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

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.

Beijing High Court Upholds Decisions Finding Violation of AML by Seafood Trade Association

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

Chinese Court Publishes Decisions Finding That InterDigital Violated AML Through Discriminatory Pricing, Sets FRAND Rate for Licensing InterDigital’s SEPs Under Chinese Standards

In April 2014, the Guangdong High Court of China published its October 2013 judgments in two Huawei Technologies v. InterDigital cases. One held that U.S.-based InterDigital (IDC) abused its dominant market position by refusing to license standard essential patents (SEPs) for 3G wireless communication devices on fair, reasonable and non-discriminatory (FRAND) terms. The other set a FRAND rate capped at 0.019 percent of the actual product selling price for IDC to license its Chinese SEPs to Huawei.

IDC designs and develops advanced technologies for wireless communications, and has participated in the formulation of international wireless communications standards for which it owns relevant patents. In July 2011, IDC filed patent infringement litigation against Huawei in the U.S. International Trade Commission and in a U.S. District Court. Huawei then sued IDC in December 2011 in the Shenzhen Intermediate People’s Court by filing two complaints, one over an antitrust dispute and one over a FRAND rate dispute. Read More

MOFCOM Files Brief in U.S. Vitamin C Case Urging Application of Foreign Sovereign Compulsion Defense

On April 14, 2014, the Ministry of Commerce (MOFCOM) of the People’s Republic of China filed an amicus brief in In re Vitamin C Antitrust Litigation, No. 13-4791-cv (2d Cir.), arguing that the district court erred in refusing to apply the foreign sovereign compulsion defense to protect Chinese companies sued in the litigation.

In the Vitamin C class action, plaintiffs alleged that several Chinese companies fixed the price of Vitamin C that was exported to the United States. The case was tried in early 2013, and all but two of the defendants settled before the jury rendered its verdict. The jury entered a verdict for plaintiffs in the amount of $54.1 million, which was trebled to $162.3 million before credits for settlements with other defendants. The trial defendants appealed on various grounds. Read More

NDRC Fines Eyewear Makers for Resale Price Maintenance

On May 29, 2014, China’s National Development and Reform Commission (NDRC) announced that its investigation into the eyeglass industry found that some major manufacturers had restricted resale prices, and it therefore instructed local pricing departments in Beijing, Shanghai and Guangdong to impose total fines totaling more than RMB 19 million ($3 million) under the Anti-Monopoly Law. The conduct at issue involved sales contracts requesting distributors to sell products strictly at “suggested retail prices,” or forcing “buy three get one free” (for contact lenses) promotional activity throughout the year. Companies that voluntarily reported to the NDRC and provided important evidence were exempted from any fines. Companies that offered satisfactory cooperation with the investigation and undertook voluntary correction were fined 1 percent of sales revenue of the previous year’s sales. The harshest penalty—a fine of 2 percent of sales revenue for the previous year’s sales—was imposed on companies that undertook voluntary correction, but also could exercise power in controlling prices or did not provide satisfactory cooperation.

The NDRC’s announcement is available here.

Japan Fair Trade Commission Fines Marine Transport Companies 22.7 Billion JPY

On March 18, 2014, the Japan Fair Trade Commission (JFTC) announced it had fined four marine transport companies a total of 22,718,480,000 JPY ($227 million) for engaging in price-fixing activities and violating the Japanese Antimonopoly Act. The JFTC’s action followed the cease and desist and surcharge payment orders that had been issued on Jan. 9, 2014. The fined companies are Nippon Yusen Kabushiki Kaisha, Kawasaki Kisen Kaisha, Ltd., Wallenius Wilhelmsen Logistics, AS and Nissan Motor Car Carrier Co., Ltd. Another subject of the investigation was Mitsui O.S.K. Lines, Ltd., but the company applied for leniency and was exempted from the administrative order and fine. According to the JFTC announcement, the violations included fixing freight rates, colluding to maintain the freight rate, and refraining from bidding against one another from January 2008 to September 2012 with regard to automobile shipments from Japan to North America, Europe and elsewhere.

The JFTC’s announcement can be found here.

Shanghai High People’s Court Rules That Resale Price Maintenance Agreement Constitutes Monopolistic Agreement

The Shanghai High People’s Court recently made available its Aug. 1, 2013 final judgment overruling the Shanghai First Intermediate Court’s judgment in a case brought by a domestic medical distributor, Beijing Rainbow Medical Equipment Technology & Trading Company (Rainbow) against Johnson & Johnson’s (J&J) China operations. The court ruled that J&J’s resale price maintenance (RPM) constitutes a monopolistic agreement, and ordered J&J to indemnify Rainbow’s economic losses of RMB 530,000 ($87,500).

On Jan. 2, 2008, J&J and Rainbow signed a distribution agreement, providing that Rainbow had the authorized right to sell J&J’s Ethicon surgical sutures in Beijing. According to the agreement, Rainbow could not sell Ethicon surgical sutures at a price lower than that stipulated by J&J. In March 2008, Rainbow won a bid to supply surgical sutures to Peking University People’s Hospital by offering a price lower than the one provided in the agreement. On July 1, 2008, J&J issued a letter to Rainbow on deduction of a deposit of RMB 20,000 ($3,245) and cancellation of Rainbow’s sales right in two hospitals in Beijing. The key issue in this case was whether the RPM agreement constitutes a monopolistic agreement under the Antimonopoly Law of the People’s Republic of China (the AML). Read More

MOFCOM Issues Interim Provisions for Standards of Simple Cases Related to Concentration of Business Operators

In order to specify the applicable standards for simple cases of concentration-of–business-operators, the Ministry of Commence of the People’s Republic of China (MOFCOM) put into effect a simplified merger review system as of Feb. 12, 2014, by publishing the Interim Provisions for Standards of Simple Cases Related to Concentration of Business Operators (the Interim Provisions).

The Interim Provisions set out the thresholds of merger fillings in the simple-case category, which apply under the following circumstances: Read More

Guangdong AIC Imposes Penalties on Huizhou Daya Bay Yiyuan Purified Water for Abuse of Dominance

On Dec. 16, 2013, the Guangdong provincial Administration for Industry and Commerce (AIC) issued a Written Decision of Administrative Penalty to penalize Huizhou Daya Bay Yiyuan Purified Water (Huizhou) for abuse of dominance through bundled sales.

After concluding that Huizhou has a dominant market position, Guangdong AIC determined that the company conducted bundled sales through the following activities: (1) It required some real estate companies (the Complainants) to sign water supply engineering agreements that contain not only terms for temporary water supply service to construction sites, but also terms requiring the Complainants to engage Huizhou to work on the residential water meter projects; (2) In situations where some real estate companies were firmly opposed, Huizhou agreed to sign water supply engineering agreements without terms for residential water meter projects, but required them to sign a letter promising in the future to sign agreements with Huizhou for residential water meter projects and acknowledging Huizhou’s right to cut water supply in case of a breach of the promise letter; and (3) Huizhou also required Complainants to sign bundled agreements with a third party in areas where Huizhou is not qualified to sign such agreements. Read More

Shaanxi High People’s Court Rules That Bundled Sales of Cable TV Services Does Not Violate Antimonopoly Law

The Shaanxi High People’s Court has formally issued its Sept. 12, 2013 verdict overturning the first instance judgment of a Xi’an Intermediate People’s Court ruling that Shaanxi Broadcast and TV Network Media’s (Shaanxi) sales of its cable TV services to a consumer did not constitute bundled sales in violation of the Antimonopoly Law of the People’s Republic of China (AML).

In May 2012, Shaanxi charged a consumer RMB 30 yuan per month ($5) for cable TV service, a five-yuan increase from the previous monthly rate. According to Shaanxi, the increased fee includes a RMB 15 yuan ($3) fee for the value-added cable services sold together with the basic cable TV services. The consumer plaintiff filed a claim in the first instance court, Xi’an Intermediate People’s Court, asserting that Shaanxi abused its dominant market position by selling bundled cable TV services without reasonable justification. He requested that the court: (1) confirm that the appellant’s act of charging the RMB 15 yuan value-added cable service fee was invalid, (2) order the return of RMB 15 yuan, and (3) order that Shaanxi pay the plaintiff’s litigation fees. Read More

SAC, SIPO Publish Interim Rules on National Standards Involving Patents

On Dec. 19, 2013, the Standardization Administration of China (SAC) and State Intellectual Property Office (SIPO) published the Administrative Regulation on National Standards Involving Patents-Interim (Interim Regulations), which concerns the formulation and implementation of national standards involving patents. The Interim Regulations were effective Jan. 1, 2014.

According to the Interim Regulations, national standards involving patents should concern patents that are essential for implementation of the relevant standards. The Interim Regulations impose obligations regarding the disclosure of essential patents that a party owns or knows about. A party that fails to make the required disclosures may be held legally responsible for the failure to do so. In addition, even parties not participating in the formation or revision of national standards are encouraged to disclose essential patents they own or of which they are aware. Read More

Japan Fair Trade Commission Sends Advance Notice of Fines and Cease and Desist Orders to Marine Transport Companies

On Jan. 9, 2014, three marine transport companies individually announced that the Japan Fair Trade Commission (JFTC) has sent them an advance notice of a surcharge payment order and a cease and desist order, in connection with the agency’s investigation into alleged price fixing on automobile shipments from Japan to North America and Europe. The companies are Nippon Yusen Kabushiki Kaisha, Kawasaki Kisen Kaisha, Ltd. and Wallenius Wilhelmsen Logistics. The JFTC has also reportedly sent such advance notice to Nissan Motor Car Carrier Co., Ltd., although the company has not made any official announcement yet. Mitsui O.S.K. Lines, Ltd., the parent company of Nissan Motor Car Carrier Co., Ltd., also was investigated by the JFTC, but it applied for leniency and avoided receiving the advance notices. Each company will have an opportunity to respond to the notices before the JFTC officially announces its decision. The total amount of fines likely will be about 22 billion JPY ($220 million), which is the second-highest penalty imposed by the JFTC in a single case. Although the three companies disclosed that they received these orders, the JFTC itself has not yet issued any official announcement regarding the orders.

Korea Fair Trade Commission Fines Korean Subsidiaries of Auto Parts Manufacturers for Bid Rigging

On Dec. 23, 2013, the Korea Fair Trade Commission (KFTC) announced that it imposed fines on foreign auto parts manufacturers and their Korean subsidiaries, in aggregate amounts of 114.6 billion Korean won ($109.1 million), for fixing prices on windshield wipers and instrument panel clusters. The companies fined were Denso Korea Electronics, Denso Korea Automotive, Continental Automotive Electronics and Bosch Electrical Devices. The KFTC noted that Denso Corp., the parent company of the two Denso entities in Korea, also was involved, but it was not fined because it does not have any revenue in Korea.

According to the KFTC, Denso Corp., Denso Korea Electronics and Continental Automotive Electronics colluded to restrict competition and secure certain profit levels when they made bids to supply instrument panel clusters to Hyundai Motor Company and Kia Motors, during the period from January 2008 to March 2012. The KFTC said that Denso Corp., Denso Korea Automotive and Bosch Electrical Devices colluded in making bids to supply such products to Hyundai and Kia during the period from August 2008 to February 2009. Read More

Beijing No. 2 Intermediate Court Issues First Horizontal Agreement Ruling in Seafood Cartel Lawsuit

On Nov. 21, 2013, the Beijing No. 2 Intermediate Court issued a ruling in favor of a plaintiff against Beijing Seafood Wholesale Industry Association (“the Association”) in a private action alleging that certain rules of the Association are invalid under the Anti-Monopoly Law. The court ordered the Association to cease organizing its members to reach monopolistic agreements by adjusting and fixing the price of scallops produced by Dalian Zhangzi Island Group Company Limited (“Zhangzi Island Company”).

Certain rules of the Association prohibited its members from participating in unfair competition or refusing to sell scallops at the price fixed by the Association. Members also were prohibited from selling whole scallops to non-members in markets in which the Association’s members participated. A member’s violation of these rules would subject it to a fine of RMB 10,000 ($1,640) for each violation.

A seafood seller in Beijing, who also is a member of the Association, filed a lawsuit against the group, claiming that the rules setting prices for Zhangzi Island scallops and the rules prohibiting members from selling whole scallops to non-members violate the Anti-Monopoly Law. The seafood seller requested a ruling to confirm that the rules are invalid, to order the Association to cease engaging in the conduct, and also to receive economic compensation. The Association argued that it organized its members to fix and adjust the prices based on the requirements of Zhangzi Island Company, and that the Association’s members could determine their prices based on the minimum price. It argued that the purpose of the prohibition on selling whole scallops to non-members was to prevent members from selling across different areas.

The Beijing No. 2 Intermediate Court ruled that: (1) the Association intended to control the market by organizing its members to reach agreements on fixing and adjusting the price of Zhangzi Island scallops; this prevented competition among the members of the Association and caused members to jointly resist competition from non-members; this impacted the normal fluctuation of prices, harmed consumers, and excluded and restricted competition; (2) by prohibiting members from selling whole scallops to non-members, the Association increased the operation costs of non-members and harmed consumers; (3) the Association’s rules fixed commodity prices, which violates the Anti-Monopoly Law. The court reached a verdict in favor of the seafood seller, and a report on the decision is available here. The Association has filed an appeal.