On May 27, State Administration of Industry and Commerce (“SAIC”) published new draft regulations on monopoly agreements, abuse of dominant position and administrative monopoly for public comments. These sets of unveiled draft rules are resulted from pubic opinions and comments which SAIC has collected since June 2010, this is when SAIC first published the draft regulations. Within China’s antitrust law enforcement system, SAIC has the mandate to condemn non-price-related monopoly agreements, non-price-related abuse of dominant position and administrative monopoly. Furthermore, it has mandate to fashion implementing rules for the Anti-Monopoly Law of PRC (“AML”) too.
I Draft Regulation on Monopoly Agreements
The Draft Regulation on Monopoly Agreements made significant clarifications to the definition of monopoly agreements. For example, it provides that agreements organized to be reached by trade associations are monopoly agreements within the meaning of AML. It dispels the common misconception that only trade associations are liable for organizing members to reach monopoly agreements. The Monopoly Agreement Draft Rules also provides that in order to establish tacit collusion, SAIC will investigate whether the competitors have engaged in communicating with each other. The amendment is significant, as it implies that a competitor who follows the price leader in a market, without sharing its intention of doing so with other competitors doesn’t constitute tacit collusion. Hence there is no “agreement” within the meaning of AML.
B Horizontal agreement
The Draft Regulation on Monopoly Agreements re-adjusts the scope of horizontal agreements. For example, it adds “agreement on refusing to adopt new technological standard” to the list of the proscribed horizontal agreements”. It also carves out bid rigging from the scope of horizontal monopoly agreements. These changes reflect SAIC’s concern with the interaction of AML and Tender and Bidding Law of PRC.
C Vertical monopoly agreements
Regarding vertical monopoly agreements, SAIC only prohibits agreements which “have the effects of eliminating or restricting effects of competition and harming the interests of consumers”, without enumerating specific types of vertical agreements it condemns. It reflects SAIC’s preference for effect-based, rather than formalistic approach to vertical restraint.
D Abuse of intellectual property rights
For the first time, the Draft Regulation on Monopoly Agreements provides that it will apply to scenarios where undertakings abuse their intellectual property rights by reaching monopoly agreements. Accordingly, for example, where undertakings with competing patent collude to restrict use of new technology, they shall break the regulation.
II The Draft Regulation on Abusing Market Dominant Position
A Test for rebutting presumption of market dominant position
The Draft Regulation on Abusing Market Dominant Position provides a clear and workable guidance on substantive rules for rebutting market dominant position. It provides questions on whether the competitor in question has ability to control market price or obstruct competitors from entering the market by reference to such factors as market share, ability to control sales market or raw material purchasing market, financial or technological superiority, degree of market reliance on the undertaking in question, degree of difficulty in market entry.
B Various conducts of abusing market dominant position
The Draft Regulation on Abusing Market Dominant Position provides that the following conducts constitute refusal to deal, i.e., without due reasons, cutting back volumes of transactions with current customers, terminating current transactions, refusing to engage in new transactions, refusal to share essential facilities and imposing restrictive conditions such that the transaction parties may find it difficult to continue to deal.
Regarding exclusive dealing, the Draft Regulation on Abusing Market Dominant Position forbids exclusive dealing with the undertaking in market dominant position or its designee without due reasons. On top of that, where an undertaking in market dominant position prevents transaction parties from dealing with its competitors without due reasons, it shall also break the regulation.
The Draft Regulation on Abusing Market Dominant prohibits the following bundling and tying:
- to sell different commodities in forced bundling or combination, in contradiction with their functions or customs of transactions or consumption;
- to attach unreasonable restrictions to duration of contract, method of payment, transportation of commodities, delivery or methods of services;
- to attach unreasonable restrictions to the territory of marketing, buyers and after-sale services;
- to attach conditions of transaction that are irrelevant to object of transaction.
SAIC shall look into the following factors to determine the defense of “due reasons”:
- whether the acts in question are based on customary practices and normal operations;
- whether the acts in question have the effects of eliminating or restricting market competition and harming consumers’ interests;
- the effects of the acts on economic efficiency, public interest and economic development.
C Abuse of intellectual property
For the first time, Abusing Market Dominance Draft Rules expressly provides that it will apply to abusing intellectual property rights where the undertaking in question abuses its market dominant position. It implies that the intellectual property rights afford market dominant position to the undertaking in question.