China: China's Antitrust Regime Is Ushering In A New Era - Amendment To The Anti-Monopoly Law And Drafting Of Six Antitrust Guidelines

Last Updated: 20 January 2016
Article by Jet Deng and Ken Dai

China's antitrust regime busies itself with extensive legislative activities this year. The most eye-catching ones must be the proposed amendment to the Anti-Monopoly Law ("AML"), and in the meanwhile, the drafting of six antitrust guidelines for IPR, auto industry, fine calculation, leniency, commitment and exemption. After seven years of enforcement of the AML since 1 August 2008, all these legislative activities are launched just in the perfect timing to meet an increasing demand for a more transparent and effective antitrust regime in China, and they also signal the ushering in a new era of antitrust enforcement to which all businesses should pay close attention.

Antitrust Guidelines

According to the mandate by the Anti-monopoly Commission under the State Council, as from June this year, the National Development and Reform Commission ("NDRC") has initiated the drafting work of the six guidelines, which is planned to be completed by June 2016. The first drafts of all these guidelines have been made available to us, and as expected, these drafts provide much more detailed guidance on how the antitrust authorities will assess and sanction monopolistic conducts. Set out below are some key points in the drafts.

Guidelines for IPR

  • Typical licensing behaviors that may raise competition concern are specified, including exclusive grantback, certain vertical restraints, patent pool, unfairly high royalties, refusal to license, tying, and discriminatory licensing. Factors for assessing these behaviors are also specified.
  • Licensing of standard essential patent ("SEP") is still the critical part of the guidelines. Among other provisions that are equally significant, it stipulates that an injunction should not be improperly sought by a SEP holder.

Guidelines for Auto Industry

  • Almost all potential antitrust issues such as monopoly agreement, abuse of dominance, concentration of undertakings and abuse of administrative power are covered by the draft. The focus is still put on the relationship between auto manufacturers/suppliers and auto dealers/repairers and the relationship between auto manufacturers and spare parts/diagnostic equipment producers.
  • Block exemption is provided for some vertical restraints such as territory or customer allocation if certain conditions are met. In addition, case-specific exemption may be available for some resale price maintenance ("RPM") practices.

Guidelines for Fine Calculation

  • Different levels of fines are proposed for horizontal monopoly agreement, vertical monopoly agreement and abuse of dominance respectively. Also, there are several factors to be considered for increasing or decreasing the fines.
  • In addition to fines, clear guidance on how to calculate illegal gains is spelt out. However, this part seems too complicated and several controversial points have been raised by experts in NDRC legislation seminar.

Guidelines for Leniency

  • Standard and procedure for applying for and granting of leniency are set out. Importantly, leniency may be applied both before and after an antitrust investigation is initiated.
  • Normally only the first three applicants may receive leniency treatment. Only in special circumstances leniency may be granted to applicants other than the first three.
  • The Conditions for disqualifying the leniency applicant for receiving immunity or reduction.
  • The determination on the sequence of leniency applicants.

Guidelines for Commitment

  • The commitment mechanism may not apply to horizontal monopoly agreements and RPMs.
  • It is most likely to be adopted in the abuse of dominance cases.
  • The conditions and procedure of accepting the commitment are elaborated.

Guidelines for Exemption

  • Procedure for applying for exemption of monopoly agreements is provided. However, antitrust authorities would be prepared to accept application from businesses only after a monopoly agreement has been reached or an antitrust investigation is initiated.

Since all these drafts are still under discussion and revision, NDRC officials indicated that the final versions may be very different from the first drafts. In the coming months NDRC will continue to seek comments and carry out consultations.

Amendment to the AML

The State Council issued the 2015 Legislation Plan earlier this year. The proposed amendment to the AML is officially put into this plan under the category of Research Program. Currently, The preparatory work is being led by NDRC with support from China University of Political Science and Law, and a preliminary questionnaire has been circulated among antitrust experts for seeking opinions on how the AML should be amended and refined.

Some key changes are proposed in the questionnaire, including whether more types of vertical monopoly agreements should be expressly provided for in addition to the RPM, whether criminal liability should be imposed for serious monopolistic conducts, and how to facilitate the civil antitrust lawsuits.

The exact timetable for the amendment to the AML is unclear at this stage.

Trend of China AML Development

Since the AML's enactment on 30 August 2007, we have observed three phases of development in terms of legislation and enforcement.

Phase 1 (2007~2012)

  • During this period, the three antitrust authorities promulgated a number of supporting regulations respectively, as the AML alone was not sufficiently precise from the point of view of practice and enforcement.
  • The Ministry of Commerce ("MOFCOM") was the most active enforcer due to its role in merger control. By contrast, NDRC and the State Administration for Industry and Commerce ("SAIC") only handled limited cases.

Phase 2 (2013~2014)

  • Several supporting regulations were promulgated to fill in China's antitrust framework.
  • Furthermore, enforcement was enhanced significantly, witnessing high-profile investigations across various industries and record fines. Although MOFCOM still handled most cases every year (around 300 cases), NDRC and SAIC (particularly NDRC) played a leading role in promoting the awareness of AML compliance and reinforcing the authority of China's AML regime.

Phase 3 (2015 onwards)

  • Based on the accumulated experience and having regard to the need of more transparency and predictability of the AML enforcement, extensive legislation activities have been initiated. In particular, the AML or the wider concept of competition law appears frequently in policies issued by the CPC and State Council, which signals a gradual yet significant shift that competition law has become part of the overarching design during China's social and economic transformation in the future.
  • Enforcement has entered into a so-called "new normal" stage. Both central antitrust authorities and their local counterparts, it is anticipated, will carry out investigations on a regular basis. Businesses can hardly, if not at all, formulate a success commercial strategy without having regard to the competition dimension of their activities that interface with one or more facets of the AML.
  • Additionally, civil antitrust lawsuits also increase. One example is that some consumers have lodged lawsuits based on the penalty decisions of the antitrust authorities as evidence to claim damages (so-called "follow-on actions").

Dacheng Antitrust Team is involved in the drafting process of both the antitrust guidelines and the AML amendment. We feel privileged to have the opportunity to witness and contribute to the development of China's antitrust regime.

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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