On August 1, 2022, the new Anti-Monopoly Law of China (the“NEW AML”) came into effect and new competition rules are brought by crucial revisions such as the significant increase in fines, important changes in the control of concentrations and the regulation of vertical monopoly agreements, the involvement of the People's Procuratorate in public interest litigation, etc. The revisions brought wide-reaching challenges and will affect a number of functions within many organizations, from HR to sales and, of course, legal and compliance. For the purpose of adapting to the NEW AML and assisting organizations to recognize potential antitrust risks, this checklist aims to provide a list of actions that are recommended to take and identify the stakeholders which will need to be involved in each set of actions.

Category

Action(s)

Department(s) Concerned

1. Terminologies

N/A
  • Monopoly agreements: agreements, decisions and other concerted practices that eliminate or restrict competition. Monopoly agreements include horizontal and vertical monopoly agreements.
    • “Concerted practice” refers to a practice carried out by undertakings in the absence of a definite agreement or decision between them which nevertheless results in the coordination in substance. Factors to be considered include: a) whether there is a consistency in the market activities of the undertakings; b) whether there has been communication of intentions or information exchange between the undertakings; c) whether the undertakings can provide a reasonable explanation for the consistency of their activities; and d) market structure, competition, market change and other conditions of the relevant market.
    • Monopoly agreement captures any form of agreement: from binding written agreement to much looser arrangements, e.g. oral agreements, chain of emails, phone conversation, WhatsApp or WeChat chat, algorithm, even a nod and a wink or a gentlemen's agreement.
  • Horizontal monopoly agreement: monopoly agreement reached with competitors.
  • Vertical monopoly agreement: monopoly agreement entered into between two or more undertakings each of which operates at a different level of the production or distribution chain.
  • Competitors: including actual and potential competitors. Potential competitors refer to the undertakings with the plan and feasibility to enter the relevant market for competition within a certain period of time.
  • Competitively sensitive information (“CSI”): any information related to undertakings and their competitors that may cause competitors to coordinate their price, production, technology, market, strategy or other operational activities, excluding information that has been made publicly available.

    CSI that will pose risks usually includes:

(1) prices (incl. actual prices, price list or indicative prices);

(2) discounts and discount policies;

(3) bidding plan or strategy;

(4) customers (incl. actual or potential customers and their identities and classification);

(5) market areas (areas where actual or planned sales/non-sales of goods occur, or where services are provided or not provided);

(6) suppliers (incl. actual or potential suppliers and their classification);

(7) terms or conditions of sales;

(8) policies or strategies for negotiation with customers;

(9) earnings, profits, or profit margins;

(10) market share;

(11) strategies or costs of sales, marketing, advertisement, or promotion;

(12) market, supply and demand, price trends and other data or opinions (e.g. whether the current market prices are too low, what is an appropriate level of prices, and how to reach a higher or more stable level of prices);

(13) business expansion/contraction plan;

(14) R&D projects, strategies, or costs;

(15) production capacity, output, or costs;

(16) salaries and benefits of employees;

(17) any information that can be exploited to reduce workable competition, such as data of production, sales, and inventory.

  • Dominant market position/dominance: a market position held by undertakings that enables them to control the prices or quantities of goods or other trading conditions, or to hinder or affect the ability of other undertakings to enter the relevant market.
  • Concentration of undertakings: any of the following circumstances:

  • (1) merger of undertakings;

    (2) acquiring control over another undertaking by virtue of acquiring it shares or assets;

    (3) establishment of joint ventures; or

    (4) acquiring control over another undertaking or the ability to exert a decisive influence on another undertaking by virtue of contract or any other means.

  • Dawn Raid: On-site investigation carried out by the competition authorities to collect evidence from the undertakings and relevant employees, normally without a prior notice to the undertakings.

All:

  • Legal/Compliance Department
  • Sales & Marketing Department
  • Procurement Department
  • HR Department
  • M&A Department
  • R&D Department
  • IP Department
  • E-commerce Department
  • PR/GA
  • Corporate Governance

2. Legal / Compliance

General issues
  • Formulate/update a whole set of competition compliance policies on the basis of the NEW AML and revisit them annually or as the case may require (e.g. new legislative developments or enforcement changes in high-profile cases).
  • Carry out regular trainings in relation to competition compliance for employees, in particular the senior management, sales department, HR department, etc., to ensure the policies are effectively implemented.
  • Ensure that important sales contracts/policies, biddings, purchasing contracts/policies, transaction documents in M&A, etc., in particular those with your competitors, have been carefully reviewed from competition law perspective, incl. existing projects and new projects; and solicit professional opinion from external antitrust lawyers where necessary.
  • Understand the markets in which the products of your company are located, assess preliminarily the definition of relevant market, the approximate market share of your products, who are the competitors, who are the upstream or downstream partners; and solicit professional opinion from external antitrust lawyers where necessary.
  • Ensure that the company has mechanisms on whistle-blowing and response to dawn raid.
  • Legal/Compliance Department

Whistle-blowing
  • Provide employees with an email address or a telephone number for reporting suspected violations.
  • Take the report seriously when you receive a report and inform the whistle-blower that:

  • (1) do not destroy or conceal information or documents and keep the documents in a safe place;

    (2) take appropriate measures immediately under the guidance of the Legal/Compliance Department, OR do not take any further actions if Legal/Compliance Department considers this is more appropriate;

    (3) do not disclose the matter to anyone, incl. colleagues, leaders, supervisors, partners, competitors, or news media.

  • Report the matter to the compliance leader, the appropriate business leader and/or the appropriate senior management.
  • Solicit professional opinion from external antitrust lawyers to evaluate the suspected violation.
  • Take rectification and other approved measures if necessary (e.g. further internal investigation, shift or removal of the relevant employee, self-report to the competition authority).
  • Legal/Compliance Department
  • HR Department

Dawn raid response
  • Ensure that the response to dawn raid is included in the regular trainings.
  • Consider conducting dawn raid drills with the assistance of external antitrust lawyers.
  • Establish an emergency team and select a team leader who would be responsible for direct contact with investigators.
  • Where there is an antitrust dawn raid, please keep in mind that:

(1) the rule of thumb is that do not hinder/obstruct the investigation, be cooperative and courteous to investigators at all times, but reasonably restrict the investigation scope (e.g. do not voluntarily submit documents or provide replies not related to the investigation);

(2) contacting your external antitrust lawyers immediately;

(3) checking the investigators' law enforcement credentials and law enforcement documents issued by the authority and requesting a copy;

(4) copying and recording any documents before submitting them to government investigators;

(5) never disclosing the investigation to anyone outside the company or to unrelated persons within the company unless clearly authorized;

(6) developing a plan on next steps with the emergency team and your external antitrust lawyers.
  • Legal/Compliance Department
  • PR/GR

3. HR Management

Recruitment and human resource management
  • Do not conclude with your competitors any forms of agreements on:

(1) salary, salary level or benefit level;

(2) scope, area, region of your respective recruitment;

(3) rejection of any specific personnel;

(4) “no poaching” agreement: each will not solicit or hire people from others.

  • Do not exchange with your competitors CSI in relation to human resources.
  • Ensure that antitrust compliance programs are included in the onboard training for new employees, including clearly informing new recruits where to find your company's antitrust compliance materials and online training courses.
  • Include clauses into the contract with new employees or termination letter for leaving employees of relevant positions, specifying that he/she shall not exchange CSI of your company he/she obtained when performing his/her capacity in your company with the competitors of your company.
  • HR Department
  • Legal/Compliance Department

4. Merger & Acquisition

Merger control filing obligation
  • Make an assessment on whether the merger control filing obligation is triggered as soon as practicable after the launch of each transaction project, including:

(1) whether the transaction constitutes a “concentration of undertakings” under the NEW AML;

(2) if yes, whether the transaction meets the turnover threshold;

if the threshold is not met, whether the transaction is likely to be required a filing by the competition authority due to its potential impact on the competition of the relevant market: e.g. the party's market share is very high, the party has significant power of data, the party is a powerful platform.

  • When assessing whether the obligation is triggered, please keep in mind that:

(1) “control” in the NEW AML is different from it in the corporate laws/M&A rules;

(2) minority shareholding may also trigger merger control filing obligation;

(3) merger control filing obligation is irrelevant to the market share of the products concerned; the market share may be relevant to the competition analysis during the filing procedure;

(4) whether the transaction involves cooperation with competitors or upstream suppliers / downstream customers is irrelevant to the merger control filing obligation; this may be relevant to the competition analysis during the filing procedure.

  • Do not implement the transaction without a greenlight from the competition authority if the transaction should be filed with the authority, the violation of which will lead to a huge fine (i.e. a fine of up to RMB 5 million or, where anti-competitive effects are likely, up to 10% of the turnover in the previous year).

“Implementation” includes: completion of the registration of change in shareholders or rights, obtaining the business license of the JV, appointment of senior managements, actual participation in business decision-making and management, exchange of CSI with other parties, substantial integration of businesses, etc.

  • If your company encounters a hostile takeover, assess whether the transaction triggers the filing obligation and whether it will have competition concerns, and consider antitrust review as an alternative defense strategy.
  • M&A Department
  • Legal/Compliance Department

Do's and Don'ts throughout the M&A
  • Take merger control into consideration at each stage of the M&A process, e.g. when setting out the long-stop date, condition precedents, break-up fee, limitation on divestment scope, etc.
  • Do not disclose CSI to the other side throughout the whole process of the transaction beyond what is strictly necessary for proceeding with the transaction, until the antitrust clearance is granted; for JVs set up by competitors, do not exchange CSI of the parents even after the closing of the transaction.
  • Set up a clean team where feasible.
  • Do not participate in the day-to-day operations of the target company in order to avoid de facto changes in control, until the antitrust clearance is granted.
  • M&A Department
  • Legal/Compliance Department

5. Sales & Procurement

Monopoly agreement
  • Do not conclude the following agreements with competitors (horizontal monopoly agreement):

(1) price-fixing, either directly or indirectly, e.g. fixing the prices, discounts, margins, timing of price changes, formula to calculate price, etc.;

(2) bid-rigging, e.g. collusion on the bid-winner, abandoning a bid, withdrawing from a bid, submitting a high-price;

(3) restriction on the volume of supply or production capacity;

(4) boycotting: not to deal with particular clients or suppliers;

(5) allocation of sales market, customers or the market of procuring raw materials;

(6) restriction on the purchase of new technologies or equipment, or the development of new technologies or products.

  • Do not conclude the following agreements with upstream suppliers or downstream customers (vertical monopoly agreement):

(1) resale price maintenance (RPM);

(2) minimum resale price maintenance (mRPM): fix the lowest prices for products resold to a third party;

For RPM/mRPM, although the company is provided with an opportunity to prove that such agreements do not have the effects of eliminating or restricting competition, the risks of reaching such agreements may still be high in particular for companies with higher market share as it is difficult to prove in practice.

  • Solicit professional opinion from external antitrust lawyers when concluding agreements with upstream suppliers or downstream customers on non-price vertical restrictions (vertical monopoly agreement), e.g. restricting that a distributor/reseller can only resell the products in/to a specific area/region or customers.
  • Pay attention to the exchange of CSI:

(1) you must not exchange CSI with your competitors;

(2) you should not collect CSI of your competitors from your upstream suppliers or downstream customers as hub-and-spoke cartels are prohibited as well;

(3) you should not share CSI of your upstream suppliers or downstream customers with their respective competitors as organizing or providing substantive assistance to others in reaching a monopoly agreement is prohibited by the NEW AML as well.

Collecting information from public sources is allowed.
  • Sales & Marketing Department
  • Procurement Department
  • Legal/Compliance Department

Abuse of dominance
  • If you have a strong market power or even a dominant market position (50% of market shares will be presumed as having the dominance), solicit professional opinion from external antitrust lawyers when you intend to take the following actions with your upstream suppliers or downstream customers:

(1) unfairly overpricing sales or unfairly underpricing procurement;

(2) selling at a price lower than cost;

(3) refusal to deal with certain suppliers or customers;

(4) restricting them to deal with certain parties (exclusively) or not to deal with certain parties;

(5) tie-in sales or attaching unreasonable conditions to the trading (incl. types and quality of commodities, payment conditions, delivery methods, after-sale services, transaction options, technical constraints);

(6) discrimination in terms of prices or other contractual terms and conditions.

If you are a platform or other digital business with a dominant market position, please do not use data, algorithms, technologies or platform rules to abuse your dominance. For two-sided market businesses, the market power in both sides will be considered together, e.g. Alibaba case and Meituan case.
  • Sales & Marketing Department
  • Procurement Department
  • Legal/Compliance Department

Participating trade associations

The code of practice in this section applies not only to formal meetings organized by trade associations, but also to all social and informal gatherings associated with trade associations or among competitors, such as meeting meals, coffee breaks, bar gatherings, golf games, small talk and other informal occasions.

  • Stick to the dos and don'ts as below:

(1) strictly prohibit from discussing any CSI of any members or non-members, in particular current CSI or future CSI; past CSI within 6 months is also very sensitive and shall not be discussed or circulated;

(2) immediate renounce and withdraw from the discussion if any sensitive topic has been brought up;

(3) keep records of your renunciation and withdrawal from discussing any sensitive topic, and inform your Legal/Compliance Department of such records;

(4) object and do not implement any rules, regulations or resolutions which are suspected of violation.
  • Sales & Marketing Department
  • Procurement Department
  • Legal/Compliance Department

6. R&D and IP

Monopoly agreement
  • Do not enter into agreements that restrict the purchase of new technologies or equipment or the development of new technologies or products.

For example, BMW, Daimler and Volkswagen, Audi and Porsche under the Volkswagen Group have discussed the technical development of vehicle exhaust emissions in a joint meeting, and part of the meeting was suspected of private collusion to restrict the research, use and development of clean emission technologies.

  • Be alert of a reverse payment agreement (or any patent settlement with such appearance) and solicit professional opinion from external antitrust lawyers where necessary.

“Reverse Payment Agreement” is a commitment by the drug patent right holder to give direct or indirect benefit compensation to the generic drug applicant, and the generic drug applicant promises not to challenge the validity of the drug-related patent rights or delay entry into the patented drug-related market agreement.

Although it is not illegal per se in China, it has the potential risk of being examined. For example, on December 27, 2021, for the first time, China's Supreme Court proactively examined reverse payment agreement or any settlement with such appearance in terms of its impact on competition.
  • R&D Department
  • IP Department
  • Sales & Marketing Department
  • Legal/Compliance Department

Abuse of dominance
  • If you may have dominant market position in the relevant market, solicit professional opinion from external antitrust lawyers when you intend to take the following actions:

(1) requiring the counterparty to grant back the technologies improved by the counterparty exclusively or solely;

(2) prohibiting the counterparty from questioning the effectiveness of the patent;

(3) restricting the counterparty from utilizing competing products or technologies upon the expiration of the license agreement, provided that no IP right is infringed upon;

(4) continuing to exercise the rights of the IP whose protection period has expired, or which has been determined invalid;

(5) prohibiting the counterparty from trading with any third party;

(6) giving discriminatory treatment to the counterparties with the same conditions.
  • R&D Department
  • IP Department
  • Sales & Marketing Department
  • Legal/Compliance Department

SEP (standard essential patent)
  • SEP holder usually is presumed as having the dominant market position in each SEP market. Therefore, the licensing of a SEP must be based on fair, reasonable and non-discriminatory (FRAND) terms. In practice, a typical negotiation process between the SEP holder and SEP implementer on a FRAND basis includes the following steps:

(1) step 1: the SEP holder provides a licensing offer to an implementor;

(2) step 2: the implementer needs to express the willingness to accept the FRAND license;

(3) step 3: the SEP holder to provide specific licensing terms (incl. license fees) on FRAND terms;

(4) step 4: if the implementer is unwilling to accept the licensing terms, the implementer should provide a counter-offer (incl. license fees) for the SEP holder;

(5) if no agreement can be reached after 4 steps, repeat step 3 and step 4 or bring a proceeding before a court or arbitration organization to rule the FRAND terms.

  • If you are a SEP holder:

(1) do not, in violation of the FRAND commitment, license at an unfairly high price, or conduct the behaviors of refusal to license, tying, discriminatory treatment, or attaching other unreasonable restrictions without any justifiable reasons;

(2) do not, in violation of the FRAND commitment, force the SEP implementor to accept overpricing or other unreasonable restrictive conditions by asking the court or competent authority to issue an injunction before negotiation in good faith.

  • If you are a SEP implementer, consider bringing an action before a court or filing a complaint with the competition authority when a SEP holder doesn't license on FRAND terms.
  • R&D Department
  • IP Department
  • Sales & Marketing Department
  • Legal/Compliance Department

7. E-commerce / Platform / Digitalization

Merger control filing obligation
  • Keep in mind the following when making an assessment of merger control filing obligation in the e-commerce sector / platform economy:

(1) concentrations involving VIE structure falls within the scope of merger control filing review;

(2) for platforms, the turnover includes the income generated from the sale of goods and provision of services (e.g. commissions).

  • Be alert of “killer acquisition”, or where the undertaking concerned has a high market share due to its low or free price in an oligopolistic market, as the competition authority may require to file such transactions with them.
  • If your market share is relatively high, consider the following remedial measures in order to obtain an antitrust clearance:

(1) divestiture of tangible assets, IP, technologies, data, or other rights; and/or

(2) opening up networks, data, platforms or other infrastructure, licensing key technologies, terminating exclusive agreements, amending platform rules or algorithms, and making a commitment to compatibility or not reducing the level of interoperability, etc.
  • M&A Department
  • E-commerce Department
  • Legal/Compliance Department

Monopoly agreement
  • In addition to serving as a platform, if the platform itself also carry out businesses (self-operated businesses) that compete with other operators on the platform, the platform is both an upstream operator and a competitor of the operators on the platform. In this case, the following behaviors are highly risky and should be avoided:

(1) using the platform to collect and exchange CSI with/among operators on the platform;

(2) using technical means, data, algorithms, platform rules, etc., to achieve coordination and consistency on price, cost, output, customer sharing, etc.;

(3) using technical means, data, algorithms, platform rules, etc., to set/restrict resale price automatically;

(4) requiring the operators on the platform to provide it with equivalent or more preferential trading conditions compared with other platforms.

Platforms must be very cautious not to act as an organizer of a monopoly agreement or provide others with substantive assistance in reaching a monopoly agreement. This is explicitly prohibited by the NEW AML.
  • Sales & Marketing Department
  • E-commerce Department
  • Legal/Compliance Department

Abuse of dominance
  • Consider digital market's specific factors in determining whether a platform has dominant market position, e.g., market share can be measured through transaction value, transaction volume, sales, number of active users, number of clicks, usage length, etc.
  • Keep in mind that “choose one from two” (requiring merchants to shut stores on competing platforms) in the digital market has become the focus of the competition authority, which may constitute restriction of dealing with specific parties without justifiable reason.
  • If you are a platform with market dominance, solicit professional opinion from external antitrust lawyers when using data and algorithms, technologies and platform rules etc. to give yourselves preferential treatment (incl. self-preference on display, ranking, or using non-disclosed data for the purpose of self-product developing) to compete with operators on the platform.
  • Sales & Marketing Department
  • Procurement Department
  • E-commerce Department
  • Legal/Compliance Department

8. PR, GR and Senior Management

General statement
  • While posting/making statement on your website/before the public (e.g., press release), please make sure the contents have been reviewed by Legal/Compliance Department or your external antitrust lawyers. The statement should not contain any market share information and other CSI.
  • PR/GR
  • Legal/Compliance Department

Response to dawn-raid or penalty decision
  • If your company experiences a dawn-raid or receive a penalty decision, it is suggested:

(1) to consult the opinions of the PR, GR, Legal/Compliance Department and your external antitrust lawyers before publishing a media statement;

(2) that employees of your company are not allowed to discuss the matter unless explicitly authorized.
  • PR/GR
  • Legal/Compliance Department
  • Senior Management

Senior management
  • To ensure the competition compliance policies and mechanisms have been effectively implemented, resolution from the senior management must be showed:

(1) senior management should allocate necessary resources (e.g. financial support for trainings, dawn-raid drills, personnel support such as a compliance manager) to AML compliance;

(2) senior management should bear in mind that AML violation may incur huge fine and reputation damage for themselves as individuals (a fine of up to RMB 1 million).
  • Legal/Compliance Department
  • Senior Management

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.