Shelley Zhang, an Orrick partner based in Beijing, recently published in Competition Law360 an article discussing the first year of the China State Council’s fair competition review system, which is designed to foster the development of competitive markets throughout China. A link to the article appears here.
On March 24, 2017, the PRC National Development and Reform Commission (“NDRC”) issued draft Guidelines for Price-Related Behavior of Industry Associations (“Guidelines”). The Guidelines encourage industry associations in the People’s Republic of China to engage in price-related behavior that benefits industry development, market competition and consumers’ legal interests; outline the legal risks that may be involved in various price-related behavior by industry associations; and provide guidance for industry associations to assess whether price-related behavior poses legal risk. The NDRC is accepting public comments until April 24, 2017.
In Sullivan v. Barclays PLC, Judge P. Kevin Castel, of the Southern District of New York, raised an interesting point regarding the relationship between the viability of antitrust claims subject to the Foreign Trade Antitrust Improvement Act (FTAIA) and constitutional requirements for personal jurisdiction: The FTAIA “arguably may apply a less-exacting standard than the due process threshold to exercise personal jurisdiction over a foreign defendant.” In other words, even though the standard for the FTAIA might be met to allow an antitrust claim to proceed against a foreign defendant, the court nonetheless might not be able to assert personal jurisdiction. The question whether the FTAIA should be read more strictly than has been the case to conform to due process requirements, or that foreign defendants should be more diligent in challenging personal jurisdiction, are interesting ones that warrant further analysis.
Last September, we discussed the U.S. Court of Appeals for the Second Circuit’s opinion in In re Vitamin C Antitrust Litigation vacating a $147 million judgment against Chinese vitamin C manufacturers based on the doctrine of international comity. That case stemmed from allegations that the defendants illegally fixed the price and output levels of vitamin C that they exported to the United States. In reversing the district court’s decision to deny the defendants’ motion to dismiss, the Second Circuit held that the district court should have deferred to the Chinese government’s explanation that Chinese law compelled the defendants to coordinate the price and output of vitamin C.
On January 13, 2017, the U.S. Department of Justice and the Federal Trade Commission issued their updated Antitrust Guidelines for the Licensing of Intellectual Property, first issued in 1995, which explains how the two agencies evaluate licensing and related activities involving patents, copyrights, trade secrets and know-how. Although the agencies have issued a variety of reports since 1995 regarding antitrust and IP issues, this is the first comprehensive update of the Guidelines. The final updated Guidelines do not differ significantly from the proposed Guidelines released in August 2016, which we analyzed in this blog post.
Also on January 13, 2017, the DOJ and FTC issued their revised Antitrust Guidelines for International Enforcement and Cooperation, first issued in 1995 as the Antitrust Enforcement Guidelines for International Operations. These Guidelines explain the agencies’ current approaches to international enforcement policy and their related investigative tools and cooperation with foreign enforcement agencies. The revised Guidelines differ from the 1995 Guidelines by adding a chapter on international cooperation, updating the discussion of the application of U.S. antitrust law to conduct involving foreign commerce (e.g., the Foreign Trade Antitrust Improvement Act, foreign sovereign immunity, foreign sovereign compulsion, etc.), and providing examples of issues that commonly arise.
In June 2016, China’s State Council issued its Opinions of the State Council on Establishing a Fair Competition Review System During the Development of Market-oriented Review System (“Opinions”). The fair competition review system (“FCRS”) that the Opinions contemplate is designed to protect against the potential abuse of administrative power by Chinese government agencies that could result in anti-competitive effects. In other words, the FCRS is supposed to constrain government activities from unduly influencing market competition, consistent with the prohibition that China’s Anti-Monopoly Law places on such conduct.
Partners Alex Okuliar and Jim Tierney recently published a piece in the National Law Journal entitled Are Patent Rights Poised for a Resurgence? They argue that after several years of retrenchment, economic trends in the US and China, as well as developments at the federal agencies and US courts, could signal a return to stronger protections for patent owners. Follow the link to the article.
Although China and Japan have very different histories regarding their antitrust laws, antitrust enforcement officials from the two countries have recently taken steps to open a formal dialogue. This is a welcome development for Chinese and Japanese companies, as well as for foreign companies that do business in China and Japan, and it continues the trend of increased communication, cooperation and coordination among national enforcement agencies. There remains an open question, however, as to how convergence among Asian antitrust enforcement agencies will affect possible convergence with agencies in the United States, the European Union and the rest of the world.
On September 20, 2016, the U.S. Court of Appeals for the Second Circuit issued an opinion in In re Vitamin C Antitrust Litigation, reversing the district court’s eight year-old decision not to grant a motion to dismiss the case, based on international comity. The Second Circuit vacated the $147 million judgment against the two defendants that took the case to trial in 2013, and remanded with instructions to dismiss the complaint with prejudice. The court did not opine on the defendants’ other grounds for dismissal – the foreign sovereign compulsion, act of state, and political question doctrines. In re Vitamin C Antitrust Litig., No. 13-4791 (2d Cir. Sept. 20, 2016).
In 2005, the plaintiffs brought several class action complaints against the major Chinese vitamin C manufacturers, alleging that the manufacturers illegally fixed the price and output levels of vitamin C that they exported to the United States. The cases, which were consolidated in the Eastern District of New York, marked the first time that Chinese companies had been sued in a U.S. court for violation of the Sherman Act.
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.