Regional Focus: China

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
monopoly.

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. More information is available here.

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.

Regional Developments: United States

U.S. Department of Justice Settles Charges Against Alleged Monopolist Hospital. On February 25, 2011, the U.S. DOJ settled charges that United Regional Health Care System of Wichita Falls, Texas, unlawfully used contractual provisions to maintain its monopoly for hospital services. The hospital had a 65% to 90% market share, depending upon the services at issue. The department alleged that to maintain its monopoly over certain inpatient and outpatient services, the United Regional systematically required most commercial health insurers to enter into contracts that effectively prohibited them from contracting with its competitors. The proposed settlement, if approved by the District Court for the Northern District of Texas, would bar United Regional from interfering with the ability of insurers to contract with its competitors. This is the first case brought by the DOJ since 1999 that challenged a monopolist for engaging in traditional, unilateral anticompetitive conduct.

Developments Regarding Reverse Payments in Pharmaceutical Patent Cases. On March 7, 2011, the U.S. Supreme Court declined to review the Second Circuit’s decision in In re: Ciprofloxacin Hydrochloride Antitrust Litigation. The Second Circuit had granted summary judgment to a branded pharmaceutical manufacturer that had settled patent infringement litigation by making a payment to the generic manufacturer accused of infringing the branded manufacturer’s patent. The petition asked the Supreme Court to review whether federal antitrust laws prohibit such settlements, but the Court denied the petition.

Perhaps anticipating the Supreme Court’s ruling in In re Cipro, on January 25, 2011, Senator Kohl (D-WI) introduced the Preserve Access to Affordable Generics Act (S. 27), which would establish a presumption that a reverse payment settlement has anticompetitive effects and is unlawful if the generic manufacturer receives anything of value and agrees to limit or forego research, development, manufacturing, marketing or sales of the drug product for any period of time. The proposed legislation provides an exception if the parties to the agreement demonstrate by clear and convincing evidence, based on specified competitive factors, that the procompetitive benefits of the agreement outweigh the anticompetitive effects. The legislation, which is currently before the Senate Judiciary Committee, is available here.

Regional Developments: Europe

European Commission Launches Consultation on Collective Redress. On February 4, 2011, the European Commission launched a public consultation on collective redress. Collective redress covers both injunctive and compensatory relief, actions in court, out-of-court settlements, alternative dispute resolution and the enforcement of legal claims. Currently, there is no harmonized system for obtaining collective redress in the EU, and the Commission is concerned that the variety of existing systems may undermine the enforcement of EU rights by individuals and businesses. The purpose of the consultation is to identify common principles for collective redress. The suggested common principles are: the need for effectiveness and efficiency of redress, the importance of information and the role of representative bodies, the need to take account of collective consensual dispute resolution, the need for strong safeguards to avoid abusive litigation, the availability of appropriate financing and the importance of effective enforcement across the EU. Comments must be submitted by April 30, 2011. Following the consultation, the Commission will decide whether EU legislation is needed. Comments can be submitted here.

Opinion of Advocate General Kokott on Territorial Exclusivity Arrangements Relating to Live Sports Matches. On February 3, 2011, Advocate General Kokott delivered an opinion recommending that the European Court of Justice (ECJ) rule that territorial exclusivity arrangements relating to live Premier League matches are contrary to EU law. The actions before the ECJ involve pubs in the UK that use foreign decoder cards to access satellite transmissions of live Premier League football. Advocate General Kokott’s opinion is available here.
Ms. Kokott stated that the partitioning of the EU market for the reception of satellite broadcasts is not necessary to protect the rights to live football and that there is no specific right to charge different prices in each EU member state. She also noted that a contractual obligation preventing decoder cards from being used outside the licensed territory has the same effect as agreements that prevent or restrict parallel exports and would therefore be in breach of the EU prohibition on anticompetitive agreements. The ECJ will make a ruling on the case later this year.

Regional Developments: Asia

KFTC Imposes Fines Against Samsung and Others for Price Fixing in Color Display Tubes Market. In January 2011, the Korea Fair Trade Commission (KFTC) fined five color display tube manufacturers more than US$23 million for participation in a cartel affecting Korean consumers. The KFTC alleged that Samsung SDI Co., Ltd., LG Philips Display Korea Co., Ltd., Chunghwa Picture Tubes, Ltd. and two Chunghwa subsidiaries had agreed to fix prices and reduce supply in the color display tube market from 1996 and 2006. Samsung was fined approximately US$21.5 million, and the Chunghwa units were fined approximately US$1.5 million. The KFTC exempted LG Philips from the fines due to financial difficulties.

KFTC Introduces Competition Assessment Procedure Manual. In October 2010, the KFTC issued a Competition Assessment Manual which sets out procedures for identifying anticompetitive market effects. The Manual explains how new or revised regulations affect competition and markets. The Manual applies to all of the rules and regulations proposed by the central or local governments, as well as those proposed by nongovernmental regulatory agencies and/or self-regulatory bodies.

Japan-U.S. Airline Alliances Successfully Sought Antitrust Immunity. On November 11, 2010, the U.S. Department of Transportation (DOT) approved antitrust immunity for the separate applications of OneWorld members American Airlines and Japan Airlines and of Star Alliance members United Airlines, Continental Airlines and All Nippon Airways. The DOT and Japan’s Ministry of Land, Infrastructure, Transportation and Tourism granted preliminary immunity in October and conditioned final approval on the application of the U.S.-Japan Open Skies Aviation Agreement, which aims to remove limits on the number of passenger and cargo flights between the two countries. In its final order, the DOT concluded that each alliance will be precompetitive and is likely to generate benefit from public traveling and commercial shipping.

Events and Articles

Recent Events

March

Working With Economic Experts in Antitrust Matters
Teleconference – March 22, 2011
Orrick partner Russell Cohen will participate in a panel discussion presented by the American Bar Association Section of International Law on the role of economic experts in antitrust proceedings.

ABA Antitrust Division DOJ Alumni Cocktail Reception
Washington, D.C. – March 30, 2011
Orrick is co-sponsoring this cocktail reception in connection with the American Bar Association Antitrust Spring Meeting.

April

India Competition Working Group Tea and Reception
Washington, D.C. – April 1, 2011
In connection with the ABA Antitrust Section Spring Meeting, Orrick partner David Smutny and other members of the Section’s India Competition Working Group will host an informal tea and reception for members and staff of the Competition Commission of India, the India private competition law bar, and some U.S. government officials and Section officers.

Competition Law Conference
Seoul – April 28-29, 2011
Orrick partner Philippe Rincazaux will be co-chairing a session on the future of cartel investigation and enforcement in the Asia-Pacific region in a conference co-presented by the International Bar Association’s Antitrust Committee and the Korean Bar Association.

May

22nd Annual IBA Communications and Competition Law Conference
Vienna – May 16-17, 2011
Orrick partner Ted Henneberry will participate in a panel discussion focusing on recent developments in competition enforcement in the communications sector.

Recent Articles

ABA, Antitrust Section, Cartel & Criminal Practice Newsletter, March 2011, Lisa Tenorio-Kutzkey, co-editor.

California Supreme Court’s Kwikset Decision Expands Standing to Bring Unfair Competition Law Claims, Antitrust and Competition Alert, by David Goldstein and Howard Ullman.

Arbitrating U.S. Antitrust Law in Pharmaceuticals Markets, chapter in EU and U.S. Antitrust Arbitration, by Robert Reznick.

Get to Know: Douglas Lahnborg, Philippe Rincazaux

Douglas Lahnborg is a partner in the Antitrust and Competition Group. His practice covers all areas of EU and UK competition law.

He has advised extensively on merger and acquisitions under the UK Enterprise Act 2002 and EC Merger Regulation. Mr. Lahnborg has wide experience in advising on issues relating to Articles 101 and 102 of the TFEU and corresponding UK legislation, including representation of clients before the EC Commission in cartel investigations. He has advised several companies in abuse of dominance investigations, including in the fields of software and pharmaceuticals.

Before joining Orrick, Mr. Lahnborg was a shareholder with Heller Ehrman’s Antitrust and Trade Regulation Practice and previously a senior associate in Slaughter and May’s competition group. He spent one year with the EC Commission where he trained with the Merger Task Force and State Aid Policy Unit of DG Competition.

Philippe Rincazaux is a partner in Orrick’s Paris office. Philippe focuses his practice on European and French antitrust and competition law. He regularly advises French and international clients in antitrust, competition and regulatory matters and represents them before European and French courts and competition and regulatory authorities.

His practice focuses on merger transactions, joint ventures and cooperation agreements, dominant firm conduct and investigations. He has deep experience with cartel investigations and was counsel in the first settlement proceedings before the French competition authority and also before the European Commission. He also has an extensive practice in leniency proceedings and focuses on issues related to legal privilege in international matters and on ethics issues in investigations and leniency proceedings.

Mr. Rincazaux is a board member, treasurer and in charge of international relations for the French Association of Competition Law. He is a founding member and a member of the board of the Association for Lawyers Practising Competition Law.