The 2022 Revision of China’s Anti-Monopoly Law: Global

Antitrust Institute Comments on Draft Provisions of the

Supreme People’s Court of the People’s Republic of China
Concerning Application of the Law in Civil Disputes Arising
from Monopolistic Conduct
Alexander Raskovich, Antonin Scalia Law School, George Mason University
Douglas H. Ginsburg, Antonin Scalia Law School, George Mason University
Joshua D. Wright, Antonin Scalia Law School, George Mason University
John M. Yun, Antonin Scalia Law School, George Mason University
Bruce H. Kobayashi, Antonin Scalia Law School, George Mason University
Abbott B. Lipsky, Jr., Antonin Scalia Law School, George Mason University

POSTED
January 2023

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George Mason University Law & Economics Research Paper Series, 23-01
______________________________________________________________

Available on the SSRN at ssrn.com/abstract=4317166

 The 2022 Revision of China’s Anti-Monopoly Law:
Global Antitrust Institute Comments on Draft Provisions of the
Supreme People’s Court of the People’s Republic of China
Concerning Application of the Law in Civil Disputes
Arising from Monopolistic Conduct

December 17, 2022

The Global Antitrust Institute (“GAI”) respectfully submits this comment to the
Supreme People’s Court (“SPC”) of the People’s Republic of China in connection with the
SPC’s draft provisions (“DP”) concerning the application of the 2022 revision of the Anti-
Monopoly Law (“2022 AML”) in civil disputes arising from monopolistic conduct.1 The
GAI welcomes the opportunity to provide input on these draft provisions based on our
extensive experience and expertise in competition law and economics.2

Before turning to comments on individual SPC draft provisions, it is worthwhile

to discuss a change in the enumerated goals of the 2022 AML, which now include the
encouragement of innovation.3 This newly stated goal is fully consistent with the goal to

1PROVISIONS OF THE SUPREME PEOPLE'S COURT ON SEVERAL ISSUES CONCERNING THE APPLICATION OF LAW IN
THE TRIAL OF CIVIL DISPUTE CASES ARISING FROM MONOPOLISTIC CONDUCTS (DRAFT FOR PUBLIC COMMENTS)
(2022), https://court.gov.cn/zixun-xiangqing-380101.html.
2The GAI is a division of George Mason University’s Antonin Scalia Law School and reports to the Dean
of the Law School. In support of its mission, the GAI draws upon the independent expertise of the Law
School faculty including Judge Douglas H. Ginsburg, Senior Judge of the U.S. Court of Appeals for the D.C.
Circuit and former Assistant Attorney General in charge of the Antitrust Division of the U.S. Department
of Justice; Joshua D. Wright, University Professor and former Commissioner of the U.S. Federal Trade
Commission (FTC); Dr. John M. Yun, Associate Professor and former Acting Deputy Assistant Director,
Bureau of Economics, FTC; Dr. Bruce H. Kobayashi, Professor and former Director of the Bureau of
Economics, FTC; Abbott B. Lipsky, Jr., Adjunct Professor, Director of Competition Advocacy for the GAI,
former Acting Director of the Bureau of Competition, FTC, and former Deputy Assistant Attorney General
for Antitrust, U.S. Department of Justice; and Dr. Alexander Raskovich, the GAI’s Director of Research. The
GAI is grateful for the generous contributions from the individuals, foundations, and corporations who
enable the GAI to carry out its mission. Its finances are managed through the George Mason University
Foundation, Inc., which is a 501(c)(3) corporation established to support the activities of George Mason
University. More information may be found at https://gai.gmu.edu/.
3 2022 AML, Article 1.

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protect competition, enhance economic efficiency, safeguard consumers’ interests, and
promote economic growth. As we noted in our 2015 comments on possible revisions to
the AML:

“Experience has taught us that robust and undistorted competition

produces substantial benefits for consumers and society as a whole by
promoting growth, spurring innovation, and facilitating the efficient
allocation of resources.”4

We urge the SPC to treat the aforementioned 2022 AML goals not as distinct and
disparate elements to be pursued separately, but all of a piece: intertwined, jointly
determined, and best pursued through a coherent and consistent analysis of competitive
effects.

Competition and efficiency are of course intimately connected to each other and
to benefits for consumers. The realization of efficiencies tends to intensify competition, as
more efficient firms—e.g., those having lower costs or more attractive products or
services—strive to win sales from their less efficient rivals. This striving, the essence of
competition, benefits consumers. Conversely, robust and undistorted competition tends
to generate efficiencies that also redound to the benefit of consumers.5 The first point—
efficiencies spurring competition—arises from a comparative statics analysis of
competition, whereas the second, complementary point—competition spurring

4See Joshua D. Wright et al. (2015), Comment of the Global Antitrust Institute, George Mason University School
of Law, on the Questionnaire for the Revision of China’s Antimonopoly Law, GEO. MASON UNIV. L. & ECON.
RESEARCH PAPER 15-56, http://ssrn.com/abstract=2702169, at 2. Also argued here is that “fair” market
competition, the term employed in 2022 AML Article 1, is best interpreted as “undistorted” competition,
as in the quotation above. This interpretation is consistent with the use of “fair” in 2022 AML Article 5,
which formalizes a Fair Competition Review System to prevent administrative organs of government from
promulgating rules or regulations that distort and thereby restrict competition among market participants.
5See e.g. Alexander Raskovich et al. (2022), Efficiencies in Merger Review: Global Antitrust Institute Comment
on the DOJ-FTC Request for Information on Merger Enforcement, GEO. MASON UNIV. L. & ECON. RESEARCH
PAPER 22-18, http://ssrn.com/abstract=4089959, at 3-4.

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efficiencies—encompasses a dynamic analysis, one that refers “more broadly to the
relationship between present competitive activities and future market conditions.”6

Thus, competition and efficiency are closely related, having mutually reinforcing
effects. They are the yin and yang of a dynamic market process. Current actions by
firms—such as investments in innovation—taken to achieve competitive advantages over
rivals in the future, can yield efficiencies when those innovations come to fruition. For
example, reductions in cost, enhancements in the quality of goods and services, or the
creation of entirely new goods and services valued by consumers. Innovation, through
the interplay of competition and efficiency, thereby delivers a stream of benefits to
consumers and society as a whole over time. Robust and undistorted competition
throughout the economy, generating ongoing improvements in efficiency, spurs
economic growth. Innovation is a key driver of this virtuous cycle of competition,
efficiency and growth.

Article 1 of the 2022 AML adds the encouragement of innovation as a goal of the
revised law. Once again, however, this goal is best taken as consistent with other
interrelated goals involving competition, efficiency and economic growth. The explicit
reference to innovation in the revised law is an acknowledgment of the importance of
taking dynamic considerations into account when carrying out an analysis of competitive
effects.

Consistent with the importance of taking dynamic considerations into account in

analyzing competitive effects, the 2022 AML incorporates in Article 20 potential defenses
to monopoly agreements. “Monopoly agreements,” as defined (in Article 16), are
agreements, decisions, or other concerted actions that eliminate or restrict competition. A
non-exclusive list of restrictions on competition (in Article 17) includes price-fixing,
quantity limitations, and market division. Article 19 prohibits undertakings from
organizing or reaching monopoly agreements, but Article 20 provides for potential
defenses. For example, Article 19 of the 2022 AML does not apply if the undertakings can

6See generally Douglas H. Ginsburg & Joshua D. Wright, Dynamic Analysis and the Limits of Antitrust
Institutions, 78 ANTITRUST L.J. 1 (2012).

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demonstrate that the monopoly agreement serves to improve a technology, promote
research and development of new products, improve product quality, lower cost, or
increase efficiency by unifying the specifications or standards of products.

At first blush, the defenses in Article 20 might appear to be in stark tension with
the very definition of monopoly agreements in Article 16 as agreements that eliminate or
restrict competition. The apparent tension disappears, however, once one recognizes the
distinction between static and dynamic analyses of competition that is implicit in the
law—a fundamental distinction from the economics of industrial organization and
competition economics. A static analysis of competition ignores dynamic considerations,
focusing exclusively on the current-period effects of current-period actions. Taking
dynamic considerations properly into account, however, may show that a conclusion of
restricted competition based on static considerations alone would be incorrect.7

Innovation is a key factor spurring economic growth. The spectacular rates of

economic growth in the People’s Republic of China, which have resulted in profound
improvements in people’s lives, are driven in part by the flowering of innovation.
Continued innovation is important to sustaining healthy economic development, and
competition enforcement sensitive to dynamic considerations is important to promoting
innovation.

Along these lines, a straightforward interpretation of Articles 16, 19 and 20 of the

2022 AML is that the Articles lay out a burden-shifting framework for the analysis of
agreements among competitors. For example, once a plaintiff has demonstrated (e.g., on
static grounds) that such an agreement is likely to eliminate or restrict competition, the
burden of proof shifts to defendants to demonstrate that their agreement is
procompetitive when taking account of efficiency and dynamic considerations, in
accordance with Article 20 of the 2022 AML.8

7 The distinction between static and dynamic considerations is fluid. Actions and their effects are rarely
simultaneous. Taking dynamic considerations into account is a matter of evaluating the relevant time-
horizon spanning actions and their competitive effects. This exercise is fact-specific.
8A similar point holds for the analysis of horizontal mergers (i.e., concentrations of undertakings): Article
33(3) of the 2022 AML states that the analysis should consider the merger’s (dynamic) effects on market
access and technological progress. Given the fact-specific nature of such dynamic considerations, taking

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 The SPC proposes adopting such a burden-shifting framework for analyzing
monopoly agreements, in Articles 20, 25 and 31 of the DP. We commend this approach
insofar as it allows defendants, after a preliminary demonstration by plaintiff that
conduct may be anticompetitive, to offer procompetitive defenses. We question,
however, whether the SPC’s proposed burden thresholds adequately account for the
prospect of false positive errors in the competitive effects analysis, as we discuss in
greater detail below.

We commend the SPC for steps taken in the DP to incorporate dynamic

considerations into competitive effects analysis and urge the SPC to apply that analysis
in a coherent and consistent way that properly treats the goals of competition, efficiency,
innovation, and economic growth as closely interrelated facets of the single overarching
goal of protecting robust and undistorted competition. We now turn to comments on
particular Articles of the DP.

DP Article 20: “Other Concerted Conduct”

In Article 20 of the DP, the SPC proposes a burden-shifting framework to

determine whether undertakings have engaged in the category of “other concerted
conduct” in Article 16 of the 2022 AML. In particular, the SPC proposes that if the plaintiff
can show, through evidence on (1) consistency of market behavior by the undertakings
and (2) information exchange among the undertakings, that it is “very possible” the
undertakings have engaged in concerted conduct, then the burden of proof shifts to the
undertakings implementing the alleged monopolistic conduct to provide a reasonable
explanation for the consistency of their conduct. The reasonable explanation must include
evidence that the relevant conduct has been implemented independently, based on
changes in market conditions, competitive conditions or other factors.

We commend the SPC for recognizing that similarity in the patterns of market
behavior by rivals, as well as information exchange among them, can be consistent with

them into account does not invariably tilt the analysis toward a procompetitive assessment, either for
mergers or agreements among competitors, but may also uncover anticompetitive effects that might not be
apparent from a static analysis.

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independent, competitive conduct.9 When rival suppliers of goods act independently,
their prices, output levels, and capacity decisions tend to move similarly in response to
shifts in demand or in marginal cost that are common to them. The same is true of
independently acting input purchasers, when faced with common shifts in input supply.
Such similarity in market behavior is as ubiquitous as it is typically innocuous.
Information exchange among rivals acting independently is also common. If such
information exchange is limited, for example, to the communication of signals about the
common state of demand, the exchange tends to improve the efficient operation of the
market by reducing errors of under- or over-production of goods.10

But given how common it is for patterns of market behavior by rivals to appear
similar when those rivals are acting independently, and how common it is for some form
of information exchange to take place in competitive circumstances, plaintiff’s proof
threshold—that establishing these mundane points suffices to show the undertakings are
“very possibly” acting in concert—is too low. Although concerted conduct may be
possible given such weak findings, independent conduct remains far more likely absent
more probative evidence. Defendants then have the opportunity to marshal evidence to
the contrary, but relevant evidence is costly to obtain and subject to uncertainty. A
burden-shifting rule that places most or virtually all of the evidentiary burden on
defendants is likely to result in substantial false positive errors—incorrect conclusions of

9See, e.g., Timothy J. Muris & Vernon L. Smith, Antitrust and Bundles Discounts: An Experimental Analysis, 75
ANTITRUST L.J. 399, 406 (2008) (“[I]t seems unwise to condemn a ubiquitously used business practice
because of a possibility of harm that is not formally modeled, much less empirically demonstrated.”); Bruce
H. Kobayashi, The Economics of Loyalty Discounts and Antitrust Law in the United States, 1 COMP. POL’Y INT’L
115, 145–46 (Autumn 2005) (“[W]ithout a reliable way to distinguish pro- and anticompetitive uses, any
rule that condemns ubiquitous business practices without a showing of likely harm to competition would
result in the widespread condemnation of efficient practices.”).
10 See, e.g., David J. Teece, Information Sharing, Innovation, and Antitrust, 62 ANTITRUST L.J. 465, 470-71 (1994)
(“[I]nformation sharing is essential to economic organization, and that the frequency with which transfer
will be required and the complexity of information exchanged are likely to increase with the rate and
complexity of technological innovation. Accordingly, unless one is simply looking at the naked exchange
of information on prices and output, information sharing should be viewed neutrally, if not favorably: it
lies at the heart of highly dynamic and competitive economic systems.”).

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concerted conduct where there is none, thereby tending to chill competitively innocuous
and procompetitive market interactions.

We recommend that the SPC raise plaintiff’s initial burden to show concerted
conduct, requiring more direct evidence of such conduct, such as credible documents,
testimony, or economic evidence that the undertakings colluded to fix prices, restrict
output, or engaged in market division, or actively planned to do so.11

DP Article 23: Agreements between Drug Patent Holders and Generics

The SPC interprets Article 17 of the 2022 AML to cover agreements between
holders of drug patents and potential generic entrants to resolve disputes about patent
validity. The SPC states that it may “preliminarily” rule that such an agreement is a
monopoly agreement—if the patent holder provides “large” compensation to the generic
manufacturer and that manufacturer agrees not to challenge the patent’s validity or
agrees to delay entry into the relevant market.

We commend the SPC for recognizing that such agreements should not be
prohibited outright, as they have the potential to generate efficiencies. As the SPC notes,
there may be legitimate reasons for an agreement to resolve a patent dispute, such as
avoiding litigation costs, and evidence for such legitimate reasons can lead the SPC to
conclude that the agreement is not a monopoly agreement.12

11For example, to survive a motion to dismiss under the plausibility standard set out by the U.S. Supreme
Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the plaintiff must allege non-conclusory facts
that make the anticompetitive hypothesis at least as compelling as the opposing inference of legal parallel
behavior. See Bruce H. Kobayashi & Timothy J. Muris, Chicago, Post-Chicago and Beyond: Time to Let Go of
the 20th Century, 78 ANTITRUST L.J. 147, 155 (2012). For a similar description of the Court’s standard for
summary judgment in Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986), see Herbert
Hovenkamp, The Rationalization of Antitrust, 116 HARV. L. REV. 917, 925 (2003) (noting that “Matsushita
never insisted that any particular kind of evidence of collusion was necessary, but only that the evidence
be of such a quality that it makes collusion a likely explanation of the activity before the court.”).
See generally, Bruce H. Kobayashi, Joshua D. Wright, Douglas H. Ginsburg & Joanna Tsai, Actavis and
12

Multiple ANDA Entrants: Beyond the Temporary Duopoly, 29 ANTITRUST 89 (2015).

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 DP Articles 25-27: Resale Price Maintenance (“RPM”)

It is important to draw a clear distinction between “horizontal” agreements, those

between competitors, and “vertical” agreements, e.g., between a manufacturer on one
hand and a distributor or retailer on the other. Parties to a vertical agreement are not
competitors but have a seller-buyer relationship within a supply chain.

We consider this key distinction between horizontal and vertical agreements to be

implicit in the structure of Articles 17 and 18 of the 2022 AML. As noted above, Article 17
treats agreements to fix prices, limit quantities and divide markets, among other things.
Such agreements typically involve competing undertakings.

By contrast, Article 18 of the 2022 AML addresses resale price maintenance (RPM)
agreements (setting the resale price or limiting the lowest price of goods resold to third
parties). The parties to vertical agreements like RPM are in a seller-buyer relationship;
they do not compete. Horizontal agreements between competitors raise inherently
greater risks of eliminating or restricting competition than do vertical agreements
between undertakings in a seller-buyer relationship. Coordination within a vertical chain
is essential to the efficient production and distribution of goods. In particular,
coordination over resale prices can improve the efficient operation of a supply chain in
various ways, delivering benefits to final consumers. Here are just a couple of examples:

(1) If a manufacturer and retailer each have some market power in their respective
markets, each will tend to charge a markup over its marginal cost, resulting in
a double markup and a high price. A maximum resale price agreement would
eliminate the double markup, thereby benefiting not only the manufacturer
and retailer (by expanding their unit sales) but also final consumers.13

13In the U.S., the Supreme Court established that maximum RPM agreements are to be assessed under the
rule of reason—that is, procompetitive justifications should be considered before condemning the conduct.
See State Oil Co. v. Khan, 522 U.S. 3 (1997). See also Kenneth G. Elzinga & David E. Mills, The Economics of
Resale Price Maintenance, in 3 ISSUES IN COMPETITION LAW AND POLICY 1841, 1856 (ABA Section of Antitrust
Law 2008) (commenting on Khan: “Maximum RPM was important to State Oil in order to deter its gasoline
dealers from changing the relative prices of premium versus regular gasoline by raising the price of
premium disproportionately. Consumers were beneficiaries of the Court’s decision to allow State Oil to
limit the markups of its downstream retailers since this limitation kept premium gasoline prices in check.”).

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 (2) A manufacturer and retailer can both benefit if the retailer provides costly
services to promote unit sales, for example by providing consumers in-store
information about product characteristics or by improving the quality or
convenience of the purchasing experience. A minimum resale price can
provide the retailer with incentives to provide such costly services.14 It does so
by raising the markup the retailer earns on each sale; the additional markup
can be terminated by the manufacturer if the retailer fails to provide the
requisite services. Such a minimum resale price will only increase unit sales if
consumers value the retail services provided by more than the increment to
price. Thus, a minimum resale price to spur retail services tends to benefit final
consumers.

Article 18 of the 2022 AML states that RPM agreements are not prohibited if the
undertaking engaging in RPM can demonstrate that the agreement does not eliminate or
restrict competition. We commend the SPC for recognizing, in DP Article 27(3), the
potential procompetitive role of RPM to incentivize product promotion, as discussed in
point (2) above. Of broader import, the SPC recognizes, in DP Article 26(2), the
importance of “inter-brand competition” in assessing the competitive effects of RPM, in
accordance with Article 18 of the 2022 AML. In both examples above of supply-chain
efficiencies flowing from RPM above, RPM sharpens competition among brands of
substitute products. The elimination or restriction of inter-brand competition is key to
properly determining whether RPM runs afoul of Article 18 of the 2022 AML.

DP Articles 32, 34 & 35: Dominant Market Position

In DP Article 32, the SPC states that it may preliminarily rule an undertaking has
a dominant position in a relevant market if the undertaking maintains an above-
competitive price for a relatively long period of time, maintains relatively high market

14Id. at 1843 (“Manufacturers with RPM policies that establish retail price floors may be trying to remedy
a market failure. … A manufacturer may use RPM to ensure that reputable retailers—those who help the
manufacturer build and maintain a good reputation for its brand—carry its brand by affording those
retailers protection from free-riding discounters.”).

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share over such a period, and the relevant market evidently lacks competition, innovation
and new entrants. This last clause is especially important given that a high price and high
market share are by no means dispositive of a lack of competition.

A high price relative to rivals’ prices may reflect the higher quality of an
undertaking’s goods in a competitive market. Likewise, high market share may reflect an
undertaking’s successful competition in the market. The two typically go hand in hand
in a competitive market: an undertaking that improves the quality of its good, or creates
a higher-quality new good, will typically both raise its price somewhat and gain market
share at the expense of its lagging rivals. The concept of “quality-adjusted price” is
important here: if the proportionate increase in quality is greater than the proportionate
increase in price, the quality-adjusted price falls, rendering the good relatively more
attractive to consumers, and thereby drives an increase in the undertaking’s market
share. The shifting of market share from less desirable goods to more desirable ones is a
hallmark of robust, undistorted competition and key to delivering benefits to consumers.

We commend the SPC for recognizing that high price and high market share are
not dispositive for a preliminary ruling that an undertaking has dominant market
position. A further requirement specified by the SPC is that the market evidently lack
competition and innovation. The shifting of market shares driven by quality
improvements discussed above is a process of dynamic competition through innovation.
The SPC is correct to draw a link between innovation and competition—as a lack of
innovation can be a symptom of a lack of competition.

The SPC further points to a lack of market entry as an indicator of a lack of

competition in the market, but such an inference is not justified. An undertaking will
enter a market only if it perceives a valuable opportunity to do so. But the more
vigorously competitive and innovative is the market, the lower are the prospects for
successful entry. An absence of entry, without more, is consistent with robust competition
within the market.

In DP Article 34, the SPC treats the issue of whether an internet platform has a
dominant market position, listing eight specific factors the SPC may consider in applying
Article 23 of the 2022 AML. Item (4) in the SPC’s list is consideration of the relevant data,
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algorithms and technologies mastered by the internet platform undertaking. We urge the
SPC to take into account that these factors are all subject to competition and reflective of
innovation.

The acquisition of data is part of an internet platform’s acquisition of clicks or

purchases by consumers using the platform. A platform’s competitive drive to win clicks
or sales thus drives its acquisition of data. Just as high market share tends to reflect an
undertaking’s successful competition in a market, as discussed above, a large store of
data by an internet platform undertaking tends to reflect successful competition.

Moreover, however large the store of data, it has no competitive significance in

itself. Data enhances an internet platform’s competitive significance only insofar as the
platform can successfully mine the data for information on consumer preferences.15 This
requires innovation in algorithms to determine relevant factors influencing consumer
demand, structuring databases according to those factors, and developing technologies
to harness this information to implement processes to win more clicks or sales. An
internet platform’s mastery of such analyses underlies its dynamic success in the market
through innovation. Consumers also tend to benefit from algorithmic innovation. For
example, an internet platform that sells goods can expand its sales by reducing consumer
search costs, by better tailoring the match between the goods exhibited to a consumer and
the consumer’s interests. Nor is successful entry into a relevant internet platform market
necessarily dependent on having “a lot of data.”16

See, e.g., Alexander Krzepicki et al., The Impulse to Condemn the Strange: Assessing Big Data in Antitrust, CPI
15

ANTITRUST CHRON. 16 (Feb. 2020).

16See, e.g., Nils-Peter Schepp & Achim Wambach, On Big Data and Its Relevance for Market Power Assessment,
7 J. EUROPEAN COMPETITION L. & PRAC. 120, 122 (2016) (“[P]otential competitors do not necessarily have to
build a dataset equivalent to the size of the incumbent . . . They rather need to find ways to accumulate
highly relevant data to build a competitive, not necessarily the same dataset.”); Marc Bourreau et al., Big
Data and Competition Policy: Market Power, Personalised Pricing and Advertising, Centre on Regulation in
Europe, Feb. 16, 2017, https://cerre.eu/sites/cerre/files/170216_CERRE_CompData_FinalReport.pdf at 37
(“The first principle is that data are one input, which is important but not unique, to develop successful
applications and algorithms. Other inputs are also important such as skilled and creative labour force (in
particular computer scientists and singers), capital and distribution channels. Above all, the skills and
creativity of the labour force will make the success of the applications.”).

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 In DP Article 35, the SPC treats the issue of determining whether an undertaking
in the intellectual property (“IP”) sector has a dominant market position. The importance
of accounting for dynamic competition is greatest in IP. The function of granting IP rights
to innovators is to create incentives for costly investments in the research and
development of innovations that benefit consumers, society as a whole, and drive
economic growth.

The licensing of an IP right generates revenue for the licensor, but the payment of
license fees is not properly viewed as a restriction of competition or a harm to licensees.
Rather, the licensing of IP is a market transaction like any other, in which both parties to
the transaction tend to gain. A weakening of IP rights, through a finding that the owner
of the IP has a dominant market position, depresses licensing revenues and thereby
lessens the incentives of innovators to make costly investments in research and
development. Such a finding could result in a restriction in dynamic competition.

We commend the SPC for taking a balanced approach to determining market

dominance in IP, taking into account factors of both static competition in items (1)-(3) and
dynamic competition in item (4) of DP Article 35. However, the central goal of the 2022
AML, of promoting competition, innovation, efficiency and economic growth, is best
pursued by taking care that static considerations do not undermine the promotion of
dynamic competition.

In terms of static competition, the greater the breadth and substitutability of

alternatives for a given IP license, the better the potential licensee’s bargaining position,
which tends to lower the license fees negotiated in the bargaining outcome. But the
availability of close substitutes depends on the magnitude of the innovative advance
embodied in the IP being licensed. The more innovative the advance, the fewer and more
distant will the substitutes for the IP tend to be. A high license fee negotiated between
licensor and licensee thus tends to reflect a high value of the technological advance
embodied in the IP. To effectively weaken an IP right, through a finding of dominant
market position based simply on the technological advance embodied in the IP being of
high value, would be tantamount to imposing a heavy tax on innovation. We believe this
would be inimical to the competition goal of the 2022 AML.

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 Conclusion

We commend the SPC for steps taken in the DP to account for considerations of
dynamic competition, in accordance with Article 1 of the 2022 AML. The effects of
conduct on dynamic competition should carry greater weight when there appears to be
a tension between the considerations of static and dynamic competition. A wise Chinese
proverb is apt here: 贪小便宜吃大亏, “If you focus only on small immediate gains, you

may suffer big losses in the future.” It is the elimination or restriction of dynamic
competition and innovation that has the greater potential for adverse consequences to
consumers, society as a whole, and healthy economic growth.

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