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back to index backCHINAtalk January,  2017

What To Expect From China’s Anti-Monopoly Law This Year

China’s Anti-Monopoly Law (AML) has been enforced for more than eight years. With the accumulation of experiences and the growth of competition advocacy, now China is growing into a mature competition jurisdiction. The AML’s fast development raises challenges for enforcers, lawyers and business operators whose businesses are of China nexuses. This article is for persons who are interested in China’s AML, and provides a look back at year 2016 and an outlook for year 2017.

A Look Back at 2016

In 2016, the AML’s development was fruitful in all respects, including antitrust guideline drafting, antitrust public enforcement and antitrust litigation.

In regard to antitrust guidelines, six guidelines were drafted and released to the public for deliberations. The guidelines involve the auto sector, the application of leniency program, the exemption of horizontal monopoly agreements, the calculation of illegal gains, the regulation of exercising intellectual property rights and the business operators’ commitments.

In regard to antitrust public enforcement, three antitrust enforcement agencies remained to be active:

1. The National Development and Reform Commission was as active as before in enforcing the AML. Other than scrutinizing price-related anti-competitive conducts, in response to the public’s concerns over medicine prices and high fees paid for using medical equipment, the NDRC took special actions to investigate the anti-competitive conducts engaged by business operators in the pharmaceutical and medical equipment sector.

2. China’s State Administration of Industry and Commerce initiated investigations over public utilities enterprises and eventually issued the administrative decision to find Tetra Pak violated the AML by abusing market dominance.

3. The Ministry of Commerce accelerated the anti-monopoly review of concentrations of business operators and devoted to investigating business operators that failed to notify in accordance with the AML.

In the area of antitrust litigation, Chinese consumers filed the first antitrust damage claim. The people’s courts ruled that antitrust disputes cannot be arbitrated and found that vertical restraints imposed by manufacturers on distributors cannot be assessed in accord with the AML’s provisions on horizontal monopoly agreements even though the effect of the vertical restraints are the same with that of horizontal monopoly agreements.

An Outlook for 2017

Based on antitrust enforcement trends and our past experiences, we summarize below nine key points to be noted in 2017:

1. Continuous attention will be paid to vertical price monopolies in 2017.

China’s AML enforcers have been concerned with the welfare-reducing effect of vertical monopoly agreements (namely resale price maintenance and minimum resale price maintenance) on consumers. In December 2016, Medtronic Inc. and General Motors Co. were imposed administrative sanctions. One important reason for the sanctions is that Medtronic and GM engaged in minimum resale price maintenance. With China’s AML enforcers continuously accumulating experiences, in 2017 they are likely to scrutinize vertical price monopolies more regularly.

2. The anti-competitive effects of nonprice monopoly agreements are likely to come into the sight of China’s AML enforcers.

Under the AML, the prohibited vertical monopoly agreements are not listed in an exhaustive manner. That means other types of vertical monopoly agreements are likely to be found as being contrary to the AML. In March 2016, the NDRC released the draft antitrust guidelines for the auto sector for public comments, which include expressed concerns over vertical nonprice monopoly agreements. While China’s AML enforcers are increasingly confident, in 2017 it is likely that they strictly scrutinize the competitive effect of nonprice vertical monopoly agreements.

3. Business operators with market power will have to assess the competitive effect of their conducts more carefully.

The prohibited abuses of market dominance are not confined to those listed in the AML. In October 2016, the SAIC found that the loyalty discount scheme arranged by Tetra Pak constituted an abuse of dominance in violation of the AML in the absence of the AML expressly prohibiting loyalty discounts. What can be implied from the Tetra Pak decision is that the AML does not create a safe harbor for abuses not yet expressly prohibited. Business operators with market power will thus have to assess their conducts’ competitive effect with great cautiousness.

4. In 2017 concentrations of business operators involving state-owned enterprises (SOEs) will increase.

The Chinese government is pushing forward the supply-side reforms in order to reduce industrial excessive capacities. Mergers and acquisitions serve as the main manners to improve industrial structure. In the light of competition awareness coming into the sight of more and more Chinese people, now SOEs are increasingly aware of the necessity to comply with the AML. As a consequence, in 2017 more concentrations of business operators involving SOEs are likely to be notified to MOFCOM.

5. MOFCOM to establish its own database raises notification standards.

MOFCOM began to review the competitive effect of concentrations of business operators as early as in 2006. The rich experiences laid down the foundation for MOFCOM to establish its own database for the assessment of competitive effect of concentrations of business operators. In October 2016, the director general of MOFCOM’s Anti-Monopoly Bureau announced to the public that the database was in the process of establishment. While MOFCOM has already required business operators involving in a concentration to guarantee the authenticity of provided market data, such a database further challenges business operators in that they have to pay more attention to the accuracy of market data and need to define relevant markets more scientifically and rigorously.

6. MOFCOM will enhance investigations over business operators that failed to notify in accord with the AML.

The adverse effects caused by failing to notify in accord with the AML are not confined to suffering administrative fines. For instance, listed companies could have to halt trading and accept other regulatory agencies’ inquiries and investigations. Hence, business operators are likely to face adverse consequences which are more serious than being expected, particularly given the fact that the AML and relevant enforcement provisions issued by MOFCOM expressly provide restitution as a remedy. In 2016, MOFCOM already enhanced investigations over business operators that failed to notify and issued a series of administrative sanction decisions. While MOFCOM is able to learn from various channels that certain business operators failed to notify according to the AML, business operators which have transactions involving the Chinese market should carefully consider whether the transactions could constitute concentrations of business operators under the AML and analyze whether the transactions reach the notification thresholds as early as possible.

7. The AML enforcers could pay more attention to the effect of behaviors to exercise intellectual property rights.

Lawsuits involving standard-essential patents are increasing at the global level. In response to SEP holders’ patent litigations, China’s SEP implementers had filed complaints to the AML enforcers. Qualcomm Inc. as a holder of telecommunications SEPs was imposed administrative penalties after the NDRC carried out investigations accordingly. The NDRC’s administrative sanction decision did not prevent Qualcomm from filling patent lawsuits in China, as demonstrated by the litigations raised by Qualcomm against Chinese cellphone producer Meizu both inside and outside China. Given the perceived tensions between SEP holders and SEP implementers, it is likely that in 2017 China’s AML enforcers will devote more attention to the effect that SEP holders exercise IP rights. While the antitrust guidelines for exercising IPRs respectively drafted by the NDRC and the SAIC had been released to the public for deliberations, a reasonable expectation appear to be that the final versions of the guidelines will be issued in 2017, clarifying the boundaries of legitimate exercises of IP rights.

8. Antitrust litigations involving IP rights could increase.

China is sophisticating IPRs protection. The improved protection has the effect of turning China a main battlefield for IP disputes. In 2016, the patent assertion entity — Canadian-based Wi-Lan — brought a lawsuit against Sony Corp. in China. Yet, it is worth noting that Chinese SEP implementer who utilized antitrust litigation to successfully counter the royalty requirements imposed by SEP holder set an example for those who are sued for infringing IPRs. Since the standards that the people’s courts accept a case are generally low and that the people’s courts are endeavor to adjudicate antitrust disputes in the light of the AML’s fast development, it can be expected that parties being involved in IP lawsuits could actively file antitrust litigations to fight against IP rights holders.

9. Monopolies created by abusing administrative power will be better regulated.

The AML has long been criticized as being ineffective in countering administrative monopolies since the AML enforcers do not have the power to correct administrative agencies’ abusive conducts. However, the opinion on establishing the fair competition review system in the development of market system was issued by the State Council in October 2016. The opinion is an ex ante mechanism to prevent administrative power from being abused by requiring administrative agencies to review the competitive effect of relevant provisions before promulgation. The issuance of the opinion thus increases the channels for entities who are affected to challenge administrative agencies’ abusive conducts. Under the context that the side effects of administrative monopolies are recognized by governments at different administrative hierarchies, in 2017 more complaints involving the abuses of administrative power could be raised to the people’s courts as well as to the AML enforcers and other responsible agencies.

Huang Wei is a managing partner in Tian Yuan Law Firm's Beijing office and the general secretary at the Anti-Monopoly Committee of the All China Lawyers Association. Dr. Rebecca Yin is an associate in the firm's Beijing office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

Source: Law360 - GAI

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