Authored by Dr. Zhan Hao (zhanhao@anjielaw.com), Dr. Song Ying (songying@anjielaw.com)

At the right beginning of 2013, the National Development and Reform Commission of China (“NDRC”), one of three main anti-monopoly regulatory authorities in PRC, imposed fines in a total amount of RMB 353 million (approximately USD 56 million) on 6 LCD panel manufacturers, which is the harshest penalty that NDRC has ever imposed and also the first time NDRC pointed the gun at multinational companies in its anti-trust enforcement history.

The parties fined include two Korean giants Samsung and LG of as well as Chimei, AU Optronics, Chunghwa Picture Tubes and HannStar from Taiwan. According to NDRC’ notice on its official website, the 6 LCD manufacturers have convened 53 meetings during the timeframe of 2001 to 2006 either in Taiwan or in South Korea to exchange market-sensitive information and further collude the product price.

As people may have noticed, the NDRC’s action against the 6 LCD panel manufacturers actually is an investigation following up probe of EU and U.S. antitrust authority several years ago. Nevertheless, it is noteworthy that the sanction of NDRC is relatively low compared to the gesture of their counterparts in EU and U.S., although it is already the highest fine ticket ever from Chinese antitrust enforcement authorities.

According to the explanation of relevant official from NDRC, this lower fine compared to EU and US mainly results from two grounds. For one thing, the 6 investigated parties have all given themselves up to some extent; therefore, NDRC implemented mitigation of penalty on them in a degree. More importantly, it is the Price Law rather than the Anti-Monopoly Law (“AML”) that NDRC’s penalty relied on. The calculation of fine prescribed in the former is based on illegal gains while in the latter is based on turnover.

Indeed, both the Price Law and the AML have installed provisions to regulate price-related cartels, the before is general and the latter is detailed. Hence, NDRC enjoys discretion to some extent to apply the substantial law when they conduct antitrust investigations on price-related cartels. Although the AML has been given way by the Price Law due to substantial overlap, it is observed that NDRC has frequently applied the Price Law rather than the AML to reach decisions on its antitrust investigations even after the enforcement of AML in 2008, mainly due to the following grounds.

Firstly, NDRC is relatively inexperienced in enforcing the AML. While as a matter of fact, NDRC has been enforcing the Price Law since 1997, hence is more confident to rely on the Price Law where the investigated behavior is provided in both substantial laws. For example, in the announced rice noodle case, green bean case and the paper making case, NDRC applied the Price Law rather than AML to reach it decisions.

Secondly, given that the antitrust legislation regime of China is still in the infant stage, the legislation of implementation rules of the AML is lagged behind to some extent; therefore, it may create ambiguity to the understanding of law. In consequence, such situation will create obstacle for NDRC to enforce the AML in a further degree.

For instance, Article 46 of AML provides that where an undertaking in violation of the provisions of this Law, concludes and implements a monopoly agreement, AML enforcement authority shall instruct to discontinue the violation, confiscate its illegal gains, and, in addition, impose a fine of not less than 1 percent but not more than 10 percent of its turnover in the previous year. If such monopoly agreement has not been implemented yet, it may be fined not more than RMB 500,000. However, there are still some unclear issues when implementing this provision in practice. First, in terms of the “turnover” in Article 46 of AML, does it mean turnover of the undertaking as a whole or simply turnover of the undertaking in the relevant market related to the violation? Second, should the scope of “turnover” cover both domestic and overseas turnover of the undertaking or simply equal with domestic turnover? Above-mentioned issues remain to be clarified in the further stage.

Thirdly, implementation rules of the Price Law are relatively mature. Article 5 of The Provisions of Administrative Penalty on Illegal Price-related Behaviors stipulated that any undertaking who commits any of the acts listed in Article 14 of the Price Law, and collude to manipulate market price, resulting in commodity price rose sharply shall be ordered to make amends, his illegal gains shall be confiscated and he may also be fined not more than five times of his illegal gains; where no illegal gains, he shall be given a fine of not less than RMB 0.1 million and not more than 1 million Yuan; if the circumstances are serious, he shall be given a fine of not less than RMB 1 million and not more than 5 million Yuan; if the circumstances are very serious, he shall be ordered to suspend business for rectification, or his business license shall be revoked by the administrative department for industry and commerce.

Although it is not very clear that “illegal gains” in this provision will be calculated as all income from conducting illegal act or as only the profit out of conducting illegal acts, the implemental rules on the Price Law supplemented the fine range where there is no illegal gains exist, which facilitate the law enforcement of NDRC in a large degree.

In addition, even though NDRC enjoys some discretion to choose applicable law in investigations against price-related cartels, such discretion is limited to some extent. When interviewed by the correspondent on the penalty in LCD case, NDRC spokesman expressed that the penalty was issued based on the application of the Price Law due to illegal behaviors had been happened from 2001 to 2006. According to the principle of “Law of non-retroactivity” and “application of the old law with the exception of a less punishment in the new law”, AML shall not be applied in this case. Therefore, by the LCD case the NDRC’s attitude of not applying AML to behavior happened before August 1 2008 is confirmed.