongoing refusal to licence its IP.

  2. The problem is that the story is not obviously implausible. Such an investigation, formal or informal, would be consistent with many of the Chinese government’s implicit policy objectives. Regulations and laws in China are a tool for the authorities to pursue their objectives.

  3. I agree.
    There is a view amongst observers that once the new law comes in, one or 2 high profile international companies will immediately get investigated and/or pursued for something or rather no matter what- even if the authorities have to scratch around to find a reason.

Leave a Reply

Your email address will not be published. Required fields are marked *