Chinese antitrust law could target foreign IT firms

More antitrust complaints like the one filed against Microsoft in China last year could target foreign IT companies under new draft regulations released by the country, one law firm says.

Meanwhile, the lawyer who filed the complaint against Microsoft for selling at high prices does not expect a result in the case for another three to five years, he said Tuesday.

China last year passed an antitrust law that has since led to a wave of complaints against Chinese and foreign companies and at least one lawsuit. China has not yet set a pattern in its use of the law, but it raised concerns abroad about protectionism this year when it invoked the law to block Coca-Cola from acquiring a large domestic juice vendor, China Huiyuan.

Dong Zhengwei, a lawyer at Chinese law firm Zhongyin, used the law to file a complaint against Microsoft last year. Authorities have released few details about the investigation process for complaints, but an examination of Microsoft based on Dong’s complaint is ongoing, he said.

New draft regulations that build on pricing rules in the antitrust law could lead to more complaints against foreign IT companies operating in China, said Chunfai Lui, special counsel for law firm Baker & McKenzie in China.

The regulations bar dominant companies from selling at prices obviously above or below cost and from refusing to deal with potential licensees of their technology. Those measures could open the floodgates for complaints against IT companies by competitors, said Lui.

Foreign vendors that ask a high price to license their intellectual property to local companies could be seen as refusing to deal, giving grounds for complaints or lawsuits by interested licensees, he said. Software, PC and telecom vendors could all be subject to complaints if they charge local manufacturers or others to use their technology, said Lui.

China has long sought to avoid foreign domination of the IT sector, an aim visible in a 2004 government report examining anticompetitive behavior by multinational companies in China, Lui said. But complaints under the antitrust law have also targeted domestic companies. Local online search giant Baidu was sued under the law earlier this year by an advertiser who said it had been removed from Baidu search results after it cut back on ad spending.

Government bodies have been slow to share information or reach decisions after complaints, leaving unclear the potential effects of the law on foreign companies. “They are sort of circling the problem,” said Lui.



Microsoft may be able to use part of the newest regulations in its defense, said Lui. The rules allow selling at high prices if consumers can buy similar products from other companies for less. Microsoft could argue that software like the Linux operating system gives buyers choices besides its own products. But the rules are vague on what counts as a similar product, and a court could hold that other software is not a viable alternative to Microsoft programs like Windows,  Lui said.

The draft regulations are likely to become law toward the end of the year after a public comment period, Lui said.

The complaint against Microsoft accused it of abusing its dominant market position to sell products at excessively high prices. Dong, its filer, also alleged unfair bundling practices by Microsoft during a phone interview Tuesday.

Microsoft’s China Web site lists the suggested price of Windows Vista Home Premium as 900 yuan (US$132), less than the $240 for the program listed on its U.S. site. But the China site also lists the suggested price of Windows Vista Ultimate as the equivalent of $360, higher than the $320 listed on the U.S. site.

Microsoft did not immediately reply to a request for comment or to questions about Windows pricing in China.

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