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What is the legal framework in your jurisdiction covering the behaviour of dominant firms?
The Chinese legal framework for regulating the behaviour of dominant firms includes two pieces of primary legislation and six pieces of secondary legislation in force.
- the Anti-Monopoly Law (AML); and
- the Price Law (Price Law).
- the Provisions for the Industry and Commerce Administrations on the Procedures for Investigating and Handling Cases of Monopoly Agreements and Abuse of Market Dominance (which entered into force on 1 July 2009) (adopted by the State Administration for Industry and Commerce: SAIC Procedural Provisions) set out the procedures that the SAIC will follow when investigating and handling restrictive agreements and abusive behaviours by dominant undertakings;
- the Provisions for the Industry and Commerce Administrations on the Prohibition of Abuse of Dominant Market Position adopted by SAIC (which entered into force on 1 February 2011) (SAIC Dominance Provisions) explain what would be considered to be ‘a dominant market position’, the types of non-price-related abusive conduct, and SAIC’s authority over these activities;
- the Provisions for the Industry and Commerce Administrations on the Prohibition of Abuse of Administrative Authority to Eliminate or Restrict Competitive Acts adopted by SAIC (which entered into force on 1 February 2011) set out specific provisions with respect to the abusive behaviours conducted by government authorities;
- the Provisions on the Procedures for Administrative Anti-Price Monopoly Law Enforcement (adopted by the National Development of Reform and Commission (NDRC) on 29 December 2010) (NDRC Procedural Provisions) set out the procedures that the NDRC will follow when investigating and handling abusive behaviours by undertakings;
- the Provisions on the Anti-Price Monopolies adopted by NDRC (which entered into force on 1 February 2011) (NDRC Anti-Price Monopoly Provisions) set out the prohibited types of price-related abusive conducts by dominant undertakings, as well as the NDRC’s authority over these activities; and
- the Procedural Provisions on the Price-related Administrative Penalties adopted by NDRC (which entered into force on 1 July 2013) and the Provisions on the Trial and Examination of Cases in relation to Price-related Administrative Penalties (which entered into force on 1 January 2014) set out the procedures for the NDRC to review and impose penalties for price-related violations of the AML and the Price Law.
In addition, the Supreme People’s Court issued a set of judicial interpretations to provide guidance on how to proceed with civil actions under the AML (ie, the Provisions of the Supreme People’s Court on the Application of Laws in the Trial of Civil Disputes arising from Monopolistic Practices (which entered into force on 3 May 2012)).
Definition of dominance
How is dominance defined in the legislation and case law? What elements are taken into account when assessing dominance?
The term of dominance is defined as an economic strength possessed by one or several undertakings that enable it or them to control the price or quantity of products or other trading conditions in the relevant market, or to block or affect the access of other undertakings to the relevant market (article 17 of the AML).
Dominance is assessed by reference to various factors. Market share is the first parameter. Under article 19 of the AML, a market share above 50 per cent is presumed dominant. In the case of several undertakings, the combined market share of two undertakings as a whole above two-thirds, or the combined market share of three undertakings as a whole above three-quarters, is presumed dominant. However, any undertaking with a market share of less than 10 per cent is not presumed to be dominant.
In addition to market share presumption, article 18 of the AML further stipulates that dominance could be assessed by reference to the following factors:
- the ability of the undertaking to control the retail market or procurement market for raw materials;
- the financial status and technical conditions or capabilities of the undertaking;
- the extent of dependence on the undertaking by other undertakings in transactions; and
- barriers to entry.
At the secondary legislation level, both the SAIC Dominance Provisions and the NDRC Anti-Price Monopoly Provisions elaborate on the two key concepts in the definition of ‘dominance’, which are ‘other transaction terms’ and ‘enabling such undertakings to block or affect other undertakings’. The SAIC Dominance Provisions also provide further guidance on how each of the determinative factors is to be assessed in determining the existence of dominance.
Purpose of legislation
Is the purpose of the legislation and the underlying dominance standard strictly economic, or does it protect other interests?
The AML mainly supports competition-related objectives, but also includes certain non-economic policy objectives. For example, in article 1 of the AML, it provides that the legislation is to protect the ‘public interest’ and to ‘promote the healthy development of the socialist market economy’. Article 7 of the AML specifically focuses on industries of a dominant status granted by the state, but also explicitly prevents the undertakings engaged in such industries from abusing their dominance. This article could be interpreted as an effort to strike a balance between competition policy and industrial policy.
Sector-specific dominance rules
Are there sector-specific dominance rules, distinct from the generally applicable dominance provisions?
In addition to the AML and the Price Law, which apply equally to all sectors of the economy, the following additional legislation regulates dominance in the telecommunication and automobile sectors:
- the PRC Telecommunication Provisions prohibit telecommunication operators from restricting consumer choice;
- the NDRC issued the Guidelines on Anti-Monopoly in the Automobile Industry (Draft for Comments) to regulate the behaviours of automobile suppliers who may have the dominant position in the automobile aftermarket of their respective brand and the abuse of administrative power to eliminate or restrict competition in the automobile industry; and
- the NDRC issued the Guidelines on Price-Related Activities of Undertakings in relation to Drug Shortage and Active Pharmaceutical Ingredients to regulate price-related activities of undertakings during production, operations, and services provision of shortage drugs and active pharmaceutical ingredients. To be specific, the Guidelines demonstrate how to ascertain an undertaking has a dominance position in the relevant market and whether an undertaking conducts abusive activities.
These additional legislations are complementary to the general dominance rules in China, and they are largely in line with the general dominance rules but may have a more sector-specific focus.
Exemptions from the dominance rules
To whom do the dominance rules apply? Are any entities exempt?
The AML applies to undertakings, which are defined as ‘a natural person, legal person or other organisation that engages in the manufacture or operation of goods or the provision of services’.
Article 7 of the AML deals with undertakings engaged in industries of a dominant status granted by the state, however, it does not exempt such undertakings from the prohibitions under the AML and explicitly prohibiting them from damaging consumer interests.
Article 8 and Chapter 5 of the AML also apply to public authorities. This article requires that a government authority may not abuse their administrative power to eliminate or restrict competition.
Transition from non-dominant to dominant
Does the legislation only provide for the behaviour of firms that are already dominant?
The AML requires dominance to be demonstrated when dealing with abusive behaviours of dominant undertakings.
The Price Law regulates behaviours of non-dominant firms. More specifically, article 14 of the Price Law prohibits certain pricing below cost where the objective is to exclude competitors.
Is collective dominance covered by the legislation? How is it defined in the legislation and case law?
Under the AML, the term of dominance is defined as a market position possessed by one or several undertakings that have the ability to control the price or quantity of products or other trading conditions in the relevant market, or to block or affect the access of other undertakings to the relevant market.
When assessing ‘collective dominance’, the upmost consideration factor is ‘market share’, explicitly defined in article 19 of the AML. Moreover, the Chinese authorities will also apply the consideration factors in article 18 of the AML for a comprehensive analysis. Zhejiang Price Bureau’s penalty decision on 17 papermaking companies issued on 11 July 2017 set an example of the Chinese authorities’ approach. For more specific information, see question 2.
Does the legislation apply to dominant purchasers? Are there any differences compared with the application of the law to dominant suppliers?
Dominant purchasers are subject to the AML. Article 17 of the AML expressly prohibits dominant undertakings from purchasing goods at unfairly low prices. There is no difference between dominant purchasers and dominant suppliers in terms of the application of the law.
Market definition and share-based dominance thresholds
How are relevant product and geographic markets defined? Are there market-share thresholds at which a company will be presumed to be dominant or not dominant?
Under the AML, there is no difference as to the approach to define a relevant market for restrictive agreements, abuse of dominance and merger control purposes.
The Guidelines on the Relevant Market Definition, which entered into force on 24 May 2009, applicable to all respects of the AML, and enforceable by all Chinese antitrust agencies and courts with jurisdiction, provide guidance on the definition of the relevant market and the methodology used for defining the relevant market.
Article 19 of the AML sets out rules on how a company will be presumed to be dominant in China, where the ‘market share’ is the first parameter. However, such presumption is rebuttable if there is evidence to the contrary. Any undertaking with a market share of less than 10 per cent is not presumed to be dominant. For more specific information, see question 2.
Abuse of dominance
Definition of abuse of dominance
How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?
Article 17 of the AML provides that a conduct may constitute an abuse if it consists of:
- selling products at unfairly high prices or buying products at unfairly low prices;
- selling products at prices below cost without justification;
- refusing to enter into transactions with other parties without justification;
- limiting other parties to entering into transactions exclusively with them or undertakings designated by them, without justification;
- tying products without justification or imposing any other unreasonable terms in the course of transactions; and
- applying dissimilar prices or other transaction terms to equivalent trading parties that are in the same position without justification.
The SAIC Dominance Provisions and the NDRC Anti-Price Monopoly Provisions provide more details on each type of specific abusive conduct prohibited by law.
The Price Law prohibits price collusion, predatory pricing, discriminatory pricing and obtaining exorbitant profits, regardless of the existence of dominance.
Exploitative and exclusionary practices
Does the concept of abuse cover both exploitative and exclusionary practices?
The AML, the SAIC Dominance Provisions and the NDRC Anti-Price Monopoly Provisions cover both exploitative and exclusionary practices.
Link between dominance and abuse
What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?
These issues have not yet been dealt with in the law or in the decisional practice of the enforcement authorities.
What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?
The AML provides that certain practices are prohibited where they are ‘without any justification’. While the AML itself is silent as to the interpretation of what may be considered to constitute adequate ‘justification’, some guidance is provided in relation to specific types of abuse in the AML-related regulations.
Article 12 of the NDRC Anti-Price Monopoly Regulations prohibits undertakings with dominance from selling goods below cost price without proper justifications, which includes the following:
- selling at a reduced price fresh perishable goods, seasonal goods, goods with an imminent expiry date or overstocked goods;
- selling goods at a reduced price to repay debt, to change production lines or to wind-up a business; and
- promoting the new product marketing.
The Price Law prohibits the sales of goods at a below-cost price in order to exclude competitors or to dominate the market except for the legitimate reduction of prices for goods such as seasonal products, or overstocked goods.
Article 16 of the NDRC Anti-Price Monopoly Provisions and article 7 of the SAIC Dominance Provisions provide ‘proper justification’ for price discrimination. To clarify what could be considered as ‘proper justification’, article 8 of the SAIC Dominance Provisions provides that two elements should be comprehensively considered: whether the business operator’s conduct is based on its normal operating activities and for its normal benefits; and whether the conduct has an impact on economic efficiency, public interests and economic development.
Specific forms of abuse
Types of conduct Types of conduct
Indicate to what extent the following types of conduct (questions 14–25) are considered abusive. Mention briefly any leading precedents on, and the relevant tests for, assessing the categories of conduct: Rebate schemes
The AML prohibits dominant undertakings from selling goods below cost without justification, although there is no explicit provision on rebate schemes.
Article 14 of the NDRC Anti-Price Monopoly Regulation prohibits undertakings with dominance, through price discounts or other means, from requiring counterparties to enter into transactions exclusively with them or undertakings designated by them without proper justification.
The first dominance case involving loyalty discounts was the Tetra Pak (TP) case in 2016. The SAIC identifies two types of loyalty discounts TP adopted in its carton business between 2009 and 2013: retroactive accumulative volume discount and customised volume target discount. The SAIC found both loyalty discounts have a loyalty-inducing effect. Specifically, in the first scenario, given that the discount applies to all units purchased during a defined reference period, when a customer’s purchase volume reaches the threshold, the price that the customer needs to pay drops significantly. Therefore, to obtain more products at a lower price when a customer’s purchase volume approaches the threshold, customers tend to continue purchasing until the threshold is met, which leads to a loyalty-inducing effect. In the second scenario, the undertaking with a dominant market position tends to condition its discount on the target percentage and target volume set forth specifically for individual customers, the direct consequence of which would be to lock-in the customer’s purchase percentage or volume. By taking into account specific market conditions, the SAIC found that TP’s loyalty discount had evident anticompetitive effects.
Tying and bundling
The AML prohibits a dominant undertaking from implementing tie-in arrangements that do not have any justifications.
Article 6 of the SAIC Dominance Regulations prohibits undertakings with dominance from tie-in sales without any justification, or imposing other unreasonable transaction terms during the course of a transaction, including:
- compulsory bundling or grouping of different products that would not normally be bundled together according to normal transactional practices and consumption habits, regardless of the functions of different products;
- imposing unreasonable restrictions on the terms of contracts, payment methods, transport and delivery methods for goods, or methods of providing services, etc;
- imposing unreasonable restrictions on the sales region, sales targets and after-sales services of products, etc; and
- imposing transactional conditions irrelevant to the subject matter of the transaction.
In June 2016, the Inner Mongolia AIC, which was authorised by the SAIC, announced that it had investigated and fined the Inner Mongolia Broadcast and Television network Group (Xilinguole) Company for tying a service fee, which should be a voluntary choice, to the basic fee. The Inner Mongolia AIC imposed a fine of 98,000 yuan on the company, which is respectively 1 per cent of its previous year’s sales in the relevant market.
The high-profile dominance case involving tying was the TP case in 2016. For more details of the case, see question 29.
The AML prohibits an undertaking with dominance from requiring, without justification, undertakings to enter into exclusive dealing agreements with it or an undertaking designated by it.
Article 5 of the SAIC Dominance Regulations prohibits an undertaking with dominance from requiring a counterparty to enter into transactions exclusively with it, or any undertaking designated by it, without any justification.
Article 14 of the NDRC Anti-Price Monopoly Regulations prohibits an undertaking with dominance, through price discounts or other means, from restricting counterparties to enter into transactions exclusively with them or undertakings designated by them without proper justification. ‘Proper justification’ is further explained to include the following exemptions:
- to guarantee the quality or safety of a product;
- to maintain the image of a brand or to enhance service level;
- to significantly reduce costs, increase efficiencies and share the benefits generated thereof with consumers; and
- other reasons that can provide justifications for the conduct.
In October 2016, the Urumqi AIC, authorised by the SAIC, announced that it investigated and fined the Urumqi Water Group Inc for exclusive dealings of which the company required its customers to trade only with designated undertakings. The Urumqi AIC imposed a fine of total 1,493,891 yuan on the company, which is respectively 1 per cent of its previous year’s sales in the relevant market.
The high-profile dominance case involving exclusive dealing was the TP case in 2016. For more details of the case, see question 29.
The AML prohibits undertakings with dominance from selling products at a price below cost without justification.
Article 12 of the NDRC Anti-Price Monopoly Regulations also prohibits undertakings with dominance from selling goods at a below-cost price without proper justifications, which includes the following:
- selling fresh perishable goods, seasonal goods, goods with an imminent expiry date or overstocked goods at reduced prices;
- selling goods at a reduced price to repay debt, to change production lines or to wind-up a business;
- promoting the new product marketing; and
- other reasons that can provide justification for their conduct.
The Price Law prohibits the sales of ‘goods at a below-cost price in order to exclude competitors or to dominate the market except for the legitimate reduction of prices for goods such as seasonal products, or overstocked goods’.
Price or margin squeezes
Article 11 of the NDRC Anti-Price Monopoly Provisions provides that business operators with dominant positions are prohibited from selling commodities at unfairly high prices or buying commodities at unfairly low prices, taking into account factors such as the price offered by other business operators for the same kind of commodity and the normal price range when costs are generally stable.
Besides, such activities may be punished as price discrimination or refusals to deal in disguised form. In practice, enforcement authorities have not made any punishment decision based on price or margin squeezes up to the date of writing.
Refusals to deal and denied access to essential facilities
The AML prohibits undertakings with dominance from refusing to trade with other undertakings without justification. The SAIC Dominance Provisions and NDRC Anti-Price Monopoly Provisions provide detailed examples of refusal to deal.
Article 4 of the SAIC Dominance Provisions prohibits undertakings with dominance from refusing to deal with a counterparty without justifiable reasons.
Article 13 of the NDRC Anti-Price Monopoly Provisions prohibits undertakings with dominance from refusing to conduct transactions with their counterparties in disguised form by imposing excessively high selling prices or excessively low buying prices without proper justification. A ‘proper justification’ includes:
- the counterparties have significantly bad credit records, or their operating conditions may lead to relatively significant risks to the safety of the transaction;
- the counterparties are able to purchase the same or substitutable goods from other undertakings at a reasonable price, or to sell goods to other undertakings at a reasonable price; and
- other reasons that can provide justification for their conduct.
As for the issue of denied access to essential facilities, article 4 of the SAIC Dominance Provisions prohibits undertakings with dominance from refusing to allow a counterparty to use, on reasonable terms, its essential facilities during such a party’s production and operations.
Article 7 of the SAIC IP Provisions provides that a business that has a dominant market position shall not, without any justification, refuse to license other businesses to use its intellectual property right under reasonable conditions to preclude or restrict competition if the intellectual property right is part of the necessity facilities for production and trading.
In the determination of the conduct as mentioned in the preceding paragraph, the following factors shall be considered at the same time: the intellectual property right cannot be substituted reasonably in the relevant market, and the intellectual property right is necessary for other businesses to participate in competition in the relevant market.
In the Announcement on Seeking Public Comments for the Guidelines on the Anti-Monopoly Law Enforcement in the Abuse of Intellectual Property Rights (the Seventh Draft of the State Administration for Industry and Commerce) issued by the SAIC on 4 February 2016, article 24 provides that that an intellectual property right holder could legally refuse to license his or her intellectual property right. In general, the anti-monopoly enforcement authorities under the State Council will not require right holders to bear the obligation to license their intellectual property rights. However, if the holder of an intellectual property right has dominant position in the relevant market, and, particularly, the intellectual property right constitutes the essential facility for production or operation activities, its refusal to license the intellectual property right to other business operators through reasonable requirements, without justified reasons, will eliminate or restrict competition in the relevant market.
Article 28(iii) provides that for business operators with dominance, after their patent becomes an essential patent for a standard, eliminating or restricting the competition by committing refusal to license, tied sales, discriminatory treatment or adding other unreasonable terms is prohibited.
Predatory product design or a failure to disclose new technology
There is no provision in the AML concerning predatory product design. Predatory product design is also known as predatory innovation, which is still a novel issue in China. As at the time of writing, there is no relevant enforcement record.
Based on the firm’s legal practice, predatory product design could be analysed with five elements in practice:
- there is a market of novelty that is characterised by the emergence of a new product or technology;
- there are primary and secondary markets;
- there is need for interoperability between the above two markets;
- there is dominance in the primary market; and
- there are foreclosure effects in the secondary market.
As for the issue of failure to disclose new technology, it has not yet been dealt with in the law or in the practice of enforcement authorities.
The AML prohibits businesses with a market-dominant position from applying dissimilar prices or other transactional terms to equivalent trading partners without justification. A market-dominant position is the prerequisite for the AML to apply.
Article 16 of the NDRC Anti-Price Monopoly Provisions prohibits undertakings with dominance from price-related discriminatory treatment, without a proper justification, against other parties to a transaction.
Article 7 of the SAIC Dominance Provisions prohibits non-price-related discrimination, including discriminatory treatment, without proper justification, of counterparties that are in a comparable situation in respect of transaction terms such as transaction quantity, the quality of goods, payment method, delivery method, after-sales service and so on.
Article 14(v) of the Price Law prohibits price discrimination towards undertakings of equal trading conditions for the same goods or services. Unlike the AML, article 14 of the Price Law applies regardless of the existence of dominance.
Exploitative prices or terms of supply
The AML prohibits undertakings with dominance from selling or buying products at unfairly high or low prices. Article 11 of the NDRC Anti-Price Monopoly Provisions stipulates the following decisive factors in determining the extent to which low or high pricing is unfair:
- whether the sale or purchase price is obviously higher or lower than the price charged or paid by other undertakings to sell or buy the same goods;
- where costs are stable, whether an increase or decrease in the sale or purchase price exceeded normal margins; and
- whether the rate of increase or decrease of the purchase price of goods is obviously higher or lower than the rate of increase or decrease of the cost.
The Price Law prohibits excessive profits that are obtained in violation of laws and regulations.
In August 2017, a decision taken by the NDRC concerned exploitative pricing. This case involved two Chinese active pharmaceutical ingredients companies that abused their dominant positions and sold products (ie, active pharmaceutical ingredients for isoniazid) at unfairly high prices. The NDRC imposed a fine of 443,916 yuan on the two companies, which is 2 per cent of their previous year’s sales in the relevant market.
Abuse of administrative or government process
As an ex post approach, Chapter V of the AML regulates the abuse of administrative power by the government authorities to eliminate or restrict competition. The SAIC Dominance Provisions set out in more detail the types of prohibited activities by administrative bodies and the SAIC’s authority over these activities.
On 1 June 2016, the State Council promulgated the Opinions of the State Council on Establishing the Fair Competition Review System in the Development of Market System (Guo Fa  No. 34), in which the main objective of setting up the system is to reconcile the laws and regulations at all levels of the Chinese government with the competition law principles.
In the fair competition review system, targets subject to review are rules, regulatory documents and other policy measures that involve the economic activities of market players, such as those on market entry, industrial development, attracting foreign investment, bidding and bids, government procurement, business code of conduct, qualification standards, etc, formulated by government authorities that have the functions of public affairs administration as authorised by laws and regulations. This system is regarded as an ex ante mechanism to comprehensively remove the legal basis for possible abusive behaviour by government authorities.
On 7 April 2017, NDRC published a decision that Shenzhen Municipal Health and Family Planning Commission (SMHFPC) had abused its administrative power with the purpose of excluding and restricting competition in violation of articles 8 and 32 of the AML. On 1 July 2016, SMHFPC issued the Circular on the Establishment of a Pilot Programme to Promote the Drug Procurement Reform in Public Hospitals in Shenzhen, which required that only one designated corporation, Quanyao Net, could provide group purchasing organisation (GPO) services to the Shenzhen public hospitals and drug manufacturers. SMHFPC is then committed to undertake three measures to rectify these violations, and to revise and improve the relevant policies during the launching period of the GPO pilot programme in order to comply with the AML and the Fair Competition Review System standards so that relevant policies will be revised to allow qualified GPOs to enter the relevant market and ensure that the GPO programme can be developed in an orderly manner.
Since 2008, the NDRC has investigated and punished more than 30 administrative monopoly cases and corrected local governments’ activities of designated transaction and local protectionism.
By November 2017, the SAIC had investigated 10 cases of abuse of administrative power. Since 2008, the SAIC has prevented 40 activities of abuse of administrative power.
Mergers and acquisitions as exclusionary practices
Article 4 of the Interim Provisions for the Assessment of the Effect of the Concentration of Business Operators on Competition issued by the Ministry of Commerce (MOFCOM) on 29 August 2011 provides that when assessing the possibility of negative impact on competition caused by a merger or an acquisition, the possibility of excluding other competitors is the initial factor to be considered by MOFCOM.
Abuse of IP rights
Article 55 of the AML tries to strike a balance between the protection of legitimate IP rights and the application of competition law. If an undertaking’s conduct eliminates or restricts competition by abusing its intellectual property rights, such undertaking will fall foul of the AML.
The SAIC IP Provisions include provisions on patent pools and identify various types of conduct, which, absent an objective justification, may amount to an abuse of a dominant position. However, the SAIC IP Provisions only regulate non-price-related anticompetitive conduct and bind only the SAIC. Currently, China’s top competition advisory body, the Anti-Monopoly Commission of the State Council, is to issue integrated IPR antitrust guidelines, which are to consolidate four draft versions prepared by the NDRC, the SAIC, MOFCOM and the State Intellectual Property Office.
Under the SAIC IP Provisions, companies with a ‘dominant position’ are prohibited from engaging in certain types of conduct in exercising their IPRs that are deemed to constitute an abuse of that market power. The non-exhaustive list of abusive conducts includes:
- refusal to license IPRs that amount to ‘essential facilities’;
- imposing certain exclusivity restrictions;
- imposing unjustified tying and bundling requirements;
- attaching unreasonable trading conditions to an IP agreement, including inserting no-challenge clauses;
- engaging in discriminatory treatment; and
- engaging in practices that are inconsistent with fair, reasonable and non-discriminatory principles in relation to the licensing of standard-essential patents.
Which authorities are responsible for enforcement of the dominance rules and what powers of investigation do they have?
The SAIC and the NDRC are the two authorities responsible for the AML enforcement of cases relating to abuse of dominance. The SAIC undertakes investigations into non-price-related abusive conduct by dominant firms, while the NDRC is responsible for investigations into price-related abusive conduct by dominant firms.
The two authorities are entrusted with the power to conduct ‘dawn-raid’ investigations of business premises or other premises of undertakings under investigation. The authorities also have the power to interview individuals, inspect or copy relevant documents and material, seal or retain relevant evidence and investigate the bank accounts of the undertakings.
The NDRC is responsible for enforcement of the Price Law.
Sanctions and remedies
What sanctions and remedies may the authorities impose? May individuals be fined or sanctioned?
Under the AML, the sanctions include a fining penalty of between 1 and 10 per cent of the sales revenue for the previous year of the undertaking in breach of the law and to confiscate illegal gains.
The Price Law provides that the sanctions include rectifying the violations, confiscating any illegal gains and a fine penalty of up to five times the amount of the illegal gains. An objection notice will be given and a fine may be imposed if there are no illegal gains. In serious circumstances, the undertaking will be ordered to suspend operations while the infringing behaviour is rectified and the relevant authority may also revoke the business licence of the infringing undertaking.
As of this writing, the highest fine imposed for abuse of dominance is 6.08 billion yuan imposed by the NDRC in the Qualcomm case in 2015.
Can the competition enforcers impose sanctions directly or must they petition a court or other authority?
Yes, the Chinese competition authorities can impose sanctions directly. Article 10 of the AML provides that the anti-monopoly law enforcement agency designated by the State Council shall be responsible for the anti-monopoly law enforcement work, and such anti-monopoly law enforcement agency may empower corresponding agencies in the governments of the provinces, autonomous regions and municipalities directly under the central government to be responsible for the anti-monopoly law enforcement work.
On 4 February 2016, the SAIC issued the Announcement on Seeking Public Comments for the Guidelines on the Anti-Monopoly Law Enforcement in the Abuse of Intellectual Property Rights (Seventh Draft of the State Administration for Industry and Commerce), which covers abuse of dominance involving IP rights.
What is the recent enforcement record in your jurisdiction?
In 2016, the NDRC published a decision based on article 17(1)(i) of the AML (selling products at unfairly high prices or buying products at unfairly low prices). In 2016, the SAIC published six punishment decisions based on abuse of dominance, among which:
- three punished violations of article 17(1)(v) of the AML (implementing tie-in sales or imposing other unreasonable trading conditions at the time of trading without any justifiable causes);
- one decision punished violation of article 17(1)(iv) of the AML (restricting trading party so that it may conduct deals exclusively with themselves or with the designated undertakings without any justifiable cause);
- one decision punished violation of article 17(1)(vi) of the AML (applying discriminatory treatments on trading prices or other trading conditions to their trading parties with equal standing without any justifiable causes);
- and one punished violations of article 17(1)(iv), (v) and (vii) (other forms of abusing the dominant market position as determined by the Anti-monopoly Law Enforcement Agency under the State Council) of the AML.
There is no conclusion on the length of abuse of dominance proceedings from initial investigation to final decision. According to the publicly available notices of past decisions, the length ranges from six months to five years.
The most high-profile dominance case is the TP case. On 16 November 2016, the SAIC found that, from 2009 to 2013, TP abused its dominant position in aseptic carton packaging machinery for liquid food products, technical services for aseptic carton packaging machinery for liquid food products, and cartons for liquid food product aseptic packaging and conducted tie-in sales, exclusive dealing and loyalty discounts without justifiable reasons in China. To determine TP’s market position in the three relevant markets, the SAIC mainly considered the following:
- TP’s market share and competition status in the relevant markets, including its competitive advantages in the relevant markets reflected by the changes of its sales margin and its profitability, etc;
- TP’s ability to control the market, particularly prices and discounts as well as other trading conditions;
- the extent to which other undertakings (especially the users) depend on TP; and
- the difficulty that other undertakings encounter when entering the relevant markets.
The SAIC concluded that:
- TP was using its dominant position in machinery and technical service markets to impose restrictions on and affect customer’s usage of cartons, which damaged the competition in the carton market and violated article 17(1)(v) of the AML;
- TP’s restrictions on the use of non-proprietary technical information that excluded the only companies that are able to achieve production at scale of brown paper from supplying brown paper to a third party constituted a violation of article 17(1)(iv) of the AML; and
- TP’s two types of loyalty discount scheme have a loyalty-inducing effect and constitute other forms of abuse of dominant market position as prohibited by article 17(1)(vii) of the AML. The investigation lasted for almost five years from January 2012 and the punishment imposed was a fine totalling 667.7 million yuan.
Where a clause in a contract involving a dominant company is inconsistent with the legislation, is the clause (or the entire contract) invalidated?
Under the AML, it provides that the enforcement authority may order the cessation of any illegal actions. It does not specifically provide for the consequences of an infringement in relation to the validity of contracts. However, under the Contract Law, any contractual provisions that are in breach of mandatory provisions of laws and regulations are void.
To what extent is private enforcement possible? Does the legislation provide a basis for a court or other authority to order a dominant firm to grant access, supply goods or services, conclude a contract or invalidate a provision or contract?
From legislative perspective, article 50 of the AML provides the possibility for private enforcement against abusive behaviours of dominant firms in the Chinese courts.
However, the AML doesn’t explicitly provide for a basis for a court to order a dominant firm to grant access, supply goods or services, conclude a contract or invalidate a provision or contract.
Do companies harmed by abusive practices have a claim for damages? Who adjudicates claims and how are damages calculated or assessed?
Yes, companies harmed by abusive practices have a right to claim for damages by submitting a case to a people’s court. The relevant court has the power to adjudicate such damages claims.
In 2017, the Yunnan High People’s Court ruled on the appeal of the Yunnan YingDing v Sinopec Corporation and Sinopec Yunnan Branch retrial case. This is the first antitrust case in the petroleum industry and is of great pioneering significance. Based on the AML and the Renewable Energies Law, Yunnan YingDing sued Sinopec in the Kunming Intermediate People’s Court for Sinopec’s refusal to integrate the biodiesel produced by Yunnan YingDing into its sales system, which was abuse of dominant market position. After the judgment of the first instance, which required Sinopec to accept Yunnan YingDing’s products, both parties appealed to the Yunnan High People’s Court. In the second instance, the Yunnan High People’s Court ruled to revoke the original judgment and to remand the case for retrial. Yunnnan YingDing lost the action in the first instance of retrial at the end of 2016 and lost the appeal of retrial in August 2017.
To what court may authority decisions finding an abuse be appealed?
Article 53 of the AML provides that where any party concerned is dissatisfied with any decision made by the Anti-monopoly Law Enforcement Agency punishing activities of abuse of dominance, that party may apply for an administrative reconsideration or lodge an administrative lawsuit according to law.
Under article 28 of the Administrative Reconsideration Law and article 168 of the Civil Procedure Law respectively, administrative reconsideration organs (which is normally the authority vertically superior to the authority having issued the decision) and the people’s court of second instance should review both facts and laws.
Unilateral conduct by non-dominant firms
Are there any rules applying to the unilateral conduct of non-dominant firms?
Update and trends
Update and trends
Updates and trends
2017 has seen a growing antitrust enforcement in China with a number of cases brought against domestic and international businesses. In 2017, an official from the SAIC reported that the SAIC has completed eight investigations concerning abuse of dominance. The NDRC outlined its efforts in the enforcement of the AML and price supervision with a total of 80 cases completed (including cases concerning abuse of dominance and monopolistic agreements).
Looking ahead to 2018, the NDRC and SAIC will intensify their legislative efforts. The SAIC will work on amendments to the Provisions on the Procedures for the Administrative Departments for Industry and Commerce to Investigate and Handle Cases of Monopolisation Agreements and the Abuse of Dominant Market Position. The NDRC intends to release its Antitrust Guidelines on Abuse of Dominance involving IP rights, and the Guidelines on the Identification of Illegal Proceeds Derived by Operators from Monopolistic Practices and the Determination of Fines, which covers illegal proceeds from activities of abuse of dominance. It is reported that the enforcement priority in 2018 will focus on the sectors concerning people’s livelihoods.