U.S. Ramps Up Criticism of China’s Enforcement of Its Antitrust Laws Against Foreign Companies

I.  Introduction

For some time, many in the antitrust community have expressed concerns about how China is enforcing its antitrust laws against foreign companies. The past several months have seen a steady stream of criticism from the United States that in certain areas—notably, dominant firm conduct, intellectual property rights and mergers—China is selectively enforcing its antitrust laws outside of international norms in order to protect domestic industries. The criticism includes pointed complaints, comments and recommendations from the U.S. enforcement agencies, U.S. business groups and antitrust practitioners. This article provides a brief overview of some of the comments and recommendations being offered to the Chinese government. Read More

NDRC Fines Zhejiang Insurance Association and 22 Insurance Companies for Price Fixing Under China’s Anti-Monopoly Law

On Sept. 2, 2014, China’s National Development and Reform Commission (NDRC) published 23 administrative penalty decisions made at the end of 2013 against the Insurance Association of Zhejiang Province (Association) and 22 insurance companies doing business in the same province, for a total of more than 110 million RMB (US$18 million).

The NDRC’s investigation revealed that since 2009, the Association had arranged for 23 property insurance companies within Zhejiang province to reach and implement agreements on fixing commercial auto insurance rates and fixing and altering commercial auto insurance agency commissions, both of which violated the Anti-Monopoly Law (AML). The following arguments by the Association were not accepted by the NDRC: 1) the agreements on fixing insurance rates had not been implemented since 2011; and 2) the original intention of agreements on fixing the insurance agency commissions was to protect small and medium-sized insurance companies and increase their competitive capabilities, and at the same time, such agreements would not harm consumers’ interests. The 23 insurance companies that had participated in making and implementing the agreements were also found to have violated the AML. Read More

NDRC Fines Three Jilin Cement Companies 114 Million RMB for Price Fixing Under China’s Anti-Monopoly Law

On Sept. 9, 2014, China’s National Development and Reform Commission (NDRC) announced that it had instructed the Jilin Province Price Bureau to impose fines totaling 114 million RMB (US$19 million) on three cement companies for unlawful price fixing under the Anti-Monopoly Law (AML): Jilin Yatai Group Cement Sales Co., Ltd (Yatai), North Cement Co., Ltd. (North) and Jidong Cement Jilin LLC (Jidong).

The NDRC found that in April 2011, the three companies met and agreed to coordinate pricing on cement products in areas of Northeast China. The investigation also found that in May 2011, North and Yatai struck price agreements on cement products in areas within Jilin province.

The three companies’ conduct was found to have violated the AML, because it restricted market competition and harmed the interests of downstream industries and customers. However, there was overcapacity in the cement sector around the time the agreements were struck, so the three companies’ pricing agreements did not last long and the anticompetitive effect only applied to limited areas. With this in mind, the NDRC fined Yatai and Jidong, which failed to actively cooperate in the investigation, 2 percent of their sales revenue in 2012. This amounted to approximately 60 million RMB (US$10 million) for Yatai and 13 million RMB (US$2 million) for Jidong. The NDRC fined North, which cooperated and actively took corrective measures, 1 percent of its 2012 sales revenue, or approximately 41 million RMB (US$7 million).

The Jilin Province Price Bureau’s decisions are not currently available, but the official news is available here or here.

Hubei Price Bureau Fines FAW-Volkswagen and Audi Dealers for Price Fixing Under China’s Anti-Monopoly Law

On Sept. 11, 2014, Hubei Price Bureau announced that it recently imposed a fine of 249 million RMB (US$40 million) on FAW-Volkswagen Sales Company Ltd. (FAW-Volkswagen) and a fine of 30 million RMB (US$5 million) on eight Hubei Audi dealers for unlawful price fixing under the Anti-Monopoly Law (AML).

The investigation was initiated in March 2014 by the Hubei Price Bureau under the guidance of China’s National Development and Reform Commission (NDRC). It revealed that since 2012, FAW-Volkswagen had repeatedly arranged for 10 Audi dealers in Hubei to reach and implement monopolistic agreements on prices of whole vehicle sales, service and maintenance. The investigation also found FAW-Volkswagen had issued administrative documents and formed a work group to urge the dealers to follow its price-management measures. Read More

EC Imposes Fines of €138 Million on Smart Card Chips Cartel

On Sept. 3, 2014, the European Commission (Commission) announced fines totaling €138 (US$ 174 million) on Infineon, Samsung, Renesas and Philips for breaching Article 101 of the Treaty on the Functioning of the European Union (TFEU) by coordinating their market behavior in the smart card chips sector. The Commission found that, between September 2003 and September 2005, the cartel had exchanged commercially sensitive information on pricing, customers, contract negotiations, production capacity and future market conduct. The cartel was found to have operated across the European Economic Area (EEA).

The Commission had previously entered into settlement negotiations with the cartel participants pursuant to the Commission’s 2008 Settlement Notice. However, this process was discontinued in 2012 following a lack of progress in settlement discussions.

As “whistleblower,” Renesas received full immunity under the Commission’s 2006 Leniency Notice, having notified the Commission of the cartel. Samsung’s fine was reduced by 30 percent for cooperating with the investigation. Since the infringement, Philips has divested its smart card chips business but remains liable for its conduct during the period of the infringement.

The Commission’s press release announcing the fine is available here.

Zipper Maker YKK Wins Fine Reduction at EU’s Highest Court

On Sept. 4, 2014, the Court of Justice of the European Union (CJEU) rejected an appeal by the YKK Group (YKK) against the judgment of the General Court that the European Commission (Commission) had been correct in its decision relating to the fasteners cartel, in which YKK was found to have participated. In September 2007, the Commission announced fines totaling €329 million (US$412 million) on the members of the cartel, which was found to have committed serious breaches of EU competition law, including fixing prices, coordinating price increases, sharing markets, allocating customers, and exchanging commercially sensitive market information in the zipper and other fasteners markets.

YKK appealed on four grounds: 1) that the Commission and General Court had incorrectly applied the 1996 Leniency Notice rather than the 2002 Leniency Notice; 2) that the General Court had given inadequate reasons for supporting the Commission’s decision to set the starting amount of the fine at €50 million (US$62 million); 3) that the Commission and General Court had imposed fines that exceeded the upper limit of 10 percent of worldwide group turnover; and 4) that the Commission and the General Court had incorrectly applied a deterrence multiplier to the size of the fine in recognition of YKK’s economic power. Read More

CJEU Affirms Commission’s Decision Against MasterCard Interchange Fees

On Sept. 11, 2014, the Court of Justice of the European Union (CJEU) rejected MasterCard’s appeal against the General Court’s 2012 judgment that the European Commission (Commission) had been correct in its assessment that MasterCard’s multilateral interchange fees (MIFs) breached Article 101(1) of the Treaty on the Functioning of the European Union (TFEU). CJEU also simultaneously dismissed cross-appeals from Royal Bank of Scotland and Lloyds Banking Group.

In December 2007, the Commission found that the decisions of the MasterCard payment organization in setting MIFs constituted decisions by an “association of undertakings” falling within the scope of Article 101(1) TFEU, and that the MIFs had appreciable restrictive effects on competition, which affected trade between EU Member States. The Commission concluded that the MIFs were not objectively necessary for MasterCard’s system to operate and to compete. MasterCard appealed to the General Court in the first instance and its appeal was dismissed. Read More

CJEU Narrows Scope of “By Object” Antitrust Infringements

On Sept. 11, 2014, the Court of Justice of the European Union (CJEU) upheld an appeal by Groupement des Carte Bancaires (GCB) against a General Court judgment that had concluded that fees charged by GCB on the issuing of cards were anticompetitive and a breach of Article 101(1) of the Treaty on the Functioning of the European Union (TFEU). The fees were higher for banks that were not sufficiently active in installing ATMs or making contracts with acquiring merchants. In practice, such banks were new members of GCB, and included online banks and the banking arms of major retailers.

The CJEU held that the General Court had erred in law with regard to the criteria that it used to determine that the fee agreement constituted a “by object” restriction of competition. The General Court held that by object restrictions must not be interpreted restrictively, and that the wording of the fee agreement made it clear that it was restrictive of competition by object. In contrast, the CJEU stated that only certain types of coordination, where the undertaking clearly reveals such a degree of harm to competition that there is no need to examine their effects, can be found to be restrictions by object. Read More

Vestager Appointed as EU Competition Commissioner

On Sept. 10, 2014, the European Commission (Commission) President-elect Jean-Claude Juncker nominated Margrethe Vestager, former deputy prime minister of Denmark, for the position of new EU Competition Commissioner. Subject to approval of the European Parliament, she will succeed Joaquín Almunia when his term ends on Oct. 31. On Oct. 2, Vestager faced a confirmation hearing in the European Parliament and answered questions on the ongoing Google investigation, the impact of competition fines on small and medium-sized enterprises and how competition policy can keep up with technological developments. The European Parliament will vote on the suitability of all appointees for the new Commission on Oct. 22. If, as is expected, all appointees are confirmed, Vestager will take office in November.

Vestager, 46, served as Denmark’s deputy prime minister as well as minister for Economics and Interior Affairs between October 2011 and August 2014, when she was appointed as the Danish candidate for the new Commission. Vestager represents the Danish Social Liberal Party (DSLP, also known as Radikale Venstre, or Radical Left), which she has led since 2011. Vestager was elected to the Danish Parliament in 2001. Between 2001 and 2011 she was chairwoman of the DSLP’s parliamentary group, and under former Prime Minister Poul N. Rasmussen, she served as minister of Education and Ecclesiastical Affairs from 1998 until 2001. Read More

9th Circuit: State Action Immunity Protects Convention Center from Exclusive Dealing Claim

In United National Maintenance, Inc. v. San Diego Convention Center, Inc., No. 12-56809, 2014 WL 2094545 (9th Cir. May 14, 2014), the 9th U.S. Circuit Court of Appeals held that the San Diego Convention center enjoyed state action immunity from antitrust claims brought by a supplier of cleaning services whose business was negatively impacted by the convention center’s decision to be the exclusive supplier of cleaning services.

The California Legislature specifically authorized San Diego (and other cities) not only to build a convention center, but also to create a commission that would “manage the use” of the convention center. This type of managerial authorization, the court held, was sufficient to make any anticompetitive effects the result of a clearly articulated and affirmatively expressed state policy—the first prong of the test for state action immunity. The 9th Circuit also held that the center did not need to meet the second state action immunity requirement (that its actions were “actively supervised” by the state), because 1) the City of San Diego appoints all of the center’s board members; 2) upon dissolution, the center’s assets revert back to San Diego; and 3) the center must publicly account for its operations. Overall, the court held, the center acts as an agent that operates the convention center for the benefit of its principal, the city of San Diego. It is an extension of the municipality of San Diego and thus does not require active supervision by the state in order to retain its immunity from antitrust liability. Furthermore, the court noted, the specific facts indicate there is no need for the evidentiary function of active supervision. Read More

Federal Circuit Breathes New Life into Sham Claims Against Tyco

On Aug. 6, 2014, a split three-judge panel from U.S. Court of Appeals for the Federal Circuit restored two of Mutual Pharmaceutical Company Inc.’s antitrust counterclaims against Tyco Healthcare Group LP that stemmed from Tyco’s 2006 patent infringement suit against the company. See Tyco Healthcare Grp. LP v. Mut. Pharm. Co., Inc., 762 F.3d 1338 (2014).

Tyco sued Mutual for infringement and also filed a citizen petition with the U.S. Food and Drug Administration to prevent Mutual from marketing a generic version of Tyco’s insomnia drug, Restoril. In response, Mutual filed four antitrust counterclaims, alleging that the infringement suit and citizen petition—filed a day after Tyco lost a summary judgment motion as to the validity of the Restoril patent—each was a sham and that no reasonable litigant would expect the patents to withstand an invalidity challenge. Mutual also asserted a Walker Process claim alleging that Tyco procured its patents by fraud on the patent office. The district court rejected each of Mutual’s counterclaims. On appeal, the Federal Circuit affirmed the dismissal of the validity and Walker Process counterclaims, but remanded the infringement and citizen petition counterclaims to the district court. Read More

U.S. District Court Rejects Proposed Settlement of High-Tech Employees Non-Solicitation Cases

On Aug. 8, 2014, Judge Lucy Koh of the U.S. District Court for the Northern District of California rejected the proposed settlement of a class action brought by employees of Silicon Valley technology companies alleging that the companies had entered into agreements not to solicit each other’s employees. In re: High Tech Emp. Antitrust Litig., 2014 U.S. Dist. LEXIS 110064 (N.D. Cal. Aug. 8, 2014).

Plaintiffs filed complaints against certain high-tech companies and film studios alleging they had entered into agreements not to solicit each other’s employees. In April 2013, the court denied a motion for class certification on the ground that the plaintiffs’ expert had failed to demonstrate class-wide impact. Plaintiffs again filed a class certification motion and while it was pending, and they settled their claims against certain defendants for a total of $20 million. In October 2013, the court approved that settlement. The litigation continued against the high-tech companies, and in October 2013 the court granted class certification as to a narrowed class of employees. In March 2014, the court denied the defendants’ summary judgment motion. Shortly before the trial was set to begin, the parties informed the court that they had reached a settlement. Plaintiffs filed a motion for preliminary approval of a settlement totaling $324.5 million, and one class member objected to the settlement. Read More

U.S. District Court Rules that NCAA’s Rules Regarding Compensation for Student Athletes Violate the Sherman Act

On Aug. 8, 2014, Judge Claudia Wilken of the U.S. District Court for the Northern District of California issued a post-trial order that the National Collegiate Athletic Association (NCAA) violated Section 1 of the Sherman Antitrust by adopting rules that bar student-athletes from receiving a share of revenue that the NCAA and its member schools earn from the sale of licenses to use the student-athletes’ names, images and likeness. Edward O’Bannon et al. v. NCAA, et al., No. C 09-3329, 2014 U.S. District LEXIS 110036 (N.D. Cal. Aug. 8, 2014).

The NCAA is an association of 1,100 colleges and universities that regulates intercollegiate athletic competition in about two dozen sports. It issues rules that establish academic eligibility requirements for student-athletes, sets forth guidelines and restrictions for recruiting high school athletes, and imposes limits on the number and size of athletic scholarships that each school may provide. The NCAA has three divisions based on the number and quality of opportunities schools can provide, including the financial aid provided to student-athletes. The NCAA imposes rules that bar schools from sharing with student-athletes revenue earned from selling licensing rights to use the student-athletes names, likenesses and images. Read More

Is Cash King? Two District Courts Throw Out “Reverse Payment” Claims, But Highlight Confusion Over Applying FTC v. Actavis

In September 2014, two separate district courts dismissed claims against branded drug manufacturers stemming from pay-for-delay patent infringement settlements. While the end result was the same, the opinions from these cases show a continuing inconsistency in the approach courts are taking as to whether reverse payment claims should be interpreted flexibly under the Supreme Court’s 2013 decision in FTC v. Actavis to include non-cash payments, or more strictly to require an actual cash payment.

On Sept. 12, Judge Peter G. Sheridan in New Jersey dismissed a multidistrict case challenging an allegedly anticompetitive settlement between Pfizer Inc. and Ranbaxy Laboratories Ltd. concerning patents for the cholesterol drug Lipitor. See In re Lipitor Antitrust Litig., No. 3:12-cv-02389 (PGS), 2014 U.S. District LEXIS 127877 (D.N.J. Sept. 12, 2014). Judge Sheridan did not take issue with the fact that the allegedly anticompetitive settlement was nonmonetary, but nevertheless dismissed the case because the plaintiffs failed to quantify and reasonably estimate the value and amount of that nonmonetary payment. By contrast, on Sept. 4, Judge William E. Smith in Rhode Island similarly dismissed a claim that Warner Chilcott PLC and others entered into an illicit agreement regarding Loestrin, but did so on the basis that Actavis requires an actual cash payment to violate the antitrust laws. See In re Loestrin 24 Fe Antitrust Litig., No. 1:13-md-2472-S-PAS, 2014 WL 4368924 (D.R.I. Sept. 4, 2014). In particular, because the settlement agreement at issue included a worldwide license to one generic firm and other co-promotion and licensing arrangements—but did not call for any cash exchange—it did not trigger Actavis. Read More

FTC Updates Fred Meyer Guidelines Regarding Promotional Allowances

On Sept. 29, 2014, the U.S. Federal Trade Commission published revisions to its Guide for Advertising Allowances and Other Merchandising Payments and Services, commonly referred to as the “Fred Meyer Guidelines,” effective Nov. 10, 2014. Fed. Reg. Vol. 79, No. 188 (Sept. 29, 2014).

The Fred Meyer Guidelines were first published in 1969 to help businesses comply with sections 2(d) and 2(e) of the Robinson-Patman Act, 15 U.S.C. § 13(d), which generally prohibit a seller from paying allowances or furnishing services to promote the resale of its products unless the allowances or services are offered to all competing customers on proportionally equal terms. Sections 2(d) and 2(e) relate to the resale of a firm’s products, as opposed to section 2(a) of the Act, which relates to the original or first sale. The FTC made minor amendments to the Guidelines by, among other things, providing some additional guidance through revised examples of conduct regarding slotting allowances, making promotional services and allowances available to competing customers on proportionally equal terms, and taking reasonable steps to ensure that promotional services and facilities are functionally available to competing customers, particularly in the context of on-line commerce.

The notice published in the Federal Register, as well as the revised Fred Meyer Guidelines, are available here.

Trade Associations Agree to Eliminate “No Poaching” Code of Ethics Provisions Pursuant to FTC Consent Orders

On Aug. 22, 2014, the U.S. Federal Trade Commission announced it had reached two separate proposed consent orders with the National Association of Residential Property Managers, Inc. (NARPM) and the National Association of Teachers of Singing, Inc. (NATS). NARPM and NATS agreed to eliminate provisions in their respective codes of ethics that restrain competition.

NARPM represents more than 4,000 real estate brokers, managers and agents. Its code of ethics read, “The Property Manager shall not knowingly solicit competitor’s clients,” and “NARPM Professional Members shall refrain from criticizing other property managers or their business practices.” The FTC’s complaint alleged that these limitations on comparative advertising and solicitation restrained competition in violation of the FTC Act. The proposed settlement order requires NARPM to stop restraining its members from soliciting property management work, and from making statements that are not false or deceptive about a competitor’s products, services, or business or commercial practices. Among other things, NARPM also must implement an antitrust compliance program. Read More

Assistant Attorney General Bill Baer Warns Amnesty Applicants to Fulfill Their Obligations Under ACPERA

On Sept. 10, 2014, Assistant Attorney General Bill Baer spoke to the Global Antitrust Enforcement Symposium at Georgetown University on the topic of “Prosecuting Antitrust Crimes,” emphasizing the need for amnesty applicants to fulfill their obligations under the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA).

Baer explained that amnesty cooperation needs to be complete and robust, and that companies cannot pick and choose what they report about their overall wrongdoing. He said the fact that there may be a cooperating corporation has dramatically “changed the calculus” for other corporate co-conspirators, and as a result, the Division is seeing more companies seeking to mitigate the consequences of their cartel activity at early stages of investigations. Baer added that the Division takes compliance commitments seriously, and questions whether companies that continue to employ culpable senior executives who do not accept responsibility and are carved out of a corporate plea agreement are effective in their remediation efforts. In such cases, the Division may argue that a term of corporate probation is required, he said.

Assistant Attorney General Baer’s full speech is available here.

China’s MOFCOM Blocks ‘P3 Alliance’ Despite EU, U.S. Non-Opposition

On June 17, 2014, China’s Ministry of Commerce (MOFCOM), China’s competition regulator, prohibited the proposed “P3 Alliance” that would have combined the world’s three largest container carriers—Maersk Line, Mediterranean Shipping Company and CMA CGM—on certain shipping routes.

MOFCOM prohibited the deal despite the U.S. Federal Maritime Commission (FMC) clearing the transaction in March 2014, and the European Commission (Commission) announcing its decision not to open an investigation just two weeks prior to the MOFCOM prohibition. The differing outcomes resulted from each authority analyzing only the effects of the deal relating to its respective market. The FMC did not analyze Asia-Europe routes since it has no jurisdiction over it and, conversely, MOFCOM did not analyze Europe-North America routes. Moreover, while the FMC and Commission assessed the deal under their respective competition rules applicable to cooperative agreements between independent undertakings, MOFCOM assessed the deal as a concentration and therefore applied merger control rules and its related economic analysis, which allow non-competition factors such as macroeconomics and collective policy considerations to be taken into account. Read More

Inner Mongolia AIC Fines Fireworks Wholesalers for Market Division Under China’s Anti-Monopoly Law

China’s State Administration on Industry and Commerce (SAIC) recently published Inner Mongolia AIC’s May 2014 decision imposing fines totaling 583,700 RMB (U.S.$94,800) on six fireworks wholesale companies in Chifeng, Inner Mongolia, for unlawful market division under the Anti-Monopoly Law.

In 2006, the local work safety department in one of the two districts of the central area of Chifeng divided the distribution areas for each of the fireworks wholesale companies within the jurisdiction, with the claimed intentions of preventing safety accidents arising from lowered product quality that could be caused by aggressive competition and guiding the companies to actively participate in market management. A similar arrangement was adopted by the other district of the central area in 2009. Under these arrangements, each designated sub-area was supplied by one wholesaler, and retailers in a sub-area were forced to purchase products only from the designated wholesaler. Although there was no agreement in writing, all the wholesalers acted in concert by following the administrative restrictions. Through coordination with local public and work security departments, each year the wholesalers were able to examine retailers’ goods and confiscate goods not purchased from the designated wholesaler in each sub-area. This conduct lasted until the Inner Mongolia AIC’s investigation started in January 2014. Read More

China’s SAIC Issues New Draft of Antitrust Regulations for Intellectual Property Rights

China’s State Administration for Industry and Commerce (SAIC) has issued a new draft of its regulations governing antitrust enforcement of intellectual property rights (the “Rules”). The Rules are designed to protect competition, encourage innovation, and prevent the abuse of intellectual property rights to eliminate or restrict competition. The Rules establish a general principle that undertakings shall not conclude monopolistic agreements as prohibited in the Anti-Monopoly Law by exploiting intellectual property rights.

The Rules address a broad range of intellectual property licensing conduct, including refusals to license essential patents, exclusive dealing, tying arrangements, exclusive grantbacks, no-challenge clauses, imposing restrictions or demanding royalties after a patent expires, discriminating among licensees without justification, etc. They also provide guidelines for participating in patent pools, which are similar to some of the rules the U.S. Department of Justice has developed through its Business Review Letters. In addition, the Rules provide regulations for participating in standards-setting organizations, including prohibiting refusing to disclose standards-essential patents and later asserting patent rights against entities implementing the standards, and also prohibiting companies holding standards-essential patents from refusing to license on FRAND terms. The Rules also establish principles for enforcement, including procedures for analyzing a suspected abuse of intellectual property rights, and factors for analyzing the effect of conduct on competition.

The Rules provide for penalties that include the confiscation of illegal gains and a fine between 1 and 10 percent of the turnover in the previous fiscal year. The amount of the penalty is to be determined based on factors such as the nature, particulars, seriousness and duration of the unlawful conduct.

A copy of the Rules is available here.