China’s Supreme Court Upholds High Court’s AML Ruling in Tencent Case

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.

SAIC Fines Tobacco Wholesaler 1.7 Million RMB for Differential Treatment Under China’s Anti-Monopoly Law

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

Shaanxi High Court Upholds Intermediate Court Decision Dismissing Market Dominance Claims Against Xianyang Taxi Service Under China’s Anti-Monopoly Law

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

SAIC Fines Four Chongqing Quarry Operators for Market Division Under China’s Anti-Monopoly Law

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.

China and EU Reach Amicable Settlement on Trade Defense Investigation Into Chinese Telecoms

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

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