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07 February 2019
China reached a number of Anti-monopoly Law enforcement and development milestones in 2018. On 9 May 2018 the newly established State Administration for Market Regulation (SAMR) – now China's sole antitrust and competition authority – completed its consolidation of the country's three former government antitrust agencies (for further details please see "SAMR finalises long-awaited reform of its antitrust agency"). Further, in the second half of 2018, the SAMR amended a number of Anti-monopoly Law regulations and reshuffled its internal enforcement responsibilities and official positions. Although this institutional reform took a significant amount of time, public enforcement remained active in 2018.
There were also several private antitrust enforcement developments in 2018. As regards worldwide antitrust policy and enforcement, international cooperation among competition authorities in different jurisdictions is expected to increase.
This article discusses the main Anti-monopoly Law developments which took place in 2018, as well a number of hot-button issues.
The institutional reform of China's antitrust enforcement agencies was the biggest competition-related development to take place in China in 2018. Prior to the administrative structural changes which occurred in March 2018, China had three antitrust authorities:
Following the reform, the antitrust functions of MOFCOM, the NDRC and the SAIC were combined to form the newly established SAMR, under which a new Anti-monopoly Bureau (AMB) was established.
The SAMR is a powerful agency. In addition to overseeing antitrust and competition enforcement, it undertakes a number of administrative tasks, including:
The SAMR comprises 27 bureaus and 805 employees. The minister of the SAMR is ex-SAIC Minister Zhang Mao, while the vice minister in charge of antitrust matters is ex-SAIC Vice Minister Gan Lin.
The director of the SAMR AMB is ex-Director of the MOFCOM AMB Wu Zhenguo. The SAMR AMB also has three vice director generals: Lu Wanli, Xu Lefu and Yang Wanshan.
The SAMR AMB comprises 10 divisions, each of which have approximately 50 officials. Three divisions cover merger control, while the others cover:
When a new agency is established, consideration must be given to the relevant legislation and policies. This was the case for the SAMR, which had to unify the separate rules previously issued by MOFCOM, the NDRC and the SAIC. Therefore, a number of new rules and draft regulations have been published in succession in recent months. In addition, amendments to the Anti-monopoly Law are being developed and the SAMR has published several supplementary antitrust and competition rules.
On 26 December 2018 the SAMR issued:
The penalty provisions are an elaborate set of 81 articles spread across seven chapters (General Rules, Jurisdiction, Regular Proceedings, Summary Proceedings, Penalty Execution and Closing of Cases, Service of Law Enforcement Documents and Miscellaneous). These rules reflect the progress that China has made in administrative penalty legislation and law enforcement practice in recent years and integrate the existing procedural rules administered by different regulatory agencies that have been consolidated into the SAMR. The penalty provisions also introduce the following exception:
administrative penalty proceedings for violations of the [Anti-monopoly Law] shall be conducted in accordance with special provisions of the SAMR. Where special provisions are not applicable, these Provisions shall apply.
On 3 January 2019 the SAMR published the draft Regulations on the Prohibition of Monopolistic Conduct, which comprise 44 articles. In addition to providing substantive and procedural regulations for enforcement agencies, the regulations set out:
The regulations mainly concern the following matters:
On 14 January 2019 the SAMR published the draft Regulations on the Prohibition of Abuse of Administrative Power Eliminating or Restricting Competition. These regulations comprise 31 articles, which set out:
In addition to the above rules regarding monopolistic conduct, on 3 January 2019 the SAMR issued the Notice on Antitrust Enforcement Authorisation, which grants blanket authorisation to provincial SAMR branches for antitrust enforcement within their respective geographic regions. This move has unified the pre-existing arrangements under which the SAIC authorised provincial branches on a case-by-case basis and the NDRC granted wholesale authorisation, which means that local market regulators can conduct antitrust investigations with delegated authority.
As regards antitrust litigation, China's first national-level appeals mechanism for IP cases commenced operation on 1 January 2019 when the Supreme People's Court (SPC) adopted its Provisions on the IP Tribunal. As antitrust disputes are tried by IP courts or IP tribunals affiliated with the relevant courts, the provisions also apply to antitrust cases. Thus, appeals of first-instance civil or administrative judgments and rulings in antitrust cases will be heard directly by the SPC IP Tribunal, which is a newly-established affiliate of the SPC. The bench of the IP tribunal comprises:
Merger control filing
Although China's institutional reform was time consuming, it did not adversely affect the efficiency of the country's merger control activity. According to publicly available information, the SAMR reviewed 448 cases in 2018. Four of these cases were conditionally approved, while the others were all unconditionally approved (Figure 1).
In 2018 MOFCOM and the SAMR imposed conditions on four merger cases (ie, Bayer/Monsanto, Essilor/Luxottica, Linde/Praxair and UTC/Rockwell Collins). These remedies were tailored to each transaction to address the different competition concerns. Behavioural remedies were imposed only in the Essilor/Luxottica case, while combinations of structural and behavioural remedies were imposed in the others. For these complex transactions, MOFCOM and the SAMR carried out in-depth reviews, which took an average of 373 days. Withdrawal and refile have become usual practice for complex cases, including the four conditional cases (Figure 2).
The Qualcomm/NXP case is an example of how politics influence competition enforcement in China. This 21-month deal came to an end with MOFCOM withholding approval and Qualcomm paying $2 billion in break-up fees.
MOFCOM and the SAMR continue to take a hard stance in cases involving failure to notify (ie, gun jumping). In 2018 there were 15 gun-jumping cases, which represent almost half of the 35 cases which have been initiated since the Anti-monopoly Law was enacted (Figure 3). In general, it takes MOFCOM and the SAMR an average of four to nine months to review a gun-jumping case, and most penalties range from Rmb150,000 to Rmb200,000; two cases in 2018 incurred penalties of Rmb400,000. These cases involved a wide range of companies (eg, multinationals, Chinese state-owned entities and domestic firms) and a variety of industries, including port, steel, chemicals, food, paper, real estate, semiconductors, automobile parts, automobile sales and duty-free products.
Administrative enforcement against monopolistic conduct
Between 2008 and 2018 there were approximately 220 administrative investigation cases against monopolistic conduct in China. Of these, 165 were monopoly agreement cases and 55 were abuse of market dominance cases. The companies based outside mainland China which were subject to administrative enforcement against monopolistic conduct are listed in the table below (Figure 4).
In 2018 the SAMR and its local branches initiated 32 investigations into anti-competitive conduct and closed 15 cases. Among the ongoing cases are those involving dynamic random-access memory chip manufacturers Micron, Samsung Electronics and SK Hynix (whose offices have been subjected to dawn raids).
The number of private antitrust cases in China has gradually increased, although private antitrust enforcement is still in the early stages. By the end of 2017, 700 first-instance civil monopoly cases had been accepted, 630 of which had been closed. The cases involved various industries, including transportation, insurance, medicine, food, household appliances, power supply and information network. More than 90% of the 700 cases concerned an abuse of market dominance.
China's private antitrust litigation legislation underwent significant development in 2018. According to the SPC's Provisions on the IP Tribunal, the SPC will hear anti-monopoly appeals from 2019. Further, on 26 April 2018 the Guangdong Higher Court published its Guidelines on the Review of Standard-Essential Patent Litigations. Finally, the SPC Regulations on Law Applications in Civil Monopoly Litigations, which were published on 3 May 2012, are in the process of being amended.
In 2018 there were a number of litigations on hot-button issues. For instance, on 11 September 2018 the Beijing IP Court announced that it had accepted a private litigation in which the plaintiff – Beijing Electric Power Corporation, which operates under the state grid – had filed suit against South Korean Company LS for its horizontal monopoly agreement with 10 other high-voltage cable companies. This is the first follow-on private antitrust litigation based on a foreign antitrust penalty decision. The plaintiff claimed that according to the EU decision of 2 April 2014:
The case is pending before the Beijing IP Court. It has been alleged that the state grid has filed a follow-on suit against Viscas in the Shanghai IP Court.
Various questions regarding private enforcement have arisen over the past 10 years and have yet to be answered, including as follows:
Following the SAMR's institutional reform in 2018, antirust legislation, administrative antitrust enforcement and private antitrust litigation will face greater challenges in future. However, the active legislative efforts to unify pre-existing rules offer opportunities for a clearer and more foreseeable practice, especially when law firms, scholars, trade associations and other relevant agencies are invited to provide public comments. Further, the new characteristics and focus of the SAMR and its case handlers will likely come into clearer focus in 2019. There is expected to be an increase in antitrust investigations in 2019 compared with 2018. As antitrust appeals are to be heard by the SPC, plaintiffs are expected to make more of an effort to bring lawsuits.
For further information on this topic please contact Hao Zhan, Ying Song or Yang Zhan at AnJie Law Firm by telephone (+86 10 8567 5988) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The AnJie Law Firm website can be accessed at www.anjielaw.com.
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