Anticompetitive agreements

Assessment framework

What is the general framework for assessing whether an agreement or concerted practice can be considered anticompetitive?

The general framework under the Anti-Monopoly Law (AML) for assessing whether an agreement or concerted practice can be considered anticompetitive can be summarised as a ‘prohibition and exemption’ approach (except for RPM conduct, which receives divergent treatment by the enforcement agency and the courts). This approach means that the specified types of agreements are presumed to be anticompetitive unless exemption conditions are proven.

The explicitly specified circumstances are agreements (including contracts, decisions or concerted practices) between competitors to fix prices, restrict output, divide the market, restrict new technology and products and collectively boycott, and agreements between a party and its trading counterparty to maintain resale prices. In addition to these specified agreements, the AML also authorises the enforcement agency to determine other types of anticompetitive agreements by applying a catch-all clause.

Justifications regarding efficiency and consumer benefits and whether these would outweigh the anticompetitive effects are considered in the exemption conditions and circumstances. In addition, whether the conducts are beneficial to public interests may be considered in the assessment.

Technology licensing agreements

To what extent are technology licensing agreements considered anticompetitive?

Whether technology licensing agreements are considered anticompetitive would generally follow a rule-of-reason analysis, by assessing whether the relevant clauses thereof would result in any effect of eliminating or restricting competition in the market.

Anticompetitive technology licensing agreements may exist in either horizontal agreements between competitors or vertical agreements between non-competitors. For example, cross-licence agreements between competitors with exclusivity clauses may be considered anticompetitive if the relevant clauses may constitute a barrier for third-party market entry or restrict competition in the downstream markets.

To give another example, patent pool agreements between competitors may also be deemed anticompetitive if the agreements contain restrictions that have the effect of eliminating or restricting competition in the relevant market. A number of factors would be considered, for example:

  • whether the patents in the pool consist of all or most substitutable technologies; and
  • whether the patent pool compels other alternative technologies or prevents other undertakings from entering into the market, or the members of the patent pool unnecessarily exchange competitively sensitive information or are restricted from developing new technologies.

For the technology licensing agreements between non-competitors, clauses involving fixing or restricting the resale price of products manufactured by using the licensed IP, excessive pricing of the licence fee, and restrictions on licensees by grant-back and no-challenge clauses, may be considered anticompetitive. Other clauses, such as restrictions on output, distribution channels and territory of sales, on customers of products manufactured using the licensed IP, and restrictions on competitive IP, may also cause antitrust concerns.

Furthermore, a technology licensing agreement involving a licensor with market dominance in relevant markets may be deemed anticompetitive if there are clauses of excessive pricing of a licence fee, unjustified tying or bundling, refusal to license, or unreasonable or discriminatory trading terms (eg, an exclusive grant-back clause, restriction on competitive IP or a no-challenge clause).

Co-promotion and co-marketing agreements

To what extent are co-promotion and co-marketing agreements considered anticompetitive?

Whether co-promotion and co-marketing agreements are anticompetitive also generally follows the general assessment framework under the AML. For example, if the co-promotion agreements or co-marketing agreements result in price-fixing, output limiting or collectively boycotting, they would be considered anticompetitive.

Other agreements

What other forms of agreement with a competitor are likely to be an issue? How can these issues be resolved?

Some commonly seen agreements, such as non-compete agreements in the context of a joint venture transaction (or assets or business transfer transactions) and co-R&D agreements, may also trigger antitrust issues. Clauses should be drafted and implemented very carefully to mitigate antitrust risks, such as limiting the scope of non-compete agreements (eg, the product, geography and duration), avoiding the exchange of commercially sensitive information and putting in place appropriate confidentiality provisions, firewall arrangements or clean team protocols.

Issues with vertical agreements

Which aspects of vertical agreements are most likely to raise antitrust concerns?

RPM in vertical agreements is most likely to raise antitrust concerns in China and has been subject to heightened antitrust scrutiny.

Vertical agreements involving RPM can be manifested as direct or indirect restrictions, and be concluded by agreement or reached under coercion of will. For instance, it exists obviously when the resale price for distributors is set out in the contract thereof. And it can also be achieved by indirect means, such as fixing the profit margin and discount level of distributors, implementing rules of price monitoring, and abolishing rebates for distributors who fail to adopt any recommended price.

Although no investigations have been initiated against stand-alone non-price vertical agreements, other vertical restraints than RPM, such as exclusive dealing and tying and bundling, have been investigated in the context of abuse of market dominance. Vertical restraints such as territory restraints and customer restraints that may indirectly result in an RPM effect will also probably raise antitrust concerns.

It is important to note the divergence between private and public enforcement against RPM. RPM conduct has been receiving bifurcated treatment between the enforcement agency and the courts; in other words, in most cases, the courts followed the rule-of-reason approach and left aside the framework of ‘prohibition and exemption’ on RPM by the AML that is consistently adopted by the enforcement agency, treating it as equivalent to the by-object offence in the EU. For example, in a judgment of July 2018 by Shanghai IP Court in Shanghai Hankook Tires, which involved both RPM and abuse of market dominance claims, the court ruled that anticompetitive effects of the RPM must be established for the claim of vertical monopoly agreement. This judgment reiterated the same position in Ruibang v Johnson & Johnson in 2013 by Shanghai Higher People’s Court.

While the divergence remains, convergence also emerges. In a recent administrative litigation judgment by Hainan Higher People’s Court relating to RPM conducts in the fish feed market, the court accepted the local enforcement agency’s argument that RPM conduct is illegal by object and overthrew the verdict of the trial court’s judgment, which was made based on the rule-of-reason analysis.

Patent dispute settlements

To what extent can the settlement of a patent dispute expose the parties concerned to liability for an antitrust violation?

The reverse payment arrangement in a patent dispute may expose the parties concerned to the risks of antitrust violation. So far, there has been no case in either public or private enforcement.

Joint communications and lobbying

To what extent can joint communications or lobbying actions be anticompetitive?

Joint communications or lobbying actions among competitors in the context of trade associations (eg, for launching a new line of therapy and getting governmental approval) may become risky and anticompetitive if monopolistic conducts are involved, especially in a way that commercially sensitive and commercially differentiated information is exchanged during these communications or actions (eg, exchange of information relating to pricing or R&D cost, route to market plan or distribution model).

So far, there has been no case in this regard.

Public communications

To what extent may public communications constitute an infringement?

If the public communications involve and result in a pattern of cooperative behaviour or communications between two or more competitors that eventually has the effect of eliminating or restricting competition, they may be considered as part of the evidence (together with others, for example, private communications) in the enforcement agency’s determining whether there are any concerted practices between two or more competitors and furthermore evidence of a horizontal monopoly agreement.

Exchange of information

Are anticompetitive exchanges of information more likely to occur in the pharmaceutical sector given the increased transparency imposed by measures such as disclosure of relationships with HCPs, clinical trials, etc?

We think it is likely, as the increased transparency in market structure and market changes may from time to time prompt exchanges of information in different ways that could increase the risk of competitors aligning their conduct, and thus may be considered relevant in the determination of a concerted practice. So far, there has been no case in this regard, but it is worth monitoring.

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24 April 2020