Four transactions refiled at SAMR request conditionally cleared

The Chinese regulator demonstrates a continued appetite for behavioural and hold-separate remedies, with recent reviews taking as long as 19 months.

Parties to complicated and high profile deals should plan for protracted timelines and filing strategies going forward.

The SAMR has recently accepted behavioural remedies, including imposing FRAND trading terms, protocols to manage sensitive information and prohibiting unjustified tying/bundling of products/services. In two of the four transactions, the SAMR accepted hold-separate commitments, including one with a sunset-clause.

In its recent review of an off-shore JV, the SAMR took into account potential spill-over effects, ultimately requiring that the JV remain independent from the JV partners' operations, due to overlaps and vertical relationships between the partners.

 

Interim rules on monopoly and abuse of market power published

A key change in SAMR's new interim rules includes the removal of the safe harbour provisions for certain horizontal and vertical restraints like RPM.

The finalised three sets of interim regulations that have taken effect as of 1 September 2019 are:

• the prohibition of monopolistic agreement;

• abuse of dominance; and

• abuse of administrative power to restrict competition.

Compared to the earlier draft, the final Interim Rules removed the safe harbour provisions for certain scenarios of horizontal cooperation and vertical restriction. It specifically confirms that the imposition of minimum price or fixed resale price (i.e., resale price maintenance or RPM) is considered per se illegal, conforming to the previous approach taken by the SAMR in past enforcement cases.

The Interim Rules against Abuse of Dominance suggests that for "new economy" markets, market share alone may not accurately reflect the market strength of an operator. The SAMR assumes that the following activities engaged by a dominant market player are anti-competitive:

• tying/bundling;

• refusal to deal; and

Business operators with a potentially dominant market position should be mindful of implementing such restrictions without justification.

 

SAMR strengthens enforcement against gun-jumping

The SAMR has ramped up enforcement efforts against failure to notify/gun-jumping cases, penalising 15 transactions in the past 12 months.

The SAMR has published 15 penalty decisions on failure-to-notify cases. Generally, each liable party was imposed a monetary fine of RMB 300,000 to RMB 400,000 (USD 42,000 to USD 57,000).

Though the maximum fines under the current AML regime are seen as an ineffective deterrent, the SAMR's recent enforcement activity signals that business operators should carefully plan transactions to manage timelines from an early stage to avoid any negative impact on current and future dealings with the SAMR.

 

Recent SAMR ruling expands abuse of dominance factors

A recent abuse of dominance case also utilises the SAMR's new approach to determining fines.

The SAMR recently considered the extent to which the following types of restrictions may be indirect exclusive dealing (and therefore an abuse of dominance):

• minimum purchase requirements;

• most favoured nation clauses; and

• discount/incentive schemes.

The SAMR's latest approach of calculating fines was also reflected in this case. Fines are now calculated based on the total revenue of the liable party/parties in China, instead of only the revenues of the product(s) affected by the infringement.

In light of these new enforcement and policy developments, business operators should review and refresh their competition compliance programs.