Cartels 2021

Last Updated June 14, 2021

China

Law and Practice

Authors



AnJie Law Firm has an antitrust and competition law group that consists of more than 20 highly experienced partners and associates, most of whom have worked for many years in top international law firms or have international backgrounds. Key offices are located in Beijing, Shanghai, Shenzhen, Hong Kong and Haikou. The team has expertise and abundant experience in all fields of antitrust investigation, private antitrust litigation, merger filing and antitrust compliance. Key representations include successfully defending SINOPEC in the first private antitrust litigation within China’s oil and gas sector, defending a Japanese electronics company in an auto parts investigation, and a merger filing for the ChemChina/Syngenta deal.

Article 13 of the Anti-Monopoly Law (AML) stipulates that undertakings that have competitive relationships are prohibited from reaching the following agreements:

  • fixing or changing commodity prices;
  • restricting the amount of commodities manufactured or sold;
  • splitting the sales market or the purchasing market for raw and semi-finished materials;
  • restricting the purchase of new technologies or equipment, or the development of new technologies or products;
  • jointly boycotting transactions; and/or
  • other monopoly agreements determined as such by the authority for enforcement of the AML under the State Council.

Article 13 is considered the statutory basis for challenging cartel behaviour in China. Although not specifically provided for in the AML, bid rigging is also a form of cartel behaviour recognisable by the AML and was identified as price fixing and splitting the sales market by the NDRC (the former AML enforcer) in the roll-on, roll-off shipping cartel case in 2015.

It should be noted that, on 26 June 2019, the State Administration for Market Regulation (the current AML enforcer, SAMR) officially released the Temporary Provisions on Prohibiting Monopoly Agreements (the “New Provisions”), which further clarifies the rules on monopoly agreements. The New Provisions came into force on 1 September 2019 and replaced the Provisions of the National Development and Reform Commission on Anti-Price Monopoly and the Provisions of the State Administration for Industry and Commerce on Prohibiting Monopoly Agreements. Meanwhile, the Provisions of the State Administration for Industry and Commerce on Prohibiting the Abuse of Intellectual Property Rights to Exclude or Restrict Competition continue to be valid until new regulations are released by the SAMR.

Since 2019, the SAMR and its provincial branches have been China's only anti-monopoly public enforcement agencies.

Currently, cartel violations are not punishable under criminal law, even though some experts are calling for such a provision within AML legislation. Like the EU, China adopts an administration-oriented enforcement approach, and administrative sanctions that can be applied to cartel violations include:

  • cessation of violation;
  • confiscation of illicit gains; and
  • fines.

In antitrust civil proceedings, the court may also order civil liabilities, including behavioural injunctions and compensation for damages.

However, it should be noted that, on 2 January 2020, the SAMR released a draft amendment of the AML to solicit public comments. In the draft amendment, Article 50 provides that, when the monopolistic conduct constitutes a crime, criminal liability arises. This means that cartel violations may lead to criminal liability in the future if this provision is included in the final version of the AML amendment. This amendment to the AML is still under consideration.

The Supreme People's Court issued the amended Provisions on Certain Issues Relating to the Application of Law in Hearing Cases Involving Civil Disputes Arising out of Monopolistic Acts (the "Antitrust Judicial Interpretations") in 2020, which came into force on 1 January 2021.

Article 2 of the Antitrust Judicial Interpretations provides that: “A court shall accept a civil lawsuit directly filed by a plaintiff, or filed by a plaintiff after the decision affirming the relevant act as constituting a monopolistic act by the anti-monopoly law enforcement agency concerned has become legally effective, as long as such lawsuit satisfies other case acceptance conditions prescribed by law.” Therefore, cartel behaviour can be challenged in courts as either standalone or follow-on actions.

The prohibition of cartel conduct is defined by statute and can be found in Article 13 of the AML. See 1.1 Statutory Bases for Challenging Cartel Behaviour/Effects.

Not all joint actions between competitors will violate the AML. It depends on the nature of the joint actions, the co-operation between competitors – which does not amount to the behaviours that are specifically prohibited by Article 13 of the AML – and on whether the co-operation is allowed. 

In addition to provisions in the AML, the New Provisions help to further interpret conduct under monopoly agreements (including cartel conduct). Specifically, Articles 7 to 14 of the New Provisions elaborate on each kind of cartel conduct specified in Article 13 of the AML. Notably, according to Article 17 of the amendment to the AML and Article 8 of the Anti-monopoly Guidelines on the Platform Economy released on 7 February 2021, a hub-and-spoke conspiracy is also considered cartel conduct.

According to Article 56 of the AML, provisions in the AML do not apply to the association or co-operation of agricultural producers or rural economic organisations in their business activities involving the production, processing, sale, transportation, and storage of farm products, etc.

Public Enforcement

The limitation period for public enforcement actions against cartel conduct is two years. Article 36 of the Administrative Penalty Law of the People’s Republic of China (APL) provides that if an illegal act is not discovered within two years, an administrative penalty may no longer be imposed and, where an illegal act involves the life, health and safety of citizens or financial security and causes harmful consequences, the above limitation period is extended to five years, except as otherwise prescribed by the law.

Since penalties imposed by antitrust agencies, such as confiscation of illegal gains and fines, are classified as administrative penalties and there is no specific rule governing the statute of limitations under the AML, the principles prescribed by Article 36 of the APL apply to cartel conduct as well.

Calculating the two-year limitation period

In principle, the two-year limitation in antitrust enforcement cases will be calculated from the date on which the cartel conduct is committed. If the cartel conduct is of a continual or continuous nature, the two-year limitation will be counted from the date the cartel conduct is terminated.

It should be noted that the enforcement agency views illegal conduct as continuous if the outcome or effects resulting from the illegal conduct are lasting. In practice, however, it is not very clear from when the two-year limitation should be calculated. For instance, in both the auto parts case and the shipping case investigated by the NDRC, activity from more than two years prior to the investigations was penalised.

Private Litigation

Effective 1 October 2017, the limitation period for private litigation changed from two to three years, with the limitation being calculated from the date on which the right holder becomes aware or should be aware of the damage to their rights and to whom the right holder can make a claim. The court does not protect these rights if it has been more than 20 years since the infringement was committed; however, under special circumstances, the court may decide to extend the limitation of action according to the application by the right holder.

As commonly recognised, antitrust litigation initiated by private undertakings or individuals is a type of civil litigation and there is no specific rule governing the limitation period for private litigation arising from monopolistic acts, so the general principles on the limitation period for civil procedures should apply (namely, the General Principles in the Civil Code of the People’s Republic of China). 

According to Article 195 of the Civil Code of the People’s Republic of China, the statute of limitations for private litigation must be recalculated from the date of the discontinuance or termination of the following events:

  • the right holder requests that the obligor fulfil their obligations;
  • the obligor agrees to fulfil their obligations;
  • the right holder files a lawsuit or applies for arbitration; or
  • other circumstances that have the same effect as the filing of a lawsuit or an application for arbitration.

Theoretically, China’s antitrust regime has adopted the doctrine of extraterritoriality. Article 2 of the AML provides that the Law is applicable not only to monopolistic conduct in economic activities within the territory of the People’s Republic of China (PRC), but also to monopolistic conduct outside the territory of the PRC, provided that such conduct has the effect of eliminating or restricting competition in China's domestic market.

There is no specific provision in China’s antitrust legal framework that addresses comity. In practice, if a case was or is being investigated in other jurisdictions, it does not necessarily mean that the case will not face public antitrust enforcement actions in China. In practice, China’s antitrust enforcement agencies sometimes initiate follow-on investigations, such as in the LCD case, the capacitor case, and the auto parts case.

Nevertheless, the fact that there are no provisions on the legal principle of comity does not mean that the SAMR does not consider comity in the process of enforcement against cartels. It is believed that the principle of comity may affect decision-making and the discretion of Chinese antitrust enforcement agencies in specific cases, although it is difficult to clarify at this time to what extent and to which cases the SAMR may choose to apply this principle.

On 5 April 2020, the SAMR issued the Announcement of Anti-monopoly Law Enforcement on Supporting Pandemic Prevention and Control and Work Resumption (the "Announcement"). Per the Announcement, in order to support pandemic prevention and control and work resumption, the SAMR decided to exempt co-operation agreements with regard to pandemic prevention and control and work resumption. The SAMR also committed to:

  • swiftly and strictly deal with monopolistic activities impacting the prevention and control of the pandemic, and the associated resumption of work activities;
  • consolidating the fair competition review; and
  • providing better instructions to undertakings on anti-monopoly compliance.

For the purpose of pandemic prevention and control and work resumption, the enforcement agency may reduce a fine's amount, such as in the monopoly agreement case of eight Shandong cement companies. However, this reduction does not indicate that the enforcement agency’s attitude toward cartels has softened during the pandemic. On the contrary, the agency is likely to open more investigations and initiate more cases. In 2020, China published nine monopoly agreement cases.

In practice, the authority usually will conduct a preliminary inspection to verify the suspected cartels before any official investigation begins. For this preliminary inspection, the SAMR will either carry it out itself or delegate the task to the relevant provincial branch or the relevant industry association. In the event of a report or whistle-blowing, the authority will first review the documents and the information provided by the reporter. Experience shows that, in general, the authority will only formally initiate an investigation where there is adequate evidence to suggest that a cartel exists.

According to Article 39 of the AML, the Chinese antitrust enforcement authority has the right to carry out dawn raids or surprise visits: methods largely relied on when investigating cartels and obtaining evidence. The Benz case in 2014, the Medtronic case in 2016, and the Alibaba case towards the end of 2020 are all examples of this. The ongoing DRAM cases against Micron, Samsung Electronics and SK Hynix are other notable examples of dawn raids.

During a dawn raid, the investigated party and its employees are obliged to co-operate with the antitrust enforcement authority. The authority may also interview employees, review and copy documents, and seize evidence. Usually, PRC-qualified lawyers with proper documentation are allowed on-site to accompany the investigated party and its employees during the investigation.

The AML and relevant regulations authorise the Chinese antitrust enforcement authorities to:

  • inspect the business premises;
  • access computers;
  • copy work emails;
  • seize contracts and financial documents;
  • check bank accounts; and
  • detain original items such as work computers, notebooks, and original business contracts, if they consider it is necessary.

The investigated party and its employees must co-operate during the investigation. Although no restrictions on dawn raids are explicitly stated in the AML and relevant regulations, it is understood that, in practice, personal premises (such as a private household) would not fall within the scope of an investigation.

Article 39 of the AML stipulates that, when conducting investigations against suspected monopolistic conduct, the enforcement authority can take the following measures:

  • conduct an inspection of the business places or the relevant premises of the undertakings (which includes the branch offices) under investigation;
  • make inquiries of the undertakings under investigation, the interested parties, and other units or individuals involved, and request that they provide explanations;
  • consult and duplicate the relevant documents and materials of the undertakings under investigation, the interested parties, and other relevant units and individuals, such as bills, certificates, agreements, account books, business correspondence and electronic data;
  • seal up or seize relevant evidence; and
  • inquire about the bank accounts of the undertakings under investigation.

In order to take these measures and enforce the AML, a written report must be submitted to the principal leading person of the authority for approval.

According to Article 52 of the AML, if the investigated business operators refuse to provide related materials and information; provide fraudulent materials or information; conceal, destroy or remove evidence; or refuse/obstruct the inspection and investigation by the antitrust enforcement agency in other ways, the antitrust enforcement authority shall order them to make rectification and impose a fine of less than CNY20,000 on individuals, and/or a fine of less than CNY200,000 on entities.

In serious circumstances, the authority may impose a fine of CNY20,000 to CNY100,000 on individuals, and/or a fine of CNY200,000 to CNY1 million on entities. Where a crime is committed, the relevant business operators shall assume criminal liabilities.

It is also worth noting that the draft amendment further increases the amount of the fine to less than 1% of the previous year’s turnover for entities or CNY5 million where there is no turnover or when the turnover is hard to calculate. For individuals, a fine ranging from CNY200,000 to CNY1 million may be imposed.

According to Article 39 of the AML, the antitrust enforcement authority can make inquiries of the undertakings under investigation, the interested parties, or other departments or individuals involved, and request them to provide explanations. Before the inquiries, the investigator must submit a written report for approval to the leading person of the antitrust enforcement authority.

Article 40 of the AML provides that, “for the antitrust enforcement agency to investigate suspected monopolistic conducts, there shall be at least two law-enforcement officers, who shall produce their law enforcement papers. The law-enforcement officers shall make written records when conducting the inquiry and investigation, which shall be signed by the persons after being inquired or investigated”.

Under the AML, refusal to co-operate can lead to a fine of up to CNY100,000 for interviewees.

There is no concrete stipulation in the AML to address this issue, but the relevant answers could be found in the Lawyer Law of the PRC. In practice, the situations vary for individual cases. The antitrust enforcement authority sometimes allows PRC lawyers or company counsel to accompany the officers and/or employees during the investigation, while other times they do not – there are no clear rules. If the interviewee is a foreigner, other colleagues are allowed to accompany them to act as interpreter. Besides dawn raids, PRC lawyers are allowed to accompany the officers and/or employees to the hearing, meeting(s) and the case discussion.

As mentioned, according to Article 52 of the AML, the antitrust enforcement agency shall impose a fine of less than CNY20,000 on individuals, and a fine ranging from CNY20,000 to CNY100,000 under more serious circumstances.

In August 2018, the SAMR imposed fines of CNY12,000 and CNY8,000 on the legal representative and the general manager of Guangzhou Qingfeng Toyota, respectively. It is the first case in China where the individual was handed fines for refusing to co-operate with the SAMR during an investigation.

In 2020, the SAMR published a case for refusal to co-operate with an antitrust investigation and imposed fines of CNY1 million on two pharmaceutical companies (Shangdong Kanghui Pharmaceuticals Co., Ltd. and Weifang Puyunhui Pharmaceuticals Co., Ltd.) and their employees. In this regard, while there is no statutory requirement, in practice, individuals have the right to engage separate counsel if they consider it necessary.

In practice, defence counsel can:

  • participate in the investigation;
  • raise their concerns with the antitrust enforcement authority;
  • assist the company/individual that is under interview;
  • prepare relevant documents for the client's defence or application for suspension;
  • accompany the client to meetings with the authority; and
  • represent the client during hearings and/or administrative review procedures.

The Chinese antitrust enforcement authority can usually obtain documentary evidence or testimony via the following channels:

  • reports by any person or entity before the initiation of the investigation according to Article 38 of the AML;
  • investigations and interviews in accordance with Articles 39 and 40 of the AML; and
  • the evidence provided by the cartel members during the investigation.

According to Article 39 of the AML, in order to investigate or obtain documentary evidence or testimony, law enforcement officers must first submit a written report for antitrust enforcement agency approval. According to Article 40 of the AML, there shall be at least two law enforcement officers present. After the interview, the law enforcement officers must ask the interviewee to review and sign the records of the testimony for verification.

In addition, subject to Articles 26 and 27 of the Interim Provisions on the Procedures for Administrative Punishments for Market Supervision and Administration (promulgated on 21 December 2018 and effective on 1 April 2019), investigators are entitled to question the parties, and other relevant entities and individuals, separately. Transcripts shall be made and verified by the interviewee: the inquiry transcripts shall be read to those who have difficulty in reading. Where there is any error or omission in the transcript, corrections or additions shall be allowed.

Alterations should be affixed with the signature or seal of the interviewee or be confirmed by other means. Upon verification, the interviewee shall sign or seal the transcripts page by page or conduct confirmation by other means. See 3. Procedural Framework for Cartel Enforcement - When Enforcement Activity Proceeds.

According to Article 39 of the AML and Article 20 of the Interim Provisions on the Procedures for Administrative Punishments for Market Supervision and Administration, the antitrust enforcement authority can obtain emails and digital data during the investigation, once enforcement officers receive approval from the responsible authority. For example, in the Huizhou automotive vehicle detection association case, the Guangdong AMR used “WeChat” records as evidence. In the Microsoft case, it was reported that the SAIC, the pervious AML enforcer, removed the computers of Microsoft employees in order to obtain the electronic data.

When the antitrust enforcement authority requires the company or individual being investigated to provide documents or other evidence, the company or individual is obliged to co-operate, according to Article 42 of the AML, as long as they have access to such documents or other evidence, even if located in another jurisdiction or on the cloud. In practice, for information that needs to be brought into the jurisdiction, the antitrust enforcement authority will sometimes set a deadline for the provision of such information. See 3.3 Obtaining Information from Entities Located Outside this Jurisdiction.

There is no law or regulation regarding attorney-client privilege in China. Even though Article 38 of the Lawyer Law requires attorneys to keep their clients’ trade secrets confidential, this differs from privilege as it is understood in common law jurisdictions. In practice, the antitrust enforcement authority does not recognise any attorney-client privilege during its investigation activities. It does, however, respect the attorney's duty of confidentiality. To date, there has been no case in which an enforcement agency forced PRC lawyers to divulge the contents of their communications with, or documents received from, their clients.

According to Article 42 of the AML, a company or individual must co-operate with the antitrust enforcement agency during the investigation and shall not refuse to provide the information required by the agency, nor hinder the investigation. Therefore, there are limited privileges recognised under the Chinese legal system.

Article 38 of the Lawyer Law stipulates that: “a lawyer shall keep confidential the secrets of the State and commercial secrets that he or she comes to know during his or her legal practice and shall not divulge the private affairs of the parties concerned. He or she shall keep confidential the information and situations that come to his or her knowledge during practising activities and that the clients or others do not want to divulge unless the information and situations are about the facts that the clients or other persons prepare to commit or are currently committing crimes that endanger national security or public safety, or seriously jeopardise the personal safety of others.”

If a firm or an individual resists initial requests for information, it may be punished by the antitrust enforcement authority in accordance with Article 52 of the AML, and this may also lead to a dawn raid. Therefore, initial requests for information are not commonly resisted by individuals or firms, but they are allowed to communicate with the antitrust enforcement authority regarding the initial requests and check whether it is possible for them to not provide information that is irrelevant or beyond their ability to provide. 

For specific legal liabilities, please refer to 2.4 Spoliation of Information.

In accordance with Article 41 of the AML, “the antitrust enforcement agencies and their staff shall have the obligation to keep confidential the business secrets, which they obtain when enforcing the law”. Targets of enforcement actions and third parties can obtain such protection subject to this provision. In practice, it is advised that confidential information in the submitted documents is clearly marked, with a view to protecting the company’s trade secrets to the maximum extent possible.

The defence counsel can raise legal and factual arguments to the enforcement authority before a Prior Notice of Administrative Penalty Decision is issued, such as submitting written opinions and/or applying for a face-to-face meeting with the authority.

After receiving the Prior Notice of Administrative Penalty Decision, the investigated entity is entitled to apply for a hearing or submit written defence documents within three days. The defence counsel can assist the client with submitting these requests, and represent the client during the hearing.

Article 46 of the AML and the Guidelines of Applications for Leniency Policy for Monopoly Agreements (the "Guidelines", issued on 4 January 2019) provide specific rules for the leniency programme. The Guidelines clarify the range of fine reductions available for first, second, or third-place applicants, respectively:

  • exemption from punishment or a reduction of fines by no less than 80%;
  • a 30%–50% reduction;
  • a 20%–30% reduction; and
  • reductions of no more than 20% for subsequent applicants.

In general, the enforcement authority may grant leniency to up to three operators in an investigation.

If a high-profile case is relatively complicated and involves more than three parties applying for leniency, the enforcement agency has the discretion to grant reductions in penalties to more than three applicants. Similarly, the confiscation of illegal gains may also be included in the exemption or reduction of fines in relation to monopoly agreements, subject to the authority’s discretion.

The investigating authority may seek information directly from company employees. Under Article 39 of the AML, this includes, “making inquiries of... the individuals involved and requesting them to provide relevant explanations”. To conduct investigations into suspected monopolistic conduct under this article, “a written report shall be submitted for approval to the principal leading person of the authority for enforcement of the AML.”

As mentioned, Articles 26 and 27 of the Interim Provisions on the Procedures for Administrative Punishments for Market Supervision and Administration allow case handlers to interview the parties and other relevant entities and individuals. Interviews should be conducted separately. Transcripts are made and the interviewee will be given an opportunity to verify their content. The transcripts shall be read to those who have difficulty in reading. Where there is any error or omission in the transcript, corrections or supplements are allowed to be made.

Alterations should be signed or sealed by the interviewee or be confirmed by other means. Upon verification, the interviewee shall sign or seal the transcripts page by page or conduct confirmation by other means. Case handlers also sign the transcripts. Case handlers may request the parties and other relevant entities and individuals to provide further materials relevant to the case. Those providing them shall sign or seal the relevant materials.

Pursuant to Article 39 of the AML, the investigating authority can seek documentary information directly from the target company or from others, such as its competitors, trade partners, or industry associations, either during a dawn raid or by issuing Requests for Information (RFIs). The rules detailed in Articles 26 and 27 of the Interim Provisions on the Procedures for Administrative Punishments for Market Supervision and Administration apply as well.

If the entities are located outside China, the antitrust enforcement authority will usually seek information from its Chinese affiliates. If the entities have no Chinese affiliates, the enforcement agency may seek information directly from the entities located outside China by issuing RFIs.

According to Article 24 of the Interim Provisions on the Procedures for Administrative Punishments for Market Supervision and Administration, the evidence sourced from outside the territory of the PRC shall:

  • specify the source;
  • be proved legitimate by a notary's office in the source country;
  • be authenticated by the consulate or embassy of the PRC stationed in the country;
  • or undergo the formalities prescribed in the relevant treaty concluded between the PRC and the country where the evidence is sourced.

Evidence obtained from the Hong Kong Special Administrative Region (SAR), the Macao SAR and the Taiwan Region of the PRC shall undergo the relevant procedures required to prove legitimacy. Documentary evidence, audio-visual materials and other evidence in foreign languages shall be annexed with correct Chinese translations provided by institutions or individuals possessing the relevant qualifications, and be affixed with the seals or signatures of the same.

Prior to the consolidation of three antitrust enforcement authorities in March 2018, enforcement power was split across three government entities and performed by MOFCOM, the NDRC and the SAIC (the latter now defunct).

In 2018, the reorganisation of the previously separate government organs resulted in the establishment of the SAMR, which became the sole antitrust and competition authority in China. Notably, the integration of antitrust enforcement agencies has resulted in an improved allocation of administrative enforcement resources.

Asia-Pacific

In May 2019, the SAMR signed memorandums of understanding (MOUs) with the antitrust agencies of Korea and Japan, and negotiated with the Philippine Competition Commission on the signing of an antitrust co-operation memorandum. In September 2019, the SAMR signed MOUs with the antitrust agencies of Russia and Belarus.

On 15 November 2020, the heads of 15 Asia-Pacific nations signed the Regional Comprehensive Economic Partnership Agreement (the "RCEP Agreement"). Chapter 13 of the RCEP Agreement focuses on competition, which stipulates the competition policy of the free trade zone, mainly including:

  • objectives;
  • basic principles;
  • appropriate measures against anti-competitive activities;
  • co-operation with competition law enforcement authorities;
  • confidential information;
  • technical co-operation and capacity building;
  • consumer protections;
  • consultations; and
  • non-application of dispute settlements.

Currently, most of these co-operation agreements focus on general matters and jointly organising competition-related conferences or forums.

The Rest of the World

China participates actively in international competition co-operation activities held by multinational organisations such as the United Nations Conference on Trade and Development (UNCTAD), the World Trade Organization (WTO) and the Organisation for Economic Co-operation and Development (OECD). Unofficially, the officials from China's antitrust agencies may exchange their views with officials from other antitrust agencies in academic conferences.

Co-operation between China’s antitrust enforcement authorities and their foreign counterparts remains focused on macro antitrust policies, and co-operation in regard to specific cases is still limited.

Current antitrust law and regulations have not imposed criminal liability on cartels in China.

Article 50 of the AML provides that where the monopolistic conduct of an undertaking has caused losses to another person, it shall bear civil liabilities according to law. Article 2 of the Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conducts (the "Provisions") further provides that the people's court shall accept private litigation brought by parties that satisfy the requirements under the AML and the standing requirements under the Civil Procedure Law of the People’s Republic of China (CPL).

Based on Article 3 of the Provisions, the first instance of private antitrust litigation cases is generally:

  • the intermediate people’s courts of the provincial capital cities;
  • autonomous region capital cities;
  • municipalities directly under the central government and municipalities with independent planning status; and
  • Intermediate People’s Courts designated by the Supreme People’s Court.

However, exceptions include:

  • the higher people’s courts have jurisdiction in cases of significant regional importance, such as in Qihu v Tencent, which was tried by the Guangdong Higher People's Court at first instance; and
  • the Intellectual Property Bench of the Supreme People’s Court may hear complicated cases of national importance.

Territorial Jurisdiction

Territorial jurisdiction for first-instance private antitrust litigation cases is decided in accordance with the CPL and related judicial interpretations on tort disputes, contract disputes, etc.

For private antitrust case arising from tort claims, the claimant shall bring the lawsuit to the court at the place where the tort occurs or at the place of domicile of the defendants. As for contract disputes, cases shall be filed with the court located where the defendant is domiciled or where the contract is performed.

Appeals and Complaints

In accordance with the Decision of the Standing Committee of the National People's Congress on Several Issues concerning Judicial Procedures for Patents and Other Intellectual Property Cases and the Provisions of the Supreme People's Court on Several Issues concerning the Intellectual Property Tribunal, the Intellectual Property Bench of the Supreme People’s Court will hear appeals against first-instance private antitrust cases ruled by the Higher People's Court, Intellectual Property Court, and Intermediate People's Court in monopolistic first-instance civil cases. In practice, most antitrust appeals go to the Intellectual Property Bench of the Supreme People’s Court.

Process

Claimants submit a complaint to the court that must include:

  • basic information about the claimants and the defendants;
  • the claims, facts and grounds on which the claims are based;
  • evidence and sources thereof; and
  • the names and addresses of the witnesses.

The court usually will arrange a pre-trial evidence exchange, and the claimants and defendants may present cross-examination opinions.

For evidence that cannot be collected for objective reasons (for instance, evidence held by the enforcement agency or a third party), a claimant or defendant may apply in writing to the court for investigation and collection within a certain timeframe.

As horizontal agreements usually involve multiple competitors, civil actions involving cartels are often brought against multiple parties. The CPL also leaves open the possibility of a collective action. People’s courts have the right to consolidate cases where claims from several litigations are related and similar, subject to the consent of all parties and the approval of the court. Article 6 of the Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct also reaffirms such right of the court to consolidate claims originating from the same monopolistic conduct.

If the court deems that the disputes cannot be consolidated, or if all the parties do not agree to consolidate, the parties can pursue separate actions.

As a general principle, in civil procedures the burden of proof is borne by the party that raises the claim. However, the AML and the AML Judicial Interpretation establish special rules to alleviate the burden of proof on the plaintiff. Specific to cartel cases, the claimant shall prove the existence of a cartel agreement, related damages, and the causal relationship between the agreement and damages. The burden of proof will then be transferred to the defendant to demonstrate that the corresponding agreement does not affect competition in the relevant market.

In private litigation concerning cartels brought before a Chinese court, the judge acts as the finder of facts and applies the law accordingly.

The AML and other relevant antitrust rules and regulations do not clearly stipulate the extent to which evidence collected using investigative powers may be discoverable in court. However, since private antitrust actions fall within the scope of civil actions, judicial interpretations of the CPL apply in practice.

According to Article 64 of the CPL, a people's court shall investigate and collect evidence where a party and its agent ad litem are unable to collect for objective reasons, or which the people's court deems necessary for trying a case. According to Article 94 of Interpretations of the Supreme People's Court on the Application of the Civil Procedure Law, such evidence includes the following:

  • evidence kept by relevant State departments, which the party concerned and the agent ad litem thereof are not entitled to inspect and retrieve;
  • evidence involving State secrets, commercial secrets or personal privacy; and
  • other evidence that the party concerned and the agent ad litem thereof cannot collect on their own due to objective reasons. 

Following these provisions, if the antitrust agencies have conducted relevant investigations in a private antitrust lawsuit, the court may request that the agencies provide related documents and information, such as agreements, accounting books, business correspondences, and electronic data.

In the event that national or commercial secrets, or those of an individual, are involved in a private antitrust lawsuit, under Article 11 of the AML Judicial Interpretation, the courts may take protective measures such as hearing the case in closed sessions, restricting or prohibiting the reproduction of the evidence, presenting the evidence only to the lawyers engaged, or ordering the parties concerned to sign confidentiality agreements.

Leniency and Overseas Investigations

As the AML and other relevant antitrust rules and regulations do not make specific provisions for evidence collected through the leniency programme, the articles referred to above are applicable.

However, the Guideline on the Application of the Leniency System in Horizontal Monopoly Agreement Cases provide that materials submitted by the suspected companies for the leniency programme shall not be disclosed to the public without consent, and no entity or individual has the right to review them.

There is no existing law or regulation in China explicitly stipulating what can be drawn from public investigations in other jurisdictions for use in Chinese courts. Despite the absence of prescriptive laws in this regard, the use of evidence sourced from overseas is implicitly recognised by Article 16 of the Provisions of the Supreme People’s Court on Evidence in Civil Proceedings, which provides that any evidence submitted by the parties that has been sourced from outside China must be certified.

See 3.9 Burden of Proof.

According to Article 12 of the AML Judicial Interpretations, parties may apply to the people’s court to have one or two expert witnesses appear in court to explain complex or technical issues involved in the case. Furthermore, the parties may apply to the people’s court to retain institutions or individual specialists to provide market studies or economic analysis of certain issues. The experts allowed are not limited to economists.

It is also an accepted practice to retain experts in investigations or merger reviews.

See 2.12 Attorney-Client Privilege and 2.13 Other Relevant Privileges.

According to Article 38 of the AML, any entity or individual may report suspected monopolistic conduct to the antitrust enforcement authority. The authority shall then conduct the necessary investigations.

Under Articles 1 and 2 of the AML Judicial Interpretation, any citizen, legal person or organisation can bring private antitrust claims if they suffer loss as a result of monopolistic conducts, either directly or upon the identification of monopolistic conducts by the enforcement authority.

Thus, in theory, if a claimant brings a civil action before a court and reports the suspected monopolistic conduct to the antitrust enforcement authority at the same time, there may be multiple or simultaneous proceedings involving the same or related facts.

The investigating authority can directly impose sanctions. In accordance with Article 46 of the AML, the enforcement agency can instruct the business operator to cease the violation and confiscate the business operator’s illicit gains, and may impose, on a company, a fine ranging from 1% to 10% of the turnover it achieved in the previous year. If a monopoly agreement has not been implemented, the company may not be fined more than CNY500,000. Where industry associations violate the AML, the fines will amount to no more than CNY500,000; if the circumstances are severe, the business licence of an industry association may be revoked.

However, the draft amendment of the AML provides modifications concerning the sanction sections of the AML. For instance, the punishment for the operator who has not implemented the monopoly agreement may rise from no more than CNY500,000 to no more than CNY50 million. The punishment to industry associations may also rise from CNY500,000 to CNY5 million. Obviously, the draft amendment shows legislative intent to increase the sanctions imposed on operators who violate the AML.

The Commitment System

China has a similar procedure for settlement: the commitment system. Article 45 of the AML and Article 21 of the Interim Provisions on Prohibiting Monopoly Agreements provide that the subject of an investigation could apply for the suspension of the investigation and undertake specific measures to eliminate the influence of the act (commitment) within the suspension period allowed by the enforcement agency.

After the suspension period, if the enforcement agency determines that the subject of investigation has fulfilled its commitment, it may decide to terminate the investigation and make a final decision.

In addition, the SAMR published the Guidelines on Undertakings’ Commitments in Anti-Monopoly Cases on 18 September 2020. These further regulated specific provisions on suspended and terminated monopoly investigations under the framework of the AML. Where the antitrust authority decides to suspend an investigation, it shall supervise the implementation of the commitments offered by the subject under investigation. If the commitments are properly and fully implemented, the authority may decide to terminate the investigation.

Resuming Investigations

Under any of the following circumstances, the antitrust enforcer shall resume the investigation:

  • the undertaking fails to implement the commitment;
  • significant changes have taken place to the facts on which the decision to suspend the investigation was based; or
  • the decision to suspend the investigation was made on the basis of incomplete or inaccurate information submitted by the undertaking under investigation.

Cases Ineligible for Suspension

The antitrust regulator shall not accept applications for suspension of the investigation from business operators on the basis that the relevant monopolistic agreement has already been verified in an investigation. The antitrust regulator shall not accept the application for suspension of investigation if a case involves horizontal agreements on:

  • price fixing;
  • production or sales restriction; or
  • division of the sales market or raw material procurement market.

If liability or responsibility is established, there are no collateral effects as a matter of law, but the company may not thereafter qualify for participation in governmental bidding processes.

At the same time, in accordance with the Interim Provisions on the Disclosure of the Information on Administrative Punishments concerning Industrial and Commercial Administration, “Information concerning the administrative punishment decisions made by SAMR and its branches according to general procedures shall be made public. Information subject to disclosure mainly includes written decisions on administrative punishments and summaries of administrative punishment information.” Therefore, the punishment may have a negative effect on the business operator, especially if it has plans to go public.

Criminal liability is not currently applicable under the Chinese antitrust law's framework. At present, under the rules of the AML, criminal liability cannot be imposed on the employees of a company that is a party to a monopoly agreement.

However, as mentioned in 1.2 Public Enforcement Agencies and Scope of Liabilities, Penalties and Awards, the draft amendment of the AML intends to introduce and apply criminal liability to cartel conduct. The continuing amendments to the AML should be closely monitored by observers.

As it is administrative agencies, rather than the courts, that make the decisions on public enforcement actions in the Chinese antitrust law system, sanctions and penalties in civil proceedings are not currently applicable, but business operators that carry out monopolistic conduct that causes damage to others bear civil liability separately, according to Article 50 of the AML. Repeated offences may be an aggravating factor when determining fines.

Antitrust compliance is becoming more and more important in China. The Anti-monopoly Committee of the State Council (AMC) released the Antitrust Compliance Guidelines for Business Operators in 2020, which gives business operators detailed guidance on antitrust compliance. At the same time, Shanghai, Zhejiang, Guizhou and many other provinces have released their compliance guidelines, which intend to guide business operators in their day-to-day operations.

Although there is no specific legal basis for considering a company’s “effective compliance programmes” as a factor when imposing sanctions and penalties under the Chinese antitrust law framework, antitrust compliance commitments can be a key factor for the law enforcement authority to consider in an antitrust investigation case. According to Article 2 of the Guide of the Anti-Monopoly Committee of the State Council to the Commitments Made by Undertakers in Monopoly Cases, for some kinds of monopoly cases, undertakers shall take the initiative to make commitments, and the law enforcement authority may decide to suspend or terminate investigation procedures.

Moreover, “effective compliance programmes” can effectively mitigate risks of violation and may, at the enforcement agencies’ discretion, be considered as a factor in mitigating sanctions and penalties in practice.

In the LCD panel case in 2013, the business operators were requested to pay back money to the consumers. Such practice has not been witnessed in other cases so far. In accordance with Article 50 of the AML, “The business operators that carry out the monopolistic conducts and cause damages to others shall bear the civil liability according to law.”

It should be emphasised that, in the Chinese antitrust law system, it is the antitrust enforcement agency rather than the courts that makes decisions on public enforcement actions. 

According to the Administrative Review Law and the Administrative Procedure Law, the investigated party may apply for administrative review within 60 days from the date on which it receives the official administrative penalty, or directly bring an administrative lawsuit before the court within six months from the date on which it receives the official administrative penalty.

In addition, the investigated party can bring an administrative lawsuit before the court or apply to the State Council for adjudication where it does not agree with the result of the administrative review. The State Council shall give a final ruling in accordance with the provisions of the Administrative Review Law.

In practice, however, administrative reviews or lawsuits challenging the decision of the antitrust enforcement agency remain limited in number.

In 2020, two pharmaceutical distribution companies sued the SAMR, challenging its penalty of RMB325 million for an abuse of market dominance before the Beijing First Intermediate People's Court. The cases remain ongoing. Although it is not a case related to a monopoly agreement, it is a typical enough example to provide a view of how challenging the decision of the antitrust enforcement agency works.

Bringing Action in Court

Any private firms or individuals who have been harmed by cartel behaviours have the right to bring an action in court. Article 50 of the AML provides that, “[w]here the monopolistic conduct of an undertaking has caused losses to another person, it shall bear civil liabilities according to law.” No special threshold requirement exists for a private action.

The Supreme People’s Court further clarifies that, “[w]here a plaintiff directly files a civil lawsuit with the people's court or files a civil lawsuit with the people's court after a decision of the anti-monopoly law enforcement authority affirming the existence of monopolistic conduct comes into force, if the lawsuit satisfies other conditions for lawsuit acceptance as prescribed by law, the people's court shall accept the lawsuit.” See Article 2 of Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct (amended in 2020, the “Antitrust Judicial Interpretations”).

With respect to how and where to bring such an action, the applicable rules are set out in:

  • the Antitrust Trial Provisions;
  • Provisions of the Supreme People’s Court on Several Issues concerning the Intellectual Property Tribunal;
  • the Civil Procedure Law; and
  • Interpretations of the Supreme People’s Court on the Application of the Civil Procedure Law.

Antitrust Appeals

From 1 January 2019 onwards, the IP Tribunal of the Supreme People’s Court began to hear all antitrust appeals from first-instance judgments and rulings with a view to enhancing the quality of judgments and harmonising the doctrines applied in antitrust trials. 

In sum, the current procedural framework for bringing private antitrust actions is set out as follows:

  • first-instance trials are generally heard by special IP courts, intermediate courts located at provincial capital cities or cities under separate state planning, or by intermediate courts designated by the Supreme People's Court; and
  • appeals on first-instance judgments or rulings and applications for retrials are heard by the IP Tribunal of the Supreme People’s Court.

Under Article 14 of the Antitrust Judicial Interpretations, the court may award damages and injunctive relief based on the plaintiff’s claims and findings of fact. The court may also award reasonable costs incurred by the plaintiff in investigating and stopping monopolistic conduct. There is, however, no statute that allows for treble or punitive damages to be awarded in private antitrust litigations.

Among private actions, collective actions are available in China in the form of representative actions under Articles 53 and 54 of the Civil Procedure Law, which are similar to class actions in the US. Article 53 of the Civil Procedure Law provides that, “[w]here the parties on one side of a joint action is numerous, such parties may recommend a representative or representatives to participate in the action...” Article 54 of the Civil Procedure Law provides that, “[w]here the subject matter of an action for each party is of the same kind, the parties on one side of the action are numerous, but the exact number of such parties is uncertain when the action is brought, the people's court may publish a notice to describe the case and claims and notify right holders to register with the people's court within a certain period of time. The right holders who have registered with the people's court may recommend a representative or representatives to participate in the litigation...”

However, collective actions are not common either in antitrust disputes or in other causes of action in practice. This is because the law has not provided clear guidance on some key issues related to representative actions, such as the necessary elements for bringing a representative action, the type of cases allowed, the division of damages awarded among the plaintiffs, and the appeals mechanism. Hence, no collective antitrust action has yet been brought in China.   

See 3.8 Enforcement against Multiple Parties.

No antitrust laws or regulations in China explicitly address the issues of indirect purchasers or passing-on defences. In a private suit brought by a consumer against a milk powder producer and retailer, the Beijing IP Court acknowledged the right of indirect purchasers to recover for damages suffered (case number: (2014) Jing Zhi Min Chu Zi No 146). The court noted that one of the purposes of the AML is to protect consumer welfare.

As the ultimate bearers of monopolistic overcharge, consumers would be treated unfairly if they were deprived of the right to seek damages. Moreover, indirect consumer purchasers are not excluded from the eligible class of antitrust plaintiffs under Article 1 of the Antitrust Judicial Interpretations, which provides that, “[f]or the purposes of these Provisions, "civil dispute cases arising from monopolistic conduct" means civil lawsuits filed with the people's courts by natural persons, legal persons, and other organisations for disputes over losses caused by monopolistic conduct or violations of the Anti-Monopoly Law by contractual provisions, bylaws of industry associations, and so on.”

However, there are no judicial or administrative enforcement cases in China where the passing-on defence has been successfully invoked or acknowledged yet.

Evidence obtained from governmental investigations may be admitted in court proceedings. For example, in Guangming Trade Co v Hankook Tyre case, the Shanghai Intellectual Property Court collected and admitted evidence obtained from Shanghai antitrust agency’s investigation into Hankook prior to the civil litigation.

In practice, however, evidence from governmental proceedings is seldom admitted in court. This is because, apart from general rules of evidence, the law does not specify what type of evidence from governmental proceedings may be admitted, especially during an ongoing parallel investigation, and how to obtain such evidence.

Although Article 64 of the Civil Procedure Law provides that a court shall investigate and collect evidence which a litigant is unable to collect by itself for objective reasons or evidence which the court deems necessary for trying the case, the court rarely invokes this provision in antitrust cases either on its own initiative or by application from the litigants. In addition, it is understood that there are no formal co-operative arrangements or established conventions between antitrust agencies and courts in this regard.

According to open sources, there have been relatively few claims regarding cartels in China. Whether claims proceed to completed litigation or are dismissed or settled depends on the circumstances of each case.

As for the timeframe, first-instance trials are subject to a six-month time limit, while second-instance trials are limited to three months. The time limit can be extended subject to approval. However, such time limits are not binding on foreign-related proceedings.

In practice, most antitrust actions can take much longer due to the complex nature of the facts involved and the evidence presented. For example, the Ningbo Intermediate people's court took two years and seven months to make its decision in Mlily vs Four TDI Producers.

Reasonable costs incurred by the plaintiff, including attorneys’ fees, may be compensated. The burden is on the plaintiff to prove that it incurred costs for investigating and stopping the monopolistic conduct, and that the costs are reasonable. For instance, in Beijing Ruibang Yonghe Science and Technology Trade Company v Johnson & Johnson, the court held that defence costs should be shared between the parties. Also, in Hefei Yigong v Yangzijing, the court held that defence costs should be shared between the parties, and attorneys’ fees should be paid by the losing party.

Unsuccessful claimants may be obliged to pay defence costs incurred by the defendants, but they are not obligated to pay the attorneys’ fees.

Any plaintiff can appeal if they are unsatisfied with the first-instance ruling. A plaintiff may also petition the Supreme People’s Court for retrial if they are unsatisfied with the final civil ruling, according to the Notice of the Supreme People's Court on Issuing Several Opinions on Accepting and Examining the Petitions for Retrial of Civil Cases (the “Opinions on Retrial Petitions”). However, the standards for petitioning for re-trial of civil cases are strict, with details specified in the Opinions on Retrial Petitions. Few antitrust cases have been accepted by the Supreme People’s Court for retrial.

See 5.1 Private Right of Action.

There is no further relevant information.

The published and accessible guidelines relevant to this area of law are:

  • the Guidelines on Price-related Conduct of Trade Associations were issued by the NDRC on 20 July 2017;
  • the Guideline on Price-related Conduct of Undertakings Dealing in Drugs in Shortage and Active Pharmaceutical Ingredients was issued by the NDRC on 16 November 2017;
  • the Anti-monopoly Guideline for the Automotive Industry was issued by the Anti-monopoly Commission of the State Council on 4 January 2019;
  • the Guideline on the Application of the Leniency System in Horizontal Monopoly Agreement Cases was issued by the Anti-monopoly Commission of the State Council on 4 January 2019;
  • the Guideline on Undertakings’ Commitments in Monopoly-related Cases was issued by the Anti-monopoly Commission of the State Council on 4 January 2019;
  • the Anti-monopoly Guideline for the Field of Intellectual Property Rights was issued by the Anti-monopoly Commission of the State Council on 4 January 2019;
  • the Anti-monopoly Compliance Guideline for Business Operators was issued by the Anti-monopoly Commission of the State Council on 11 September 2020; and
  • the Anti-monopoly Guideline on the Platform Economy was issued by the Anti-monopoly Commission of the State Council on 7 February 2021.

These guidelines will remain effective until repealed or modified by authorities.

AnJie Law Firm

19/F Tower D1
Liangmaqiao Diplomatic Office Building
No 19 Dongfangdonglu
Chaoyang District
Beijing 100600
People's Republic of China

+86 10 8567 5988

+86 10 8567 5999

zhanhao@anjielaw.com www.anjielaw.com
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Trends and Developments


Authors



AnJie Law Firm has an antitrust and competition law group that consists of more than 20 highly experienced partners and associates, most of whom have worked for many years in top international law firms or have international backgrounds. Key offices are located in Beijing, Shanghai, Shenzhen, Hong Kong and Haikou. The team has expertise and abundant experience in all fields of antitrust investigation, private antitrust litigation, merger filing and antitrust compliance. Key representations include successfully defending SINOPEC in the first private antitrust litigation within China’s oil and gas sector, defending a Japanese electronics company in an auto parts investigation, and a merger filing for the ChemChina/Syngenta deal.

Recent Antitrust Enforcement Developments against Cartels in the PRC

Introduction

From 1 January 2020 to 20 April 2021, China’s State Administration for Market Regulation (the SAMR) published 18 enforcement decisions regarding monopoly agreements (16 decisions involved horizontal monopoly agreements and two decisions involved vertical monopoly agreements). In addition, the Anti-monopoly Committee of the State Council (AMC) released five guidelines on antitrust enforcement, all of which relate to cartel conduct. There are several noteworthy highlights to be discussed.

Summary of recent antitrust enforcement decisions

From 1 January 2020 to 20 April 2021, 18 enforcement decisions – 17 of which were investigated and enforced by provincial State Administration for Market Regulation (the “Provincial AMR”) authorities, with the remaining decision enforced by the SAMR – were published by the SAMR. Of these decisions, 16 were relevant to horizontal monopoly agreements and only two cases related to vertical monopoly agreements for resale price maintenance (RPM).

The period of investigation varies among the decisions. The longest investigation lasted for almost four and a half years, while the shortest investigation lasted only four months. Considering the reforms to the PRC competition authority in 2018, and that pending cases under investigation need to be transferred from the previous authority to the SAMR and its local bureaus, the investigation period for some cases may be longer than usual.

Penalties

Of the 18 cases, 17 resulted in penalties and one resulted in a termination decision without penalty. The current Anti-Monopoly Law (AML) stipulates the different penalty ceilings which can be imposed for undertakings and industry associations. The highest allowable penalties for undertakings and industry associations are 10% of last year’s turnover and RMB0.5 million, respectively. During the 1 January 2020 to 20 April 2021 period, no penalty decision for monopoly agreements applied the maximum penalty. However, in four decisions, the confiscation of illegal gains was imposed together with a financial penalty, of which the greatest value was RMB228 million. Meanwhile, in three enforcement decisions, the SAMR granted leniency to undertakings for their role as whistle-blowers and for their help in submitting key evidence during the investigation; such undertakings were exempted from punishment.

Key sectors

Industries related to livelihood, presented as having foremost importance in the China Anti-monopoly Law Enforcement Annual Report (2019) published on 25 December 2020 by the SAMR (the “SAMR Report 2019”), have been key sectors of antitrust investigation enforcement in the PRC for several years. Of the 16 enforcement decisions published from 1 January 2020 to 20 April 2021, there are five cases in the concrete and cement industry, three cases in the second-hand vehicle market, three cases involving driving schools, two cases in the natural gas sector, and one case in, respectively, the auto inspection, pharmacy, tourism, insurance, fire inspection and computer components industries.

From the number of cases in the concrete and cement industry, which accounts for almost one third of all cartel enforcement actions published from 1 January 2020 to 20 April 2021, one conclusion may be drawn that undertakings in this industry might face relatively high antitrust risks. In the SAMR Report 2019, the SAMR considers that industry overcapacity and market competition characteristics are the major factors inducing undertakings in the concrete and cement industry to conclude monopoly agreements.

Evolving tendencies

It is worth noting that many high-level policy announcements and landmark antitrust enforcement cases since the end of 2020 signalled an evolving tendency of antitrust enforcement in China. Therefore, it is reasonable to forecast that the number of cartel enforcement cases will increase in the future. As the provincial AMRs obtained discretion to initiate antitrust investigations in 2019, the number of cartel cases enforced by provincial AMRs is increasing. Considering the relatively low complexity of cartel cases compared to the cases related to abuses of market dominance, it is possible that more cartels cases may be enforced at the provincial level going forward.

Undertakings still need to be alerted to compliance risks regarding vertical monopoly agreements

Of the 18 enforcement decisions, only two decisions involved vertical monopoly agreements. In those decisions, the investigated undertakings, Lenovo and Yangtze River Pharmaceutical Group (YRPG), were found to have concluded and implemented an RPM agreement. Taking the YPRG case as an example, on 15 April 2021, the SAMR announced that it had fined YRPG 3% of its annual turnover in 2018 (up to CNY764 million) for engaging in RPM. Specifically, the SAMR found that from 2015 to 2019, YRPG and its drug wholesalers, retail pharmacies and other downstream entities formed a vertical agreement aiming at fixing resale prices and setting the minimum resale prices for several of YRPG’s products across the country. On 10 June and 25 September 2020, YRPG applied to the SAMR for the investigation to be suspended. However, the SAMR refused such applications on the ground that the antitrust violation was already well founded.

Even though only two of the published People's Republic of China (PRC) enforcement decisions from the past year involved vertical monopoly agreements, it is hard to conclude that undertakings reaching and implementing vertical monopoly agreements face low antitrust risks in the PRC. From previous antitrust enforcements, it can be observed that RPMs have received continuous attention from the SAMR and its local bureaus. From 2008, when the AML came into effect, to April 2021, there have been 26 enforcement decisions against RPMs, with ten cases resulting in penalties of more than RMB100 million.

Note that RPMs are not treated as illegal by Chinese courts in antitrust judicial practice and need to be evaluated on a case-by-case basis through application of the rule of reason. This was confirmed by a judge at the China Anti-monopoly Forum on 20 April 2021. However, the SAMR has continued to maintain an enforcement approach which treats RPM agreements as illegal, as confirmed by the latest YRPG case. It should be recognised that this discrepancy between antitrust enforcement and judicial practice related to RPMs in China has led to significant uncertainties for companies.

Guidelines on leniency applications in cartel cases have been issued

The leniency system was first introduced in 2008, when the AML was first promulgated. Because the rules of leniency in the AML were general and without detailed provisions, enforcers previously enjoyed relatively wide discretion when granting leniency.

For the purpose of guiding enforcement and providing greater clarity for undertakings, in February 2016, one of China's former antitrust enforcement agencies, the NDRC, released the draft Guidelines for Application of the Leniency System in Horizontal Monopoly Agreements Cases (Draft for Comments). The draft clarified the procedures and standards for applying leniency but remained vague on several aspects, such as whether leniency could be granted to industry associations. Four years later, the formal version was published.

Introducing the Leniency Guidelines

In June 2020, the Guideline of the Anti-monopoly Commission of the State Council on the Application of Leniency System in Horizontal Monopoly Agreement Cases (the “Leniency Guidelines”), effective 4 January 2019, was published. The Leniency Guidelines clarify the purpose and significance of establishing a leniency system. Given that the conclusion and implementation of horizontal monopoly agreements are usually secretive, active and full co-operation from relevant operators greatly reduces the challenges facing the agency in discovering and investigating such pacts. In addition, the Leniency Guidelines emphasise that the degree of leniency granted to an undertaking shall match its contribution to the investigation of such a violation.

According to Article 3, the Leniency Guidelines are applicable to cases related to horizontal monopoly agreements only. A prior communication mechanism between the business operator and the enforcement agency is built-in, according to Article 5. In other words, business operators can communicate with the regulator in oral or written form before officially applying for leniency, either anonymously or using their real identity. A critical development in the final version of the Leniency Guidelines compared to the draft version is that it clarifies the procedure of a leniency application, and the related penalty exemptions and mitigations.

Improving clarity

To improve the clarity surrounding the steps to be followed in a leniency application, a system of registration that motivates a company to make the first move has been introduced in the Leniency Guidelines. It allows companies to provide supplementary evidence within a certain period, post-application, in order to maintain the company's “first-place” marker in the application process.

In addition, to eliminate concerns from companies and attract applications, the Leniency Guidelines provide that materials submitted by companies in the leniency application shall not be used as evidence to determine whether the companies are engaged in a monopoly agreement in instances where leniency is not successfully granted. However, it remains uncertain whether a court can order a company to divulge a leniency application as evidence during civil litigation, and it has yet to be witnessed in practice.

Guidelines on commitments of undertakings in monopoly cases have been issued

Since 2008, there have been more than 20 cases in which commitments offered by the investigated undertakings were accepted and China’s antitrust enforcement agency suspended investigation. However, due to the presence of only a few detailed provisions about the commitment system in the AML, the enforcement agency was criticised for its discretion being too broad in practice, leaving practitioners with some confusion over:

  • whether there is a benchmark for companies to attain a commitment;
  • how and when to apply; and
  • the potential results of accepting commitments.

In 2019, the procedure used for applying for the suspension of antitrust probes through the submission of required commitments is clarified in the Interim Provisions on the Prohibition of the Abuse of Market Dominance and the Interim Provisions on the Prohibition of Monopoly Agreements issued by the SAMR. Further clarification is introduced in the new guidelines.

Specifically, on 18 September 2020, the Guidelines of the Anti-monopoly Commission of the State Council on Commitments of Business Operators in Monopoly Cases (the “Commitment Guidelines”), dated 4 January 2019, were published on the SAMR's website.

According to Article 2 of the Commitment Guidelines, commitments cannot be accepted where the investigated undertakings conducted cartel behaviour that is more severe in nature. This includes concluding and implementing horizontal monopoly agreements involving competitors that collude on price, production and/or sales, or agreements that segment sales or raw material markets. Additionally, it is clarified that a suspension or termination decision made by a competition authority is not a finding of antitrust violation and, therefore, such a decision shall not be used as evidence to determine an antitrust violation. It is believed that such clarification may relieve the common concern shared by companies that the submission of commitments may negatively affect them in any potential follow-on antitrust litigation.

The concept of hub-and-spoke conspiracies has been included in regulation documents

The AML currently classifies monopoly agreements into two categories: horizontal monopoly and vertical monopoly agreements. It does not involve any specific regulation against hub-and-spoke conspiracies, leaving a regulatory blind spot against monopolistic conduct.

On 2 January 2020, the SAMR launched public consultations on draft amendments to the AML. According to Article 17 of the proposed amendments, undertakings are prohibited from organising or aiding other undertakings toward reaching monopolistic agreements. In other words, this introduces specific regulations against hub-and-spoke conspiracies.

Although this proposed amendment has yet to come into effect, on 7 February 2021, the AMC released the Anti-Monopoly Guidelines for the Platform Economy Industry (the “Platform Economy Guidelines”). It introduces the notion of a hub-and-spoke conspiracy in Article 8, according to which competing in-platform vendors may reach a hub-and-spoke agreement tantamount to a horizontal monopoly by virtue of their vertical relationship with the platform operator, or via the platform operator’s organisation and co-ordination. The inclusion of hub-and-spoke conspiracy in the Platform Economy Guidelines is consistent with the inclusion of Article 17 in the draft amendments to the AML.

These legislative developments will make it easier for the SAMR and its local bureaus to investigate monopolistic agreements, particularly hub-and-spoke conspiracies, clearly sending the message that undertakings liable to be deemed as a “spoke” (eg, platform operators) will face higher antitrust compliance risks.

Development of antitrust enforcement against cartels in guidelines related to specific industries or areas

From 2019 to 2021, three guidelines and one draft guideline providing antitrust instructions on specific sectors were published, namely:

  • the Antitrust Guidelines of the Anti-monopoly Commission of the State Council on the Automobile Sector (the “Automobile Guidelines”);
  • the Anti-Monopoly Guidelines of the Anti-monopoly Commission of the State Council on Intellectual Property Rights (the “IP Guidelines”);
  • the Platform Economy Guidelines and Antitrust Guidelines for the Active Pharmaceutical Ingredient (API) Field; and
  • the API Guidelines draft for comments.

All three guidelines and the guideline draft emphasise the content of monopoly agreements.

Automobile Guidelines

On 18 September 2020, the Automobile Guidelines, dated 4 January 2019, were published by the SAMR. In Article 5, the Automobile Sector Guidelines explains explicitly that no detailed instruction would be given when analysing horizontal monopoly agreements in the automobile sector. As for vertical monopoly agreements involving geographical and customer restrictions, the Automobile Guidelines in Article 4 provide a “safe harbour” for undertakings with a market share below 30%.

However, restrictions on passive sales by car dealers, cross-supply between car dealers, sale of spare parts and maintenance services to end users, commonly acknowledged as “hard core restrictions”, are excluded from the “safe harbour” regardless of the undertakings’ market share. 

IP Guidelines

The IP Guidelines, dated 4 January 2019, were released in September 2020. They place greater emphasis on the “effects analysis” used to determine monopolistic agreements. Three types of IP-related agreements listed from Article 7 to Article 9 include joint R&D, cross-licensing, and grant-backs. This highlights that agreements with positive effects on innovation and competition will receive more favourable treatment from regulators. Article 11, governing standard-setting, highlights the significance of inter-operability for cost reduction and increasing efficiencies.

Platform Economy Guidelines

The Platform Economy Guidelines take the special features of the platform economy into consideration. By emphasising the role of algorithms, the Platform Guidelines demonstrate, through algorithm, data or platform rules, regulators' concern for the risk of a horizontal monopoly agreement, vertical monopoly agreement or hub-and-spoke conspiracy occurring. The Platform Economy Guidelines also explicitly explain that parallel activities, such as price-following based on independent decisions, are exempt from concerted practice, unless there is evidence to prove conscious concerted practice.

API Guidelines draft for comment

On 13 August 2020, the API Guidelines draft for comments was released by the SAMR. The API Guidelines draft clarifies for the first time that joint production, joint purchase, joint sales, and joint bidding agreements hold the risk of being criticised as horizontal monopoly agreements. This reflects the antitrust enforcement agency’s stricter attitude toward joint agreements in the API field, compared to the automobile industry.

Conclusion

Although these guidelines offer only guidance for the relevant issues in different industries and do not create any new compliance obligations, they nevertheless signal the determination of the regulators to take enforcement action against monopoly agreements. Moreover, it signals in the regulators' drive to promote compliance, monopoly agreements remain an enforcement priority.

AnJie Law Firm

19/F Tower D1
Liangmaqiao Diplomatic Office Building
No 19 Dongfangdonglu
Chaoyang District
Beijing 100600
People's Republic of China

+86 10 8567 5988

+86 10 8567 5999

zhanhao@anjielaw.com www.anjielaw.com
Author Business Card

Law and Practice

Authors



AnJie Law Firm has an antitrust and competition law group that consists of more than 20 highly experienced partners and associates, most of whom have worked for many years in top international law firms or have international backgrounds. Key offices are located in Beijing, Shanghai, Shenzhen, Hong Kong and Haikou. The team has expertise and abundant experience in all fields of antitrust investigation, private antitrust litigation, merger filing and antitrust compliance. Key representations include successfully defending SINOPEC in the first private antitrust litigation within China’s oil and gas sector, defending a Japanese electronics company in an auto parts investigation, and a merger filing for the ChemChina/Syngenta deal.

Trends and Development

Authors



AnJie Law Firm has an antitrust and competition law group that consists of more than 20 highly experienced partners and associates, most of whom have worked for many years in top international law firms or have international backgrounds. Key offices are located in Beijing, Shanghai, Shenzhen, Hong Kong and Haikou. The team has expertise and abundant experience in all fields of antitrust investigation, private antitrust litigation, merger filing and antitrust compliance. Key representations include successfully defending SINOPEC in the first private antitrust litigation within China’s oil and gas sector, defending a Japanese electronics company in an auto parts investigation, and a merger filing for the ChemChina/Syngenta deal.

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