China: Recent Enforcement Highlights Importance Of Antitrust Compliance In China

Chinese antitrust authorities have been particularly active in the past month and have orchestrated several highly publicized "dawn raids" of international companies, including Microsoft, Accenture and a German luxury car manufacturer, for alleged potential antitrust violations. Recent events send strong signals that China is becoming more aggressive in its enforcement. While the government has issued statements after the recent raids seeking to quell fears it is targeting international companies, foreign business and governments suspect that is behind the recent spike in investigations.

Recent investigations by Chinese authorities

China's antitrust laws are enforced by three different agencies: the Ministry of Commerce (MOFCOM), which is responsible for merger reviews; the National Development and Reform Commission (NRDC), which mostly investigates price related violations; and the State Administration for Industry and Commerce (SAIC), which mostly investigates all other non-price related anticompetitive conduct.

Aggressive enforcement in 2013 and 2014. The two non-merger enforcement agencies, and NDRC in particular, have been particularly active since 2013. These agencies have investigated and issued large fines in several high-profile cases in 2013 and 2014, including:

  • imposing fines totaling RMB 669 million ($109 million) on six infant formula manufacturers for resale price maintenance (RPM), while exempting three other manufacturers from penalty based on their voluntary submission of evidence, cooperation during the investigation, and active correction of their business practices
  • penalizing six global LCD manufacturers for their involvement in a global cartel with fines totaling RMB 144 million ($23 million), confiscating RMB 36.75 million ($6 million) in illegal gains, and ordering restitution of RMB 172 million ($28 million) in customer overpayments
  • imposing fines totaling RMB 19 million ($3 million) against international glasses and contact lens companies for RPM
  • imposing fines totaling RMB 1.2 billion ($195 million) against 12 international auto-parts manufacturers for price fixing
  • settling with InterDigital regarding allegations of unfairly high royalties, bundling of essential and non-essential patents and free grant back clauses
  • ongoing reported investigations against Microsoft, TetraPak and other multinational companies for potential abuses of dominance.

Recent dawn raids. Chinese antitrust regulators are increasingly using dawn raids in their investigations. Dawn raids have been employed not only in cartel cases, but also in vertical restraint and abuse of dominance cases. Chinese antitrust authorities do not need a search order from a court to conduct a search and can take actions on their own.

Here are some highlights of reported investigations and dawn raids in the past few months:

  • About 100 law enforcement officials visited multiple China offices of Microsoft during SAIC raids. Several senior employees and personnel were interviewed, while SAIC copied documents and electronic data and seized computers. The raid is purported to be in connection with complaints about compatibility, bundling and file authentication issues with the Windows operating system and Office software.
  • Accenture, which performs financial services for Microsoft, was also raided by SAIC. It is suspected that this is in connection to the Microsoft investigation.
  • The Shanghai office of a German luxury car manufacturer was also raided by the NRDC in connection with an inquiry into the auto parts and after-sales services sectors. The raid was reported to have taken an entire day with approximately a dozen officials conducting the search. Employees were also interviewed during the search and electronic data was copied or seized.

Avoiding antitrust attention in China

Below are a few recommendations to help reduce the possibility of an investigation or raid:

  1. Make sure employees report to the legal department before attending any trade association activities and are reminded to avoid actions that might be perceived as anticompetitive. Make sure the proposed agenda is followed and any suspicious incidents are properly documented.
  2. Avoid RPM and seek legal advice as to whether price or non-price vertical restrictions on distributors violate China's Anti-Monopoly Law.
  3. A company that holds a significant market share should carefully evaluate its profit margins and pricing practices to avoid the perception of abusing its market position. Technology companies should evaluate their patent and licensing practices in light of recent investigations. Unfairly high prices may raise antitrust problems in China.
  4. Requests for information from Chinese antitrust regulators likely indicate a potential looming investigation. Chinese regulators sometimes use these requests as a way of collecting information before they formally initiate an investigation. Therefore, take any requests seriously and seek legal advice immediately.
  5. Conduct antitrust audits in high risk businesses and practices. If any serious antitrust violations are found, consider applying for leniency. Chinese regulators are increasingly looking into global cartels and many companies are utilizing leniency programs to lessen punishments. For example, NDRC started an investigation in 2012 when a Japanese auto parts company self-reported to the Chinese government and applied for leniency. Leniency programs encourage cartel participants to turn on each other in exchange for reduced punishments and have likely lead to an increase in investigations.

The cost of antitrust violations can be steep. In addition to million-dollar fines, interruption of business operations can also be significant, including coping with dawn raids, responding to extensive information requests and diversion of management time. This could not be more important in the current enforcement environment in China.

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.

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Sébastien J. Evrard
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