China: Trade Association Comes Under The Spotlight Again – First Boycott Case Published By The SAIC

Last Updated: 25 January 2016
Article by Michael Gu and Bai Chen

Introduction

China's Guangdong Provincial Administration for Industry and Commerce ("Guangdong AIC") fined local trade association Guangzhou Panyu Animation and Game Association ("GAGA") RMB 100,000 for alleged monopolistic conduct, according to a penalty decision posted on the website of the State Administration for Industry and Commerce ("SAIC") on 8 December 2015. This is the first ever boycott case penalized by the PRC competition enforcement agencies.

According to the penalty decision, the Guangdong AIC's investigation was not triggered by third party complaints, as is often the case; instead the agency initiated the investigation based on a report published by Guangzhou Daily on 13 March 2013. The local newspaper reported that GAGA had signed an "exhibition alliance agreement" ("Alliance Agreement") with its 52 members. Under the Alliance Agreement, GAGA's members were prohibited from attending exhibitions that were either not related to the animation and game industry or not approved by GAGA.

After an initial investigation, the Guangdong AIC regarded that GAGA's behavior might violate China's Anti-monopoly Law ("AML"). On 21 July 2014, the Guangdong AIC officially started its probe into the suspected conduct after obtaining authorization from the SAIC.

After further investigation, the Guangdong AIC concluded that the Alliance Agreement constituted a monopolistic agreement under Article 13 of the AML since the participants were competing undertakings and the Alliance Agreement was designed to carry out a boycott which effectively restricts or eliminates competition. Therefore, citing Article 46(3) of the AML, the agency imposed a penalty of RMB 100,000 on the association, and ordered it to cease the illegal conduct.

Monopoly Agreement

In its decision, the Guangdong AIC sets out the following three key elements for the determination of a horizontal monopoly agreement: (i) A competitive relationship between undertakings; (ii) Undertakings have concluded agreements, decisions and other concerted actions; (iii) The agreements, decisions and other concerted actions have the effect of restricting or eliminating competition. Each of the three elements was analyzed in the decision.

First, the 52 members that signed the Alliance Agreement are all from the animation and game industry and have a strong competitive relationship with each other in the region of Guangzhou, and should therefore be regarded as competing undertakings.

Second, the conclusion of the Alliance Agreement is a clear fact. The 52 members that entered into the Alliance Agreement were required to boycott all other animation and game exhibitions in Guangzhou which are not held, organized or sponsored by GAGA.

Lastly, the Guangdong AIC stated that the conclusion of the Alliance Agreement in itself imposed a constraint on GAGA's members and would have actual or potential anti-competitive effect on the market. GAGA argued that after the execution of the Alliance Agreement, its members neither carried out any illegal behavior against other competitors in accordance with the agreement, nor did GAGA restrict any member's choice of exhibitions in any manner and thus did not implement the Alliance Agreement. This argument was rejected by the Guangdong AIC since the freedom of choice of GAGA's members to attend exhibitions has been substantially restricted, which will indisputably impede competition. Therefore, the Guangdong AIC held that the Alliance Agreement has "actual or potential anti-competitive effect".

As discussed above, the Alliance Agreement is a typical monopoly agreement that violates the AML.

Trade Association's Leading Role

GAGA, as a trade association, played a critical and leading role in organizing and facilitating the conclusion of the Alliance Agreement.

Article 16 of the AML stipulates that trade associations may not arrange or organize undertakings to engage in monopolistic conduct. Article 9(2) of the Provisions for Administrative Authorities for Industry and Commerce on Prohibiting Monopoly Agreements also states that trade associations are prohibited from organizing undertakings to engage in monopolistic conduct by way of calling up, organizing or facilitating undertakings to conclude agreement, decision, summary or memo that involves restricting or eliminating competition. In this case, GAGA had drafted the Alliance Agreement and circulated it to its members to collect signatures. Furthermore, the Alliance Agreement stipulated that members shall obtain GAGA's prior written approval if they intend to participate in animation and game exhibitions in Guangzhou which are not held, organized or sponsored by GAGA. This indicates GAGA's substantial interference in the normal business operation of its members, which would distort market competition.

In its defense, GAGA argued that the Alliance Agreement was drafted on the request of its members to reduce the number of exhibitions they participate in and GAGA should not be regarded as the organizer for simply recording its members' request. The Guangdong AIC held that, as a trade association, GAGA should be well aware of whether certain conduct is within its business scope and whether such conduct would yield illegal consequences, and that drafting the Alliance Agreement on the request of its members is not a valid reason.

Comment

This is the first boycott case published by the PRC competition authorities, but this is not the first time a trade association has been fined for violating the AML. In fact, trade associations have always been a notable source of concern for competition authorities. 34 cases have been concluded by the SAIC in its antitrust enforcement history, out of which 10 cases involve trade associations. Likewise, the National Development and Reform Commission ("NDRC") have investigated several high-profile cartels organized by trade associations in recent years. For example, the Shanghai Gold and Jewellery IndustryAssociation was penalized by the NDRC for organizing the price-fixing collusion among five gold jewelers in 2013. In the same year, the NDRC found that Zhejiang Insurance Industry Association organized 23 local car insurers to hold multiple meetings and conclude and execute horizontal monopoly agreements to fix car insurance premiums and handling fees during the period between 2009 and 2011.

While trade associations may not be defined as "undertakings" in any given industry, it does not mean that trade associations are not subjected to antitrust supervision. In the two cases above mentioned, both trade associations were fined RMB 500,000, the maximum penalty under the AML. As a comparison, GAGA was only fined RMB 100,000. There might be some reasons for this difference in penalty amount since GAGA had actively cooperated with the investigation. However, RMB 100,000 does not sound like a "penalty" as it does not have the deterrent effect a "penalty" is supposed to have.

In addition, one might wonder what happened to the members that signed the Alliance Agreement, as it is not clear from the penalty decision whether or not they had been punished. From the perspective of antitrust enforcement, GAGA's members should also be fined for participating in the boycott by signing and executing the monopoly agreement, and if they were exempted from the penalty, the reasons for the exemption and relevant procedures should be published in the decision. Although the penalty decision excluded any mention of the legal position of the members, the decision should be taken to solely convey the message that trade associations which organize and facilitate boycotts will be penalized, and should not be misunderstood as implying that participating members will not be liable for their wrongdoings.

Competition authorities used to apply the Illegal Per Se principle when dealing with horizontal monopoly agreements. The Illegal Per Se principle means that an agreement would be deemed illegal simply because it is concluded and executed, regardless of whether it has actual negative impact on competition. However, it seems that the Guangdong AIC applied the Rule of Reason principle in this case. The Rule of Reason principle means that, in determining whether certain conduct constitutes a monopoly agreement, not only does the alleged agreement have to be concluded and executed, the competition authority also has to prove that the agreement actually restricts or eliminates competition. 

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