Contributions also by Shan Lining and Liu Jia
On 7 January 2011, the State Administration of Industry and Commerce (SAIC) published the following 3 rules which accompany the Anti-Monopoly Law (AML):
- Rules in relation to Conduct amounting to Monopoly Agreements (Monopoly Agreement Rules);
- Rules in relation to Conduct amounting to Abuse of Dominance (Abuse of Dominance Rules); and
- Rules in relation to Conduct amounting to Abuse of Administrative Powers (Abuse of Administrative Powers Rules).
The SAIC governs non-price breaches in respect of the AML; hence the rules above are only applicable to non-price breaches of the AML.
Aside from these 3 rules, the National Development and Reform Commission (NDRC) has published another 2 rules dealing with price monopolies and procedural rules in relation to price breaches of the AML – see our articles entitled " Rules on Anti-Price Monopoly – effective 1 February 2011"and " Procedural Rules re Administrative Enforcement of Anti-Price Monopoly – effective 1 February 2011" . Together, this suite of 5 rules provide much awaited guidance in relation to how both price and non price prohibitions pursuant to the AML will be interpreted and enforced.
This article outlines the content of the three SAIC rules.
Monopoly Agreement Rules
Article 13 of the AML prohibits anticompetitive agreements or "monopoly agreements" between competitors in the form of agreements, decisions or concerted practices. Article 13 also lists specified categories of monopoly agreements which are likely to fall foul of this prohibition (e.g. agreements to restrict output, divide markets and jointly boycott competitors).
The Monopoly Agreement Rules provide guidance in relation to non-price breaches of Article 13 of the AML. The following are some of the salient provisions to note in respect of these rules:
- the rules provide that conduct may amount to a "concerted practice" even if there were no expressly concluded written or oral agreements;
- the rules provide certain factors that the SAIC will consider to decide if conduct amounts to a "concerted practice"
- the rules articulate, in some detail, the types of conduct which may fall into the four major categories of non-price violations (in respect of Article 13 of the AML). These are: restricting output and sales; dividing markets; restricting innovation and joint boycotts;
- the rules set out a leniency regime (in respect of Article 13 of the AML). Broadly, business operators who come forward with evidence of breaches of Article 13 may be granted full immunity or a reduced penalty;
- in relation to penalties, the rules distinguish between a situation where a monopoly agreement is currently being implemented; as opposed to a situation where a monopoly agreement has been reached but not yet been implemented. The rules suggest that the former situation may incur greater penalties than the latter situation; and
- the rules also state that where a business operator ceases to implement a monopoly agreement in its own initiative – the SAIC will possess the discretion to exempt that business operator from pecuniary penalties.
Abuse of Dominance Rules
Article 17 of the AML prohibits dominant business operators from abusing their dominance. Article 17 also lists specified categories of conduct which are likely to fall foul of this prohibition (e.g. refusal to deal without a valid reason; placing restrictions on trading counterparts to only transact with the dominant business operator without a valid reason; and bundling the sale of commodities without a valid reason).
The Abuse of Dominance Rules provide guidance in relation to non-price breaches of Article 17 of the AML. The following are some of the salient provisions to note in respect of these rules:
- the rules provide guidance on what conduct would constitute a refusal to deal; restrict transactions; tying and bundling and discriminatory treatment;
- the rules provide guidance as to the factors that the SAIC might consider when determining if conduct amounts to a "valid reason". Factors include: whether actions are undertaken by the dominant business operator on its "normal operating activities"; and whether the impact of the dominant business operator has an impact on economic efficiency, public benefits and economic development;
- the rules introduce a regime similar to what is known in Europe as the "essential facilities doctrine". This is where dominant business operators are being placed under greater scrutiny in respect of their conduct where they provide goods or services which are considered as essential facilities; and
- the rules provide that if a business operator ceases to abuse its dominance on its own initiative – then the SAIC possesses the discretion to immunize the business operator from any penalties or to order a reduced penalty.
Abuse of Administrative Powers Rules
Chapter 5 of the AML deals with administrative authorities in China abusing their powers – resulting in the elimination or restriction of competition.
The Abuse of Administrative Powers Rules provide guidance on how Chapter 5 will be enforced. Broadly, the rules list examples of how administrative authorities may abuse their powers, resulting in the elimination or restriction of competition. For instance, by withholding administrative approvals; by restricting entry in relation to non-local products into a local industry by applying different approval conditions; or by excluding non-local business operators from participating in local bids and tenders.
In addition, the rules also state that business operators are prohibited from entering into monopoly agreements and/or an abuse of dominance on the pretext of adhering to administrative restrictions, authorizations or rules articulated by administrative authorities. [Note: Business operators should be aware of this provision and in doubt seek legal advice as to whether your conduct could potentially flout the AML.]
The 3 rules as set out above (along with the 2 rules on price monopoly, published by the NDRC a little earlier on) shed some light as to how the prohibitions within the AML will be enforced. Already, we are seeing public enforcement actions against business operators and business associations for price and non-price violations of the AML. Going forward, we can expect to see even more public enforcement actions. Now that these rules have been published, it is also somewhat clearer how business operators may go about defending their conduct, if being investigated by the antitrust authorities (such as the NDRC and the SAIC).
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.