Until this year, China’s enforcement activities in the field of antitrust, particularly as these activities have affected foreign companies, had been mainly focused on merger control with merger filings handled by the Anti-Monopoly Bureau of the Ministry of Commerce (MOFCOM). Other areas of competition law such as resale price maintenance, price fixing, cartels and abuse of dominance, although addressed under China’s Anti-Monopoly Law (AML), had received scant attention from domestic and foreign companies, and the relevant regulatory bodies had taken few if any steps to enforce the relevant provisions of the AML. By way of example, until this year, an investigation into proposed price increases by Unilever in 2011, which resulted in a RMB 2 million (US$318,000) fine for Unilever, had been China’s only investigation of a multinational company related to pricing issues, and this investigation was carried out under the provisions of China’s Price Law, which dates from 1997.
Widening the scope of enforcement activities
For some time now, there have been signs that this limited focus is changing. Last year, both the National Development and Reform Commission (NDRC)—the body responsible for enforcing the price-related provisions of the AML—and the State Administration for Industry and Commerce (SAIC)—responsible for the enforcement of non-price-related provisions of the AML—expanded their antitrust teams in a move widely seen as a precursor of increased enforcement activities. In addition, the Supreme People’s Court (SPC) published the Provisions on Several Issues Concerning the Application of the Law in Trials of Civil Dispute Cases Arising from Monopolistic Acts (see previous Newsletter coverage here) with the apparent intention of encouraging the private enforcement of the provisions of the AML in the Chinese courts.
The first half of 2013 has seen a notable increase in the scope of enforcement of China’s AML and the involvement of regulatory bodies other than MOFCOM. There were several high-profile court cases addressing complex antitrust issues. We highlight some of the most important developments below.
The NDRC and enforcement of price-related provisions
2013 opened with the news that China’s NDRC had imposed fines totaling CNY 353 million (US$56.6 million) on six international LCD manufacturers for their participation in a cartel to fix the price of LCD panels on the Chinese mainland between 2001 and 2006 (see previous coverage here). This action was a significant milestone in the development of antitrust enforcement in China and marked the first time Chinese authorities had imposed such penalties on foreign companies following investigations in the United States and Europe. In addition, although the penalties imposed were much less severe than those imposed by the United States and European Commission—not to mention the prison sentences handed down to executives of the cartel members by the U.S. courts—they were, at the time, by far the highest penalties ever imposed by the NDRC.
This action was followed less than a month later by an investigation into resale price maintenance activities by two state-owned liquor companies (previous coverage here). According to statements issued by the authorities, the two companies involved, Wuliangye Yibin and Kweichow Moutai, had fixed or restricted minimum resale prices with their distributors and punished those distributors that did not comply. This investigation resulted in a total fine of around CNY 449 million (US$71.5 million), the largest fine levied by the Chinese antitrust authorities to date.
More recently, the NDRC has launched high-profile investigations in the infant milk formula and pharmaceuticals sectors (see coverage here). There is no indication how long these investigations might last or what the outcome might be, but they clearly show that the NDRC is not afraid to tackle high-profile cases and sectors and is ready to challenge the behavior of both domestic and multinational companies.
The SAIC and enforcement of non-price-related provisions
Although the SAIC’s antitrust enforcement activities have had a somewhat lower profile than those of the NDRC, the head of the SAIC’s Anti-Monopoly and Anti-Unfair Competition Enforcement Bureau recently stated that the Bureau intends to “diversify the types of cases investigated” and conduct probes not only involving monopolistic agreements but also abuse of dominance and of administrative power. The SAIC has recently announced a high-profile investigation into possible abuse of dominance by Tetra Pak. (See coverage here). This is the SAIC’s first major, high-profile investigation and shows that it too is prepared to tackle such cases and the behavior of multinational companies.
The Chinese courts
Over the past 14 months, the Chinese courts have adjudicated high-profile and complex antitrust cases involving resale price maintenance (Beijing Ruibang Yonghe Technology & Trade Co v. Johnson & Johnson Medical (Shanghai) Ltd. and Johnson & Johnson Medical (China) Ltd.; see coverage here), FRAND licensing (Huawei v. InterDigital; see coverage here) and abuse of dominance (Qihoo 360 v. Tencent; see coverage here).
Prior to these cases, there had been very little enforcement of the AML through the courts and, according to publicly available information, the vast majority of cases that did go through the courts were not successful for the plaintiff. These cases show that companies are becoming more willing to allege abuses of China’s AML in the courts, that the courts are becoming more willing to accept and adjudicate such cases, and that the courts are becoming more sophisticated in their analysis and decisions. The realistic possibility of enforcement of the AML by competitors, customers and others who suffer harm as a result of anticompetitive conduct will become another risk factor for companies to monitor in their decision-making.
Conclusions
It is clear that China’s regulators are applying the provisions of the AML more aggressively and more broadly as the law takes root in China. It is also clear that the courts are being encouraged to accept more antitrust cases and that the authorities would like to see private antitrust enforcement become more prominent in China. There may certainly be some way to go in educating companies and individuals about their rights and obligations according to the AML. However, as the director general of the NDRC’s Department of Price Supervision told his audience at a recent Beijing conference where he announced that the NDRC aims to strengthen enforcement: “I told our staff, launching investigation cases are the real deal. No matter how much you tell people and educate them, it won’t be as effective as an issued penalty.” Multinationals and all other companies doing business in China need to consider carefully issues of regulatory and competition law compliance in China. As the regulatory authorities and courts become increasingly active, sophisticated and effective, the risks and penalties from non-compliance will also increase.