Introduction
Key changes
Analysis of new AML
Comment
China has revisited the Anti-Monopoly Law (AML) for the first time since it came into effect in 2008, with a view to strengthen antitrust enforcement and tighten other relevant rules and regulations. Following an unprecedented fine in the tech sector and a series of corresponding guidelines, the Standing Committee of the National People's Congress (NPC) passed the first amendments to the current AML on 24 June 2022, with a few revisions to the previous draft, which was issued on 23 October 2021. Although a bill of law usually goes through three rounds of deliberation before it passes in China, the amendments to the new AML have been passed following only two – an exception that is made when consensus is achieved among the relevant stakeholders.
Following its 1 August 2022 effective date, the new AML is expected to better prepare the newly established State Anti-Monopoly Bureau for a challenging decade ahead. Having codified the current Chinese practices and adopted some foreign experience, the new AML aims to keep up with developments and market conditions that have transformed the way businesses are operated. While e-commerce and platform economy receive the most attention, key sectors related to national welfare and people's livelihood are also highlighted. Elsewhere, the new AML, while providing clearer procedure guidance, will effectively remove the filing thresholds of safe harbour and impose harsher penalties for violations.
Antitrust and competition compliance is also on the agenda for many undertakings and their senior management, particularly those in key sectors.
Focus on platform economy
Out of fear of the expansion of competition between tech giants, legislative action needs to be taken to address the perceived enforcement gaps between traditional antitrust rules and the new types of anti-competitive conduct that have emerged in the digital era. China makes no secret of its ambition to tackle platform giants. As a follow-up to the 2021 Guidelines for Anti-Monopoly in the Field of Platform Economy (the platform guidelines), the new AML provides:
- a stand-alone general term that prohibits violations by taking advantage of:
- data;
- algorithms;
- technology;
- capital; and
- platform rules; and
- an abuse-of-dominance-specific clause that targets the increasingly aggressive application of abuse of dominance by platform entities.
Tougher penalties with broadened targets
The new AML has increased the maximum fine for transactions with anticompetitive effects, especially gun-jumping, by 10% of the preceding financial year's revenue from the current cap of 500,000 yuan. Penalties for non-implementation of monopoly agreements and behaviours led by trade associations have also been raised drastically. Although the penalty sum varies among different drafts, the final number set in the new AML is still several times higher than that under the current AML.
For serious violations, the new AML stipulates a punitive penalty that multiplies fines by two to five times the amount of the original penalty. Those that do not generate any revenue in the previous financial years are not exempt and could also receive a fine of up to 5 million yuan. In addition, the AML imposes liabilities on facilitators of monopoly agreements, as well as legal representatives and the person in charge of or directly responsible, which is considered a "change of significance".
Weakening stance against RPM
Distinct from its European and American counterparts, resale price maintenance (RPM) has long been an enforcement priority in China, but competition authorities and Chinese courts take different approaches to this. The antitrust enforcement authorities apply a "prohibition and exemption" method, aspects of which are technically illegal, whereas Chinese courts tend to follow the rule of reason. The new AML clearly discloses the Chinese policymakers' preference toward the rule of reason approach by putting the burden of proof on the concerned undertakings to show that it does not eliminate or restrict competition and by refining the definition of "monopoly agreement".
Official introduction of safe harbour rules for vertical agreements
Although safe harbours are not new to China's antitrust practice, previously they could be found only in some sector guidelines. The new AML now recognises the legitimacy of such block exemption in vertical agreement on a higher-level of law. Details of the implementation rules are yet to be established by the enforcement authority.
Expansion of competition authority's jurisdiction
Concerns have grown in the past few years over concentrations involving undertakings, notably in the digital and pharmaceutical sectors, that have or may have anti-competitive impacts in the relevant markets, albeit with small revenues. The new AML tries to fill the gap by conferring an enforcer authority to review transactions that fall below filing thresholds, especially the killer acquisitions.
Establishment of "stop-the-clock" mechanism
Currently, notifications filed in China have to be pulled and refiled after a maximum review period of 180 days; this process can be repeated in complicated cases, especially the ones approved with conditions. The new AML draws lessons from other jurisdictions and introduces the "stop-the-clock" mechanism to suspend the review process under certain circumstances.
While largely in line with the previous draft, some novel amendments have been made. These are set out below.
Erosion of safe harbour
In the previous draft, a safe-harbour clause was introduced to provide a higher-level legal basis for exempting certain agreements (both horizontal and vertical) with concerned parties' market share lower than (unspecified) thresholds set by enforcement authorities. However, the new AML now limits the application of safe harbour to vertical agreements alone, which are usually considered to be less anti-competitive than horizontal agreements among competitors. That said, the safe harbour clauses under existing sector guidelines remain valid. The change implies a cautious and stringent position taken by the legislator.
Further refinement of merger review process
The new AML requires the relevant enforcement authority to improve the classification and grading review system for merger control and expand its obligations in terms of review efficiency and quality. Unlike the previous draft, the new AML no longer lists the key sectors related to national welfare and people's livelihood, which will leave enforcement authority more room in practice.
Soft landing of killer acquisition investigation
Some stakeholders and scholars suggested the rules for reviewing transactions falling below filing thresholds should be further clarified. The new AML addresses this by allowing the enforcement authority to request the parties to transactions to file. The authority will initiate an investigation if the parties fail to do so. This rule should benefit both transaction parties and enforcement authorities – the parties will have more mobility while the enforcer could save constrained enforcement resources.
Altered enforcement authority
To reflect the elevation of the seniority of the State Anti-Monopoly Bureau, it will now have power over the antitrust enforcement authority of the State Council. As a deputy ministerial-level enforcement authority, the bureau will have more ways to carry out its duties.
Interplay between courts and law enforcement
While the current AML and earlier versions of its draft amendment are almost enforcement-exclusive, the new AML supplements a subclause under the general provisions, which requires the courts to reinforce antitrust judicial activities and apply a fair and efficient approach in antitrust cases. The long-anticipated judicial interpretation of the AML is expected to be unveiled in the near future. It also calls for improving the interplay between the courts and law enforcement.
On 24 June 2022, the Standing Committee of the NPC officially passed the much-awaited AML amendments. The potential impact on the competition landscape of the new AML, together with its supplementary rules, will be wide ranging. Harsher penalties, expanded jurisdiction, altered procedures and standards are reasons why the new AML merits close attention from undertakings doing business in China and related to the Chinese market.
For further information on this topic please contact Hao Zhan or Ying Song at AnJie Law Firm by telephone (+86 10 8567 5988) or email ([email protected] or [email protected]). The AnJie Law Firm website can be accessed at www.anjielaw.com.