This is an informal case summary prepared for the purposes of facilitating exchange during the 2023 WIPO IP Judges Forum.
Supreme People’s Court of China [2023]: Yangtze River Pharmaceutical Group v HIPI Pharma Tech
Date of judgment: May 25, 2023
Issuing authority: Supreme People’s Court of the People’s Republic of China
Level of the issuing authority: Final instance
Type of procedure: Judicial (Civin( �br>
Subject matter: Competition; Patents (Inventions)
Plaintiffs-Appellants: Yangtze River Pharmaceutical Group Guangzhou Hairui Pharmaceutical Co., Ltd; Yangtze River Pharmaceutical Group Co., Ltd.
Defendants-Appellants: Hefei Industrial Pharmaceutical Institute Co., Ltd; Hefei Enrite Pharmaceutical Co., Ltd.
Defendant in the first instance: Nanjing Hicin Pharmaceutical Co., Ltd.
Keywords: Patent, Abuse of dominant market position, Restricting dealing, Unfairly high price
Basic facts: This case involves an antitrust dispute alleging abuse of dominant market position. The suit is between Hefei Industrial Pharmaceutical Institute Co., Ltd. (hereinafter referred to as HIPI Company), Hefei Enrite Pharmaceutical Co., Ltd. (hereinafter Enrite Company, with HIPI Company and Enrite Company collectively referred to as HIPI Party); and Yangtze River Pharmaceutical Group Guangzhou Hairui Pharmaceutical Co., Ltd. (hereinafter Hairui Company), Yangtze River Pharmaceutical Group Co., Ltd. (hereinafter Yangtze River Company, with Hairui Company and Yangtze River Company collectively referred to as Yangtze River Party).
HIPI Party holds the Chinese Patent No. ZL 02128998 (hereinafter Patent 998), protecting delotadine polybasic acids or bases metal or alkaline earth salt composite salt and its medicinal composition (hereinafter desloratadine citrate disodium, or DCD). Desloratadine is the raw material used to make DCD. Both desloratadine and DCD are second-generation antihistamines, which can be used to treat allergic rhinitis and asthma.
On November 30, 2006, HIPI Company and Yangtze River Company signed the Technology Transfer Agreement, which stipulated that: 1) HIPI Company shall transfer the production approval and production technology of the active pharmaceutical ingredient (hereinafter “API”) used in DCD tablets to Yangtze River Company; and 2) HIPI Company must timely supply DCD API, which Yangtze River Company needs, at a price not higher than the market price of desloratadine at that time.
On July 12, 2007, HIPI Party and Yangtze River Company signed the Patent Transfer Agreement and the Supplementary Agreement of the Patent Transfer Contract, stipulating that both parties shall jointly own Patent No. 998, and Yangtze River Company shall have the right to claim authorship of the patent and the exclusive right to produce DCD tablets, but have no right to produce DCD API. Therefore, Yangtze River Company had to purchase DCD API from HIPI Party to produce DCD tablets.
From October 2009 to September 2010, the price of DCD API supplied by HIPI Party was RMB 15,600 per kilogram; from February 2011 to May 2016, the price increased to RMB 19,900 per kilogram; from July 2016 to April 2017, HIPI Party increased the actual price to RMB 48,000 per kilogram, charging additional technology commission fees.
On September 22, 2017, HIPI Party and Yangtze River Party signed the Long-Term Purchase Agreement for DCD API (hereinafter the Long-Term Purchase Agreement), which stipulated that from September 1, 2017, to December 31, 2022, for a cumulative volume of 5,000 kilograms of DCD API, Yangtze River Party shall purchase exclusively from HIPI Party at price of RMB 48,000 per kilogram.
Thereafter, Yangtze River Party filed a lawsuit on the grounds that HIPI Party abused its dominance in the DCD API market by restricting dealings, charging unfairly high prices, etc. Yangtze River Party requested that HIPI Party stop its monopoly conduct and claimed damages and litigation expenses totaling more than 100 million yuan. At the first instance, the Intermediate People's Court of Nanjing City, Jiangsu Province found that HIPI Party abused its dominant position in the DCD API market in China by restricting dealings, charging unfairly high prices, etc. The Intermediate People's Court ordered HIPI Party to stop its monopoly conduct and awarded Yangtze River Party more than 68.82 million yuan. Both parties appealed against the first-instance judgment to the Supreme People's Court.
Held: The Supreme People's Court revoked the first-instance judgment and dismissed the claims of Yangtze River Party, finding it could not be concluded that HIPI Party abused its dominance or engaged in unfairly high pricing behavior.
Relevant holdings in relation to intellectual property and competition issues:As for the provision of the Long-Term Purchase Agreement between HIPI Party and Yangtze River Party stipulating that from September 1, 2017, to December 31, 2022, for a cumulative volume of 5,000 kilograms of DCD API, Yangtze River Party shall purchase exclusively from HIPI Party, the issue is whether such a conduct constitutes restrictive dealing prohibited by the Anti-Monopoly Law.
Restrictive dealing practices must have the effect of excluding or restricting competition in the relevant market. The assessment of the competitive effects element considers factors such as the market coverage and duration of the restriction, whether the restriction raises market entry barriers or the cost of competitors, whether it creates market foreclosure effects, etc. When the alleged monopolistic behavior involves the exercise of valid IPRs, then the analysis of the exclusion and restriction of competition must consider the legal effects inherent to the lawful exercise of IPRs. If the alleged exclusion and restriction of competition are the inevitable result of the lawful exercise of a specific IPR and do not exceed the legal effects conferred by law, then they do not constitute the exclusion and restriction of competition under the Anti-Monopoly Law.
The market foreclosure effect resulting from the alleged restriction in this case is the inevitable result of the exclusive effect granted to Patent 998 by law. Since the DCD API falls within the protection scope of Patent 998, the provision stipulating that Yangtze River Party shall purchase exclusively from HIPI Party within the patent protection period is the natural result of the exclusive effect of the patent right, and the degree of the restriction does not exceed the statutory exclusive effect of the patent right. Accordingly, the Supreme People's Court held that the exclusive dealing provision does not constitute exclusion and restriction of competition under Article 17, Paragraph 1, Item 4 of the Anti-Monopoly Law (2008) [Article 22, Paragraph 1, Item 4 of the newly amended Anti-Monopoly Law (2022)].
Article 17, Paragraph 1, Item 1 of the Anti-Monopoly Law [Article 22, Paragraph 1, Item 1 of the newly amended Anti-Monopoly Law] on unfairly high prices is primarily concerned with maintaining market competition order, protecting consumer welfare, and preventing harm caused to consumer welfare due to persistent market failures. If the practice of high pricing does not have a clear effect of excluding or restricting competition, neither does it clearly harm consumer welfare, and it is then not appropriate to simply identify the high pricing as an abuse of dominant market position.
The Supreme People's Court held that none of economic analyses performed, such as those determining the internal rate of return (“IRR”) and the consistency between price and economic value, sufficiently support the allegation that the DCD API’s price of RMB 48,000 per kilogram charged by HIPI Party constitutes an unfairly high price. While its price increases are disproportionately higher than its cost increase, this alone cannot sufficiently prove that the resulting price is unfairly high, since the initial DCD API price in 2009 was likely a promotional one, and HIPI Party’s subsequent price increases were probably reasonable adjustments from a promotional price to a normal one.
More importantly, from the perspectives of competition effects and consumer welfare, the DCD API’s price of RMB 48,000 per kilogram charged by HIPI Party did not put Yangtze River Party at a competitively disadvantageous position in the downstream market. On the contrary, the market share of “Beixue,” the finished dosage form of DCD produced by Yangtze River Party, gradually expanded and its price even slightly decreased.
Relevant legislation: Article 17, Paragraph 1, Items 1 and 4 of the Anti-Monopoly Law of the People’s Republic of China (2008) [Article 22, Paragraph 1, Items 1 and 4 of the newly amended Anti-Monopoly Law (2022)]
Article 17 Undertakings holding dominant market positions are prohibited from doing the following by abusing their dominant market positions:
(1) selling commodities at unfairly high prices or buying commodities at unfairly low prices;
...
(4) without justifiable reasons, restricting their trading counterparts to make transactions exclusively with themselves or with the undertakings designated by them;
...