Authored by Michael Gu (email@example.com), Moon Wang (firstname.lastname@example.org)
On July 29, 2013, the 5th anniversary since the Anti-Monopoly Law (“AML”) came into effect, the State Administration for Industry and Commerce (“SAIC”) announced that the antitrust case publishing platform was officially opened. This platform publishes, for the first time since the implementation of the AML, all 12 anti-monopoly administrative penalty decisions that the SAIC has investigated and concluded. The AML and related regulations does not necessarily require that the SAIC publicly release the results of its antitrust case investigations. Therefore, the fact that the SAIC has, on its own initiative, decided to use this online platform to publish antitrust cases for the public to view illustrates the SAIC’s laudable openness and progress on law enforcement transparency.
In the July 29th afternoon press conference, Ren Airong, the director of the SAIC Anti-Monopoly and Anti-Unfair Competition Law Enforcement, said that since the AML came into effect on August 1, 2008, the SAIC has received a number of complaints in regards to alleged monopolistic behavior in the past 5 years. After combing through, the cases were classified into different categories. For some cases where there are signs of monopoly or minor monopoly issues, the parties are supervised and required to timely rectify the matter. For some major cases, the SAIC organizes a task force or commissions the local Administration for Industry and Commerce (“AIC”) to conduct an investigation for verification. For cases that meet the terms of authorization, the provincial AICs are authorized to file and conduct an investigation.
In the past 5 years, since the first AIC’s investigation into a monopoly agreement case, namely, the Jiangsu Lianyungang Concrete Case, the SAIC has actively promoted anti-monopoly enforcement work and authorized several provincial AICs to carry out such work. Currently, the SAIC has authorized Jiangsu, Jiangxi, Zhejiang, Liaoning, Chongqing, Henan, Hunan, Sichuan, Yunnan, Heilongjiang, Guangdong, Hubei, Ningxia and other provincial AICs to investigate 23 monopoly cases, of which 12 were concluded.
The SAIC has had some success in the formulation of the AML’s supporting rules and regulations. In total, they have released 5 departmental implementation regulations related to the AML and have started establishing antitrust enforcement regulations that have greater operability. In July 2009, the SAIC published 2 antitrust investigation procedural rules, namely, the “SAIC Procedural Provisions on the Investigation of Cases Concerning Monopoly Agreements and Abuses of Dominant Market Positions” and the “SAIC Procedural Provisions on Prohibition of the abuse of Administrative Powers to Exclude or Restrain Competition” In February 2011, the SAIC also developed specific supporting rules and regulations for different types of monopoly cases, such as the “SAIC Rules on Prohibition of Acts Involving Monopoly Agreements”, the “SAIC Rules on Prohibition of the Abuse of Dominant Market Position,” and the “SAIC Rules on Prohibition of Abuse of Administrative Powers to Exclude or Restrain Competition”. These regulations have filled in some gaps in the AML provisions. They provide more detailed guidance to truly understand monopolistic behavior and at the same time, they clarify the AIC law enforcement’s investigation powers and related procedures. This has been a positive development for the promotion of anti-monopoly law enforcement.
2. SAIC Enforcement Features
According to this announcement on administrative penalty decisions of competition law enforcement, SAIC antitrust enforcement practices reflect the following characteristics:
1. Case Type is Mainly Horizontal Monopoly Agreements
The 12 published enforcement cases are all monopoly agreement cases. No cases involve abuse of market dominance. In addition, the published cases all involve horizontal monopoly agreements as opposed to vertical monopoly agreements. 3 cases involve monopoly agreements reached directly between undertakings in the market and the remaining 9 were reached indirectly through industry associations, which amounted to 75% of the concluded cases. The monopoly agreement cases involving industry association have some similar characteristics. Most of the cases involved the industry associations developing self-discipline rules among the member companies and thus, achieve fixed commodity prices, limiting commodity production, or dividing the sales or raw materials markets.
Although the SAIC announced penalty cases did not include any abuse of market dominance cases, this does not mean that the SAIC does not place importance on abuse of market dominance case investigations. Not long ago, the SAIC launched a several years long investigation into the alleged abuse of a dominant market position by Tetra Pak. The reason why the published punishment cases did not have abuse of market dominance cases may be due to horizontal monopoly cases being relatively easy to investigate. Abuse of market dominance case investigations and identifications are, to some extent, relatively more complex and time-consuming.
Furthermore, while the National Development and Reform Commission (“NDRC”) has investigated several vertical monopoly agreement cases such as the Moutai and Wuliangye case, baby formula case, the SAIC announced penalty cases have so far not included any vertical monopoly agreement cases. This may be due to the fact that cases involving non- price vertical monopolies are less harmful to market competition in comparison to price-related vertical monopolies. SAIC’s regulatory focus may not be on vertical non-price monopolies.
2. Industries are Widely Distributed
The published penalty cases involved a wide variety of industries, including construction, building materials, petroleum gas, second-hand cars, insurance, and tourism among others. It is worth noting that 4 of the penalty cases occurred in the automobile insurance field.
Similarly, since the start of this year, the NDRC has successively investigated LCD panels, Moutai and Wuliangye, baby formula, Shanghai jewelers, and other industries related to people’s livelihoods. The SAIC enforcement cases also seem mostly related to people’s livelihoods. In addition to the 4 cases involving car insurance monopolies, the published penalty cases included a monopoly agreement case organized by the tourism association and association of travel agents among Yunnan Xishuangbanna resorts and Tetra Pak, which is currently under investigation, is the main supplier of dairy enterprises. With the efforts to strengthen antitrust enforcement, the areas of investigation will reach more and more industries relevant to people’s livelihoods, such as consumer goods, food and beverages, and pharmaceuticals among others.
3. Value of the Case is Not Too Large and Penalty is Not Too High
The investigated enterprises and industry associations in the 12 published competition enforcement cases did not involve influential large enterprises. In contrast to the enterprises recently punished by the NDRC, the SAIC penalties involved much smaller amounts of money and the penalty was much lighter. Of the industry associations punished, the penalty amount was in the RMB 200,000 to 500,000 range and companies were fined between RMB 60,000 to 3 million. In 2012, the Liaoning AIC investigated the concrete industry monopoly agreement, which involved as many as 14 companies and had extensive effect on the market competition. The total amount of penalties reached RMB 16.37 million and is the highest penalty amount among the 12 cases.
As Chinese competition law enforcement agencies have gained experience, investigation efforts will also be strengthened and more penalties have been issued by the authorities. Since the beginning of this year, following the LCD panel case where 6 manufacturers were sanctioned a total of RMB 353 million, the Moutai and Wuliangye case reached a high of RMB 449 million in total economic sanctions. The current NDRC investigations into the baby formula case and the Shanghai jeweler case are also likely to reach a new high in total penalties. If the SAIC’s ongoing investigation into Tetra Pak establishes that Tetra Pak restricted or eliminated competition, the penalty amount will be likely as high as RMB 1 billion or more based on its previous year’s sales, which would be the highest in the history of SAIC’s competition law enforcement penalties and even more than the penalty amounts imposed by the NDRC.
4. Proportion of Domestic and Foreign Companies
Of the announced punishment cases, the investigated companies are all domestic state owned enterprises or private enterprises and have not involved foreign enterprises. Considering the investigation cases already announced by the SAIC and NDRC this year, there is a trend that investigated subjects have been extended to foreign enterprises, especially in the baby formula case and the LCD panel case and SAIC’s current investigation into packaging industry giant, involve a number of foreign companies. Nevertheless, there is no evidence that the SAIC law enforcement is deliberately targeting multinational corporations.
Considering the published penalty cases, the SAIC and its authorized law enforcement agencies conducted enforcement and made enforcement decisions strictly in accordance with the AML, the “SAIC Rules on Prohibition of Acts Involving Monopoly Agreements,” and the “SAIC Rules on Prohibition of the Abuse of Dominant Market Position,.” It is worth noting that when it was detected that the construction industry association organized a monopoly agreement between industry undertakings in Zhejiang Province’s Cixi, the Zhejiang AIC made a decision to suspend the investigation for one year upon application by said industry undertakings. In March 2013, the Zhejiang AIC made a decision to terminate the investigation entirely and the association and enterprises involved in the case have been exempted from punishment. This is the first case of the AICs using the complete enforcement procedures to suspend and terminate an investigation. In other cases, although the companies involved have applied to competition law enforcement for suspension of investigation, the law enforcement agency decided not to suspend the investigation. In the Liaoning building materials industry association organized monopoly agreement case and the Sichuan’s Yibin brick industry association organized monopoly agreement case, law enforcement agencies adopted the leniency program to mitigate punishment for investigated undertakings that actively cooperated. In the Liaoning building materials industry association organized monopoly agreement case, the law enforcement agency held a hearing in accordance with the law in response to an application by the involved enterprises and the industrial association.
3. Trends and Prospects
We have noticed that the antitrust efforts made by the SAIC in the past 5 years have already started to achieve some initial success. The anti-monopoly law enforcement of SAIC and its authorized agencies will become more stringent and as the law enforcement agency becomes more experienced, enforcement will be able to cover more and more industries. At the legislative level, we are pleased to see SAIC is actively developing “Guidelines on Anti-Monopoly Law Enforcement in The Field of Intellectual Property Right” and “SAIC’s Provision on Prohibition of the Abuse of the Intellectual Property Rights to Eliminate or Restrict Competition”. In the future, we also expect the SAIC to introduce more detailed supporting regulations that will make antitrust enforcement more transparent and more reliant on law. In particular, we look forward to the SAIC developing relevant interpretations or regulations on non-price vertical monopoly agreements so that businesses may clearly understand the restrictions on vertical agreements, exclusive dealings, and other agreements and be in compliance with the law. In addition, the SAIC should further clarify the defense rights of investigated enterprises in the investigation procedures of the relevant provisions. We believe that a sound antitrust enforcement system will be conducive to safeguarding fair competition in the market, promoting the sustained and healthy development of China’s economy, and enhancing consumer welfare.