China: Annual Review Of Public Enforcement Of China's Anti-Monopoly Law (2016)

Last Updated: 5 April 2016
Article by Michael Gu

I. OVERVIEW

In 2015, the Chinese market experienced rapid developments in anti-monopoly law enforcement. Further efforts also went into new guidelines and rules aimed at refining China's antitrust regime. Also, China's three anti-monopoly law enforcement agencies were very active in terms of the number of cases handled, the rate of fines imposed, and the varied grounds for investigations. In particular, high-profile antitrust cases have further profiled China as an emerging centre for antitrust enforcement. The Qualcomm case concluded by the National Development and Reform Commission (NDRC) set a new record for the highest antitrust penalty ever issued in China's anti-monopoly enforcement history, and also is the first investigation concluded by Chinese antitrust agency against the abuse of standard-essential patents (SEPs). A pharmaceuticals company in Chongqing has become the first company penalized for refusing to deal in the antitrust enforcement history of China.

On 7 April 2015, the State Administration for Industry and Commerce (SAIC) published China's first anti-monopoly regulation specifically aimed at the abuse of intellectual property rights - the Provisions on the Prohibition of Abuse of Intellectual Property Rights for the Purpose of Eliminating or Restricting Competition - which became effective on 1 August 2015. The provisions fill the legislative gap in China's anti-monopoly regulations governing the IP field and aim to balance the lawful rights and interests of IP rights holders and other interested parties, while also further promoting innovation and market competition.

However, the aforementioned Provisions on the Prohibition of Abuse of Intellectual Property Rights apply only to monopoly cases within SAIC's jurisdiction because the Provisions are ministry-issued regulations (for example, they do not apply to price monopoly cases under the NDRC's jurisdiction or merger control filings handled by the Ministry of Commerce (MOFCOM)). Abuse of IP rights has become a major focus of anti-monopoly enforcement agencies, and we strongly anticipate a superior and comprehensive set of anti-monopoly regulations over IP rights abuses. Agencies are already moving in this direction. In May 2015, the Anti-monopoly Commission of the State Council (AMC) designated the NDRC to lead an effort to officially initiate the study and drafting of the Anti-Monopoly Guidelines on Intellectual Property Abuse. Also, the SAIC and MOFCOM are each in the process of drafting antitrust guidelines on intellectual property abuse for their own respective enforcement areas. Their aim is to create a unified and comprehensive set of antitrust guidelines applicable to intellectual property rights.1 The AMC appears likely to release a unified set of guidelines on antitrust enforcement in the intellectual property in the second half of 2016. This will provide welcome clarity on the application of antitrust laws to intellectual property rights and will facilitate the investigations on the cases involving IP rights abuse.

In addition to the Anti-Monopoly Guidelines on Intellectual Property Abuse, the NDRC is also in the process of drafting another five antitrust guidelines which will cover the automotive industry, the procedure on undertakings' exemptions, leniency programs, undertakings' commitments, and the calculation on illegal gains and fines. The guidelines are likely to set forth more detailed guidance on the practical and procedural issues with respect to the application of the Anti-Monopoly Law. In February 2016, the NDRC published two drafts, the draft of the Guidelines for Applying Leniency Program to Horizontal Monopoly Agreements and the draft for the Guidelines on Undertakings' Commitments in Anti-Monopoly Cases. The official promulgation of these two guidelines is expected in the months ahead. The antitrust guidelines in the automotive industry were drafted based on the NDRC's enforcement experience in the industry. At a seminar held by the NDRC on 7 January 2016, Mr Zhang Handong, the Director General of the Price Supervision and Anti-Monopoly Bureau of the NDRC disclosed that since 2014 the NDRC has probed and closed 12 antitrust cases in the automotive sector, imposing an aggregate of 2.047 billion renminbi in fines. According to Mr Zhang Handong, the antitrust guidelines in the automotive industry will encompass the theory, framework, principles, and methodology of antitrust enforcement in the automotive industry, with a focus on the assessment of monopolistic agreements and abuse of dominance.

In February 2015, the MOFCOM published the Guidance on Naming of Notification of Concentrations of Undertakings on its website to standardise the naming method of the merger cases. MOFCOM also initiated the revision process for the Measures for the Filing of Concentration of Undertakings and the Measures for the Review of Concentration of Undertakings.2 MOFCOM seeks to further refine the merger control review regime with its two Measures. MOFCOM also facilitated the revision of the Anti-Monopoly Law based on their practical enforcement experience, in the hopes that certain problematic areas that ignited great debate or caused confusion will be better reflected and addressed in future legislation.3 MOFCOM's merger review- related guidelines on intellectual property rights mainly touch on the transfer and acquisition of intellectual property rights, as well as post-research and development issues with regards to patent pool, joint research, and exclusive intellectual property licensing in the merger review process. MOFCOM's guidelines will address various intellectual property antitrust issues and a merger's potential adverse impact on market competition.

i. Prioritisation and resource allocation of enforcement authorities

In 2015, the NDRC actively investigated monopolistic behaviours in consumer-related sectors such as telecommunications, automotive, insurance, and other fields. In 2016, the NDRC will continue to keep under close scrutiny industries that concern the general public, e.g. - automotive and auto parts industries, tobacco, telecommunications, education, healthcare, and the online retail sector.

In 2015, SAIC initiated 12 different cases involving the pharmaceuticals, tobacco, telecommunications, construction materials, and insurance industries. Prior to 2015, SAIC mainly focused its attention on horizontal monopoly agreements. In 2015, SAIC's enforcement priority gradually shifted to investigation of abuse of dominance. Also, the SAIC published the first penalty decision that concerns an enterprise's failure to cooperate with an investigation conducted by the antitrust law enforcement agency. This case clearly indicates SAIC's determination to safeguard the integrity of law enforcement and strengthen enforcement efforts.

MOFCOM received more merger notifications in 2015 than in any previous year, which underlines China's gradual emergence as a significant major jurisdiction for merger control enforcement. At the same time, MOFCOM toughened its stance against companies that failed to notify their deals. By the end of 2015, MOFCOM had sanctioned 15 cases for non-filing, nine sanctions of which occurred in the year 2015 alone (note that only four of nine cases were announced publicly).

ii. Enforcement agenda

The NDRC concluded 13 antitrust probes in 2015, which involved horizontal and vertical monopolistic agreements and abuse of market dominance, and covered industries including telecommunications, pharmaceuticals, automotive, and transportation, handing down fines over 7 billion renminbi.

The SAIC has initiated 58 antitrust investigations, consisting of 31 monopoly agreement cases and 27 abuse of dominance cases, since the commencement of the Anti-Monopoly Law in 2008. In 2015, the SAIC authorised its local branches to launch 12 antitrust investigations; four of which involved monopoly agreements and eight cases were related to abuse of dominance.

Since the Anti-Monopoly Law entered into force on 1 August 2008, MOFCOM has unconditionally cleared 1,276 merger cases, 312 of which were concluded in 2015.4 Among all the cases cleared by MOFCOM in 2015, 243 were simple cases, accounting for almost 80% of all merger cases. MOFCOM's merger review process has also become more efficient in 2015, with 74% of the closed cases being completed within the 30-day Phase I period, an 18% increase from 2014.5 MOFCOM also granted conditional clearance in two cases in 2015, with one being given structural remedies, while the other was subjected to behavioural remedies.

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Footnotes

1. As stated in a press release on 25 November 2015, available at Xinhua Net: http://www.js.xinhuanet.com/2015-11/25/c_1117257078.htm

2. As stated in MOFCOM's 15 January 2016 press release, available at http://www.mofcom.gov.cn/article/ae/ai/201601/20160101235053.shtml

3. As stated in MOFCOM's 15 January 2016 press release, available at http://www.mofcom.gov.cn/article/ae/ai/201601/20160101235053.shtml

4. The statistics come from the presentation of Shang Ming (former director-general of the Anti-monopoly Bureau of MOFCOM) at China Competition Policy Summit on 15 January 2016.

5. The statistics come from the presentation of Shang Ming (former director-general of the Anti-monopoly Bureau of MOFCOM) at China Competition Policy Summit on 15 January 2016.

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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