FRAND Remedies in China's Merger Control: An Economic Perspective

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February 2024

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FRAND Remedies in China’s Merger Control:

An Economic Perspective

Vanessa Yanhua Zhang, Richard Zhao, and Angela Gunn

Introduction

The Fair, Reasonable, and Non-Discriminatory (FRAND) principle, is a commonly applied frame-

work to balance the interests of parties within industries or markets that may be susceptible to

anticompetitive market power. This principle originally was developed in the context of licensing

standard essential patents (SEPs) to serve two key economic purposes: 1) to provide fair rewards

to patent owners who contribute valuable technologies; and 2) to enable downstream licensees

to obtain licenses at a reasonable price and promote successful commercialization of standards.

Today, the fundamental principles of FRAND are applied more broadly outside the field of SEP

licensing. In recent years, FRAND commitments have been used frequently by competition author-

ities as behavioral remedies in merger control to address competition concerns. FRAND com-

mitments are mainly applied to vertical and conglomerate mergers, especially in merger cases

involving products in short supply, intellectual property licensing, and/or access to essential facil-

ities. For example, regulators may require the merged entity to continue to license or supply prod-

ucts to other operators without differential treatment regarding key contract terms such as price. In

addition, merging parties with intellectual property rights (IPRs) are sometimes required by com-

petition authorities to make interoperability commitments and the merged entity is usually required

to grant licenses to other parties under FRAND terms.

FRAND commitments have been used extensively by the competition authority of China, espe-

cially in recent years. From 2018 to 2022, FRAND commitments were incorporated into reme-

dies for 81.8 percent (18 out of 22) of conditionally approved mergers in China.1 The competition

authority in China has used FRAND commitments as one of its tools to address competition con-

cerns such as potential input or customer foreclosure arising from a vertical merger, potential

exclusionary conduct arising from a conglomerate merger, or the ability to increase price and limit

supply arising from a horizontal merger. The FRAND principle has also been invoked directly in the

merger review guidelines in some jurisdictions such as the U.K.2

1 John Yong Ren, Christine Zhang & Schiffer Shi, Merger Remedies in China in 2022 and the Prevalence of ‘Continue to Supply Under

FRAND Principles’ as the Remedies, CPI antItrust CHronICle (March 2023).

2 The UK Competition and Markets Authority explicitly refers to “FRAND” in paragraph 7.21 of the Merger Remedies and defines it as

“where supplies to external customers are provided on the same or similar terms as apply to its own business.” See Merger Remedies,

CoMpetItIon and Markets autHorIty (December 13, 2018), https://assets.publishing.service.gov.uk/government/uploads/system/uploads/

attachment_data/file/764372/Merger_remedies_guidance.pdf.

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Vanessa Yanhua

Zhang is an Execu-

tive Vice President

at Compass Lexecon

(New York and Beijing)

and Senior Researcher

at MRLC of Renmin

University (Beijing).

Richard Zhao is a

Senior Economist at

Compass Lexecon

(Shanghai). Angela

Gunn is an Associate at

The Brattle Group (New

York).

FRAND commitments

have been used

extensively by the

competition authority

of China, especially in

recent years.