Monday, August 01, 2011

Is China's Anti-Monopoly Law Used To Get Hold Of Foreign IP?

Anti-Monopoly Law to level the playing field ...
or annexing the players?
Photo: Danny Friedmann
Today, exactly three years ago (2008), China's Anti-monopoly Law went into effect. Since that time the Ministry of Commerce's Anti-Monopoly Bureau has approved seven M&As conditionally of which one is most relevant in regard to IP:
  • InBev - Anheuser Busch
  • GM - Delphi
  • Mitsubishi Rayon - Lucite
  • Pfizer - Wyeth
  • Novartis AG - Alcon
  • Sanyo - Panasonic
  • Uralkali - Silvinit
And there was one rejection. When Coca-Cola company wanted to acquire Huiyuan Juice Group in March 2009, for around 2.4 billion US dollar, the Anti-Monopoly Bureau rejected its application, because according to Anti-Monopoly Bureau:
"If the acquisition of Huiyuan went into effect, Coca-Cola was very likely to take a dominating position in the domestic market and the consumers may have to accept the high price fixed by the company as they don't have more choices." Read here.

Since that time the Ministry of Commerce did not reject any M&A. But in some cases they did give some conditions. The title of Simon Rabinovitch' article for the FT is 'China Becomes Hurdle To Global Mergers' is provocative. Mr Rabinovitch quotes Gerry O'Brien of Mayer Brown JSM in Hong Kong: “There is some concern about the potential for such orders to be used as a mechanism to transfer important businesses or assets or intellectual property to Chinese enterprises away from foreign firms.” Read more here.

Let's explore Mr O'Brien's idea. When Pfizer wanted to take-over Wyeth on the Mainland for 64 billion US dollar, it got China's blessings only if it divested its Pfizer swine flue vaccine (mycoplasma hyopneumoniae) RespiSure and RespiSure One in China (not Hong Kong, Macau or Taiwan), so it can still sell it's Wyeth vaccine in China.

Steven Wei Su of Guo Lian PRC Lawyers reports on the Anti-Monopoly Bureau decision: "MOFCOM found that the merged entity would have a combined market share of 49.4% in the market, which is significantly higher than that of the next competitor in the market, Intervet, holding 18.35% of the market and other competitors, of which each holds less than 10%." Mr Su's analysis can be found here.

How to exactly assess market concentration remains less than transparent. Therefore Ministry of Commerce has issued a draft for comment on the 'Tentative Provisions on Assessment of the Effects of Concentrations of Business Operators on Competition', June 13, 2011. John Grobowski, Yiqiang Li and Wendy Yan of Faegre and Benson LLP in Shanghai analysed the procedures here.

Sundeep Tucker reported last May 2011 on the Pfizer-Wyeth deal for the FT, see here. Matthew Murphy of MMLC Group gives all 7 conditions of the Anti-Monopoly Bureau here.

It is hard to give a conclusive answer if the concern for IP abusive use of China's Anti-Monopoly Law is legitimate. Also in the case of Pfizer-Wyeth the intellectual property was only partly transferred away from foreign firms. The company to which Pfizer sold its intellectual property rights for the swine flue vaccine was Harbin. Harbin may well be majority owned by the provincial government, but Warburg Pincus, a US private equity fund, has a 22.5 percent stake in it. China's Anti-Monopoly Law and the Anti-Monopoly Bureau are pretty new and China's efforts to make the assessment of market concentration more transparent is laudable. So far they deserve the benefit of the doubt.  

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