Authored by Michael Gu (email@example.com)
It has taken 13 years for China to finally promulgate the Anti-monopoly Law of the People’s Republic of China ("AML") which was passed on 30 August 2007 and took effect on 1 August 2008. The AML aims to prevent and restrain monopolistic behaviors, protect fair market competition, improve economic efficiency and safeguard interests of consumers and the public. The AML regulates the following four types of monopolistic behavior: monopoly agreements, abuse of dominant market position, concentration of undertakings and administrative monopoly.
II. LAW ENFORCEMENT AND REGULATORY ANTHORITIES
The highest regulatory body of anti-monopoly law-enforcement is the State Council Anti-Monopoly Commission ("SCAC"), established in August 2008. The SCAC members include heads and relevant officials from the Ministry of Commerce ("MOFCOM"), the State Administration for Industry and Commerce ("SAIC"), and the National Development and Reform Commission ("NDRC"). SCAC, a coordinating body under the State Council, does not participate in specific anti-monopoly law enforcement, but is mainly responsible for drafting competition related policies, organizing investigations, assessing the overall market competition, publish assessment reports and anti-monopoly guidelines, and coordinating anti-monopoly law-enforcement. SCAC established an office in September 2011 and the office takes charge of SCAC’s day-to-day work which was previously assumed by the Anti-monopoly Bureau of MOFCOM.
According to relevant State Council regulations, the administrative law-enforcement authorities are MOFCOM, SAIC and NDRC.
(1) MOFCOM is the enforcement agency in charge of antitrust reviews and investigations in connection with concentration of undertakings. The specific law-enforcement department is the Anti-monopoly Bureau.
(2) SAIC mainly regulates abuses of dominant market positions and abuses of administrative powers to eliminate or restrict competition (excluding price-related conducts). The specific law-enforcement department is the Anti-monopoly and Anti-unfair Competition Enforcement Bureau.
(3) NDRC principally administers price monopolies, including price-related monopoly agreements, abuses of dominant market position and administrative monopoly. The specific law-enforcement department is the Price Supervision and Inspection Section.
III. MONOPOLY AGREEMENT
A monopoly agreement set forth in the AML refers to an agreement, decision and other concerted practice reached between two or more undertakings to eliminate or restrict competition. There are three types of monopoly agreements in the AML, namely monopoly agreements between competing undertakings ("Horizontal Monopoly Agreements"), monopoly agreements between undertakings and their trading counterparties ("Vertical Monopoly Agreements"), and monopoly agreements organized or coordinated by trade associations.
Besides the AML, the following rules also regulate monopoly agreements: Rules of the Administration for Industry and Commerce on Prohibition of Monopoly Agreements, Procedural Rules of the Administration for Industry and Commerce on Investigation and Disposal of Cases Involving Monopoly Agreements and Abuses of Dominant Market Position, Rules for Anti-price-related Monopoly Agreements, and Procedural Rules of Administration Enforcement for Anti-price-related Monopoly Agreements.
Monopoly agreements or decisions may take written and oral forms. Other concerted practice shall mean colluded coordination in practice between undertakings without express oral or written agreements or decisions.
To find other concerted practice, the following factors shall be considered:
(1) Whether the market conduct of undertakings are uniform;
(2) Whether there is any intention of contact or information exchange among the undertakings; and
(3) Whether the undertakings can provide a reasonable justification for the uniformity of conduct.
Besides that, the market structure, competitive conditions, changes in the market, industry condition, etc. shall also be considered in finding other concerted practice.
A horizontal monopoly agreement, as set forth in Article 13 of the AML, means the anti-competitive practice through conspiracy or collusion by two or more competing undertakings in producing or selling the same products or providing the same services. Typical horizontal monopoly agreements include price fixing, volume restriction, market division, technology restriction, and transaction boycott. The famous case about horizontal monopoly agreements is Guangxi Rice Noodle Case, in which NDRC imposed the first administrative penalty over price-related monopoly in accordance with the AML in March 2010.
A vertical monopoly agreement means a competition-restricting practice through collusion by two or more enterprises which are in the different stages of the same industry and have buyer-seller relationship. Article 14 of the AML addresses vertical monopoly agreements. Typical vertical monopoly agreements include fixing prices and restricting lowest prices. Unlike horizontal monopoly agreements, vertical monopoly agreements are concluded between non-competitors rather than competitors. Vertical monopoly agreements mostly reflect resale price agreements between upstream and downstream enterprises.
Besides the monopoly agreements clearly defined in Articles 13 and 14 of the AML, both SAIC and NDRC have discretionary powers in determining any other monopoly agreements that may have eliminating or restricting effects on competition.
Unlike EU and US jurisdictions where the "Safe Harbor" rule applies, the AML does not provide similar rules. However, it provides the following circumstances for exemptions:
(1) improving technologies, or engaging in research and development of new products; or
(2) improving product quality, reducing cost, and enhancing efficiency, unifying specifications and standards of products, or implementing specialized division of production;
(3) increasing the efficiency and competitiveness of small and medium-sized undertakings;
(4) serving public interests in energy conservation, environmental protection and disaster relief;
(5) mitigating sharp decrease in sales volumes or obvious overproduction caused by economic depression;
(6) safeguarding legitimate interests in foreign trade and in economic cooperation with foreign counterparts; or
(7) other purposes as prescribed by law or the State Council.
In case an agreement falls within the scope of (1) to (5), and therefore exempted from Articles 13 and 14, the relevant undertakings shall also prove that the agreement allows consumers to share benefits arising from the agreement and will not seriously eliminate the competition in relevant market.
The conclusion of monopoly agreements will lead to administrative penalties and civil liabilities, and even criminal penalties arising from refusal of cooperation with the anti-monopoly investigations. Where an undertaking, in violation of the AML, concludes and implements a monopoly agreement, the authority for enforcement of the AML shall instruct it to discontinue the violation, confiscate its unlawful gains, and, in addition, impose on it a fine of not less than one percent but not more than 10 percent of its sales achieved in the previous year. If such monopoly agreement has not been implemented, it may be fined not more than RMB 500,000 Yuan. Where a trade association, in the AML, has arranged the undertaking in the trade to reach a monopoly agreement, the authority for enforcement of the AML may impose on it a fine of not more than RMB 500,000 Yuan. If the circumstances are serious, the administrative department for the registration of public organizations may cancel the registration of the trade association in accordance with law. Additionally, the AML adopts the "leniency program" under which an undertaking that has proactively reported the relevant circumstances surrounding the conclusion of a monopoly agreement, and provided important evidence to the competent enforcement agency may be granted mitigation or remitted from punishment. In Guangxi Rice Noodle Case, NDRC relied on the leniency program in imposing penalties. However, as regards implementation of the leniency program, SAIC and NDRC have different rules. According to Rules of the Administration for Industry and Commerce on Prohibition of Monopoly Agreement, the first whistle-blower who has voluntarily reported details of a monopoly agreement and provided key evidence shall be completely exempted from penalties. Other whistle-blowers shall obtain mitigation from penalties at SAIC’s discretion. In contrast, Procedural Rules of Administration Enforcement for Anti-price-related Monopoly Agreements, enacted by NDRC, provides more specific rules for the first, second and other whistle-blowers in the exemption and mitigation: The first whistle-blower may be completely exempted from penalties; the second whistle-blower may obtain no less than 50 per cent mitigation from penalties and other whistle-blowers may obtain no more than 50 per cent mitigation from penalties.
IV. ABUSE OF DOMINANT MARKET POSITION
For the purposes of the AML, dominant market position means a market position held by undertakings that are capable of controlling the prices or quantities of commodities or other transaction terms in a relevant market, or preventing or exerting an influence on the access of other undertakings to the market. The dominant market position of an undertaking shall be determined on the basis of the following factors: its share and competitiveness in a relevant market; its ability to control the sales market or the purchasing marker for raw materials; its financial strength and technical conditions; the extent to which other undertakings depend on it in transactions; the difficulty other undertakings encounter in entering the relevant market; and other factors. Besides the AML, regulations on abuse of dominant market position include: Procedural Rules of Administrations for Industry and Commerce on Investigation and Disposal of Cases Involving Monopoly Agreements and Abuses of Dominant Market Position, Provisions of Administrations for Industry and Commerce on the Prohibition of Abuses of Dominant Market Position, Rules for Anti-price-related Monopoly Agreements, and Procedural Rules of Administrative Enforcement for Anti-price-related Monopoly Agreements. Abuses of dominant market position mainly include: sale of commodities at unfairly high prices or purchase of commodities at unfairly low prices; sale of commodities at prices below cost without justifiable reasons; refusal to enter into transactions with trading counterparties without justifiable reasons; allowing trading counterparties to transact exclusively with themselves or with undertakings designated by them; tie-in sale of commodities or adding other unreasonable trading conditions to transactions without justifiable reasons; applying differential prices and other transaction terms among trading counterparties on an equal footing; other conducts identified as abuses of dominant market position by anti-monopoly authorities. According to Article 19 of the AML, an undertaking holding a dominant market position may be deduced from any one of the following circumstances:
Number of undertakings
Minimum market share in the relevant market
If one of the undertakings only has a market share of less than 10 percent
However, if an undertaking, presumed to have a dominant market position, shall not be determined to have a dominant market position if the undertaking can provide evidence to the contrary.
Typical administrative penalty cases include: Hubei Salt Industry Group’s tie-in sale of washing powder, the first case of the abuse of dominate market position handled by NDRC; the suspected abuse of dominance by China Telecom and China Unicom, the first antitrust investigation on large SOEs carried out by Chinese anti-monopoly law enforcement agencies; and the Pharmaceutical companies case
Like the monopoly agreements, abuses of dominant market position will not give rise to criminal penalties, but administrative and civil liabilities. Where an undertaking violates the AML and abuses its dominant market position, the anti-monopoly enforcement authority shall order cease of its violation, confiscate its unlawful gains and impose on it a fine of not less than one percent but not more than 10 percent of its sales achieved in the previous year.
V. CONCENTRATION OF UNDERTAKINGS
The enforcement agency of concentration of undertakings is the Anti-monopoly Bureau of MOFCOM. Concentration of undertakings in the AML means merger of undertakings; equity or assets acquisition by undertakings for control of other undertakings; controlling or decisively influencing other undertakings through acquisition by contacts or any other means.
Where a concentration of undertakings reaches any of the following thresholds, the undertaking(s) concerned shall file a prior notification to MOFCOM, and the concentration shall not be implemented without the clearance of MOFCOM:
(1) the worldwide consolidated turnover of all undertakings concerned in the preceding financial year is more than RMB 10 billion, and the consolidated turnover in China for each of at least two of the undertakings concerned in the preceding financial year is more than RMB 400 million; or
(2) the consolidated turnover in China of all undertakings concerned in the preceding financial year is more than RMB 2 billion, and the consolidated turnover in China of each of at least two of the undertakings concerned in the preceding financial year is more than RMB 400 million.
However, for undertakings in financial industry, such as banking financial institutions, securities companies, futures companies, fund management companies and insurance companies, additional rules shall be applied as to the turnover calculation, i.e. Measures for Calculating the Turnover for the Notification of Concentration of Undertakings in the Financial Industry.
MOFCOM shall conduct a preliminary examination of the notified concentration of undertakings and decide on whether to conduct further examination within 30 days upon receipt of the complete documents and materials submitted by the undertaking(s). If MOFCOM decides to conduct further examination, it shall complete the examination and decide on whether to prohibit the concentration within 90 days from the starting date of the further examination. The undertaking(s) shall not implement the concentration within the period of examination.
Under any of the following circumstances, MOFCOM may, after notifying the undertaking(s) in written form, extend the time limit of examination with no more than 60 days:
(1) The undertaking(s) agree to extend the time limit of examination;
(2) The documents or materials submitted by the undertaking(s) are inaccurate and need further verification; or
(3) The relevant circumstances have significantly changed after the submission of the notification.
Whether a concentration of undertakings has damaging or restricting effects on competition depends on the definition of the relevant market, a starting point for analysis of the market share and market concentration in the relevant market. According to Guidelines of the State Council Anti-monopoly Commission for the Definition of the Relevant Market, relevant market refers to the product scope or geographical scope within which an undertaking competes during a certain period of time with respect to a specific product or service. The defined relevant product market and relevant geographic market are imperative for the practice of anti-monopoly law enforcement. Relevant product market refers to a market comprising a group or a category of products which are regarded as interchangeable or substitutable by consumers by reason of products’ characteristics, intended use and prices. These products compete with each other and thus fall into the product scope where the relevant undertakings compete. Relevant geographic market means a geographic area where consumers obtain products that are interchangeable or substitutable. These areas compete with each other in a relatively intense manner; therefore, in enforcement of anti-monopoly law, such areas can be regarded as the geographic scope within which undertakings compete with each other. The time factor shall also be taken into account in defining a relevant market if the production cycle, service life, seasonal factors, fashion and style, duration of intellectual property protection, etc. have become crucial features of a product. The scope of a relevant market shall mainly depend on the substitutability of a product (geographic area). The definition of a relevant market shall mainly be based on the consumers’ demand analysis. When competitive constraints on undertaking’ acts resulting from supply-side substitution are similar to those resulting from demand-side substitution, supply-side substitution shall also be taken into account.
Besides the AML, regulations on concentration of undertakings include: the Provisions of the State Council on Thresholds for Prior Notification of Concentrations of Undertakings, the Guidelines of the State Council Anti-monopoly Commission for the Definition of the Relevant Market, the Guiding Opinions of the Anti-monopoly Bureau of the Ministry of Commerce on the Declaration of the Concentration of Business Operators, the Guiding Opinions of the Anti-monopoly Bureau of the Ministry of Commerce on the Declaration Documents and Materials of the Concentration of Business Operators, the Measures for Calculating the Turnover for the Declaration of Business Concentration in the Financial Industry, the Measure for the Undertaking Concentration Declaration, the Measure for the Undertaking Concentration Examination, the Guidance of Measure for the Anti-monopoly Examination in Undertaking Concentration, the Interim Provisions on the Divestiture of Assets or Business in the Concentration of Business Operators, the Interim Provisions on Evaluating the Impact of Concentration of Undertakings on Competition, and the Interim Measures on Investigation of Failure of Filing Concentration of Undertakings.
According to the Interim Measures on Investigation of Failure of Filing Concentration of Undertakings, as to the concentration of undertakings which is required to be declared, if the concentration is not declared to MOFCOM and has been implemented by the relevant undertaking(s), MOFCOM has the right to initiate investigation on the non-declared concentration of undertakings. If the concentration of undertakings was identified as a non-declared concentration, the undertaking(s) shall suspend the implementation of the concentration and notify the concentration of undertakings to MOFCOM. MOFCOM shall examine it based on the AML and make a decision accordingly.
The Interim Provisions on Evaluating the Impact of Concentration of Undertakings on Competition lay down the standards and specific factors considered by MOFCOM when conducting an evaluation of the impact of concentration of undertakings on competition, and also clarify the scope of Article 27 and 28 under the AML, including how to evaluate and understand the market share and the market power, the concept of market concentration, the impact of market entry and technological progress, and the effect on consumers, other undertakings and the development of national economy.
Compared with monopoly agreements and abuses of dominant market position, the Anti-monopoly Bureau of MOFCOM has a larger caseload in reviewing concentration of undertakings. Statistics show that, as of the mid of December, 2011, the Anti-monopoly Bureau has accepted and handled more than 334 cases (nine cases withdrawn), more than 86% of which have been concluded. In terms of industry, 72% of cases related to manufacturing companies. Since enforcement of the AML from August 2008, most of the transactions were unconditionally approved, and at the time of writing, only fifteen concentration transactions were conditionally approved and one was blocked (acquisition of Huiyuan by Coca-Cola). The conditionally approved cases are: InBev’s acquisition of Anheuser-Busch; acquisition of Lucite by Mitsubishi Rayon; GM’s acquisition of Delphi; Pfizer’s acquisition of Wyeth; Panasonic’s acquisition of Sanyo; Novartis’ acquisition of Alcon; and Uralkali’s acquisition of Silvinit, Penelope’s Acquisition of Savio, establishment of a joint venture between GE China and CSCLC, Seagate’s acquisition of Samsung’s HDD business, establishment of a joint venture between Henkel HK and Tiande Chemical, Western Digital’s acquisition of Hitachi’s HDD business, Google’s acquisition of Motorola Mobility, United Technologies’ acquisition of Goodrich and Wal-Mart’s acquisition of Yihaodian. If a concentration of undertakings breaches the AML, the anti-monopoly authorities shall order the undertakings to stop the concentration, dispose equities or assets within a time limit, transfer the operation and take other necessary measures to regain the status before the concentration, and may impose a fine below RMB 500,000 Yuan.
VI. ADMINISTRATIVE MONOPOLY
Administrative monopoly is the most controversial topic and very Chinese in the AML legislation. EU and US rarely have similar administrative monopoly. Some countries in transition have similar situation, but none of them is as serious as China in scale. The administrative monopoly is defined in the AML as "abuse of administrative powers to eliminate or restrict competition", which means administrative agencies and organizations empowered by laws and regulations to administer public issues shall not abuse their administrative powers to eliminate or restrict competition. The conducts of administrative monopoly prohibited by the AML are as follows: setting discriminatory charging items, carrying out discriminatory charging standards, or stipulating discriminatory prices for non-local commodities; stipulating different technical requisition or test standards on non-local commodities, or taking discriminatory technical measures, such as repeated inspection or certification on commodities originating from other regions, so as to restrict the entry of commodities originating from other regions into the local market; creating administrative licensing procedure targeting non-local commodities to restrict the access of those commodities to the local market; creating burdens or other methods to limit the entry of non-local commodities or the exit of local commodities; other conducts that block free regional commodity circulation. The first administrative monopoly case is a suit brought by four Beijing anti-counterfeiting companies against the General Administration of Quality Supervision, Inspection and Quarantine just on the date of implementation of the AML. However, this case was refused by the court on the ground of exceeding the time limit of action .
Unlike monopoly agreements, abuses of dominant market position and concentration of undertakings, anti-monopoly authorities have no jurisdiction over the administrative monopoly. According to the AML, if an administrative agency abuses its administrative power to eliminate or restrict competition, it will be ordered to correct by its superior. According to the relevant provisions of SAIC and NRRC, where an administrative agency or an organization authorized by laws and regulations to administer public affairs abuses its administrative power to eliminate or restrict competition, SAIC and NRRC may provide suggestions for competent superior authorities.
Besides the AML, regulations on administrative monopoly include: the Provisions on the Procedure for Administrations for Industrial and Commercial to Prevent Abusing Administrative Power for Excluding or Limiting Competition, the Provisions for Administrations for Industry and Commerce to Prevent Abusing Administrative Power for the Purpose of Eliminating or Limiting Competition, the Rules for Anti-price-related Monopoly Agreements, and the Procedural Rules of Administration Enforcement for Anti-price-related Monopoly Agreements.
VII. Anti-monopoly Civil Litigation
The Provisions on Certain Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Involving Monopoly (the “Anti-monopoly Judicial Interpretation”) has been issued by the PRC Supreme People’s Court (“Supreme Court”) on 8 May, 2012 and has become effective on 1 June, 2012. Being the first interpretation on anti-monopoly litigations, it lays the foundations of the anti-monopoly litigation legal framework in China.
According to the Anti-monopoly Judicial Interpretation, any natural persons, legal persons or other organizations that suffer losses due to monopolistic conducts, or are involved in disputes over the violation of the AML by contracts, articles of association of industry associations, may file the civil litigations to the people’s court. Such term indicates that, the anti-monopoly litigation includes both the litigations based on contractual relations and the litigation against losses from torts where there is no such contractual relation. The Anti-monopoly Judicial Interpretation stipulates that a court shall accept a stand-alone civil litigation (i.e. before any findings have been made by the anti-monopoly enforcement agency) directly filed by a plaintiff, or a civil case followed by a valid decision of infringement of the AML by the anti-monopoly enforcement agency. Therefore, the administrative enforcement is not a precedent condition of the acceptance of an anti-monopoly civil litigation.
The Anti-monopoly Judicial Interpretation has set up a centralized judicial system for antitrust civil cases under which first-instance cases shall be heard by the intermediate people’s courts in cities separately designated in the state plan, those in the cities where the provincial governments, autonomous regions and municipalities directly under the central government are located, and those designated by the Supreme Court (under special circumstances, basic-level people’s courts may exercise jurisdiction over first-instance cases upon approval by the Supreme Court).
The Anti-monopoly Judicial Interpretation adopts different rules on the allocation for the burden of proof for different types of monopolistic conducts. For example, if the alleged monopolistic conduct falls into any of the monopoly agreements described under Article 13 of the AML, the plaintiff will only need to prove the existence of the horizontal monopoly agreement and is not obliged to prove the anti-competition effect of the agreement. However, as to litigations regarding the abuse of market dominant position, the plaintiff must not only prove the existence of a dominant position but also the alleged abusive behavior, while the defendant shall prove the legitimacy of its conduct if it denies the plaintiff’s claims.
Two highlights in the Anti-monopoly Judicial Interpretation are particularly favorable to the plaintiff. The first is that if the monopolistic conduct falls under the circumstance of abusing one’s market dominant position by a public utility enterprise or other undertakings with lawful exclusive status, the relevant court may assume that the defendant is dominant in the relevant market. The second is that the defendant’s publicly disclosed information or propaganda may be directly quoted as evidence to prove the market dominant position. In addition, the Anti-monopoly Judicial Interpretation encourages the parties to assist the court by providing expert as testifier, or providing expert opinions such as economic analysis report.
In general, the Anti-monopoly Judicial Interpretation has relieved the burden of proof for the plaintiff of antitrust litigations while relatively increased the burden of proof for the defendant. This may change the landscape of the antitrust civil litigation in China. Previously, it is close to impossible for the plaintiff to win an antitrust case due to the excessive difficulty to collect evidence and to prove the monopolistic act. After the implementation of the Anti-monopoly Judicial Interpretation, enterprises suspected to be monopolistic, especially those suspected to abuse their market dominant position would face more challenging civil litigation risks.
Typical civil litigation cases with respect to monopoly conducts include: Rui Bang Yong He v. Johnson & Johnson Medical, Qihoo v. Tencent, Shusheng Company v. Shanda, Zhou Ze v. China Mobile, Li Fangping v. CNC Beijing, RenRen v. Baidu, ZhongjingZongheng v. Baidu, and Liu Fangrong v. IACQ.
Since the entry into force of the AML almost four years ago, a number of guidelines have been published. Both SAIC and NDRC have made increasing efforts on the enforcement and investigation of monopoly agreements and abuses of dominant market position, and MOFCOM has been maturing in review of the concentration of undertakings. Furthermore, as the Provisions of the Supreme People’s Court on Certain Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Involving Monopoly has been issued and implemented, , there are clearer rules on anti-monopoly civil litigation. Although there is room for improvement in the AML and the supporting guidelines, generally speaking, China has put in place a relatively complete anti-monopoly regime, and anti-monopoly law enforcement agencies have greatly enhanced their ability. The AML has been playing an increasingly important role in the economic activities. Undertakings should pay close attention to China’s anti-monopoly legislation and enforcement developments to ensure full compliance.
 The case is available on the website of NDRC at http://jjs.ndrc.gov.cn/fjgld/t20100331_338262.htm.
 The case has been published on the website of NDRC, http://jjs.ndrc.gov.cn/gzdt/t20101115_380421.htm.
 The case has been published on the website of NDRC, http://www.sdpc.gov.cn/xwfb/t20111114_444330.htm.
 The case report is available at http://news.xinhuanet.com/legal/2008-09/05/content_9773194.htm.
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