Interim Provisions on Applicable Standards for Simple Cases of Concentration of Business Undertakings (full text) Promulgator: Ministry of Commerce Document No.: Announcement of the Ministry of Commerce  No.12 Promulgation Date: February 11, 2014 In order to clarify the applicable standards for simple cases of concentration of business undertakings, the Ministry of Commerce has formulated the Interim Provisions on Applicable Standards for Simple Cases of Concentration of Business Undertakings in accordance with the Anti-monopoly Law of the People’s Republic of China. These Provisions are hereby promulgated and shall come into force as from February 12, 2014. Ministry of Commerce February 11, 2014 Interim Provisions on Applicable Standards for Simple Cases of Concentration of Business Undertakings Article 1 These Provisions are formulated in accordance with the Anti-monopoly Law of the People’s Republic of China (hereinafter referred to as “Anti-monopoly Law”) for the purpose of clarifying the applicable standards for simple cases of concentration of business undertakings. Article 2 Cases in the matter of concentration of business undertakings will be classified as simple cases of concentration if: 2. The business undertakings participating in the concentration are the upstream or downstream counterparts of each other and the market share for each of them in the upstream or downstream market is less than 25%; 3. The business undertakings participating in the concentration are neither in the same relevant market nor the upstream or downstream counterparts of each other, and the market share for each of them in each market related to the transaction is less than 25%; 4. The business undertakings participating in the concentration are to establish a joint venture outside the PRC and the joint venture will not engage in business activities within the territory of PRC; 5. The business undertakings participating in the concentration are to acquire the equity or assets of an offshore enterprise and the offshore enterprise will not engage in business activities within the territory of PRC; or 6. A joint venture jointly controlled by more than two business undertakings will be controlled by one or more business undertakings of them after the concentration. Article 3 Cases in the matter of concentration of business undertakings meeting the conditions under Article 2 hereof but falling under any of the following circumstances shall not be treated as simple cases of concentration: 1. A joint venture jointly controlled by more than two business undertakings will be controlled by one of them after the concentration and such business undertaking is a competitor of the joint venture in the same relevant market; 2. It is difficult to define the relevant market involved in the concentration; 3. The concentration will have an adverse effect on market entry and technology improvement; 4. The concentration will have an adverse effect on consumers and other business undertakings; 5. The concentration will have an adverse effect on national economic development; 6. Other circumstances that the Ministry of Commerce determines may have an adverse effect on market competition. HaoLiWen Anti-trust Report 4 This publication is for information only. It is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. © 2014 HaoLiWen Partners Article 4 The Ministry of Commerce may revoke its decision on defining a concentration case as a simple case if: 1. The declaring party conceals important information or provides false material or misleading information; 2. A third party claims and provides relevant evidence to prove that the concentration has or will have the effect of excluding or restricting competition; or 3. The Ministry of Commerce finds significant changes in the concentration transaction or the competition conditions in the relevant market. Article 5 These Provisions shall be interpreted by the Ministry of Commerce. Article 6 These Provisions shall go into effect as of February 12, 2014. ADMINISTRATIVE AUTHORITIES Administrations of Industry and Commerce Nationwide Closed the First Anti-monopoly Case on Abuse of Market Dominance January 20, 2014 It was disclosed by the State Administration of Industry and Commerce (“SAIC”) on 15 January 2014 that the Administration of Industry and Commerce of Guangdong Province (“Guangdong AIC”) closed the anti-trust case of the water supply enterprise for abuse of market dominance authorized by SAIC. That case was not only the first anti-trust case of abusing dominant market position handled by Guangdong AIC, but also the first case of that kind closed by the administrations of industry and commerce in China. Before that all the cases disclosed by SAIC are all involved with monopoly agreements. Since 2011, the relevant administrations of Dayawan District of Huizhou in Guangdong Province had received complaints successively, claiming that a water purification company (“the company”) imposed projects of resident water meter installation on real estate enterprises when rendering temporary service of water supply for their construction building. If the real estate enterprises did not agree, they would not get water from the company. That case was later transferred to Dayawan Branch of Administration of Industry and Commerce HaoLiWen Anti-trust Report 5 This publication is for information only. It is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. © 2014 HaoLiWen Partners of Huizhou (“Huizhou AIC”) and then reported to Guangdong AIC. As Guangdong AIC had verified clues of this case, it started investigation into the company under the authorization of SAIC. The investigation discovered that the company was a public-owned company which was engaged in water supply for the districts under the control of sub-district offices of West of Dayawan and Aotou. Guangdong AIC investigated and collected evidence with regard to the company’s market share, its capacity of controlling the relevant market, other competitors’ dependence on the company, and the difficulties for other competitors to enter the relevant market. In the end, Guangdong AIC affirmed that the company was undertaking a dominant position in the market of tap water supply for residents living in the districts under control of sub-district offices of West of Dayawan and Aotou, and that the company imposed clause of water meter installation on real estate enterprises when supplying temporary water for their construction building. Guangdong AIC determined that the company had violated the Anti-monopoly Law of the PRC and Provisions of Administrative Authorities for Industry and Commerce on Prohibiting Abuse of Dominant Market Positions of the PRC, and that its behaviors had constructed tie-in sales or adding other unreasonable conditions to transactions without justifiable reasons. As such the company was confiscated its illegal gains and fined more than RMB 3.22 million. DG XU of Price Supervision and Inspection and Anti-monopoly Bureau of NDRC Present at the Press Conference February 19, 2014 On 19 Feb 2014, NDRC held a press conference with the theme of “Price Supervision and Anti-monopoly”. Those present at the conference are Li Pumin, Secretary-General of NDRC, Xu Kunlin, Director General of Price Supervision and Inspection and Anti-monopoly Bureau of NDRC, Zhang Guangyuan, Deputy Director of Price Supervision and Inspection and Anti-monopoly Bureau of NDRC, and Lu Yanchun, Inspector of Price Supervision and Inspection and Anti-monopoly Bureau for NDRC. There are a number of questions raised by reporters, namely, the authenticity of NDRC’s investigation into IDC and Qualcomm for price monopoly and the latest status of the cases; is HaoLiWen Anti-trust Report 6 This publication is for information only. It is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. © 2014 HaoLiWen Partners it true the investigation into IDC and Qualcomm is meant to pay way for the local manufacturers; whether the anti-monopoly investigation is only targeted at cracking down on small operators instead of tough ones, and the difficulties confronted by Anti-monopoly bureau; whether measures have been taken with regards to the over-charging issues of commercial bank; whether there are key areas in the investigation of anti-monopoly; the value and latest progress of AML Guidelines; the rectification status of Telecom and Unicom investigation; the overall conditions of cases handled by NDRC last year; what will NDRC do about the vertical monopoly investigation of auto parts; as well as the impact of penalty on the price of powdered milk produced by foreign companies. In view of these questions, NDRC officials made detailed explanations one by one. NDRC confirms that the investigation on IDC and Qualcomm is true, with IDC submitting an application off discontinuing the investigation recently, and the investigation on Qualcomm is still ongoing; besides, the investigations are conducted due to reports from companies or associations, thus NDRC only enforces AML, instead of discriminating backgrounds of companies. According to DG Xu Kunlin, NDRC will investigate all business operators equally; however, NDRC is also restricted by short of staff, lack of experience and measures, as well as a culture embracing competition and a clear competition policy. As for the overcharging issues of commercial bank, NDRC has released measures by reducing the charging items from 800 to 400 or less, with the charging items are more transparent. Besides, NDRC is also working on the standardization of specific measures for charging, loosening on price and building a long-term mechanism of charging for bank services. NDRC stressed that they will not formulate a plan by pointing out the key areas of anti-monopoly investigation, but still they will pay more attention to areas that are closely related to people’s livelihood and areas of public concerns. For AML Guidelines, DG Xu pointed out that the relevant departments are making positive progress, including the assessment of competition status. Given the investigation on Telecom and Unicom, the companies involved had submitted an application for discontinuing investigation and promised to make rectifications; they submitted a report stating the adjustments they have made in 2012 and 2013 respectively, and according to the report and the preliminary learning of NDRC, the results of their rectifications are satisfying. Based on the statement of DG Xu Kunlin, 34,400 cases were investigated with the economic sanctions up to 3.125 billion RMB, in which 632 million were returned to the consumers, 907 million were confiscated as illegal gains and 1.58 as penalty. As for the vertical monopoly of auto parts, NDRC have made some peripheral investigations. HaoLiWen Anti-trust Report 7 This publication is for information only. It is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. © 2014 HaoLiWen Partners Since this is a hot concern of many countries in the world, NDRC will also keep close attention to their progress. Considering the powdered milk case last year, DG Xu expressed that they will keep monitoring the companies in terms of how they honor their promises about rectifications. SAIC: Reports Claiming Termination of the Investigation on Tetra Pek for Violating AML are Untrue January 15, 2014 On 15 January 2014, according to the spokesman of the State Administration of Industry and Commerce of the PRC (“SAIC”), media reports claiming “the investigation on Tetra Pek’s violation of anti-trust laws had terminated two months after the case was initiated” are factually incorrect. The Tetra Pek case was still ongoing and directly investigated by SAIC. In recent years, SAIC has received several reports complaining that Tetra Pek is suspected to abuse its market dominance. In July 2013, Zhang Mao, Director of SAIC disclosed that SAIC had initiated an investigation on Tetra Pek’s abuse of dominant market position and was organizing more than twenty branch bureaus of administration of industry and commerce to conduct relevant surveys. In December of the same year, Zhang Mao said that SAIC had made some phased progress in the investigation into Tetra Pek. SAIC Releases Key Points of Enforcement of Anti-Monopoly and Anti-Unfair Competition Law for 2014 January 23, 2014 Recently, the Anti-Monopoly and Anti-Unfair Competition Enforcement Bureau of the State Administration for Industry and Commerce (“SAIC”) released Key Points of the Enforcement of Anti-Monopoly and Anti-Unfair Competition Law for 2014(“Key Points”), requiring the administration for industry and commerce at all levels to update the concept of law enforcement, fulfill seriously the regulatory responsibility, strengthen comprehensively the competition law enforcement, and reinforce efforts on work related to anti-monopoly and anti-unfair competition law, in an effort to uphold and maintain fair market competition. The focus and main contents of the Key Points can be summarized as follows: In terms of investigation into activities undermining the order of market competition, the Key HaoLiWen Anti-trust Report 8 This publication is for information only. It is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. © 2014 HaoLiWen Partners Points set forth such items as: to crack down on monopoly activities severely impairing the order of market competition and activities having a significant impact on economy or society; to promote and support the AML enforcement of local authorities and publish closed cases in a timely manner; to continuously improve on the mechanism of AML enforcement; to actively expand the channel and resource for anti-monopoly cases and carry out the verification of clues for suspected anti-monopoly cases, etc. The Key Points also require the administration for industry and commerce to intensify investigation into various acts of unfair competition in traditional industries and internet industry, etc. Specifically, the administration should focus on industries of telecommunication services, public transportation, public utilities supply, etc. for investigation into acts of restricting competition through public utilities’, focus on industries of pharmaceutical, project constructions, education, etc. for investigation into commercial bribery, and focus on such commodities as agriculture production materials, construction materials, autos and components, furniture.etc. for investigation into counterfeiting. In respect of legislation, according to the Key Points, SAIC will accelerate the work on the revision of the Anti-Monopoly Law and improve on the supporting rules and regulations of Anti-Monopoly Law, as well as engage in further study and discussion on the draft “SAIC Rules on Prohibition of Abusing Intellectual Property to Exclude or Restrain Competition”. Anti-Monopoly Bureau of MOFCOM Publicizes a List of Cases Regarding Business Concentration Unconditionally Approved in Q4 of 2013 January11, 2014 At the beginning of 2014, the Anti-Monopoly Bureau of the Ministry of Commerce publicized on its official website the list of cases regarding concentration that were approved unconditionally in the fourth quarter of 2013, with the quantity up to 56. Click the link for more information: http://fldj.mofcom.gov.cn/article/zcfb/201401/20140100457358.shtml. FOCUS Qualcomm was Reported by China Mobile Communications Industry Association for Monopoly February13, 2014 The anti-trust investigation into American chip giant Qualcomm is going intensified. Recently Qualcomm was reported by China Mobile Communications Industry Association (“CMCIA”) to be suspected of monopoly after the investigation was first disclosed in November 2013. CMCIA believe that Qualcomm’s behaviors have endangered the healthy development of the Mobile phone industry in China. According to the statement from enterprises that are cooperating with Qualcomm, even though the investigation into Qualcomm goes well, local enterprises are still unable to fully break Qualcomm’s powerful technical barrier. But at least it would be in favor of adding weight to local enterprises in future negotiations with Qualcomm and lowering their procurement cost. Besides, enterprises whose chip technology is falling behind are expected to avail of this opportunity to catch up. CMCIA is an association affiliated to China Communications Industry Association (“CCIA”) under the Ministry of Industry and Information Technology of the PRC (“MIIT”) with members covering most local mobile phone manufacturers, such as ZTE, Coolpad, etc., and enterprises on related industrial chains, such as the chip supplier, Spread Trum Communications, etc. It is disclosed that CMCIA has submitted to National Development and Revolution Committee (“NDRC”) a report disclaiming that Qualcomm’s business model have created damages to China’s mobile phone industry. CMCIA has found that Qualcomm is charging too much patent royalty and making tie-in sales, and all these have seriously impacted China’s mobile phone industry. That explains why CMCIA reported it to NDRC. However, as the insider says, it is difficult for local enterprises to overcome Qualcomm’s technical barrier in a short time even when everything goes well. But the positive side of the case is that it will put some pressure on Qualcomm to lower the patent royalty or to change its charging mode wherein the downstream enterprises in relevant industrial chains will benefit. Qualcomm’s Response to the Anti-trust Investigation: Hoping for Subsequent Cooperation with Chinese Manufacturers February13, 2014 On 13 February 2014, Bill Davidson, Qualcomm's senior vice president of investor relations expressed in a media interview: “Qualcomm’s business model and vast investment on research and development for years are supporting the whole industry development. In China market Qualcomm is maintaining good relationships with OEM manufacturers. We are looking forward to continuous cooperation with Chinese partners.” Bill Davidson said that the R&D conducted by Qualcomm can bring benefits to the whole industry, owning to which OEM manufacturers that cooperate with Qualcomm can save much R&D costs. In China, Qualcomm is contributing to local wireless industry and the evolution of Chinese OEM manufacturers from 2G, to 3G, and 4G LTE. Now Qualcomm is keeping close contact with nearly a dozen Chinese OEM manufacturers including ZTE, Huawei, Coolpad, Lenovo, Xiaomi, BBK, OPPO, Gionee, K-touch and Hisense. He stressed: “Qualcomm will not only support Chinese OEM manufacturers making terminals of high quality, but also help them expand their international business”. As Qualcomm is under anti-trust investigation by NDRC of China at present, Bill said that Qualcomm would continue to cooperate with NDRC’s investigation. However, Qualcomm cannot disclose any details because of NDRC’s requirement for confidentiality. INDUSTRY NEWS Friso Raised Price for Some Products after the Severest Anti-trust Investigation in China Febuary14, 2014 In the past year, the milk powder industry encountered the severest anti-trust investigation in China. After that none of the milk powder producers ventures into a rise in price. However, under the huge pressure of growing costs, there are brands that have quietly made an increase. It is reported by media recently that Friso has updated a series of products successively sinceOctober 2013 and will bring the whole line into market in February 2014. Such news was learnt from a correspondence on price adjustment between Friesland Food Trade (Shanghai) Ltd. and its retailers dated 8 January 2014. With respect to the product price, Friso made such a statement: “Considering that all the costs are increasing and that the new updated products will be put into market soon, our company decides to adjust price of for some of our products as of 7 February 2014.” In the letter, Friso explained that the milk source and the raw materials all around the world have been increasing since the second half of last year and that the comprehensive costs, such as logistics, labor, etc., are all on rise in the meantime. That is why Friso decided to make the price adjustment. During the investigation conducted by National Development and Reform Committee (“NDRC”) in the last year, as the fourth enterprise who declared to cut price on its own accord, Friso had reduced the price of the whole line by 5% and then be fined RMB48.27million by NDRC. The anti-trust storm in the milk powder industry launched by NDRC last year involved a number of foreign brands, including Biostime, Dumex, Mead Johnson, Wheth, Abbott, Friso, etc. In the end, NDRC made the highest fine in history with a total amount of RMB 6.7 billion to six of the involved milk producers including Biostime for violating the Anti-monopoly Law and their behaviors of restricting competition. The price increase of milk last year put the milk producers under great pressure of gaining profit. Bright Dairy, Mengniu, Sanyuan had raised price of their liquid products one after another. Nonetheless, according to insiders, a new round of price increase of milk powder would not happen like before. On one hand, foreign milk producers have been affected by Fonterra’s scandal and are busy in rebuilding customers’ confidence and enhancing market share by sales promotion; on the other hand, China’s anti-trust investigations have posed significant pressure on enterprises. Customers are also turning more rational with expensive products. China Anti-trust Administrations Strengthen Law Enforcement on Production February14, 2014 Compared with the past when anti-trust enforcement is more aimed at market circulation, in recent two years, anti-trust administrations of China have obviously strengthened its law enforcement on the production, such as raw material procurement. Recently, Qualcomm, the biggest smart phone chip supplier was reported to be suspected of monopoly and was under the anti-trust investigation of National Development and Revolution Committee of China (“NDRC”). As No.1 chip giant, Qualcomm has taken a superior place in the relevant intellectual property in that it owns more than 1400 patents related to mobile communication in the field of 3G and 4G. The industry expects that Qualcomm will face to a fine up to one billion dollars. Apart from Qualcomm, Tetra Pak, a well-known package supplier, was also suspected of violating the AML in China and was probed by law enforcement administration. On 5 July 2013, the State Administration of Industry and Commerce of the PRC (“SAIC”) announced that it had initiated d an investigation on Tetra Pak’s abuse of dominant market position. The investigation is still undergoing at present. In January 2013, NDRC declared that six giant producers of LCD panel including Korean companies Samsung and LG, as well as four companies from Taiwan, were fined RMB 353 million for monopoly agreements on LCD panel price within the territory of Mainland of China. Such enforcement has brought benefits to local TV producers and customers. According to the estimates based on data of Chinese LCD TV industry of 2011 =conducted by China Video Industry Association (“CVIA”), apart from other preferential terms, only the extension of free warranty period from 18 months to 36 months can make a saving of RMB 395 million for local TV producers.