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Despite the passing of our competition bill, there is still a need to study how it should work, especially in the high technology areas. On Dec 6, the famous case of Apple v Samsung reached a stage that should remind everyone of the need to strike a good balance between competition law and intellectual property law, in regard to its potential impact on the economy. The US trial judge Lucy Koh asked both parties: "When is this case going to resolve?" The judge was overseeing the $1 billion award of damages against Samsung. She ruled that Samsung had infringed Apple's smartphone designs. The judge's mark was clearly concerned with the interests of the consumers and the industry, not in a private litigation.

Samsung's legal counsel was quoted to have said that Apple had created a "results-oriented attempt to compete through the courts rather than the marketplace". If that is true, it would be truly regrettable. It is regrettable first for the patent system, whose primary purpose should be to encourage innovation, not litigation. Second, it is regrettable for the law of competition, which should contain if not eradicate anti-competitive behavior, and not condone monopolistic protection by patents registration.

The current mass of litigation in patents law may not be justified, because it is simply anti-competitive. This is particularly so in high technology, where new products come out every season and are replaced quickly in the next. There is nothing worthwhile to protect for simple designs like those related to external appearance, as a form of innovation. Protection should be justified by other areas of intellectual property law but not patents.

Several years back, we saw other bad examples in the pharmaceuticals industry. Pharmaceuticals are produced and "designed" to save human lives, but they had become too expensive for African countries where incomes are low. The encouragement for innovation can hardly justify the taking of human life. To insist on patent rights under these situations can only be described as inhumane. Now it is the turn for the computer industry.

In Hong Kong we are awaiting the commencement of the region's first cross-sector competition law. The Competition Bill was passed by the Legislative Council on June 14, 2012, and the Hong Kong government is mapping out a period of transition to enforce the new law. On the other hand we have our patent law previously inherited from the 19th century British system.

According to its Explanatory Memorandum, the Competition Bill aims to prohibit conduct that prevents, restricts or distorts competition in Hong Kong. For this purpose, it sets out two main "conduct rules" on cross-sector application. Of relevance is the Second Conduct Rule: that abuse of market power by entities hold considerable power in a market should be prohibited. So far there is no express guidance under the Competition Ordinance to regulate the possible abuse of patents.

The Second Conduct Rule prohibits a business with substantial market power from abusing that power by engaging in conduct that has the object or effect of restricting competition in Hong Kong. Guidance is expected to be published regarding how businesses with such market power will be identified, and the conduct that may be considered to constitute "abuse" of power. It is not known how patents will be regulated. At the moment our Patent Ordinance has compulsory licensing requirements, but the manner in which it works are normally outside the perimeter of the court system. Small enterprises can hardly compete with large companies such as Apple or the like.

Second, there is a problem with procedure for protection against abuse of monopolies. An independent statutory Competition Commission will be established to investigate complaints and bring public enforcement actions in respect to anti-competitive conduct. Interestingly, the Competition Commission may also conduct "market studies" into matters affecting competition in Hong Kong. But there is no agenda in sight for study of distribution and licensing patent rights.

The Competition Ordinance has a full range of remedies for contraventions. But its power is limited to pecuniary penalties up to 10 percent of Hong Kong's total turnover for each year, with a maximum of three, in which a contravention continued. Damages to aggrieved parties are available and it is difficult to see how small and medium enterprises can benefit when acting against large monopolies. It is now time for some further thoughts on the balance between the regulation of the so-called innovation through the Patent Ordinance and the Competition Ordinance.

The author is a HK barrister and chairman of the Hong Kong Bar's Special Committee on Planning and Policy.

(HK Edition 12/14/2012 page3)