At the outset, the PRC Anti-monopoly Law (AML) does not set out specific requirement on information exchange among affiliates. However, it explicitly provides that independent competitors are prohibited from reaching monopoly agreements.“Monopoly Agreements” refer to agreements, decisions or other concerted practices that eliminate or restrict competition. According to relevant provisions promulgated by the NDRC and the SAIC, the authorities will determine whether there exists concerted conducts based on various factors, including whether there is uniformity in their acts, whether there has been communication of intention or exchange of information, and whether business operators are able to give reasonable explanations for their concerted conducts. In situations where the exchange of certain commercial sensitive information facilities concerted practice, the authorities may decide that monopoly agreements are concluded by competitors.
Under the AML, there is no concept as “single economic entity”. Affiliated companies could be regarded as “competitors”. Accordingly the agreements concluded among them are subject to cartel investigations. Although the legal enforcement is focusing on cartels between non-associated business operators at the moment, we notice that in past decisions, the NDRC has imposed punishments on affiliates where monopoly agreement has been reached, except for those circumstances where relevant affiliates are identified as joint practitioners or their behaviors are “internal business decision within the same economic entity”
Taking Hubei automobile case as an example, the Price Bureau of Hubei Province found that four sister companies, namely Wuhan Aolong, Shiyan Aolong, Yichang Aolong and Huangshi Aolong entered into and implemented agreements on price fixing of sales of automobile and provision of repairing services, along with six other non-associated companies. In that case, the Price Bureau of Hubei Province imposed fines on all ten business operators, which indicates that the four abovementioned sister companies were regarded as independent competitors.
In comparison, in Chongqing pharmaceutical case, the NDRC decided that Chongqing Qingyang Pharmaceutical Co., Ltd. (“Chongqing Qingyang”) and Chongqing Datong Medicine Co., Ltd. (“Chongqing Datong”) should be treated as joint practitioners instead. The NDRC considered certain factors such as Chongqing Qingyang and Chongqing Datong had the same biggest shareholder, the vice general manager of Chongqing Qingyang took the management position in Chongqing Datong, and the vice finance manager of Chongqing Qingyang was also in charge of Chongqing Datong’s financial work. Since 2014, Chongqing Qingyang made out invoice for Qingyang Allopurinol Tablets sales, and the sales activities of Chongqing Qingyang and Chongqing Datong were responsible by the same person. Based on such facts, the NDRC found that Chongqing Qingyang and Chongqing Datong were joint practitioners, not independent competitors, and they should be regarded as the same party in implementation of the monopoly agreement. In addition, in Zhejiang insurance case, in finding the insurance companies local branches reached monopoly agreement, the NDRC expressly took the fact that relevant cartelists “have no associated relationship, being independent from each other, and their communication of intention and consensus are not internal business decision of the same economic entity” into consideration.
In light of the above, affiliated companies could be regarded as independent competitors in certain situations, and consequently, the exchange of certain commercial sensitive information between them may be considered as a way to facilitate concerted practice. Such commercial sensitive information includes but is not limited to:
- Individual price information, including matters affecting price such as discounts, rebates, surcharges, price change, price differentials, profit margins or other terms of sale;
- Individual cost information, including cost components, production or distribution costs, costs accounting formulas;
- Matters relating to individual customers, including the identity of actual or potential customers, the duration and anticipated date of termination of any contracts, and the specific products supplied to such customers; and
- Confidential information of future business plans, including pricing strategy, market shares, sales strategy, and the use of new technology.
Based on our experience, sensitive information could be exchanged through various ways, including those with legitimate purpose. For instance, a parent company may receive sensitive information of its subsidiaries in reviewing their business performance; an employee working at various companies may have access to their respective commercial information; and sensitive information could also be shared in using same internal materials by various business operators. For scrutiny purpose, we recommend fire-walls to be established, including but not limited to corporate governance and employee arrangement aspects.
To conclude, it is recommended that companies should keep monitoring the latest legal enforcement regarding information exchange, and map out and strictly implement information exchange guidelines when necessary. For detailed analysis on information exchange, please see our further series articles.