Recognizing concern that the Chinese government intervenes excessively into markets and private economic activities, the China State Council recently released opinions directing the implementation of a fair competition review system (“FCRS”), which is intended to moderate administrative authorities’ issuance of regulations and minimize the government’s interference in China’s economy. Although the CRS has been hailed as “a key step to establish the fundamental status of competition policies,” its success will depend on how it is implemented.
On June 1, 2016, the Opinions of the State Council on Establishing a Fair Competition Review System During the Development of Market-Oriented Systems (“Opinions”) were promulgated and became effective. The Opinions note that enforcement of current laws sometimes entails “local protectionism, regional blockade, industry barriers, business monopoly, granting preferential policies in violation of the law or illegally prejudicing the interests of market players, and other phenomena contrary to the efforts of building a unified national market and promoting fair competition.” These so-called “administrative monopolies,” which often are at issue in cases investigated under the Anti-Monopoly Law (“AML”), are at cross purposes to the AML. In an effort to reduce or eliminate obstacles to economic development, the Opinions call for limiting the government authorities’ administrative powers, establishing the FCRS, preventing new policies and measures that exclude competition, and gradually revising and ultimately abolishing existing provisions that impede fair competition.
Over the past decade, the Japan Fair Trade Commission (JFTC) has increased its criminal enforcement of Japan’s antitrust law, the “Act on Prohibition of Private Monopoly and Maintenance of Fair Trade,” commonly known as the Anti-Monopoly Act. This trend is likely to continue because last month Japan’s Diet amended the Code of Criminal Procedure to introduce a plea bargaining system that creates an incentive to report antitrust violations committed by others. The new plea bargaining system, which applies to crimes such as antitrust, fraud, bribery and tax evasion, will be implemented in Japan within 2 years.
Ever tried parking legally in the Big Apple, only to find a ticket awaiting upon your return? We’ve all been there, unfortunately. And now it appears that the same frustration may be coming to patent holders that own technology that other Chinese companies find to be attractive.
For the past year, antitrust enforcement agencies in China have published draft guidelines designed to inform companies how the agencies will apply antitrust law to the exercise of patents and other intellectual property rights. But do those guidelines provide meaningful guidance in an area of regulatory uncertainty, or are they written in a way to lend themselves to whatever interpretation the regulators see fit in the interest of giving Chinese companies a competitive advantage?
On Mar. 2, 2015, China’s National Development and Reform Commission (“NDRC”) published its decision in the Qualcomm case, which resulted in a $975 million fine against Qualcomm for alleged violations of the Anti-Monopoly Law. The decision provides useful guidance with respect to the NDRC’s views regarding several intellectual property licensing practices involving standard-essential patents (“SEPs”).
China’s State Administration for Industry & Commerce has published its long-awaited regulations regarding the use of intellectual property rights to eliminate or restrict competition. The Regulations, which are designed to foster innovation and competition, improve economic efficiency and protect consumer welfare, address both monopolistic agreements and the abuse of dominant market positions resulting from the ownership of IP rights. They go into effect on August 1, 2015.
On Dec. 29, 2014, the U.S. Department of Commerce posted a fact sheet on the 25th U.S.-China Joint Commission on Commerce and Trade. Portions of the fact sheet—which was jointly issued by the U.S. and Chinese governments—address competition issues and intellectual property rights, following substantial criticism of what many considered to be uneven enforcement of China’s Anti-Monopoly Law (AML) against non-Chinese companies. We described the nature of that criticism in October 2014. The main complaint has been that China undertakes selective enforcement of the AML with the goal of promoting Chinese companies or industries, and does the same with enforcement proceedings relating to intellectual property rights. The fact sheet states the following with respect to competition: READ MORE
On Dec. 19, 2014, Jiangsu High People’s Court upheld the first instance ruling by Nanjing Intermediate People’s Court that dismissed an administrative lawsuit brought by Lotes Suzhou Co., Ltd. (Lotes Suzhou). Lotes Suzhou had appealed the decision of the Intellectual Property Office of Jiangsu Province (Jiangsu IPO) that found that the company’s USB 3.0 connector products infringed the patent CN200810128623.1 (CN’623) held by Foxconn Kunshan Computer Connector Co., Ltd. (Foxconn Kunshan).
In July 2012, Foxconn Kunshan filed a complaint before Jiangsu IPO asserting that Lotes Suzhou’s USB 3.0 connecters infringed the CN’623 patent. Jiangsu IPO issued a decision in July 2013 finding that Lotes Suzhou’s acts constituted infringement of Foxconn Kunshan’s patent rights and ordered Lotes Suzhou to stop manufacturing the infringing products, destroy infringing products in inventory, and destroy molds specially used for the manufacture of the infringing products. READ MORE
On Oct. 8, 2014, China’s Supreme Court made the final decision upholding the first instance ruling by Guangdong High People’s Court dismissing allegations by Qihoo against Tencent for allegedly abusing market dominance.
In November 2011, Beijing Qihoo Technology Ltd. (Qihoo) sued Tencent Technology (Shenzhen) Co., Ltd. and Shenzhen Tencent Computer Systems Company Limited (collectively Tencent) before the Guangdong High People’s Court, alleging Tencent abused its dominant market position in the relevant market of instant message (IM) software and service.
The first instance decision was made in March 2013, dismissing Qihoo’s allegations. Although the Supreme Court upheld the lower court’s ruling, it corrected some analyses made in the first instance decision. In particular, the final decision concluded the following: 1) The relevant market shall be defined as the Mainland China IM service market (rather than the global market as defined by the first instance court), including not only personal computer terminal IM service but also mobile terminal IM service, and including not only comprehensive IM services but also non-comprehensive IM services like text, audio or visual, etc.; 2) The evidence presented was not sufficient to establish that Tencent holds a dominant market position―market share-related evidence alone was not enough given that the IM field is rapidly developing and features a great number of players (e.g., Alitalk, Fetion, MSN, Renren, Skype and many others) Furthermore, Tencent’s ability to control the commodity price, quality, quantity or other trading conditions is weak; factors like network effects do not significantly increase the users’ dependence on the IM service provided by Tencent; entering the IM market is relatively easy; 3) Tencent’s alleged conduct did not constitute abuse of market dominance. The company’s issues with incompatible products did not result in excluding or limiting competition despite their inconvenience to users, the Supreme Court found, nor did Tencent’s product tie-ins.
The Supreme Court’s decision is available here.
On Sept. 29, 2014, under the authorization of the China State Administration of Industry and Commerce (SAIC), the Jiangsu Administration of Industry and Commerce imposed fines of 1.7 million RMB (US$276,000) on the Pizhou Branch of Xuzhou Tobacco Company (Pizhou Branch) for differential treatment under the Anti-Monopoly Law (AML).
The investigation, triggered by a complaint from Pizhou city local tobacco retailers, was initiated in August 2013. In accordance with China’s Tobacco Monopoly Law, the State exercises administration over the production, sale, import and export of tobacco commodities, and implements a tobacco monopoly license system. Pizhou Branch was the sole company with the “license for tobacco monopoly wholesale enterprise” in Pizhou. Thus, all tobacco retailers in Pizhou could purchase tobacco products only from Pizhou Branch, as under the Regulations for the Implementation of the Tobacco Monopoly Law, a retailer with the “license for tobacco monopoly retail trade” shall lay in new stocks of tobacco products at the local tobacco monopoly wholesale enterprise. SAIC therefore found that Pizhou Branch holds a dominant position of the cigarette wholesale market in Pizhou. READ MORE
On Sept. 10, 2014, Shaanxi High People’s Court made a final decision upholding the first instance ruling by Xi’an Intermediate People’s Court dismissing claims by Xianyang Huaqin Taxi Service Co., Ltd. (Huaqin) against Xianyang Qindu Taxi Transport Service Branch (Qindu), Xianyang Weicheng Taxi Transport Service Branch (Weicheng), Xianyang Huaguang Taxi Transport Service Branch (Huaguang), Xianyang Public Transport Group Company (Public Transport) and Xianyang City Transport Management Department (Management Department) for abuse of market dominance. Similar first and second instance decisions were made in a similar case that was separately filed by Xianyang United Transport Service Co., Ltd. (United) against the same defendants.
The so-called Three Branches (Huaqin, Qindu, and Weicheng) were collectively owned enterprises originally set up by Management Department in 1995 and were transferred to Public Transport in 2011. Management Department is an administrative agency responsible for taxi transport management and issuing transport operation licenses. The plaintiffs alleged that the Three Branches had contracted with 950 (out of the total 1,153) individual taxi drivers in Xianyang urban area for a long period of time; thus individual taxi drivers were deprived of the rights to choose service companies, and the plaintiffs were excluded from the competition with the Three Branches for providing services to the individual taxi drivers. READ MORE
On Oct. 31, 2014, China’s State Administration of Industry and Commerce (SAIC) published an August 2014 decision by the Chongqing Administration of Industry and Commerce regarding fines against four Chongqing quarry operators. The investigation began in December 2012 against the four respondents, Xiaobo Zhang, Aiyuan Wen, Xianxue Wen and Gongzheng Wu, who controlled all seven quarries in Shanghuangpian area of Wuxi County, Chongqing.
The Fengxi Expressway project, launched in 2008, was in great need of gravel, and specifically the expressway sections E4 to E10, close to the Shanghuangpian area, relied on gravel purchased from the quarries in this area. Before June 2011, there was intense competition among the quarries in selling gravel to the section E4 to E10 project departments. In May 2011, operators of the quarries started to meet to discuss dividing the market. Agreements were reached on which quarry would sell to which project department, and the four respondents followed the agreement until July 2011. The project departments were forced to accept the four respondents’ agreement, given the special nature of the gravel commodity as well as cost concerns.
The four respondents were fined, respectively, 40,000 RMB (US$6,500), 70,000 RMB (US$11,400), 200,000 RMB (US$32,500) and 90,000 RMB (US$14,600). The SAIC Decision is available here.
On Oct. 18 2014, at the 28th session of the China-EU Trade and Economic Joint Committee, intensive discussions led by Chinese Minister of Commerce Gao Hucheng and EU Trade Commissioner Karel De Gucht were concluded with an amicable settlement of the Commission’s trade defence investigation into Chinese telecoms. The Commission’s investigation threatened to impose significant EU anti-subsidy countervailing duties on Chinese exporters of mobile telecommunications networks equipment. The value of Chinese exports of the equipment to the EU is over €1 billion (US$1.2 billion) per year. The main points of the settlement include tasking an independent body with the monitoring of the Chinese and EU telecoms networks markets; guaranteeing access to the relevant Chinese standard-setting body for European companies without discrimination; and equal treatment of companies bidding for publically funded research and development projects. READ MORE
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
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
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.
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
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
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 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.
China’s Beijing High Court has upheld the Beijing Second Intermediate Court’s September 2013 decision in Lou, Binglin v. Beijing Seafood Wholesale Industry Association, the first case in which a court found a violation of the Anti-Monopoly Law (AML) through horizontal monopolistic agreements since the AML was promulgated in 2008.
Binglin Lou and his wife had been selling seafood, mainly scallops originated from Dalian Zhangzi Island Group Co., Ltd., in a Beijing seafood market. Lou was a member of the Beijing Seafood Wholesale Industry Association, which was registered on Sept. 29, 2011, with 31 members. The Association Manual provided, in the section “Rules on Rewards and Penalties,” that “[m]embers are prohibited from unfair competition, nor are they permitted to sell scallops at a discounted price that goes against the Association’s provisions,” and that “[m]embers are prohibited from selling whole packages of scallops to non-members in the market where a member operates a business.” The Association organized meetings among members regarding the scallop business, including concerted consultation with the Dalian Zhangzi Island Group, on sources, prices, rewards and restrictions on sales to non-members. The Association also implemented rewards and penalties and fined Lou several times for violations. READ MORE