The U.S.-China Business Relationship – The Most Important Issues: A Complex Balancing Act LIVE Webcast

Speaker Firms and Organization:
Wilson Sonsini Goodrich & Rosati
Stuart M. Chemtob
Senior Of Counsel
Greenberg Traurig, LLP
Weisun Rao, Ph.D.
Shareholder
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Presented By:
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September 09, 2014
Partner Firms:
Winston & Strawn LLP
Steve Harris
Partner
Economists Incorporated
Su Sun
Vice President

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Partner Firms:
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September 09, 2014
Greenberg Traurig, LLP is an international, multi-practice law firm with
approximately 1750 attorneys serving clients from 36 offices in the
United States, Latin America, Europe, the Middle East and Asia.
Greenberg Traurig is among the Top 10 law firms on The National Law
Journal's 2013 NLJ 350, an annual ranking of the largest firms in the
U.S. For additional information, please visit www.gtlaw.com.
Wilson Sonsini Goodrich & Rosati is the premier legal advisor to
technology, life sciences, and other growth enterprises worldwide. Its
services include antitrust counseling and litigation, corporate law and
governance, public and private offerings of equity and debt securities,
mergers and acquisitions, securities class action litigation, intellectual
property litigation, joint ventures and strategic alliances, technology
licensing and other intellectual property transactions, tax, and employee
benefits and employment law. Its accomplished team of antitrust
attorneys is uniquely positioned to assist clients on the most important
bet-the-company matters, as well as with regular counseling and
compliance matters, and represents enterprises in merger and
anticompetitive conduct matters in the United States and before Asian
and European competition authorities. WSGR’s accomplished team is
consistently recognized among the leading antitrust practices in the
United States.

Partner Firms:
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September 09, 2014
Winston & Strawn LLP is an international law firm with more than 850 attorneys among 18 offices
in Beijing, Brussels, Charlotte, Chicago, Geneva, Hong Kong, Houston, London, Los Angeles,
Moscow, New York, Newark, Paris, San Francisco, Shanghai, Silicon Valley, Taipei, and
Washington, D.C. The exceptional depth and geographic reach of our resources enable Winston
& Strawn to manage virtually every type of business-related legal issue. We serve the needs of
enterprises of all types and sizes, in both the private and the public sector. We understand that
clients are looking for value beyond just legal expertise. With this in mind, we work hard to
understand the level of involvement our clients want from us. We take time to learn about our
clients’ organizations and their business objectives. And, we place significant emphasis on
technology and teamwork in an effort to respond quickly and effectively to our clients’ needs.
Visit winston.com if you would like more information about our legal services, our experience, or
the industries we serve.
Antitrust - Asia competition and regulatory
Winston & Strawn has extensive experience advising multinational companies in connection with
merger reviews in numerous Asian jurisdictions, including China, Japan, Korea, and Taiwan, as
well as in connection with government investigations and litigation. Through our offices in the
Asia-Pacific region, as well as through our experienced practitioners based in the U.S., we are
frequently involved in leading merger and cartel cases and investigations. While many of these
cases run parallel to related proceedings in the United States, EU, and other jurisdictions we have
mastered successful coordination to ensure an efficient and consistent worldwide approach with
proven results
Economists Incorporated is a premier economic consulting firm in the
fields of law and economics, public policy, and business strategy.
Headquartered in Washington, D.C., EI offers expert consulting and
testifying services in the context of litigation, arbitration, proposed
mergers and acquisitions, regulatory hearings, and business planning.
Its clients include legal counsel, businesses, trade associations,
government agencies, and multilateral organizations. Since its founding
in 1981, EI has participated in path breaking and high profile antitrust,
commercial litigation, and regulatory matters. EI’s work has covered a
large number of industries and multiple jurisdictions. EI’s Asia practice
has focused primarily on work before antitrust enforcement agencies
and courts in countries such as China and South Korea, and is led by
highly experienced economists who speak the local language and
understand the local market.

Brief Speaker Bios:
Stuart M. Chemtob
Stuart Chemtob is Senior Of Counsel in WSGR’s Washington, D.C. office, where his Asia-oriented practice focuses on representing
companies and individuals in criminal and non-criminal antitrust investigations in the United States and providing global strategic
antitrust counseling. He has appeared before China’s National Development and Reform Commission on behalf of American
companies that have been the subject of investigation. He previously served as Special Counsel for International Trade in the
Antitrust Division, where he advised on international enforcement, mutual legal assistance and extradition matters, and was the
Antitrust Division’s liaison to the antitrust enforcement agencies in Asia. Stuart was the lead Department of Justice official on relations
with China’s antimonopoly agencies (MOFCOM, NDRC, SAIC), spearheading negotiation of the U.S.–China MOU on Antitrust
Cooperation and providing advice and training to the Chinese government on the drafting and implementation of the Antimonopoly
Law.
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September 09, 2014
Weisun Rao, Ph.D.
Dr. Weisun Rao focuses his practice on intellectual property law and business law. He is experienced in developing IP strategies and
building and managing IP portfolios for legal and business opportunities in the United States, China and elsewhere in the world.
Additionally, Weisun also advises clients on monetizing and enforcing their IP rights throughout the world. He counsels clients on IP
and business issues in the pharmaceutical, biotechnology, nutraceutical, medical device, advanced material and mechanical
industries. Weisun is also experienced with due diligence and counter-diligence investigation, negotiating and drafting technology
transfer agreements and licensing agreements, and providing patentability, validity, infringement, and freedom-to-operate opinions.

Brief Speaker Bios:
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September 09, 2014
► For more information about the speakers, you can visit:
http://theknowledgegroup.org/event_name/the-u-s-china-business-relationship-the-most-important-issues-a-complex-balancing-act-live-webcast/
Steve Harris
Steve Harris is a partner in the firm’s Washington, D.C. and New York offices and concentrates his practice in antitrust/competition
law, including litigation, cartel defense, merger control filings, and administrative proceedings before U.S. and international courts and
agencies. He has particular experience working with clients in China, Korea, Japan, and Taiwan.
Su Sun
Dr. Su Sun is a Vice President at Economists Incorporated. He specializes in economic analysis in antitrust and regulatory matters. He
has conducted economic analysis for antitrust review of mergers before the U.S. Department of Justice and Federal Trade
Commission, Canadian Bureau of Competition, and China’s Ministry of Commerce. He has also worked on estimation of damages in a
number of price fixing cases, and has provided analysis in some abuse of dominance cases, including those involving bundled
discounts, exclusionary practices and the licensing of patents.

The relationship between the U.S. and China is the most important in the world. Whether the two nations can co-exist may be a significant political
and economic challenge.
Under President Xi Jinping, China’s policy is changing quickly, with greater consolidation of power and more strategic economic and market reforms.
There is interest in taking some limited measures to control state enterprises, but not to reduce the power of the Communist party.
China faces formidable challenges from environmental degradation, internal dissent, and changing demography due to the ‘one-child per family’
policy. Tension between China and the U.S. increases regarding numerous issues such as the instability of North Korea, maritime security in the
South China Sea, human rights, data and information theft, cyber-attacks, and trade disagreements.
Many specific, contentious issues exist. Among these, the Chinese government has invested in many Western firms, such as Dalian Wanda’s
acquisition of AMC, and it is unclear whether the U.S. Committee on Foreign Investment might obfuscate further investment. The Chinese
government has been trying to control corruption, and securities violations thereby affecting domestic and foreign companies. Antimonopoly review
of transnational mergers by China’s Ministry of Commerce has become a significant consideration in global M&A transactions, and many foreign
companies operating in China have faced antimonopoly investigations and private litigation over their pricing and licensing practices, raising concerns
that the Antimonopoly Law is being used for industrial policy reasons, rather than to promote competitive markets in China. Although China has some
intellectual property (IP) protection policies for foreign multi-nations, it has a long-standing reputation as a haven for violators of IP law and deep
concerns remain as stated recently by the Assistant US Trade Representative for Intellectual Property and Innovation in a report on behalf of the US-China
Business Council . Many Chinese students who studied in the United States now are senior government or business officials in China. US law
previously did not affect China too substantially. However, many Chinese companies now are affected by far-reaching U.S. laws, regulations,
investigations, or litigation. Perception of political and economic bias in the US review of mergers or in application of U.S. laws such as FCPA have
resulted in reciprocal, retaliatory actions by China.
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September 09, 2014

Nevertheless, there is substantial co-operation and agreement on many issues between the two nations at all levels of society and across most
industries. Recently, Chinese regulators have targeted professional bankers, accountants, and lawyers working on suspect initial public offerings.
Issuance of new IPOs was suspended for a year. The Chinese government appears to be interested in adopting a modified U.S.-style [IP disclosure
regime].
Yet, it is not clear whether the substantially different approaches to the law and commerce in general will lead to a better and more common
understanding between the U.S. and China or lead to greater mis-understanding and tensions. Nor is it clear how this critical relationship might
change and affect the global economy.
In this webinar, a group of experts in their fields will discuss the pertinent issues of Chinese investment, trade, capital markets, and compliance and
conflict with regulations, laws, and resulting litigation.
• Chinese Overseas Investment Outlook
• Foreign Investment Trends
• Capital Markets
• Regulation, Compliance, and Transparency
• Intellectual Property, Licensing, and Reform
• Antimonopoly Law Enforcement and Private Litigation
• US China WTO Agreement and US Anti-dumping Law
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September 09, 2014

Featured Speakers:
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September 09, 2014
Segment 1:
Weisun Rao, Ph.D.
Shareholder
Segment 2:
Stuart M. Chemtob
Senior Of Counsel
Segment 3:
Steve Harris
Partner
Segment 4:
Su Sun
Vice President

Segment 1:
Introduction
Dr. Weisun Rao focuses his practice on intellectual property law and business law. He is experienced in developing IP
strategies and building and managing IP portfolios for legal and business opportunities in the United States, China and
elsewhere in the world. Additionally, Weisun also advises clients on monetizing and enforcing their IP rights throughout the
world. He counsels clients on IP and business issues in the pharmaceutical, biotechnology, nutraceutical, medical device,
advanced material and mechanical industries. Weisun is also experienced with due diligence and counter-diligence
investigation, negotiating and drafting technology transfer agreements and licensing agreements, and providing patentability,
validity, infringement, and freedom-to-operate opinions.
Weisun is involved in such business transactions as cross-border mergers and acquisitions. He is particularly experienced in
advising non-Chinese clients on legal regulations and business practices in China and advising Chinese businesses
interested in entering or expanding in the U.S. market.
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September 09, 2014
Weisun Rao, Ph.D.
Shareholder

Segment 1:
Recent Developments in China’s
IP and Business Environment for MNCs
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September 09, 2014
Weisun Rao, Ph.D.
Shareholder

Segment 1:
Recent Significant Developments in China’s Intellectual Property Legal
Framework -- Trademark
> New trademark law took effect on May 1, 2014, brought China’s trademark law more consistent with
those of other counties
> Amended trademark law regulations (detailed implementing rules) also went into effect on May 1,
2014.
> Generally favorable to trademark owners or bona fide applicants
> Most eye-catching provision of the new trademark law is the 6-fold increase of statutory maximal
damage amount to RMB 3M (about US$ 490,000), from the previous ceiling of RMB 500,000 (about
US$82,000).
15
September 09, 2014
Weisun Rao, Ph.D.
Shareholder

Segment 1:
Other significant provisions in China’s New Law
> “Sounds” are now protectable as trademarks
> One application can include multiple classes for one mark (under the old law, one class in each
application)
> Reintroduction of the practice of office action (Art. 29), under which the China Trademark Office
(CTMO) will issue an examination opinion within the substantive examination procedure, to
request/allow the applicant to provide explanation and amendments before approving or refusing the
application.
> Examination of application must now follow a transparent and calculable examination schedule,
providing more predictable time-line in the examination procedure to be followed by both the CTMO
and applicants.
16
September 09, 2014
Weisun Rao, Ph.D.
Shareholder

Segment 1:
Other significant provisions in China’s New Trademark Law (Cont.)
> Trademark squatting and trademark hijacking are more difficult under the new law which requires
“honesty and credibility” in trademark applications.
> Infringement scope broadened to cover those who file trademark applications without authorization of
the mark owners, even entities who have a contractual relationship or have had business dealings
with the mark owners (e.g., distributors)
> The only standard for a judge to determine whether a similar mark infringes on a registered trademark
is “likelihood of confusion.”
17
September 09, 2014
Weisun Rao, Ph.D.
Shareholder

Segment 1:
Recent Significant Developments in China Patent Legal Framework
> Overall, the numbers of patent applications and enforcement actions have continued to increase at
double digit percentages, month-to-month
> Licensing activities also continue to rise.
> Hot discussion of courts specifically for handling patents cases are lead to such courts in Beijing,
Shanghai and Guangzhou. (Similar to the United States Appeal Court for the Federal Circuit.)
18
September 09, 2014
Weisun Rao, Ph.D.
Shareholder

Segment 1:
China Outbound Investment -- Trends
> In 2013, there were 220 disclosed deals worth US$68.9 billion, representing a 37% and 17% increase
in volume and value, respectively, from 2012. (Source: Mergermarket)
> Hot sectors
– Energy/Resources
– Food
– Technology
– Real Estate
> As a target region, North America accounts for 21% of all deals in 2013
> Among individual countries, US deals dominate in volume and value
> Increased activities by private Chinese companies
19
September 09, 2014
Weisun Rao, Ph.D.
Shareholder

Segment 1:
> Higher damage amount for TM infringement
> Damage can be calculated on the basis of a trademark license – when it is difficult to determine the
loss of the TM owner or profit earned by infringer. (Art. 63(1))
> When a TM owner has tried his best to obtain the evidence but the infringer does not cooperate, Court
may determine the amount of damage by reference to the claim and evidence already provided by the
TM owner.
> When difficult to determine loss suffered by the TM owner, profit earned by infringer or proper
licensing fees, Court has the discretion to grant compensation up to RMB 3M.
20
September 09, 2014
Weisun Rao, Ph.D.
Shareholder

Segment 1:
> New TM law explicitly recognizes prior use of trademark, and enhances protection of unregistered
trademarks.
> New opposition procedure:
– Only the owner of prior right or interested party may apply (not any third party)
– If opposition ruling not in opponent’s favor, it cannot be appealed by opponent.
– If opposition ruling not in applicant (opposed party)’s favor, it can be appealed for review.
21
September 09, 2014
Weisun Rao, Ph.D.
Shareholder

Segment 1:
> Approved by Chinese legislature on August 31
> Three courts: Beijing, Shanghai, and Guangzhou
> Subject jurisdiction: patents, new plants, circuit board designs, technical secrets
– And, copyright and trademark cases originating from the city where each of the IP courts is
located
> District court level, to handle law suits of first instance and appeals of administrative decisions
– Only in Beijing, appeals of administrative decisions by the State Council
> Cross-province jurisdiction
22
September 09, 2014
Weisun Rao, Ph.D.
Shareholder
Recently Approved Chinese IP Courts

Segment 1:
China Outbound Investments – Regulatory Regime
> NDRC Approval
– Previous regulatory framework
 Resource-related investments greater than US$300 million required NDRC approval
 Investments in other sectors greater than US$100 required NDRC approval
 Approval times may take over 1 year
 Approval not guaranteed
– Now
 Overseas investments less than $1 billion no longer require NDRC approval, but
registration still required
23
September 09, 2014
Weisun Rao, Ph.D.
Shareholder

Segment 1:
Weisun Rao, Ph.D.
Shareholder
China Outbound Investments – Regulatory Regime (Cont.)
> MOFCOM (new rules taking effect on Oct. 6, 2014)
– Approval required only in sensitive countries or regions (i.e., no diplomatic relationship or
sanctioned), or in sensitive industry (i.e., subject to export control, or affecting the interest of
more than one country)
– Otherwise, registration is required
 certificate issued in 3 working days.
24
September 09, 2014

Segment 1:
China Outbound Investments – Challenges in the US
> Legal Concerns
– CFIUS
– State vs. Federal Laws
– Labor laws
– Litigation
> Cultural and Management Differences
– Government relations
– Employee relations (Confucian notions of top-down hierarchy)
25
September 09, 2014
Weisun Rao, Ph.D.
Shareholder

Segment 1:
Recently introduced reform to China’s State-Owned Enterprises
> At the end of 2011, there were 144,700 SOEs with total assets of RMB 85.4 trillion, revenues of RMB
39.25 trillion, and profits of 2.6 trillion yuan (43% of China’s total industrial & business profit).
> Pilot program includes 6 companies, in banking, pharma, building materials, energy, and natural
resources,
> Goals: to allow private investors and to improve management
– Current Problems
 inefficient and drag on economic development
 Created unlevel ground for competition
> Also, to reduce the disparity in compensations between employees and executives in these
companies and other government employees.
26
September 09, 2014
Weisun Rao, Ph.D.
Shareholder

Segment 1:
Hot Topics on China Business Environment for MNCs
> Recent heavy handy investigations by Chinese government authorities for foreign businesses
in certain sectors
– Anti-bribery case against British pharma giant GSK
– Land Rover, Audi, and Mercedes Benz have been recently investigated and fined by NDRC for
their pricing practices.
– Japanese Auto-Parts Makers were fined $202 M by NDRC also for alleged price manipulation.
– Qualcomm is also being investigated for alleged monopoly practice and, according to media, the
company is cooperating with the ongoing investigation.
– Microsoft is investigated by AIC for antimonopoly issues.
> Not Related, but China inbound FDI fell to the lowest level in July.
27
September 09, 2014
Weisun Rao, Ph.D.
Shareholder

Segment 2:
Introduction
Stuart Chemtob is Senior Of Counsel in WSGR’s Washington, D.C. office, where his Asia-oriented practice focuses on
representing companies and individuals in criminal and non-criminal antitrust investigations in the United States and
providing global strategic antitrust counseling. He has appeared before China’s National Development and Reform
Commission on behalf of American companies that have been the subject of investigation. He previously served as Special
Counsel for International Trade in the Antitrust Division, where he advised on international enforcement, mutual legal
assistance and extradition matters, and was the Antitrust Division’s liaison to the antitrust enforcement agencies in
Asia. Stuart was the lead Department of Justice official on relations with China’s antimonopoly agencies (MOFCOM,
NDRC, SAIC), spearheading negotiation of the U.S.–China MOU on Antitrust Cooperation and providing advice and training
to the Chinese government on the drafting and implementation of the Antimonopoly Law.
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September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
Enforcement of China’s Antimonopoly Law
Against Anticompetitive Conduct
Stuart M. Chemtob
Senior Of Counsel
schemtob@wsgr.com
The U.S.-China Business Relationship
The Most Important Issues: A Complex Balancing Act
Knowledge Group Webcast
Sept. 9, 2014
29
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
AML PROVISIONS ADDRESSING ANTICOMPETITIVE CONDUCT
• Article 13 – prohibits monopoly agreements among competitors (horizontal restraints).
• Article 14 – prohibits monopoly agreements between firms and their trading partners (vertical
restraints).
• Article 17 – prohibits abuse of a dominant market position.
– A dominant market position is rebuttably presumed to exist where:
• One firm accounts for more than 50% of the relevant market
• Two firms together account for 66.7% of the relevant market
• Three firms together account for 75% of the relevant market.
– No presumption for firms with less than 10% market share.
30
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
AML ENFORCEMENT AGENCIES
• China has authorized three AML enforcement agencies
– Ministry of Commerce (MOFCOM) – mergers
– National Development and Reform Commission (NDRC) – price-related anticompetitive
conduct
– State Administration for Industry and Commerce (SAIC) – non-price-related anticompetitive
conduct.
• In addition, the AML provides for a private right of action in the courts.
31
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
ABUSE OF DOMINANCE
Article 17 sets out seven categories of abusive conduct:
1. Selling at unfairly high prices or buying at unfairly low prices
2. Selling below cost without valid justification
3. Refusing to deal without valid justification
4. Exclusive dealing requirements without valid justification
5. Tying or imposing other unreasonable trading conditions without valid justification
6. Providing discriminatory treatment in transaction conditions to equivalent trading partners
7. Other activities determined to be an abuse of dominant market position.
32
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
ABUSE OF INTELLECTUAL PROPERTY
• Article 55 provides an AML exemption for the exercise of IP rights in accordance with the IP laws and
administrative regulations.
• However, the exemption is not applicable to the “abuse” of IPR to eliminate or restrict competition.
– Leads to a circular analysis – exercise of IP is not exempt if it violates the AML!
• SAIC now drafting Rules on the Prohibition of Abuse of IPR.
– Intended to provide some clarity in the IP/AML interface
– But officially only applicable to SAIC investigations;.
33
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
HIGHLIGHTS OF SAIC DRAFT IP ABUSE RULES
• Good framework of analysis
– IP not presumed to create a dominant market position.
– Recognition that IP licensing is generally a vertical relationship.
– Rule of reason analysis normally applies.
– Safe harbors from monopoly agreement prohibitions where:
• Combined share of competing firms no higher than 20%
• Neither party has more than 30% market share.
• Areas of concern
– IP can be an “essential facility” – refusal to license can be abuse
– Strict rules on holders of standard-essential patents – even for non-members of SSOs.
– Many license provisions presumptively unlawful.
– Patents pools strictly regulated.
34
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
PENALTIES AND REMEDIES FOR ABUSE OF DOMINANCE
• Fine of 1% - 10% of previous year’s turnover.
– Normally based on turnover in China.
– However, for some cases with global impact, such as IP-related cases, could be based on global
turnover.
– NDRC working on fine guidelines.
• Cease and desist order
– Scope of conduct could be broad – change of business model?
– Price reductions
– Monitoring
• Disgorgement of illegal gains
– Could be larger than fine – no look-back limit.
35
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
NDRC AND SAIC FOCUSING ON IP ABUSE BY FOREIGN HI-TECH COMPANIES
• NDRC has actively investigated at least five foreign firms for IP licensing “abuses.”
– Qualcomm
– InterDigital
– Dolby
– HDMI
– Technicolor (Thomson)
• SAIC recently conducted dawn raids of Microsoft.
– SAIC reportedly attempted to access information on servers located outside of China
• Qualcomm is reportedly being investigated for up to nine different “abusive” practices!
– Threatened fines of almost $5 billion.
– May require change of Qualcomm’s basic business model.
36
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
HUAWEI v. INTERDIGITAL A CASE STUDY
• Huawei filed two private actions in Shenzhen:
– Action seeking determination of a FRAND royalty rate for InterDigital’s (IDC’s) Chinese standard-essential
patents.
– AML damages action based on InterDigital’s licensing offers.
• IDC had never asserted its patents against Huawei in China, although it had sought exclusion of
Huawei’s infringing products in the U.S.
• The FRAND rate court used an inappropriate methodology based on IDC’s 2007 license with Apple to
arrive at a de minimis royalty rate (0.019%).
– IDC was precluded from introducing comparable PLAs, because there was no protective order
system in place.
– The court refused to look at licensing practices by others in the industry, including Huawei’s own
practices.
37
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
HUAWEI v. INTERDIGITAL A CASE STUDY (2)
• The court in the AML damages action case, based on the FRAND royalty rate determination, found
that IDC had abused its dominant position by:
– Requesting an unduly high royalty rate
– Bundling its standard-essential patents (SEPs) with its non-SEPs
– Requesting a royalty-free cross license of Huawei’s SEPs
– Filing a section 337 action at the US International Trade Commission seeking exclusion of
Huawei’s infringing products from the U.S.
• The court awarded Huawei damages of $3.3 million based on Huawei’s attorney’s fees in defending
the USITC action.
• The Guangdong High Court affirmed both decisions in their entirety.
• IDC is appealing the FRAND rate decision to the Chinese Supreme Court.
38
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
INTERDIGITAL NDRC INVESTIGATION
• While Huawei litigation still pending, NDRC opened an investigation of IDC’s licensing practices.
• In December 2013, Huawei and IDC settled their dispute by agreeing to resolve the terms of a
worldwide patent license of InterDigital’s SEPs through binding international arbitration.
• In March 2014, IDC submitted an application to suspend NDRC’s investigation based on
commitments that it would:
– offer the option of SEP-only licenses to Chinese OEMs
– not require a royalty-free cross-license
– not seek an exclusion order or injunctive relief against any Chinese OEM that accepts
InterDigital’s offer to resolve the terms of a worldwide license of IDC’s SEPs through binding
arbitration.
• In May 2014, NDRC accepted IDC’s commitments and suspended its investigation without finding a
violation or imposing fines.
39
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
NDRC ENFORCEMENT AGAINST RESALE PRICE MAINTENANCE
• NDRC extremely active against resale price maintenance (RPM) practices.
– High profile cases against foreign infant milk formula producers, high-end optical manufacturers,
and foreign automobile makers.
– Per se unlawful approach.
• Small market share no defense.
– NDRC demanding large price reductions, while also imposing heavy fines.
– Real concern seems to be international price discrimination – prices higher in China than in other
countries.
40
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
RPM IN THE COURTS: THE JOHNSON & JOHNSON CASE
• Johnson & Johnson sued by Rainbow, a terminated distributor of surgical staples and sutures to
hospitals.
– Rainbow claimed that termination was because of violation of RPM restrictions.
• Shanghai High Court ruled that RPM must be analyzed under the “rule of reason” – RPM is not per se
unlawful.
– The Court applied a rule of reason analysis before determining that J&J’s conduct violated the
AML.
• Decision creates conflict between NDRC and the courts on application of AML to RPM activities.
• Shanghai Court’s rule of reason approach should logically apply to other types of vertical restrictions.
41
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
NDRC ENFORCEMENT: OTHER VERTICAL PRACTICES
• Article 14(3) prohibits “other [vertical] monopoly agreements determined by the Antimonopoly
Enforcement Authority.”
– Open ended; no guidance
– Allows for investigations and punishment without warning
• NDRC announced investigation of on-line hotel reservation companies for most-favored-nation (MFN)
clauses.
– Appear to be investigating companies even with small market shares, i.e. based on per se illegal
approach
• Penalties are the same as for hard core cartels or abuse of dominance.
42
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
INVESTIGATIONS BY NDRC: “RESISTENCE IS FUTILE”
• NDRC has been very aggressive in its AML enforcement:
– Last year, foreign companies warned that if try to defend themselves, or hire lawyers, will be
punished more harshly.
– Tendency to take a black and white approach to conduct.
– Presumption of guilt.
– Dawn raids for abuse of dominance and RPM investigations.
43
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
SOME POSITIVE DEVELOPMENTS
• In July U.S.-China S&ED meeting, China agreed that AML enforcement agencies will inform
investigated party of the conduct of competitive concern and provide an “effective opportunity” to
present evidence in its defense.
• NDRC now saying that foreign companies under investigation may bring their foreign lawyers to
meetings.
• Reports that after Sumitomo Electric submitted revised sales data in its defense in a cartel matter,
NDRC reduced fine by 15%.
• Some foreign companies that cooperated quickly with NDRC received no fines, and investigation of
InterDigital was suspended based on commitments offered to NDRC.
44
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

Segment 2:
CONCLUSIONS
American firms operating in, or contemplating entering, the Chinese market should carefully
evaluate their business practices and exposure under the AML.
• Parameters of lawful vs. unlawful conduct are unclear.
• NDRC inclined to take a per se unlawful approach to conduct it decides to investigate.
• Opportunity for presenting an effective defense limited.
• Remedies can be severe.
• Risks of private AML litigation are high.
It is important to consult with U.S. antitrust counsel in this process.
45
September 09, 2014
Stuart M. Chemtob
Senior Of Counsel

46
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September 09, 2014
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September 09, 2014
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Segment 3:
Introduction
Steve Harris is a partner in the firm’s Washington, D.C. and New York offices and concentrates his practice in antitrust/competition law, including
litigation, cartel defense, merger control filings, and administrative proceedings before U.S. and international courts and agencies. He has particular
experience working with clients in China, Korea, Japan, and Taiwan.
Mr. Harris’ representative matters include:
•Represented a major U.S. consumer products company in antitrust cartel investigation and follow-on class action litigation.
•Represented a European chemicals manufacturer in antitrust cartel investigation in the United States and EU, and in follow-on class action
litigation.
•Represented a leading personal computer manufacturer in an antitrust and patent infringement action involving MPEG data compression
technology.
•Represented a major international airline before antitrust and regulatory agencies in Asia and the United States in a successful global effort
to retain its multi-year joint business agreement with one of Asia Pacific’s leading airlines.
•Represented a leading U.S. biotechnology company in worldwide antitrust and merger control issues related to USD500 million acquisition
by European multinational crop science company. This matter was granted early termination by the U.S. Department of Justice Antitrust
Division.
•Represented Prestige Brands Holdings Inc. in the worldwide antitrust and merger control issues related to its USD660 million acquisition of
the over-the-counter pharmaceutical brands business of GlaxoSmithKline, Prestige’s largest acquisition ever. The matter involved two
transactions and interesting issues under the U.S. Federal Trade Commission’s aggregation rule; the FTC granted early termination.
•Represented a leading global information services company in worldwide antitrust and merger control proceedings; the merger presented
several unusual competition law issues, including the application of the “media merger” rules in Germany and Austria.
•Represented a leading specialty minerals company based in France in the U.S. antitrust and merger control issues related to its USD665
million acquisition of a talc business.
•Represented a leading global medical technology company in the worldwide antitrust and merger control proceedings in its acquisition of a
Swedish company involving issues related to complementary versus competitive products in several jurisdictions.
•Represented a leading multinational resources company in the review of a joint venture with another large resources company under the
China Anti-Monopoly Law.
Mr. Harris received his A.B., magna cum laude, from Cornell University in 1977. He received his J.D. from Columbia Law School in 1982, where he
was certified with honors by the Parker Program in Foreign and Comparative Law, and was a Harlan Fiske Stone Scholar.
49
September 09, 2014
Steve Harris
Partner

Segment 3:
Cartels
• “Monopoly Agreements”
– Article 13: horizontal agreements include traditional cartels plus:
• Restricting the purchase of new technology or new equipment, or restricting the
development of new technology or new products
• Jointly boycotting
• Other monopoly agreements as determined by the AMEA
50
September 09, 2014
Steve Harris
Partner

Segment 3:
Cartels
• “Monopoly Agreements”
– Article 14: vertical agreements include
• fixing, or restricting the minimum price, for resale to a third party
• Other monopoly agreements as determined by the AMEA
51
September 09, 2014
Steve Harris
Partner

Segment 3:
Cartels
• Horizontal and vertical treated similarly
– Subject to same penalties
• Confiscation of illegal gains
• Fines of between 1% and 10% of total turnover of entity in prior year
– Not “per se” unlawful – eligible for exemption if parties can prove agreement was for certain
purposes, such as “protecting the legitimate interests in foreign trade or economic cooperation”
– Both eligible for leniency
52
September 09, 2014
Steve Harris
Partner

Segment 3:
Cartels
• AMEAs Enforcing Anti-Monopoly Agreement chapter of AML:
– NDRC
– SAIC
• Broad investigative and enforcement powers
• Bandwidth extended by use of local agencies
• Little chance of successful appeal of AMEA order
53
September 09, 2014
Steve Harris
Partner

Segment 3:
Cartels
• Enforcement first focused on Chinese entities, and imposed modest penalties, most well under
USD 1 million, but increasing recently
– Rice noodles (2010)
– Concrete (2011)
– Paper manufcturers (2011)
– Sea sand mining (2012)
– Used cars (2012)
– Roof tile manufacturers and trade assoc. (2013)
– Jewelers and trade assoc. (2013)
– Tourist agencies, gift shops and trade assoc. (2013)
– Liquor manufacturers (2013)
54
September 09, 2014
Steve Harris
Partner

Segment 3:
Cartels
• Recent enforcement has focused much more on foreign firms, with larger and increasing fines
– LCD manufacturers (USD 57 million)(2012)
– Infant milk formula manufacturers (USD 108 million)(2013)(RPM)
– Auto parts makers (bearings and wire harnesses)
(2014)(USD 201 million)
55
September 09, 2014
Steve Harris
Partner

Segment 3:
Cartels
• In some cases, in addition to fines and confiscation of illegal gains, AMEAs have imposed behavioral
remedies
– E.g.: LCD manufacturers must “fairly supply” Chinese television manufacturers with new
technologies
56
September 09, 2014
Steve Harris
Partner

Segment 3:
Cartels
• Reported ongoing cartel investigations
– Auto parts manufacturers (capacitors) (2014)
– Auto manufacturers (RPM?) (2014)
57
September 09, 2014
Steve Harris
Partner

Segment 3:
Cartels
• Leniency
– Reportedly granted to some companies in several cases, including:
• Infant formula
• Capacitors
– NDRC and SAIC rules differ: if important evidence and cooperation provided:
• NDRC “may” grant
• SAIC “must grant
58
September 09, 2014
Steve Harris
Partner

Segment 3:
Mergers
• “Concentrations”
– Mergers
– Acquisitions
– Acquisition of control over other undertakings or the capacity to exercise decisive influence on
other undertakings by contract or other means
• requirements contracts?
• exclusive distributorship agreements?
• which joint ventures?
59
September 09, 2014
Steve Harris
Partner

Segment 3:
Mergers
• Mandatory merger review
– A concentration that meets either of the following thresholds:
• (1) the total worldwide turnover of all parties exceeded 10 billion RMB (approx. USD 1.6
billion) and (2) the PRC turnover of each of at least 2 parties to the transaction in the
previous fiscal year exceeded 400 million RMB (approx. USD 63 million)
or
• (1) the combined PRC turnover of all parties exceeded 2 billion RMB (approx. USD 315
million); and (2) the PRC turnover of each of at least 2 parties exceeded 400 million RMB
(approx. USD 63 million)
- All figures refer to previous fiscal year
60
September 09, 2014
Steve Harris
Partner

Segment 3:
Mergers
• AMEA enforcing the merger provisions is MOFCOM
• MOFCOM must either:
– Approve a deal outright
– Approve a deal subject to restrictive conditions
– Prohibit a deal
61
September 09, 2014
Steve Harris
Partner

Segment 3:
Mergers
• To date, MOFCOM has:
– Approved over 775 transactions
– Approved 22 with restrictive conditions
– Prohibited 2
62
September 09, 2014
Steve Harris
Partner

Segment 3:
Mergers
• Conditions imposed by most jurisdictions are usually “structural” – divestitures
– Sometimes there are related “behavioral” conditions, requiring that assets be held separate until
they are divested, e.g.
• MOFCOM imposes structural conditions, but also imposes many stand-alone behavioral conditions
63
September 09, 2014
Steve Harris
Partner

Segment 3:
Mergers
• Behavioral Conditions Imposed by MOFCOM:
– Prohibition on acquirer buying other Chinese companies (Inbev/AB
– Prohibition of building new factories for 5 years (Mitsubishi/Lucite)
– Requirement to continue to supply Chinese buyers on non-discriminatory basis (GM/Delphi)
– Prohibition on acquirer from obtaining Chinese companies’ trade secrets from acquired party
(GM/Delphi)
64
September 09, 2014
Steve Harris
Partner

Segment 3:
Mergers
– Requirement of acquirer to provide buyer of divested business with acquirer’s technology for 3
years
– Termination of distribution agreement (Novartis/Alcon)
– Maintain price-setting mechanism (OAO Ukralkali/OAO Silvinit)
– Prohibition of requiring customers to use Joint Venture’s technology (GE/Shenhua Joint Venture)
65
September 09, 2014
Steve Harris
Partner

Segment 3:
Mergers
– Hold-separate (without a divestiture)(Seagate/Samsung)(Marubeni/Gavilon)
– Prohibition on collaboration between acquirer and acquiree without approval from MOFCOM
(MediaTek/MStar)
– FRAND obligations for non-IP protected products (Henkel/Tiande Joint Venture)
– Require free and open-source licensing (Google/Motorola)
– Honor existing FRAND commitments on SEPs (Google/Motorola; Microsoft/Nokia)
66
September 09, 2014
Steve Harris
Partner

Segment 3:
Mergers
– Prohibition expanding acquisition on online platform into general retail platform (Wal-
Mart/Newheight)
– Prohibition of discrimination in provision of IP services (non-SEPs) or designing IP in a way to
degrade performance of third party products (ARM/Giesecke Joint Venture)
– Guarantee volume of supply to Chinese buyers (Glencore/Xstrata)
67
September 09, 2014
Steve Harris
Partner

Segment 3:
Mergers
– Prohibition of acquirer’s buying from acquiree except on arm’s-length basis (Marubeni/Gavilon)
– Require termination of OEM production agreement with non-Chinese company for production of
products within China (Baxter/Gambro)
– Required price reductions and required production licenses to third parties on a permanent basis
(ThermoFisher/Life Technologies)
68
September 09, 2014
Steve Harris
Partner

Segment 3:
Mergers
– Requirement to license non-SEPs on current terms and not seek injunctive relief from
infringement unless licensee acts in bad faith (Microsoft/Nokia)
– Prohibition on bundling or cross-subsidization between products (Merck/AZ Electronic)
– Sale of products (not IP) on FRAND basis (Human Corun/Toyota Joint Venture)
69
September 09, 2014
Steve Harris
Partner

Segment 3:
Mergers
• Other concerns
– Duration of review, including failure to “start the clock”
• Problems with “Simple Case” Rules
– Use of supervising trustees for behavioral remedies
70
September 09, 2014
Steve Harris
Partner

Segment 4:
Introduction
Dr. Su Sun is a Vice President at Economists Incorporated. He specializes in economic analysis in antitrust and regulatory
matters. He has conducted economic analysis for antitrust review of mergers before the U.S. Department of Justice and
Federal Trade Commission, Canadian Bureau of Competition, and China’s Ministry of Commerce. He has also worked on
estimation of damages in a number of price fixing cases, and has provided analysis in some abuse of dominance cases,
including those involving bundled discounts, exclusionary practices and the licensing of patents.
Dr. Sun has written extensively on antitrust issues, particularly those pertaining to China, both in English and in Chinese. He
is a Senior Editor of the Antitrust Law Journal, a member of the American Economic Association, and a member of the
Chinese Economists Society. Dr. Sun earned his Ph.D. in economics from the University of Michigan and his B.A. from
Renmin University of China.
71
September 09, 2014
Su Sun
Vice President

Segment 4:
Business Strategies and Antitrust Implications in China
72
September 09, 2014
Su Sun
Vice President

Segment 4:
Business Strategies
• Product Distribution and Pricing
• Merger, Acquisition & Joint Venture
• Technology Transfer and IPR Licensing
73
September 09, 2014
Su Sun
Vice President

Segment 4:
Pricing: Bundled Discounts
• SAIC’s Investigation of Tetra Pak
• Tetra Pak’s Statement
74
September 09, 2014
Su Sun
Vice President

Segment 4:
Bundled Discounts As Considered in Merger Review
• MOFCOM’s Recent Merger Decision in Merck KGaA/AZ Electronic Materials S.A.
– Merck: high market share in liquid display crystals
– AZ: high market share in photoresists
– Remedy: No tying/bundled discounts/cross subsidy of any form between Merck’s and AZ’s
products
75
September 09, 2014
Su Sun
Vice President

Segment 4:
Bundled Discounts: U.S. and Chinese Laws
• U.S. Law
– LePage’s (3rd Circuit, 2003): vague standard based on market power and exclusion of rivals
– PeaceHealth (9th Circuit, 2007): after all discounts on the bundle are allocated to competitive
product, is price below incremental cost?
• Chinese Law
– AML Article 17 prohibits: selling below cost; tying or other unreasonable conditions; price
discrimination
• Both Require Showing of Market Power
76
September 09, 2014
Su Sun
Vice President

Segment 4:
Bundled Discounts: Price-Cost Test
• Example: Aggressive Discount Implies Pricing Below Cost
77
September 09, 2014
Su Sun
Vice President
Company Pricing
Company Product Average Variable Cost Buy A or B Buy A and B Discount
1
A $1.50 $3.00 $2.25 $0.75
B $2.50 $5.00 $3.00 $2.00
2 A $1.25 $1.25 N/A N/A
Consumer Choice
Choice Expense
Buy A and B from Company 1 $5.25
Buy A from Company 2 and B from Company 1 $6.25
What is company 1's true price of A after discount allocation?
Total Discount $2.75
Price of A after Discount $0.25

Segment 4:
Mergers and Acquisitions: Strategic Intervention
• Not Uncommon in U.S., But Maybe More Effective in China
– MOFCOM lacks experience and knowledge of industry
 Stakeholders provide theory of harm and industry information
– No extensive discovery
 Stakeholders provide more data
– MOFCOM needs help in evaluating remedies
 Stakeholders may participate in this process
– MOFCOM is under influence of industrial policy goal
 Stakeholders make a pitch in the name of domestic industry development
78
September 09, 2014
Su Sun
Vice President

Segment 4:
Recent Cases
• Glencore/Xstrata
– Price restrictions
– Sale of Las Bambas copper mine in Peru
• Microsoft/Nokia
– FRAND commitment to licensing of SEPs
– Extension to non-SEPs
• Omnicom/Publicis
– 14 out of 15 jurisdictions cleared the deal; not China
– Lost major customers to competitors
79
September 09, 2014
Su Sun
Vice President

Segment 4:
Role of Economic Analysis
• MOFCOM Has Increasingly Relied on Economic Analysis
– Willingness to hear economic theories based on harm to competitors or supply chain, not
necessarily to final consumers (e.g., vertical markets, adjacent markets)
– Emphasis on data analysis (e.g., Thermo Fisher/Life)
• Merging Parties And Intervening Parties Engage Economists to Conduct Analysis And Provide
Credibility
• Analysis Needs to Be Tailored to Address Specific Concerns with Chinese Characteristics
80
September 09, 2014
Su Sun
Vice President

Segment 4:
IPR Licensing: Determining FRAND Rates
• Georgia Pacific v. U.S. Plywood: 15 factors
– Established royalty, comparable patents, terms and scope of the licensing agreements,
profitability of patented product, value of patent to product, etc.
• Several Recent U.S. District Court Decisions Shed Light on F/RAND Rate Determination
– Microsoft v. Motorola
– In Re Innovatio
• Hypothetical Bilateral Negotiation
• Fact Intensive Investigation
• Use of Technical And Economic Experts
81
September 09, 2014
Su Sun
Vice President

Segment 4:
Chinese Laws & Guidelines
• Patent Law (Article 48)
– Monopoly conduct may lead to compulsory licensing
• Antimonopoly Law (Article 55)
– Abuse of IP rights subject to AML
• Regulation on the Administration of National Standards Involving Patents
• SAIC Draft Guidelines/Regulation
82
September 09, 2014
Su Sun
Vice President

Segment 4:
Economics
• General Principles
– Exclude hold-up value
– Avoid royalty stacking
– Encourage investment incentives
• Methodology
– Importance of patents to standard
– Importance of patents to infringing products
– Comparable license
83
September 09, 2014
Su Sun
Vice President

Segment 4:
Huawei v. InterDigital
• Forum Shopping: U.S.  EU  China
• Shenzhen Intermediate Court’s Decision
• Guangdong High Court’s Affirmation
• FRAND Rate: ≤0.019% of End Product Price
• How Would the FRAND Rate Be Different If Calculated Differently?
84
September 09, 2014
Su Sun
Vice President

Segment 4:
Guangdong High Court’s Considerations
• Hold-up
– SSO’s IPR policy
• Royalty Stacking
– IDC’s SEPs declared to ETSI: Global 2,372; China 185
– Some of IDC’s SEPs are found invalid
– Huawei’s profit margin is 4.8%
– IDC asked for 2% royalty rate
• Investment Incentive
– IDC needs to be rewarded for its R&D
85
September 09, 2014
Su Sun
Vice President

Segment 4:
Looking for Comparable Licenses
• Huawei’s Offer: 0.005%
• IDC’s Demand: 2%
• Apple: global sales is $300 billion (2007-2014) and IDC licensing fee is $56 million  0.0183%
• Samsung: global sales is $210 billion (2007-2012) and IDC licensing fee is $400 million  0.19%
• Court: Samsung license influenced by litigation; Apple license is more comparable: <=0.019%
86
September 09, 2014
Su Sun
Vice President

Segment 4:
Other Considerations
• IDC’s May 1, 2014 SEC Filing:
– Lump sum payment versus per unit fee
– Actual sales versus expected sales
– Scope of product coverage
– Other SEP holders’ licensing fee in wireless industry
• Huawei’s Profit Margin or Industry Profit Margin?
• Coverage of Technology?
– Apple & Samsung: 2G & 3G
– Huawei: 2G, 3G & 4G
• Total Number of SEPs in 2G, 3G & 4G to Perform Methods in Innovatio?
87
September 09, 2014
Su Sun
Vice President

Segment 4:
Conclusion
• Business Strategies Need to Take into Account AML Legal Risks
• Economic Analysis Informs and Supplements Legal Analysis
• International Antitrust Development Has Influence on China’s AML Enforcement
• Antitrust Analysis Should Be Tailored to China’s Specific Context
88
September 09, 2014
Su Sun
Vice President

Q&A:
Segment 1:
Segment 2:
Segment 3:
Segment 4:
► You may ask a question at anytime throughout the presentation today. Simply click on the question mark icon located on the floating tool bar on the bottom right side of your screen. Type
your question in the box that appears and click send.
► Questions will be answered in the order they are received.
89
September 09, 2014
Weisun Rao, Ph.D.
Shareholder
Stuart M. Chemtob
Senior Of Counsel
Steve Harris
Partner
Su Sun
Vice President

90
September 09, 2014
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