Authored by Michael Gu (firstname.lastname@example.org) and Yu Shuitian at AnJie Law Firm
On 11 September 2014, China’s three antitrust law enforcers held a joint press conference in defense of the recent antitrust probes into multinationals including Microsoft and Japanese auto parts and bearing manufacturers. Issues surrounding the probes came to light after U.S. and European trade groups including the U.S. Chamber of Commerce and the European Union Chamber of Commerce said PRC antitrust investigators were unfairly targeting foreign businesses. Director General Mr. Shang Ming of the Anti-Monopoly Bureau of Ministry of Commerce (“MOFCOM”), Director General Mr. Xu Kunlin of the Price Supervision and Anti-Monopoly Bureau of National Development and Reform Commission (“NDRC”) and Director General Ms. Ren Airong of AntiMonopoly and Anti-unfair Competition Enforcement Bureau of State Administration for Industry and Commerce (“SAIC”) attended the press conference. They spoke on their respective Anti-Monopoly Law (“AML”) enforcement positions and answered questions. In particular, they offered updates on the status of several high-profile cases, responded to criticism on selective law enforcement and lack of procedural fairness and transparency.
Latest progress on Qualcomm and Tetra Pak cases
According to Mr. Xu, the investigation of Qualcomm was basically finished and that Qualcomm’s president would pay a fifth visit to the NDRC to exchange views in a meeting that took place on 12 September 2014. The case is entering the final stage now. As for the initiation of the investigation, two U.S. companies reported Qualcomm’s case to the NDRC as early as 2009. This is far before many Asian companies, including domestic companies, complained about its market dominance abuse and alleged unfairly high royalties last year. Nevertheless, the NDRC formally started its investigation after receiving reports from the Asian companies.
Ms. Ren said that investigation into Tetra Pak for its possible abuse of a dominant market position had entered the fact verification and decision-making phase based on SAIC’s research and assessment. Since the investigation began in 2012, the SAIC has inspected two of the firm’s operation sites, requested materials and documents five times, and communicated with the company on ten occasions. As part of the investigation, SAIC had conducted industry research and surveys in four areas – liquid food, packing equipment, packing material and raw material – and distributed questionnaires and visited relevant companies. SAIC also hired lawyers, economists and industrial technology experts to analyze the situation. Ms. Ren confirmed that once the case is concluded, SAIC will publish its findings on its website in a timely fashion.
As to the Microsoft case , Ms. Ren said that no further information was available other than the four press releases published on SAIC’s website.
Response to criticism on selective law enforcement
Selective antitrust law enforcement has been widely debated since the investigation into automotive industry began earlier this year. Much of the criticism stems from the allegation that antitrust investigations primarily target foreign companies in a discriminatory manner. SAIC and NDRC both clarified their stance on this issue.
Ms. Ren stated that since the implementation of the AML, of its 39 investigations only two targeted foreign companies (i.e. Microsoft and Tetra Pak cases). In addition, she clarified that there has never been any selective or discriminatory law enforcement in SAIC’s antitrust practice.
Similarly, Mr. Xu mentioned that the NDRC had no capacity to act as a selective law enforcer due to their shortage of manpower. The cases were not selected by the NDRC but by whistle-blowers and consumers.
Ms. Ren and Mr. Xu emphasized that both the SAIC and the NDRC strictly followed the law without regard to a companies’ domicile. They stated that all the companies shall be and will be treated equally.
Reponses to criticism on procedural unfairness and lack of transparency
NDRC and SAIC both ensured procedural fairness and transparency in their investigations. In particular, Ms. Ren fully described the lawyers’ involvement in the Microsoft case. Microsoft had hired the highest number of lawyers in all the cases handled by the SAIC. In SAIC’s first dawn raid in late July on Microsoft’s offices in Beijing, Guangzhou, Shanghai and Chengdu, Microsoft’s lawyers witnessed all of the on-site inspection process. In addition to its in-house lawyers, Microsoft hired external lawyers from two firms, who were also present. In Microsoft’s Shanghai office, there were six lawyers present during the raid.
Beyond that, NDRC mentioned that in the Qualcomm case, Qualcomm’s rights to be heard and to raise defense were fully protected with Qualcomm’s lawyers’ involvement in each of their meetings.
The inside story of the investigation into the automotive industry
Mr. Xu revealed the full picture of the investigation into the automotive industry, which is considered to be the most heated topic in China’s competition law community. As stated by Mr. Xu, the NDRC had been paying attention to the automotive industry since 2011 because of complaints by whistle-blowers. These complaints triggered the current extensive investigation by the NDRC. A formal probe was triggered by an insurance payout in Hubei. This insurance payout revealed the fact that local dealers overcharged consumers for maintenance services, far exceeding the insurance coverage, with the difference being borne by consumers. Hubei Audi drew the ire of the NDRC when the NDRC learned of its blatant violation, especially considering the NDRC’s prior efforts to educate the automotive industry on the AML since 2011. Mr. Xu also mentioned that the only companies in automotive industry that had been formally investigated were Hubei Audi and 10 of its dealers, Shanghai Chrysler and 3 of its dealers, one Japanese company and Mercedes-Benz.
Enhanced law enforcement on abuse of administrative power
Mr. Xu confirmed that the NDRC had stretched its law enforcement scope into abuse of administrative power investigations. For instance, it was investigating an abuse of administrative power tied to discriminatory toll-charge pricing in Hebei after receiving a tip from the South Korean embassy in China. Passenger transportation companies in Hebei province enjoyed a 50% discount on toll-charges under a regulation jointly issued by the provincial transportation department, finance department and price bureau, while companies from other provinces did not enjoy the same discount when transporting through Hebei. Based on this, the South Korean embassy had complained that a Sino-South Korean company in Tianjin was denied the preferential discount. The NDRC concluded that the Hebei toll-charge policy amounted to discriminatory pricing resulting from an abuse of administrative power. The NDRC had sent an enforcement letter to the government of Hebei province asking the three provincial departments to correct the policy.
Clarification on certain merger control issues
Mr. Shang clarified certain issues related to merger control. First, he explained that MOFCOM’s merger control decisions in global scale transactions usually lagged behind other competition authorities based on a need for increased law-enforcement capacity and experience, but also due to the fact that notification for the same transactions were usually filed with MOFCOM later than to other competition authorities. Secondly, Mr. Shang alleged that in enforcing the AML, MOFCOM did not intend to protect the development of domestic industries or to target a specific company or industry. Thirdly, Mr. Shang denied that Microsoft/Nokia decision unduly restricted intellectual property rights because the conditions imposed were merely asking the merging parties to continue to fulfill their existing obligations according to the friendly, reasonable and non-discriminatory principle.
The AML is playing an increasingly important role in China’s economic development. Its prominence comes with heavier scrutiny. It is expected that AML enforcement will continue to be under the spotlight in the foreseeable future as the competition authorities continue to bolster their law-enforcing activities. This press conference is a positive sign that the competition authorities have embraced a more transparent approach and will implement a higher standard of procedural fairness.
 SAIC initiated its formal antitrust investigation into Microsoft in June 2014. Microsoft investigation involves insufficient public disclosure of information related to Windows and Office software, as well as problems in its sales of media players and browsers. On 28 July, 2014, SAIC raided Microsoft China’s offices in Beijing, Shanghai, Guangzhou and Chengdu. On 4 August, 2014, SAIC gave Microsoft a stern warning not to hinder China’s antitrust investigation when it questioned company executives. On 6 August, 2014, SAIC sent staff in Beijing, Liaoning, Fujian and Hubei to launch another raid on the premises of Microsoft China. On 1 September, 2014, SAIC questioned a number of Microsoft executives and asked Microsoft to submit a written report within 20 days.