SAMR imposes new substantial fines for RPM
The China's State Administration for Market Regulation ("SAMR")'s local branch in Zhejiang Province on 27 September 2021 announced a fine of USD 45.62 million on Bull Group for resale price maintenance ("RPM").
The SAMR has historically taken a tough stance on RPM and its recent imposition of another significant fine on the electrical products manufacturer follows its record USD 117 million fine on Yangtze River Pharmaceutical Group earlier this year.
The fine imposed was equivalent to 3% of Bull Group's total sales in China in 2020, in respect of conduct from 2014 to 2020, which included fixing distributors' resale prices and imposing minimum resale price restrictions on distributors.
The SAMR concluded that the manufacturer:
- signed distribution contracts including RPM clauses with distributors;
- issued a price adjustment policy to fix discounts that distributors may offer to customers;
- required distributors to sign commitments to comply with its price management system;
- set up an internal market inspection department and commissioned agencies to supervise the implementation of price policy, which facillitated the RPM conduct; and
- took punitive measures against distributors who deviated from the price management system.
SAMR imposes behavioural remedies on failure-to-notify violations for the first time
The SAMR continues to actively enforce failure-to-notify/gun-jumping violations, imposing 24 penalty decisions over Q3 of 2021.
For the first time since the AML came into effect 13 years ago, the authority recently exercised its authority under Article 48 to impose behavioural remedies in addition to a monetary fine of RMB 500,000 in a failure-to notify-investigation.
The SAMR has demanded parties take necessary measures to restore the competition of the relevant market to the position before the failure-to-notify transaction in question. Unlike monetary fines, such behavioural remedies (for example, a prohibition on entering into certain exclusive arrangements or specific requirements on M&A activities) may profoundly change a company's business model. In addition, the SAMR has also required the company to conduct an internal antitrust audit and implement a robust antitrust compliance programme.
Notably, there is currently a draft amendment to the AML proposing to raise the monetary penalty for failures to notify. This may be a factor behind the increasing number of such enforcement cases, as some businesses may be voluntarily reporting violations ahead of implementation of the draft amendments..
Legislative developments suggest future possible enforcement under Pricing Law
The SAMR may be contemplating addressing illegal price-related behaviours under the Pricing Law, in addition to the AML.
Apart from the AML, the Pricing Law has been a part of China's enforcement toolbox since it came into effect in 1992 for price-related misconduct such as price dumping, price discrimination, price collusion, price gouging, price fraud, and failure to comply with government pricing (in specific sectors). The Provisions on the Administrative Punishment of Price-related Violation ("Draft Provisions") under the Pricing Law signal that SAMR may be ready to take active Pricing Law enforcement to crackdown on illegal pricing behaviours during and after the COVID-19 pandemic.
There are some areas of overlap between the two laws. Notably, the Pricing Law imposes a lower threshold for findings of certain violations - for example, as there is no requirement to establish "dominance" to penalise price dumping and certain price discrimination under the PL. It is unclear how any such divergence will be addressed in practice.
Since the implementation of the AML in 2008, Chinese authorities have mainly employed AML for price discrimination and price collusion behaviours. However, the Draft Provisions suggest that they may now consider dealing with certain illegal price-related behaviours under the Pricing Law where it may be more difficult to apply the AML. The Pricing Law imposes fines between 1% and 10% of the total sales of the company concerned during the period when the illegal behaviour takes place
The Draft Provisions have not yet been finalised.