On August 1, 2022, the new Anti-Monopoly Law of China (the“NEW AML”) came into effect and new competition rules are brought by crucial revisions such as the significant increase in fines, important changes in the control of concentrations and the regulation of vertical monopoly agreements, the involvement of the People's Procuratorate in public interest litigation, etc. The revisions brought wide-reaching challenges and will affect a number of functions within many organizations, from HR to sales and, of course, legal and compliance. For the purpose of adapting to the NEW AML and assisting organizations to recognize potential antitrust risks, this checklist aims to provide a list of actions that are recommended to take and identify the stakeholders which will need to be involved in each set of actions.
Category |
Action(s) |
Department(s) Concerned |
1. Terminologies |
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N/A |
(1) prices (incl. actual prices, price list or indicative prices); (2) discounts and discount policies; (3) bidding plan or strategy; (4) customers (incl. actual or potential customers and their identities and classification); (5) market areas (areas where actual or planned sales/non-sales of goods occur, or where services are provided or not provided); (6) suppliers (incl. actual or potential suppliers and their classification); (7) terms or conditions of sales; (8) policies or strategies for negotiation with customers; (9) earnings, profits, or profit margins; (10) market share; (11) strategies or costs of sales, marketing, advertisement, or promotion; (12) market, supply and demand, price trends and other data or opinions (e.g. whether the current market prices are too low, what is an appropriate level of prices, and how to reach a higher or more stable level of prices); (13) business expansion/contraction plan; (14) R&D projects, strategies, or costs; (15) production capacity, output, or costs; (16) salaries and benefits of employees; (17) any information that can be exploited to reduce workable competition, such as data of production, sales, and inventory.
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All:
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2. Legal / Compliance |
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General issues |
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Whistle-blowing |
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Dawn raid response |
(1) the rule of thumb is that do not hinder/obstruct the investigation, be cooperative and courteous to investigators at all times, but reasonably restrict the investigation scope (e.g. do not voluntarily submit documents or provide replies not related to the investigation); (2) contacting your external antitrust lawyers immediately; (3) checking the investigators' law enforcement credentials and law enforcement documents issued by the authority and requesting a copy; (4) copying and recording any documents before submitting them to government investigators; (5) never disclosing the investigation to anyone outside the company or to unrelated persons within the company unless clearly authorized; (6) developing a plan on next steps with the emergency team and your external antitrust lawyers. |
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3. HR Management |
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Recruitment and human resource management |
(1) salary, salary level or benefit level; (2) scope, area, region of your respective recruitment; (3) rejection of any specific personnel; (4) “no poaching” agreement: each will not solicit or hire people from others.
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4. Merger & Acquisition |
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Merger control filing obligation |
(1) whether the transaction constitutes a “concentration of undertakings” under the NEW AML; (2) if yes, whether the transaction meets the turnover threshold; if the threshold is not met, whether the transaction is likely to be required a filing by the competition authority due to its potential impact on the competition of the relevant market: e.g. the party's market share is very high, the party has significant power of data, the party is a powerful platform.
(1) “control” in the NEW AML is different from it in the corporate laws/M&A rules; (2) minority shareholding may also trigger merger control filing obligation; (3) merger control filing obligation is irrelevant to the market share of the products concerned; the market share may be relevant to the competition analysis during the filing procedure; (4) whether the transaction involves cooperation with competitors or upstream suppliers / downstream customers is irrelevant to the merger control filing obligation; this may be relevant to the competition analysis during the filing procedure.
“Implementation” includes: completion of the registration of change in shareholders or rights, obtaining the business license of the JV, appointment of senior managements, actual participation in business decision-making and management, exchange of CSI with other parties, substantial integration of businesses, etc.
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Do's and Don'ts throughout the M&A |
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5. Sales & Procurement |
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Monopoly agreement |
(1) price-fixing, either directly or indirectly, e.g. fixing the prices, discounts, margins, timing of price changes, formula to calculate price, etc.; (2) bid-rigging, e.g. collusion on the bid-winner, abandoning a bid, withdrawing from a bid, submitting a high-price; (3) restriction on the volume of supply or production capacity; (4) boycotting: not to deal with particular clients or suppliers; (5) allocation of sales market, customers or the market of procuring raw materials; (6) restriction on the purchase of new technologies or equipment, or the development of new technologies or products.
(1) resale price maintenance (RPM); (2) minimum resale price maintenance (mRPM): fix the lowest prices for products resold to a third party; For RPM/mRPM, although the company is provided with an opportunity to prove that such agreements do not have the effects of eliminating or restricting competition, the risks of reaching such agreements may still be high in particular for companies with higher market share as it is difficult to prove in practice.
(1) you must not exchange CSI with your competitors; (2) you should not collect CSI of your competitors from your upstream suppliers or downstream customers as hub-and-spoke cartels are prohibited as well; (3) you should not share CSI of your upstream suppliers or downstream customers with their respective competitors as organizing or providing substantive assistance to others in reaching a monopoly agreement is prohibited by the NEW AML as well. Collecting information from public sources is allowed. |
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Abuse of dominance |
(1) unfairly overpricing sales or unfairly underpricing procurement; (2) selling at a price lower than cost; (3) refusal to deal with certain suppliers or customers; (4) restricting them to deal with certain parties (exclusively) or not to deal with certain parties; (5) tie-in sales or attaching unreasonable conditions to the trading (incl. types and quality of commodities, payment conditions, delivery methods, after-sale services, transaction options, technical constraints); (6) discrimination in terms of prices or other contractual terms and conditions. If you are a platform or other digital business with a dominant market position, please do not use data, algorithms, technologies or platform rules to abuse your dominance. For two-sided market businesses, the market power in both sides will be considered together, e.g. Alibaba case and Meituan case. |
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Participating trade associations |
The code of practice in this section applies not only to formal meetings organized by trade associations, but also to all social and informal gatherings associated with trade associations or among competitors, such as meeting meals, coffee breaks, bar gatherings, golf games, small talk and other informal occasions.
(1) strictly prohibit from discussing any CSI of any members or non-members, in particular current CSI or future CSI; past CSI within 6 months is also very sensitive and shall not be discussed or circulated; (2) immediate renounce and withdraw from the discussion if any sensitive topic has been brought up; (3) keep records of your renunciation and withdrawal from discussing any sensitive topic, and inform your Legal/Compliance Department of such records; (4) object and do not implement any rules, regulations or resolutions which are suspected of violation. |
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6. R&D and IP |
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Monopoly agreement |
For example, BMW, Daimler and Volkswagen, Audi and Porsche under the Volkswagen Group have discussed the technical development of vehicle exhaust emissions in a joint meeting, and part of the meeting was suspected of private collusion to restrict the research, use and development of clean emission technologies.
“Reverse Payment Agreement” is a commitment by the drug patent right holder to give direct or indirect benefit compensation to the generic drug applicant, and the generic drug applicant promises not to challenge the validity of the drug-related patent rights or delay entry into the patented drug-related market agreement. Although it is not illegal per se in China, it has the potential risk of being examined. For example, on December 27, 2021, for the first time, China's Supreme Court proactively examined reverse payment agreement or any settlement with such appearance in terms of its impact on competition. |
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Abuse of dominance |
(1) requiring the counterparty to grant back the technologies improved by the counterparty exclusively or solely; (2) prohibiting the counterparty from questioning the effectiveness of the patent; (3) restricting the counterparty from utilizing competing products or technologies upon the expiration of the license agreement, provided that no IP right is infringed upon; (4) continuing to exercise the rights of the IP whose protection period has expired, or which has been determined invalid; (5) prohibiting the counterparty from trading with any third party; (6) giving discriminatory treatment to the counterparties with the same conditions. |
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SEP (standard essential patent) |
(1) step 1: the SEP holder provides a licensing offer to an implementor; (2) step 2: the implementer needs to express the willingness to accept the FRAND license; (3) step 3: the SEP holder to provide specific licensing terms (incl. license fees) on FRAND terms; (4) step 4: if the implementer is unwilling to accept the licensing terms, the implementer should provide a counter-offer (incl. license fees) for the SEP holder; (5) if no agreement can be reached after 4 steps, repeat step 3 and step 4 or bring a proceeding before a court or arbitration organization to rule the FRAND terms.
(1) do not, in violation of the FRAND commitment, license at an unfairly high price, or conduct the behaviors of refusal to license, tying, discriminatory treatment, or attaching other unreasonable restrictions without any justifiable reasons; (2) do not, in violation of the FRAND commitment, force the SEP implementor to accept overpricing or other unreasonable restrictive conditions by asking the court or competent authority to issue an injunction before negotiation in good faith.
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7. E-commerce / Platform / Digitalization |
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Merger control filing obligation |
(1) concentrations involving VIE structure falls within the scope of merger control filing review; (2) for platforms, the turnover includes the income generated from the sale of goods and provision of services (e.g. commissions).
(1) divestiture of tangible assets, IP, technologies, data, or other rights; and/or (2) opening up networks, data, platforms or other infrastructure, licensing key technologies, terminating exclusive agreements, amending platform rules or algorithms, and making a commitment to compatibility or not reducing the level of interoperability, etc. |
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Monopoly agreement |
(1) using the platform to collect and exchange CSI with/among operators on the platform; (2) using technical means, data, algorithms, platform rules, etc., to achieve coordination and consistency on price, cost, output, customer sharing, etc.; (3) using technical means, data, algorithms, platform rules, etc., to set/restrict resale price automatically; (4) requiring the operators on the platform to provide it with equivalent or more preferential trading conditions compared with other platforms. Platforms must be very cautious not to act as an organizer of a monopoly agreement or provide others with substantive assistance in reaching a monopoly agreement. This is explicitly prohibited by the NEW AML. |
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Abuse of dominance |
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8. PR, GR and Senior Management |
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General statement |
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Response to dawn-raid or penalty decision |
(1) to consult the opinions of the PR, GR, Legal/Compliance Department and your external antitrust lawyers before publishing a media statement; (2) that employees of your company are not allowed to discuss the matter unless explicitly authorized. |
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Senior management |
(1) senior management should allocate necessary resources (e.g. financial support for trainings, dawn-raid drills, personnel support such as a compliance manager) to AML compliance; (2) senior management should bear in mind that AML violation may incur huge fine and reputation damage for themselves as individuals (a fine of up to RMB 1 million). |
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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.