Background

In mid-November, the State Administration of Industry and Commerce (“SAIC”) has published the decision against the Sweden packaging giant Tetra Pak for abuse of market dominance (“Tetra Pak Decision”), which put an end to the lengthy probe lasted more than 4-years (The investigation against Tetra Pak officially started in January 2012. The down raid of SAIC on several offices of Tetra Pak in 2013 was once widely reported by media.). The total fine imposed on Tetra Pak is approximate CNY 677.7 million (USD 97 million, 7% of Tetra Pak’s 2011 turnover in relevant market), constituting the second largest fine as of the promulgation of Anti-Monopoly Law of PRC (“AML”) since 2008. Tetra Pak expressed it would not appeal against this penalty.

As the outcome of the first antitrust investigation led by SAIC, this 47-pages decision has displayed well-organized and elaborated analysis on the relevant market, dominant market position and each suspected abusing conducts of Tetra Pak. Remarkably, the SAIC has demonstrated a mature and systematical approach in both economic and normative analysis, in particular, the integration of EC precedent with the specific domestic circumstance. It could be predicted this weighty decision, together with the analytical approach and conclusion, would serve as an important reference in Chinese antitrust enforcement in the future.

Main focus in the Tetra Pak Decision The SAIC has defined the relevant markets:

  • Paper-based aseptic packaging equipment within mainland China;
  • Technical service for paper-based aseptic packaging equipment within mainland China;
  • Paper-based aseptic packaging material within mainland China.

Tetra Pak is deemed as having dominant position in all three relevant markets based mainly on its significant market share and strong market controlling power.

The abuses found by the SAIC include:

  • Tying of packaging material;
  • Restricting the material supplier to trade with other competitors; and
  • “Fidelity rebates” in order to exclude competitors

Below are some key issues addressed in the Decision:

Fidelity rebates “Fidelity rebates” (i.e. the discount or rebate given to a trading counterpart according to the quantity, price and trade share) is specially addressed and regarded as “other activities of abuse of market dominance” in Art. 17.7 AML. It is the first time for Chinese antitrust enforcement authority to exercise the power of defining “other abusing activities” in individual case.

The SAIC has classified the rebates provided by Tetra Pak to downstream customers into:

  • “retrospective discounts” (a single discount based on the cumulative purchase within a period of time, in which more purchase will usually result in more discounting rate);
  • “customized discounts” (a discount based on a purchase target and customized for certain customer of Tetra Pak),

and regarded both discount methods as irregular (For illustration, in general the discount would only apply to the procurement above the given threshold rather than the total purchase volume; further, the total payment for the purchase volume more than the given threshold would be significantly reduced, i.e. the total price after discount is equal to or even lower than the total price of the purchase below the threshold.). It is further concluded in the Tetra Pak Decision that such fidelity rebates were in fact instruments to induce the downstream customers to purchase as much products as possible. The efficient competitor analysis conducted by the SAIC also serves to support the serious excluding effects of the fidelity rebates.

The conclusion in the Tetra Pak Decision is in general consistent with a long-established ECJ case-law regarding fidelity rebates, which was re-emphasized in the Intel decision by European Commission in 2009. In the Intel decision, the rebates (Intel provided such conditional rebates to several main customers in case the customers purchase no less than 80% to 100% of their respective needs from Intel.) provided by Intel, as a dominant undertaking in the relevant market, to its customers conditional on the customers’ procurement of all or most of their respective needs was regarded as abusing activity, even if the dominant undertaking did so at the request of its customers (Refer to Case COMP/C-3/37.990).

Restriction on the use of technical information Regarding Tetra Pak’s restriction on the supplier to trade with other competitors, the Tetra Pak Decision provides that the restriction on the up-stream supplier – the only manufacturer of a type of packaging paper material with high quality (“Paper”) – to use technical information provided by Tetra Pak would unreasonably impede the supply to competitors

(Referring to the Tetra Pak Decision, such restriction took form of 1) prohibition of use of such technical information in base paper production other than those for Tetra Pak; and 2) prohibition of supply of products manufactured with such technical information to any third party other than Tetra Pak.).

As the SAIC has mentioned, such technical information is not exclusively owned by Tetra Pak and comprises a lot of public and general knowledge which is necessary for production of Paper. And the restriction would impede the potential production expansion of the supplier.

The SAIC has further regarded the restriction is not justifiable in business sense, for supply to third party will not impact the R&D cooperation between the supplier and Tetra Pak based on industrial practice. Thus the restriction resulting in negative impact on market competition constitutes abuse.

Assessment of justifiable reason According to Art.17 of AML, the business operator with market dominance can defend itself by citing “justifiable reasons”, which is not elaborated in the AML. Referring to Art.8 of the Provisions for Administrative Authorities for Industry and Commerce on Prohibiting Abuses of Dominant Market Positions (the SAIC, 31st Dec 2010), the following factors among others should be taken into comprehensive consideration by the SAIC to assess the justifiable reason:

  • Whether the suspected abusing activity is adopted by a business operator for its normal business activities or normal benefit; and
  • Impact of the suspected abusing activity on the economic operation efficiency, public interests and economic development.

Taking from the Tetra Pak Decision, it seems that business operators may hardly to justify its suspected activity by merely asserting “normal business practice” or “normal benefits” (e.g. commercial efficiency) as defense. Though the potential defense raised by Tetra Pak during communication with SAIC is not disclosed in the Decision, it is clear that in the Tetra Pak case the SAIC mainly focus on the impact on market competition of the suspected abusing activities without considering the commercial efficiency in the respective analysis.

Outlook The Tetra Pak Decision is a milestone of antitrust enforcement in China. To cope with the after-Tetra Pak Decision legal environment, it is recommended for companies with strong market power to thoroughly examine their existing business model and the respective competition risk, in particular relevant clauses concerning unilateral restriction in template agreements of sales, procurement, technology license or cooperation.