Authors: Zhan Hao, Song Ying, Yang Zhan
In June 2020, the Anti-Monopoly Bureau of the State Administration for Market Regulation (“SAMR”) published a new book, the 2019 Compilation of Antitrust Regulations and Guidelines, which contains four previously unpublished guidelines covering the automotive sector, intellectual property rights, leniency policy, and commitments by undertakings. The Guidelines on Leniency for Horizontal Monopoly Agreements (the “Leniency Guidelines”) detail SAMR’s leniency policies towards horizontal monopoly agreements (cartels) under China’s antitrust law system.
Monopoly agreements by competitors are generally highly secretive, and with the exception of extreme scenarios, the parties to such agreements lack an incentive to whistle-blow to the competition authorities. SAMR’s leniency policy is formulated to encourage such parties to voluntarily self-report and hand over substantive evidence, by granting them exemptions or fine reductions.
In China, Article 46 of the Anti-Monopoly Law (the “AML”) provides that, where an operator who is engaged in a monopoly agreement voluntarily reports said monopoly agreement and provides material evidence thereof to the authorities, that party could be eligible for a reduction or exemption from punishment. Inter alia, Articles 33 and 34 of the Interim Provisions on Prohibiting Monopoly Agreements (the “Interim Provisions”) promulgated by SAMR further clarify how reductions or exemptions from penalties apply, define “material evidence”, and set out factors used to “mark” an applicant for consideration by the authorities.
Preparations for the Leniency Guidelines by anti-monopoly authorities go back as far as 2015. In June 2015, the Office of the Anti-Monopoly Commission of the State Council (the “Office”) organized the three former antitrust enforcement agencies, i.e. the Ministry of Commerce, the National Development and Reform Commission (“NDRC”) and the previous State Administration for Industry and Commerce to Draft the Leniency Guidelines. In February 2016, the National Development and Reform Commission released the Draft Leniency Guidelines to solicit public comments. In February 2017, the Office revised the Draft Leniency Guidelines based on the opinions of the members and experts of the Anti-Monopoly Commission under the State Council. Due to the administrative re-structuring of the State Council, in August 2018, certain provisions of the Draft Leniency Guidelines were further amended. Upon approval of the Anti-Monopoly Commission under the State Council, the Leniency Guidelines were officially issued on January 4, 2019, and then published along with the other three guidelines in the above-mentioned book.
The current Leniency Guidelines provided relatively specific guidance to SAMR and market players regarding how SAMR’s leniency policy should be implemented. Specifically, it establishes a “marker” system with different fine reduction “levels”. It clarifies the requirements for obtaining leniency, reporting procedures, and practices for the submission of material evidence. It also provides guidance to enforcement agencies on leniency application reviews. Compared to the previous draft version, there are several changes in the application and review procedures, and specific requirements to which the operators should pay more attention if applying for leniency in an antitrust investigation. This article elaborates on the main highlights and implications of the Leniency Guidelines below.
I. Application scope of the leniency policy
The leniency policy applies only to horizontal monopoly agreements concluded between competitors as defined under Article 13(1) of the AML. Vertical monopoly agreements and abuse of market dominance are not applicable. It also should be noted that not all the applicants under the leniency policy will be fully exempted from penalties. The Leniency Guidelines provides that if an operator organizes or forces other operators to participate in reaching or implementing monopoly agreements, or impedes other operators from terminating their illegal conduct, the authority will not grant an exemption but can instead allow a limited penalty reduction. Penalty reduction or exemption is generally applied against fines imposed on the parties to a monopoly agreement, but will not allow such parties to keep ill-gotten gains under their agreement.
II. When are operators entitled to apply for leniency?
The time limit for operators to apply for leniency is not very strict. Operators are entitled to apply for leniency (i) before the enforcement agency initiates a case or launches an investigation procedure under the AML, or (ii) after the enforcement agency initiates a case or launches an investigation procedure but before issuance of a prior notice on administrative penalty by the authorities.
III. Application report and “key evidence” required for the leniency application
When a party applies for a leniency, the following documents are required: the application report and “key evidence”. If the authority decides not to grant the leniency, it will not determine the illegal acts based on the relevant materials filed by parties for the purpose of leniency application.
- Application report
For the first applicant, the application report must include:
- Basic information of the parties to the monopoly agreement, including but not limited to name, address, contact details, and representative.
- Description and main content of the monopoly agreement, including but not limited to time and place that the agreement is reached or implemented, main content, specific participants, and what stage the operators reached in agreeing to and implementing the agreement.
- Geographical scopeand market scale affected the agreement.
- Duration of the agreement’s implementation.
- Explanation of the evidence.
- Whether the party has applied for a leniency in other jurisdictions.
For subsequent applicants, the application report shall cover participants of the monopoly agreement, products or service involved, time and place that the agreement is reached or implemented.
- Key evidence
The Leniency Guidelines clarify that, for the first applicant, key evidence refers to the materials that the enforcement agencies have not collected yet and would be sufficient to trigger initiation of an investigation, or (if they have already initiated the case or launched the investigation procedure) sufficient for agencies to find a monopoly agreement.
For subsequent applicants, key evidence refer to materials that the enforcement agencies have not collected and would be of significant or probative value in detecting a monopoly agreement. Most importantly, this includes how the agreement was reached and implemented, its main content, the timeline involved in reaching and implementating it, the products or services involved, and the relevant participants.
IV. Other requirements for leniency
In addition to the above requirements, the Leniency Guidelines also request the applicant to: (i) immediately terminate the illegal conduct (except for the cases where the authority requires applicants to continue the illegal conduct), (ii) cooperate with the authorities in a prompt, consistent, full, and reliably manner in the investigation, (iii) properly preserve and provide evidence and information, and to not conceal, destroy or transfer evidence or provide false material or information, (iv) not to disclose applications for leniency without the consent of the authorities, and (v) not to have any conduct that may affect the investigation.
V. Who can ask for a marker?
A marker system is applied in many jurisdictions worldwide. In the EU, the marker system “is designed to preserve and protect the applicant’s place in a leniency queue for a definite period of time.” The Leniency Guidelines establish a marker system in China as well and provide an exemption for the first applicant that meets its requirements; for each subsequent successful applicant, it provides a reduction in fines. Note that only the first immunity applicant can hold their marker’s priority without delivering all of the required evidence: if an operator initially submits a monopoly agreement information report the authorities and then provides related key evidence, the authority can decide to mark the time of the initial submission as that of applying for leniency, and request the applicant to supplement all related materials generally within 30 days, or 60 days for special cases. If the first applicant cannot supplement the related materials within the required period, it will lose its priority under the marker system; if so, the next successful applicant for a reduction in penalties can automatically become the first-in-time immunity applicant.
VI. How are applicants classed?
The Leniency Guidelines clarify the range of fine reductions available to undertakings for the first, second, or third place applicants: exemption from penalty or of reduction of fines by no less than 80% for the first, a 30%–50% reduction for the second applicant, 20%~30% for the third applicant, and no more than 20% for subsequent applicants. In general, the enforcement agency may grant leniency to up to three operators in an investigation. If a high-profile case is relatively complicated and involves more than three parties to agreements applying for leniency, the enforcement agency has the discretion to grant reductions in penalties to more than three applicants. Similarly, the confiscation of illegal gains may also be referred to exemption or reduction of fines on parties of monopoly agreements, subject to the authority’s discretion.
VII. Decision and publication of leniency
Subject to the Leniency Guidelines, the authorities are obliged to publish the leniency decision if they agree to grant an exemption or reduction of fines to the applicants. Without the consent of relevant parties, the application report and all other related materials submitted for leniency application shall not be published, and none of any other third parties are entitled to review. This provision may to some extent relieve companies’ practical concerns that the materials submitted for a leniency application may be used as evidence against them in future civil actions by other parties.
The leniency policy provides a very valuable and practical approach to help global antitrust enforcement agencies in the detection and termination of infringing monopoly agreements. The Leniency Guidelines propose a relatively reliable leniency system under the AML, which is of great significance for improving the effectiveness of antitrust enforcement, while providing a valuable source of guidance for Chinese market players to follow up on.