Following the Ministry of Commerce’s (MOFCOM) rejection of Coca-Cola’s proposed acquisition of Huiyuan under the Anti-Monopoly Law (AML) in March 2009, China has continued to develop its AML procedures. Highlights on China’s legislative developments and cases in the past six months include:
New Security Review Procedure for Foreign Investment
On February 3, 2011, the General Office of the State Council issued a notice establishing the national security review for foreign investment in domestic enterprises (the Notice). This is the first time since China enacted the AML that the State Council specifically identified industry sectors subject to national security review. These sectors include: domestic military-related industry, agricultural products, energy, infrastructure, transportation, technology and equipment manufacturing. The Notice outlines the circumstances that would trigger a national security review where foreign investors acquire or obtain control over domestic Chinese enterprises. The national security review, which became effective on March 5, 2011, runs separately but in parallel with the anti-monopoly review. The text of the Notice can be found here.
Rules for Price-Related Antitrust Enforcement and Leniency Procedures
On December 29, 2010, China’s National Development and Reform Commission (NDRC), the agency responsible for AML enforcement, issued Procedural Provisions on Administrative Law Enforcement against Price Monopoly (the procedure rules) and Provisions on Anti-Price Monopoly (the substantive rules), effective February 1, 2011.
Two days later, on December 31, 2010, the State Administration for Industry & Commerce (SAIC) issued three sets of AML implementing provisions (also effective February 1) to clarify what constitutes violations and appropriate sanctions relating to: (1) monopoly agreements, (2) abuse of dominance and (3) administrative monopoly. SAIC’s three substantive provisions provide extensive definitions. NDRC Procedure Rules. NDRC Substantive Rules. SAIC provisions on monopoly agreements. SAIC provisions on abusing dominance. AML. SAIC provisions on administrative
In addition, the new NDRC and SAIC rules also explain China’s leniency procedures for price-related antitrust enforcement. The NDRC procedural rules provide that (a) the first applicant to report and provide important evidence to NDRC may be completely immune from any penalty; (b) the second applicant may obtain at least a 50% reduction of penalties; and (c) subsequent applicants may obtain at most a 50% reduction on penalties. Conversely, the SAIC rules provide no guidelines for reduction of penalties, but state that SAIC will take into consideration cooperation with the investigation, importance of the evidence provided and other factors. Under the SAIC procedural rules, the organizer of a cartel is not eligible for immunity or reduction of penalties.
Paper Manufacturers Association Punished by NDRC
On January 4, 2011, the NDRC fined the Paper Manufacturers Association in Zhejiang Province, Fuyang City, the maximum amount (RMB 500,000) under the Rules of Administrative Sanctions on Price Offense (the Rules). NDRC’s notice provided that in 2010, the Association had conducted meetings and gathered more than 20 members to fix and raise the price for packaging paper. According to the Rules, industry associations or relevant parties who organize participants to manipulate prices are subject to a fine of not more than RMB 500,000.
Tencent Technology (Shenzhen) Co., Ltd. v. Beijing Qihoo Technology Ltd.
Tencent Technology (Shenzhen) Co., Ltd. brought an action against Beijing Qihoo Technology Ltd., seeking RMB 4 million under the Anti-Unfair Competition Law (AUCL) and the AML. Tencent is an internet service provider that has millions of instant message software users. Qihoo is a manufacturer of anti-virus and security software. Tencent claimed that Qihoo breached the AUCL when Qihoo claimed that Tencent’s instant message system had infringed users’ privacy. Tencent notified instant messenger users that they would no longer be able to use Qihoo’s security software, and Tencent modified its system to be incompatible with Qihoo’s. On November 4, 2010, SAIC received a complaint requesting an investigation against Tencent for breach of Article 17(4) of the AML for abuse of dominant market position to require counterparty to trade exclusively with it without valid reasons. In late November 2010, China’s Ministry of Information and Technology became involved in the dispute, but decisions in both proceedings are still pending, despite the fact that both Tencent and Qihoo have published letters of apology to the public.