China: SAIC Publishes First Boycott Case: Trade Association Again In Spotlight

Last Updated: 23 March 2016
Article by Michael Gu and Bai Chen

Introduction

According to a penalty decision published by the State Administration for Industry and Commerce (SAIC) on December 8 2015, the Guangdong Provincial Administration for Industry and Commerce (AIC) has fined local trade association Guangzhou Panyu Animation and Gaming Association (GAGA) RMB 100,000 for monopolistic conduct. This marks the first boycott case penalised by the Chinese competition enforcement agencies.

The Guangdong AIC's investigation was not triggered by third-party complaints, as is often the case; rather, the agency initiated the investigation based on a report published in Guangzhou Daily on March 13 2013. The local newspaper reported that GAGA had signed an "exhibition alliance agreement" with its 52 members. Under the alliance agreement, GAGA's members were prohibited from attending exhibitions that were unrelated to the animation and gaming industry or not approved by GAGA.

After an initial investigation, the Guangdong AIC held that GAGA's behaviour potentially violated the Anti-Monopoly Law. On July 21 2014 the Guangdong AIC officially began its investigation of the alleged conduct after obtaining authorisation from the SAIC.

Following further investigation, the Guangdong AIC concluded that the alliance agreement constituted a monopolistic agreement under Article 13 of the Anti-Monopoly Law, as the participants were competing undertakings and the alliance agreement was intended to orchestrate a boycott which effectively restricted or eliminated competition. Therefore, citing Article 46 (3) of the Anti-Monopoly Law, 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 set out the following key elements of horizontal monopoly agreements:

  • A competitive relationship exists between the undertakings.
  • The undertakings have concluded agreements, decisions or other concerted actions.
  • The agreements, decisions or other concerted actions have the effect of restricting or eliminating competition.

Each of these elements was analysed in the decision.

First, the 52 members that signed the alliance agreement were all from the animation and gaming industry and had a strong competitive relationship with each other in the Guangzhou region, and were therefore regarded as competing undertakings.

Second, the conclusion of the alliance agreement was a clear fact. The 52 members that entered into the alliance agreement were required to boycott all other animation and gaming exhibitions in Guangzhou, which were not held, organised or sponsored by GAGA.

Third, the Guangdong AIC stated that the conclusion of the alliance agreement in itself imposed constraints on GAGA members and would have actual or potential anti-competitive effects on the market. GAGA argued that after execution of the alliance agreement, its members carried out no illegal behaviour against other competitors in accordance with the agreement. Further, GAGA contended that it did not restrict members' choice of exhibitions in any manner and thus did not implement the alliance agreement. The Guangdong AIC rejected this argument on the ground that GAGA members' freedom of choice to attend exhibitions had been substantially restricted, which would indisputably impede competition. Therefore, the Guangdong AIC held that the alliance agreement had actual or potential anti-competitive effects. As such, the alliance agreement constituted a typical monopoly agreement that violated the Anti-Monopoly Law.

Trade Association's Leading Role

As a trade association, GAGA played a critical and leading role in organising and facilitating the conclusion of the alliance agreement.

Article 16 of the Anti-Monopoly Law stipulates that trade associations may not arrange or organise 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 convening, organising or facilitating undertakings to engage in monopolistic conduct by concluding agreements, decisions, summaries or memoranda that restrict or eliminate competition. In this case, GAGA had drafted the alliance agreement and circulated it to its members to collect signatures. Further, the alliance agreement stipulated that members had to obtain GAGA's prior written approval to participate in animation and gaming exhibitions in Guangzhou which were not held, organised or sponsored by GAGA. This amounted to substantial interference on GAGA's part in the normal business operations of its members, which would distort market competition.

In its defence, GAGA argued that the alliance agreement had been drafted at the request of its members to reduce the number of exhibitions in which they participated, and that it should not be regarded as the organiser simply for executing its members' request. The Guangdong AIC held that, as a trade association, GAGA should have been well aware of what conduct fell within its business scope and what conduct would have illegal consequences, and that drafting the alliance agreement at the request of its members was not a valid reason.

Comment

This is the first boycott case published by the Chinese competition authorities, but it is not the first time that a trade association has been fined for violating the Anti-Monopoly Law. In fact, trade associations have always been a notable source of concern for competition authorities. The SAIC has concluded 34 cases in its antitrust enforcement history, 10 of which involved trade associations. Likewise, the National Development and Reform Commission (NDRC) has investigated several high-profile cartels organised by trade associations in recent years. For example, the Shanghai Gold and Jewellery Industry Association was penalised by the NDRC for organising a price-fixing collusion agreement among five gold jewellers in 2014. In the same year the NDRC found that the Zhejiang Insurance Industry Association had organised 23 local car insurers to hold multiple meetings and conclude and execute horizontal monopoly agreements to fix car insurance premiums and handling fees from 2009 to 2011.

While trade associations may not be defined as 'undertakings' in any given industry, this does not mean that they are not subject to antitrust supervision. In the two abovementioned cases, both trade associations were fined RMB 500,000 – the maximum penalty under the Anti-Monopoly Law. In comparison, GAGA was fined only RMB 100,000. The difference in penalty amounts may be due to the fact that GAGA actively cooperated with the investigation. However, a RMB 100,000 fine does not truly have the deterrent effect that penalties are intended to have.

In addition, it is unclear what happened to the GAGA members that signed the alliance agreement, as the penalty decision did not stipulate whether they were penalised. From the perspective of antitrust enforcement, the participating GAGA members should also be fined for participating in the boycott by signing and executing the monopoly agreement. If they were exempt from penalties, the reasons for the exemption and relevant procedures should be published. Although the penalty decision excluded any mention of the members' legal position, it should be interpreted only as a clear message that trade associations, which organise and facilitate boycotts will be penalised, and should not be misunderstood as implying that participating members will not be liable for their wrongdoings.

The competition authorities used to apply the 'illegal per se' principle when dealing with horizontal monopoly agreements. This means that an agreement will be deemed illegal simply because it was concluded and executed, regardless of whether it has had actual negative effects on competition. However, it seems that the Guangdong AIC applied the 'rule of reason' principle in this case. This principle provides that, in determining whether certain conduct constitutes a monopoly agreement, the alleged agreement must have been concluded and executed and the competition authority must also prove that the agreement actually restricts or eliminates competition. 

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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