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30 Jul 2019

China Issues New Rules with Guidance on Anti-monopoly Compliance

The Interim Provisions on the Prohibition of Monopoly Agreements (“Provisions on Monopoly Agreements”) and the Interim Provisions on the Prohibition of Abuse of Market Dominance (“Provisions on Abuse”), promulgated by the State Administration for Market Regulation (“SAMR”) on 1 July 2019, will be officially implemented on 1 September 2019. The above provisions are the first anti-monopoly law enforcement regulations promulgated in China since the “three-in-one”[1] integration of China’s anti-monopoly law enforcement authorities. The provisions replace and update the previously dispersed department rules, and clarify and refine certain law enforcement practices. These provisions will provide market operators with the latest guidelines for anti-monopoly compliance. This article will interpret the key provisions in the above two regulations.

I. Clarifying the “Central + Local” Anti-monopoly Law Enforcement System

In order to enable the local market regulatory authorities to share more anti-monopoly law enforcement work and to further strengthen the anti-monopoly law enforcement force, the SAMR has vigorously promoted the “central + local” anti-monopoly law enforcement system since its establishment. Under this system, the SAMR is mainly responsible for investigating and handling cases that are cross-regional or complicated, that have significant influence nationwide or that, by necessity, must to be directly investigated and handled by it. The provincial market regulatory authorities are mainly responsible for cases within their respective provinces. In addition, in order to keep the anti-monopoly law enforcement across the country organized, professional and unified, provincial anti-monopoly law enforcement authorities are required to accept the guidance and supervision of the SAMR when imposing penalties, cancelling cases or suspending/terminating investigations during their anti-monopoly investigations.

To clarify the above law enforcement system, the SAMR issued the Circular of the State Administration for Market Regulation on the Authority for Anti-monopoly Enforcement the (“Circular”) on 28 December 2018. The above provisions once again confirmed the law enforcement system that was first described in the Circular.

With the continuous growth and maturity of local anti-monopoly law enforcement forces, it is foreseeable that anti-monopoly investigation cases initiated by local anti-monopoly law enforcement authorities will continue to increase. Although the SAMR will guide and supervise local law enforcement, there will still be some differences in the law enforcement styles and standards of local anti-monopoly law enforcement authorities, which should be noted by companies when handling their compliance issues.

II. “Safe Harbor System” Not Applicable to the Identification of Monopoly Agreements

The SAMR set up a “safe harbor system” for the determination of monopoly agreements in the Provisions on Prohibition of Monopoly Agreements (Draft for Comment) (“Draft”) published in February 2019. The draft specified that an agreement falling within the scope of the safe harbor can be presumed not to eliminate or restrict competition, provided that three conditions are satisfied: first, the agreement is not the type of monopoly agreement explicitly prohibited by Articles 13 and 14 of the Anti-Monopoly Law; second, the total market share of the operators who reach the agreement does not exceed 15% (in the case of a horizontal monopoly agreement) or each party’s market share does not exceed 25% (in the case of a vertical monopoly agreement); third, there is no evidence to prove that the agreement excludes or restricts competition.

However, the SAMR removed the “safe harbor system” from the Provisions on Monopoly Agreements finally promulgated. The SAMR ultimately determined that the establishment of the “safe harbor system” in department rules did not have a basis in superior law, since under Chapter 2 of the Anti-Monopoly Law regarding monopoly agreements, the market share is neither a constitutive requirement of the monopoly agreement prohibited by Articles 13 and 14 nor a statutory exemption under Article 15. In addition, in the anti-monopoly guidelines promulgated by the State Council, the market share is not listed as a constitutive requirement or an exemption situation of monopoly agreements.

However, although the “safe harbor system” is not included in the Provisions on Monopoly Agreements, we believe that the “safe harbor system” proposed by the Draft still represents the thinking and attitude of law enforcement authorities, and may offer guidance for operators in handling future compliance issues and anti-monopoly investigations. 

III. Distinguishing Core Monopoly Agreements from Other Monopoly Agreements

For “core monopoly agreements” (i.e., the monopoly agreements under Articles 13 and 14 of the Anti-Monopoly Law, including price fixing, limiting production/sales volume, segmenting markets, restricting new technologies, boycotting and maintaining resale prices), the Provisions on Monopoly Agreements confirm the “prohibition + exemption” principle in the current practice of anti-monopoly administrative law enforcement. This means that anti-monopoly law enforcement authorities may directly determine that such monopoly agreements are illegal without performing a competition analysis, unless the operator can prove that the exemption situations under Article 15 of the Anti-Monopoly Law apply to the investigated monopoly agreement. In addition, the Provisions on Monopoly Agreements also stipulate that the investigation suspension/termination procedures should not apply to these core monopoly agreements.

For “non-core monopoly agreements”, the Provisions on Monopoly Agreements adopt the “reasonable analysis” principle and explicitly require anti-monopoly law enforcement authorities to consider “whether competition is excluded or restricted” when making determinations on such agreements.

IV. Considerations for Determining the Dominance in the Internet Market and Other New Economic Industries

In practice, an increasing number of anti-monopoly issues have been raised in new economic industries such as the Internet. However, the Anti-monopoly Law and its supporting regulations have had few detailed guidelines in this regard. Therefore, the Provisions on Abuse specially provide that to determine whether an operator in the new economic industries such as the Internet has market dominance, the anti-monopoly enforcement authorities shall take the competitive characteristics, business models, number of users, network effects, locking effects, technical characteristics, market innovation, the ability to possess and process relevant data and the market power of the operator in the associated markets into consideration. In addition, when considering the free model in the new economic industries such as the Internet, bilateral market effects shall take into consideration, that is, free goods and relevant charged goods provided by operators should be considered comprehensively.

V. Further Refining the Investigation Suspension/Termination Procedures and the Leniency System

According to public information, the investigation suspension/termination procedures have been applied, to varying degrees, to at least 20 anti-monopoly investigation cases so far. In order to provide more guidance for the investigated operators to apply for investigation suspension/termination according to law, the Provisions on Monopoly Agreements and the Provisions on Abuse further clarify the requirements for the investigation suspension/termination procedures, and also stipulate that the investigation suspension/termination procedures are not applicable to core monopoly agreements.

The Provisions on Monopoly Agreements refine the leniency system and further clarify that important evidence includes the identity of the operators involved in the monopoly agreement, the commodities involved, the content of the agreement, the method of reaching agreement, and how the agreement is implemented. In addition, the Provisions on Monopoly Agreements also stipulate that the anti-monopoly law enforcement authorities shall decide whether to exempt the operator from penalties or reduce the penalty according to the time sequence of the voluntary reporting by the operator, the significance of the evidence provided, and the relevant information on the conclusion or implementation of the monopoly agreement. Regarding the degree of leniency given to the operators, the Provisions on the Monopoly Agreements are different from the previous Provisions on Procedures for Administrative Enforcement of Anti-Price Monopoly (“NDRC’s Old Provisions”) and the Provisions of the Industry and Commerce Administration Organs on Prohibition of Monopoly Agreements (“AIC’s Old Provisions”) as follows:


Provisions on Monopoly Agreements

AIC’s Old Provisions

NDRC’s Old Provisions

First Operator

Operator may be exempted or penalties may be mitigated by a minimum of 80%

Operator will be exempted

Operator may be exempted

Second Operator

Penalties may be mitigated by 30% to 50%

Except for the first operator: penalties will be mitigated at the authority’s discretion

Penalties may be mitigated by a minimum of 50%

Third Operator

Penalties may be mitigated by 20% to 30%

Penalties may be mitigated by a maximum of 50%

Considerations for Determining Exemption Situations

Article 15 of the Anti-Monopoly Law, which stipulates the exemptions for monopoly agreements, is not very practical. Therefore, the Provisions on Monopoly Agreements further refine the considerations for determining whether Article 15 of the Anti-Monopoly Law applies to a monopoly agreement, stating that anti-monopoly law enforcement authorities should consider the following when determining whether a monopoly agreement falls within the scope of Article 15: (1) the specific form and effect of the agreement for realizing the exemption, (2) the causal relationship between the agreement and the realization of the exemption, (3) whether the agreement is a requirement for realizing the exemption and (4) other factors that may prove that the agreement falls under the corresponding exemption.

[1] “Three-in-one” refers to the anti-monopoly powers of three anti-monopoly law enforcement authorities, i.e., the Ministry of Commerce, the National Development and Reform Commission and the State Administration for Industry and Commerce being consolidated into the SAMR.

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