On December 26, 2019, the Shanghai Administration for Market Regulation (“Shanghai AMR”) published the Shanghai Anti-Monopoly Compliance Guide for Business Operators (“Shanghai Guide”) for enterprises in Shanghai. This is the latest initiative at provincial level as encouraged by State Administration for Market Regulation (“SAMR”) in its national exposure draft of the Antitrust Compliance Guidelines for Undertakings (“Draft SAMR Guidelines”, published for comments on November 28, 2019). Previously, the Zhejiang Enterprise Competition Compliance Guide (“Zhejiang Guide”) was published on July 9, 2019. On January 2, 2020, the SAMR published an exposure draft of the amendment to the Anti-Monopoly Law (AML) (“Draft AML Amendment”) to solicit public opinion.
The Shanghai Guide is one of the many local initiatives following SAMR’s general delegation to its provincial counterparts to conduct enforcement under the AML. Indeed, Shanghai has long been one of the most active AML enforcement regions – Shanghai AMR (including its predecessors) has issued more than 13 AML sanction decisions in sectors such as automotive, chemical, FMCG, logistics, healthcare, etc., involving cartel, vertical restraints and abuse of dominance, with the total economic sanction amounts exceeding RMB500 million (Shanghai GM alone was fined for over RMB200 million for resale price maintenance). Shanghai AMR also has strong professional law enforcement capability and intelligence resources, which enables it to conduct increasing number of investigations with more sophisticated analysis.
Below are some highlights of the Shanghai Guide, in particular those distinguished from the Zhejiang Guide and the Draft SAMR Guidelines.
1. Illustrative real cases cited. Along with the practical guide of “dos and don’ts”, the Shanghai Guide provides a total of 17 illustrative cases which are largely derived from real investigations. The cases cover all types of AML violations (monopoly agreements, abuse of dominance, anti-competitive concentration of undertakings, and administrative monopoly) and liabilities for refusal or obstruction of antitrust investigations. The enumerations of those cases provide firms with more context to understand the prohibited conducts, and also heighten the exposure of sanctioned firms to the public.
2. Systematic compliance management encouraged. Similar to the Zhejiang Guide and the Draft SAMR Guidelines, the Shanghai Guide recommends establishing a systematic compliance regime (covering aspects like reporting, assessments, commitments, risk handling, training, rewarding/discipline mechanism, etc.), and encourages senior management to take the lead to make written statements of their personal compliance commitments. The Shanghai Guide is more open in terms of recommended structure and specific responsibilities of compliance management, and suggests that there is no one-size-fits-all compliance strategy – firms are instead encouraged to develop their own strategies in light of their own specific circumstances in the business and industry. (Section 4, Page 4)
3. Firms encouraged to manage high-risk employees. Firms are encouraged to design targeted and in-depth specialized trainings for high-risk positions such as sales, procurement, contact with industry associations, pricing and commercial policy development personnel. (Section 4, Page 4) It is worth noting that the Zhejiang Guide (in its Article 20 Risk Rating of Enterprise Employees) also recommends firms to categorize employees into high-risk personnel, medium-risk personnel and low-risk personnel based on their roles and responsibilities.
4. Firms encouraged to leverage internal and external compliance resources. Firms are recommended not only to build up an internal specialized team, but also seek professional support from external advisors including law firms or economic institutions, as well as conduct consultation with antitrust authorities. (Section 4, Page 4-5)
5. Base for calculating fines clarified. For monopoly agreements or abuse of dominance in violation of the AML, the subject firm may be ordered to cease the illegal conduct, disgorge illegal income, and pay a fine up to 10% of sales in the preceding year. The Shanghai Guide clarifies that the base for calculating such fine is the total sales rather than sales concerned in the case.
6. More guidance on assessing monopolistic conducts
The Shanghai Guide provides further guidance on assessing relevant monopolistic conducts, including certain instances not expressly stipulated under the AML or the SAMR Interim Rules. Specifically,
- Horizonal agreements.
- Firms should stay vigilant against bid-rigging in addition to the typical instances of cartels explicitly provided under Article 13 of the AML (incl. price fixing, production/sales volume restriction, market allocation, new technology restriction and boycott) (Section 5, Page 7). It is also worth noting that bid-rigging is regulated by law on tenders and bids and could be subject to criminal liabilities.
- Firms should be more prudent concerning exchange of competitively sensitive information. The Shanghai Guide enumerates instances of competitively sensitive information in greater detail than the AML and the SAMR Interim Rules. The scope includes price (actual price, price list, indicative price), market share, discount level and policy, marketing strategy, bidding strategy, existing and potential customers or suppliers (and their category), data or views on market, supply and demand, pricing trend, sales areas, terms and conditions, business plan (expansion/downsizing), production capacity, R&D projects, strategy or cost, negotiation strategy, earnings and profit margin, production/sales volume and inventory, etc. (Section 5, Page 8)
- Good practice for participating in trade association activities. Firms are advised to preserve relevant records for its compliance efforts in attending industry association meetings. (Section 5, Page 8)
- Vertical restraints.
- The meaning of “price” in price-related vertical restraint is interpreted to include not only price level, the extent and range of price change, calculation formula, profit margin, discount, commission, rebate, but also credit terms and other price factors. (Section 5, Page 10)
- Firms should stay vigilant against the antitrust risks non-price vertical restraints, including exclusive supply, single branding and market allocation (restriction on passive sales or cross supply) or customer allocation. (Section 5, Page 10)
- Firms should pay close attention to the emerging hub-and-spoke cartel, i.e., the cartel among competitors formulated through and led by a non-competing third upstream or downstream party (e.g. a network platform operator). (Section 5, Page 11)
- Abuse of dominance. The Shanghai Guide reiterates the effect-based analytical framework for abuse of market dominance specified by the DMP Interim Rules, and provides an illustrative case for each abusive instance including unfair pricing, predatory pricing, refusal to deal, exclusive dealing, unlawful tying or imposing other unreasonable trade terms, discrimination. (Section 5, Page 14-16) As noted in more detail in our prior highlights of the DMP Interim Rules, the DMP Interim Rules recalibrated metrics for assessing dominance in new economy business modes such as internet enabled model, and adopts a re-balanced approach in assessing dominance and abusive conducts involving IPR. 
- Merger filing. The Shanghai Guide introduces the general merger filing procedure (Section 5, Page 18) and also points out Shanghai AMR’s supervision authority over non-compliance issues in a merger case in its municipality. In recent years, SAMR has increasingly strengthened its enforcement against failure to notify cases – 2019 alone has seen 15 cases out of the 47 published cases in total since 2014. The latest Draft AML Amendment proposes to increase the upper limit of economic fine for failure to notify to the same level of the fine for monopoly agreement and abuse of dominance (i.e. up to 10% of sales of the notifying obligor in the preceding year).
- Administrative monopoly. Firms cannot be excused for engaging in monopolistic conducts because of the abuse of administrative power, and are encouraged to refuse and report such administrative monopoly. (Section 5, Page 19)
7. Dealing with AML investigation. Firms are encouraged to proactively report antitrust violations to seek sanction exemption or lightened sanctions. In case of an investigation, the subject firm should fully cooperate and cause their employees to cooperate with the enforcement authority, and any refusal or obstruction could subject such firm and/or the employees to fines or even criminal liabilities. Firms can also apply for the leniency program and suspension of investigation by proposing rectification commitments. Unlike the Draft SAMR Guidelines, the Shanghai Guide does not expressly state that firms are encouraged to file report on their overseas antitrust investigations or lawsuits. (Section 6, Page 21-23)
8. Compliance with local rules. Firms in the Shanghai Free Trade Zone should also be aware of certain special implementation rules on exemption of monopolistic agreements and other issues for antitrust enforcement in this area. (Section 7, Page 24)