Key Points:

  • Define the jurisdiction of the SAIC over monopolistic agreement and abuse of dominant market position
  • Define the power and limitation of a lower level AIC
  • Outline the reporting procedures on possible violations
  • Outline the investigation procedure of the SAIC

On May 26, 2009 the State Administration for Industry and Commerce (“SAIC”) promulgated new Regulations on the Procedure of Investigation and Sanction of Monopolistic Agreement and Abuse of Dominant Market Position (the “SAIC Regulation”), which took effect on July 1, 2009.

Jurisdiction under the Anti-Monopoly Law is divided into three parts. Namely, the National Development and Reform Commission (“NDRC”) is given the power to regulate monopoly related to price, the Ministry of Commerce (“MOFCOM”) has power to regulate market concentration matters and the SAIC is provided the power to regulate unfair competition issues under the Anti-Monopoly Law, such as monopolistic agreements and abuse of dominant market position.

The SAIC Regulations are focused on the procedure of investigation and sanction and offer no significant reference on the substantive interpretation of the SAIC on the Anti-Monopoly Law. For example, no definition of monopolistic agreement and dominant market position is offered in the SAIC Regulations. As a matter of fact, the SAIC is working on the substantive regulations regarding the monopolistic agreement and abuse of dominant market position. The SAIC draft regulations on monopolistic agreement provide the following reference: “Business operators with competing relationships shall not reach written or oral agreement, decisions, implied or explicit accordance to (i) restrict the production or sales volume, (ii) divide distribution market or sourcing market, (iii) restrict purchasing new technology, new equipments, or development of new technology or products, (iv) boycott, or (v) bid rigging.” With regard to the dominant market power, the SAIC’s unpublished draft defines it as one business operator having the power to control the price, volume and other trading conditions within a certain defined market, or having the power to prevent or affect other business operators’ entry into the defined market.

The SAIC Regulations provide that the SAIC will investigate and sanction any violation related to monopolistic agreement and abuse of dominant market position. Article 30 clearly excludes its jurisdiction over price-related monopolistic agreement and abuse of dominant market power, which is an issue reserved for the NDRC. For example, if leading manufacturers of TVs reach an agreement on fixed prices for certain products, the SAIC would not take action to investigate or sanction the violators. All the price-related matters fall into the territory of the NDRC.

The SAIC has the power to investigate and sanction any violations. On the other hand, the provincial level Administration of Industry and Commerce (the “AIC”) has the power to investigate and sanction any violation occurring in its jurisdiction only. Only the SAIC and provincial level AIC have the power of investigation and sanction. The SAIC Regulations clearly prohibit the provincial level AIC from further delegating the power to lower level AICs, which means that even if a county level or municipal level AIC finds a violation, it can only report to the provincial level AIC for further investigation and sanction. For a case involving more than one province, the SAIC will have the power to either conduct the investigation by itself or designate its power to one provincial level AIC.

The SAIC may take action to engage in investigation when a possible violation is (i) discovered by itself, (ii) tipped by other sources, (iii) transferred from other government authorities, and (iv) designated by an upper level government authority.

When any level of AIC receives information about a possible violation, it must report the tip to the provincial level AIC for verification. The SAIC system is required under the SAIC Regulations to keep information regarding informants confidential. For each case, upon verification, the provincial AIC is required to report to the SAIC about its decision on whether to conduct a full investigation.

Once the investigation commences, the SAIC will exercise the power to conduct an onsite investigation, interview relevant witness and collect and seize the documents from interested parties.

If the suspected company admits its violation and guarantees to correct its action and any effects of the violation, the SAIC may suspend the investigation.

In significant cases (undefined), the SAIC may issue sanctions and must report the case to the Anti-Monopoly Commission of the State Council. Once a sanction decision is imposed, an interested party may seek administrative review of the discussion.