Shelley Zhang

Partner

Beijing

szhang@orrick.com

Read full biography at www.orrick.com
Yaoli (Shelley) Zhang, a partner in Orrick’s Beijing office, is a member of the Intellectual Property Group. Her practice focuses on IP prosecution and enforcement. Shelley has extensive experience in patents, trademarks, domain names, copyrights and trade secrets.

Shelley's related IP experience includes the following:

  • Patent invalidation proceedings, anti-counterfeiting, anti-piracy efforts and patent and trademark enforcement litigation in China.
  • Prosecution of patent and trademark, including application preparation, office actions/oppositions procedures and reexamination procedures.
  • Enforcement and technology transfer/licensing arrangements for substantial patent and trademark portfolios for companies doing business in China.
  • Advising on IP protection strategies, R&D related IP issues and matters in relation to export and import control of technology.
  • Assisting Chinese companies in Section 337 U.S. International Trade Commission investigations, patent infringement litigations and product liability litigations in the U.S. 
  • IP due diligence and portfolio counseling.

Posts by: Shelley Zhang

New Anti-Monopoly Regulations in Force in China

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September 1, 2019 may be seen as a new starting point for the enforcement of China’s antitrust and competition laws. On this date, three new sets of rules and regulations (the “Three New Regulations”) took effect, which were issued by China’s newly formed competition authority, the State Administration for Market Regulation (“SAMR”): [1]

  • the Interim Provisions on Prohibiting Monopoly Agreements (“IPP-MA”),
  • the Interim Provisions on Prohibiting Abuse of Dominant Market Positions (“IPP-AD”), and
  • the Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power (“IPP-AAP”).[2]

The Three New Regulations are expected to provide clear guidance for the SAMR and the provincial market supervision departments in their enforcement of China’s Anti-Monopoly Law (“AML”).[3]

Main Contents of the Three New Regulations

The IPP-MA (36 Articles in total), the IPP-AD (39 Articles in total), and the IPP-AAP (25 Articles in total), are all for implementing the relevant sections of the AML (respectively, “Monopoly Agreements,” “Abuse of Dominant Market Position” and “Abuse of Administrative Power to Eliminate or Restrict Competition” sections), and have similar structures. Basically each of the Three New Regulations has the following main contents:

  1. Systematic provisions on AML enforcement mechanisms against relevant acts in violation of the AML. They are to:
    • Establish the two-level law enforcement system involving the national level and provincial level enforcement departments;
    • Set up working mechanisms, including general authorization to provincial level enforcement departments, designation of enforcement powers, commissioned investigations, and cooperation in investigations;
    • Set up the reporting system for the provincial enforcement department to initiate and handle an investigation into relevant AML violation acts; and
    • Urge the SAMR to strengthen guidance and supervision of provincial-level market regulation departments, and to unify the standards of law enforcement.
  2. Detailed provisions on law enforcement procedures:
    • The procedural regulations for each of the main stages of case handling, including whistleblowing, case-filing, investigation, case disposition, publicity, etc. are provided; the IPP-MA and the IPP-AD also clarify procedures regarding commitment proposal and handling.
    • The IPP-MA and the IPP-AD also incorporate by reference the procedural regulations promulgated by SAMR earlier this year in April, i.e. the Interim Provisions on the Procedures for Administrative Punishments for Market Supervision and Administration, and the Interim Measures for the Hearings for Administrative Punishments for Market Supervision and Administration.
  3. More details in implementing relevant sections of the AML:
    • Each of the Three New Regulations specifies the conditions or factors for finding violations of the AML, and clarifies the specific manifestations and constituent elements of violating acts. On one hand, they are expected to facilitate the implementation of the AML by not only providing guidance to AML enforcement agencies but also restricting those agencies’ discretions, and on the other hand, they may serve as clear guidelines for compliance by the parties subject to those regulations.
    • Each of the Three New Regulations provides details on how to deal with illegal acts. The IPP-MA and the IPP-AD specify the types of penalties, the factors to be considered for determining the amount of fines, and the content of administrative penalty decisions; they further clarify that a business operator shall still assume legal responsibility for reaching a monopoly agreement or abusing the dominant market position by passive compliance with administrative orders, but the responsibility can be lightened or mitigated according to law. The IPP-AAP distinguishes the action types in different case situations and clarifies the specific content of an administrative proposal after the investigation.
    • The IPP-MA also specifies the exemption and leniency system. For instance, it clarifies the conditions for applying for exemptions/leniency treatments, the consideration factors for the AML enforcement agencies to determine granting exemptions/leniency treatments, and the content of the exemptions/leniency treatments.

It is believed that the Three New Regulations will further enhance the fairness, standardization and transparency of AML enforcement.

The New Regime vs. the Old – A Comparison

  1. Each of the Three New Regulations is more comprehensive for including both substantive and procedural provisions. Before the institutional reform, the original AML enforcement agencies issued separate regulations respectively on substantive provisions and procedural provisions. Now each of the Three New Regulations combines substantive and procedural provisions to make the regulations more comprehensive and complete, which could be conducive to the implementation by AML enforcement agencies and compliance by the parties subject to the governance of those regulations.
  2. The Three New Regulations overall may improve the AML enforcement supervision mechanism: Each of the Three New Regulations clearly requires the provincial law enforcement departments to investigate and deal with illegal acts in accordance with the relevant provisions of the SAMR, and the SAMR shall strengthen the guidance and supervision of the provincial law enforcement departments. Moreover, the reporting system and a stricter supervision mechanism are to be established according to each of the Three New Regulations, which could be conducive to the AML enforcement and the formation of a new pattern of AML enforcement with the expectation of comprehensively unified standards and procedures and practice.
  3. Each of the Three New Regulations refines relevant provisions of the AML. The main highlights are:
    • The Interim Provisions on Prohibiting Monopoly Agreements[4]
      • Factors for identifying other monopoly agreements are provided. It clarifies the factors that need to be considered when applying the section “Monopoly Agreements” of the AML to identify other monopoly agreements. It is clarified that other monopoly agreements in the AML can be determined only by the SAMR, which reflects the prudential principle adopted by law enforcement agencies on this issue.
      • Prudence is attached to the application of the commitment system. Where an operator promises to correct his behavior and take the initiative to eliminate the consequences of his behavior, the AML enforcement agency may decide to suspend the investigation. The commitment system is conducive to saving law enforcement resources and improving law enforcement efficiency. At the same time, however, it is also prone to problems such as replacing punishment with suspension. It particularly stipulates that the commitment system shall not be applied to monopoly agreements for (i) fixing prices, (ii) restricting the number of goods produced or sold, or (iii) segmenting market; moreover, if the AML enforcement agency concludes after investigation that a monopoly agreement exists, it shall no longer accept an application for suspension of investigations, which is conducive to maintaining the authority of AML enforcement.
      • Adjustment is made to the leniency system. It sets different levels for the reduction and exemption of penalties, which may make the leniency system produce a better incentive effect, and encourage reporting and surrender. It also increases the number of operators entitled to lenient treatment up to three in a case, and at the same time it adjusts the extents of mitigation or exemption of punishments, which may make the leniency system work better.
    • The Interim Provisions on Prohibiting Abuse of Dominant Market Positions [5]
      • Factors for determining dominant market position of operators in new areas are provided. In recent years, the abuse of dominant market position in the Internet and intellectual property fields has received widespread attention. In response to the concerns of all sectors of society, and in order to strengthen the AML enforcement regarding dominant market position in the above two areas, the IPP-AD clearly clarifies the special factors that need to be considered in determining the dominant market position of operators in these two areas.
        • Prudence is attached to the determination of abuse of dominant market position. In law enforcement practice, it could be a complicated process to determine that the behavior of an operator constitutes such abuse. Although some acts may appear to constitute abuse of dominant market position, they may be actually commercially reasonable and should not be enjoined. The IPP-MD is believed to have fully considered the rationality of the behavior of operators, and clearly enumerates the typical abuse conducts; for instance, it stipulates that when a case involves sales of goods at a price lower than the cost, the analysis should be focused on whether the price is lower than the average variable costs; and in the case of free products provided in emerging areas such as the Internet, an overall consideration of free goods and related paid goods provided by the operator would be needed.
      • Circumstances of “justifiable reasons” are specified. Under AML, the question on whether “justifiable reasons” exist needs to be considered when determining whether a suspected act constitutes an abuse of dominant market position. The IPP-AD, based on enforcement authorities’ relevant experience, enumerates specific possible justifiable reasons for acts like selling goods at prices below cost, refusing to trade, restricting transactions, tying or attaching unreasonable trading conditions, differential treatment, etc. These provisions refine relevant provisions of the AML and are expected to enhance the law enforcement operability and increase the market predictability.
    • The Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power [6]
      • Specific types of acts of abusing administrative power to eliminate or restrict competition are provided. As compared with the old regulations by NDRC and the former SAIC, the new regulations are expected to help accurately identify the violation acts and further enhance the operability in law enforcement practice.
      • Procedures of law enforcement and handling are improved as compared with the old regulations by NDRC and the former SAIC. For instance, it clarifies that the AML enforcement agencies may initiate investigations against suspected violation acts through performing their powers, whistleblowing, assignments by higher authorities, cases transferred by other organs, reports of lower-level organs, etc., and market-level regulatory authorities below the provincial level can also receive whistleblowing materials or discover case clues, which improves the case-filing procedure.

The Three New Regulations further clarify the standards for identifying violation acts and imposing penalties, grant the AML enforcement agencies relatively full power and authority to conduct investigations, collect evidence and sanction violating parties, which is expected to better guide and regulate enforcement activities and more effectively combat monopolistic behaviors.[7]

_____________

[1] Year 2018 is the 10th year of implementation of China’s Anti-Monopoly Law (“AML”), and it is also the year seeing China’s new round of administrative system reform. This round of reform directly led to a major change in China’s AML implementation mechanism, namely the establishment of SAMR, into which the duties of anti-monopoly law enforcement agencies originally dispersed throughout the National Development and Reform Commission (“NDRC”), the former State Administration for Industry and Commerce (“SAIC”) and the Ministry of Commerce (“MOFCOM”) were integrated. The SAMR now assumes the unified functions for AML enforcement.

[2] See the Interim Provisions on Prohibiting Monopoly Agreements, available at http://gkml.samr.gov.cn/nsjg/fgs/201907/t20190701_303056.html, the Interim Provisions on Prohibiting Abuse of Dominant Market Positions, available at http://gkml.samr.gov.cn/nsjg/fgs/201907/t20190701_303057.html, and the Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power, available at http://gkml.samr.gov.cn/nsjg/fgs/201907/t20190701_303058.html.

[3] See Legal Daily, The Three Regulations for Implementing the Anti-Monopoly Law Implemented since September – The Anti-Monopoly Law Enforcement System Now Has “Steel and Sharp Teeth”, 2019-07-19, available at http://www.xinhuanet.com/2019-07/19/c_1124774162.htm.

[4] See Anti-monopoly Bureau, A Chart to Understand the Interim Provisions on Prohibiting Monopoly Agreements, August 30, 2019, available at http://gkml.samr.gov.cn/nsjg/xwxcs/201908/t20190830_306388.html.

[5] See Anti-monopoly Bureau, A Chart to Understand the Interim Provisions on Prohibiting Abuse of Dominant Market Positions, August 30, 2019, available at http://gkml.samr.gov.cn/nsjg/xwxcs/201908/t20190830_306387.html.

[6] See Anti-monopoly Bureau, A Chart to Understand the Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power, August 30, 2019, available at http://gkml.samr.gov.cn/nsjg/xwxcs/201908/t20190830_306386.html.

[7] See Legal Daily, The Three Regulations for Implementing the Anti-Monopoly Law Implemented since September – The Anti-Monopoly Law enforcement system has “Steel and Sharp Teeth”, 2019-07-19, available at http://www.xinhuanet.com/2019-07/19/c_1124774162.htm.

 

China’s Conditional Approval of Bayer’s Acquisition of Monsanto: Lessons for Future Merger Cases in China

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On March 13, 2018, China’s Ministry of Commerce (“MOFCOM”)[1] announced its Conditional Approval following antitrust review of a concentration of undertakings relating to Bayer’s proposed merger with Monsanto (“Merger”) (Bayer and Monsanto are hereinafter collectively referred to as the “Parties”). This matter, plus three other mergers approved with restrictive conditions by MOFCOM or SAMR in 2018, suggests some trends in China’s approach to antitrust merger review, as discussed below.[2]

In the Bayer/Monsanto matter, the Parties filed a declaration on concentration of undertakings with MOFCOM on December 5, 2016. Afterwards, the Parties withdrew and refiled the declaration twice, and MOFCOM’s review period for each refiled declaration was extended once, with the last one extended to March 15, 2018, which indicates the complexity of the Merger and the antitrust review.

During the review process, MOFCOM raised the concern that the Merger would or might have the effect of eliminating and restricting competition in the following markets: (1) China’s non-selective herbicide market; (2) China’s vegetable seed market (long-day onion seeds, carrot seeds and large-fruit tomato seeds, etc.); (3) field crop traits (corn, soybean, cotton, and oilseed rape); and (4) digital agricultural markets.

According to Article 27 of the Anti-Monopoly Law, the Ministry of Commerce conducted an in-depth analysis of the impact of the Merger on market competition from the following aspects, among others: (i) the market concentration of the relevant market; (ii) the market share and the control of the market by the participating operators in the relevant market; (iii) the impact on market entry and technological progress; and (iv) the impact on consumers and other relevant operators. MOFCOM solicited opinions from relevant government departments, industry associations, downstream customers and industry experts, and held multiple symposiums to understand relevant market definitions, market participants, market structures, industry characteristics, etc. Based on its analysis, MOFCOM believed that the Merger would or might have the effect of eliminating or restricting competition in the four markets, as mentioned above.

MOFCOM then timely informed the Parties of its review opinions and conducted multiple rounds of negotiations with the Parties on how to reduce the adverse impact of the Merger on competition. For the restrictive conditions submitted by the Parties, MOFCOM, in accordance with the “Provisions of MOFCOM on Imposing Additional Restrictive Conditions on the Concentration of Business Operators (for Trial Implementation),” evaluated mainly the following aspects, among others: (i) the scope and effectiveness of divested business; (ii) the divested business’ continuity, competitiveness and marketability; and (iii) the effectiveness of conditions requiring actions to be taken. On March 13, 2018, after evaluation, MOFCOM decided to approve the Merger with additional restrictive conditions, requiring Bayer, Monsanto and the post-merger entity to fulfil the following obligations:

  1. Globally divesting (i) Bayer’s vegetable seed business, (ii) Bayer’s non-selective herbicide business (glyphosate business), and (iii) Bayer’s corn, soybean, cotton, and oilseed rape traits businesses. The above divestitures include divesting related facilities, personnel, intellectual properties (including patents, know-how and trademarks) and other tangible and intangible assets.
  2. Allowing all Chinese agricultural software application developers to connect their digital agricultural software applications to the digital agriculture platform(s) of Bayer, Monsanto and the post-merger entity in China, and allowing all Chinese users to register with and use the digital agricultural products or applications from Bayer, Monsanto and the post-merger entity, within five years from the date when Bayer’s, Monsanto’s and the post-merger entity’s commercialized digital agricultural products enter the Chinese market, and based on fair, reasonable and non-discriminatory terms.

This case, as well as the other three mergers approved with restrictive conditions by MOFCOM or SAMR in 2018, suggests the following trends in China’s antitrust review of mergers:

  •  Economic analysis and market research tools are more frequently being introduced for case analysis. In the Bayer/Monsanto Merger, MOFCOM frequently used the Herfindahl-Hirschman Index (“HHI”) to analyze market concentration issues, and MOFCOM also held hearings/seminars to discuss issues related to market definition, market structure and industry characteristics with industry experts.
  • Potential effects of excluding or limiting competition without proved market shares may also be considered in the antitrust review. In the Bayer/Monsanto Merger, as to the large fruit tomato seeds market, Monsanto’s market share was 10-20%, which was believed to be much larger than that of other competitors. Considering that Bayer was an important competitor in the market, MOFCOM believed that Bayer’s potential in the Chinese market had not yet been fully reflected in its own market share, and that the Merger might render the market less competitive. Thus, in addition to market shares, the Parties’ market power or potential for expansion will also be considered when determining whether or not a merger might exclude or limit the competition in the market.
  • The impact on technological progress will be assessed and the theory of damaging innovation is likely to be adopted. In the Bayer/Monsanto Merger, MOFCOM adopted a “damaging innovation” theory by positing that a merging party’s innovative level and research and development (R&D) ability should be considered in assessing its market position. After the merger, because there are fewer R&D competitors, the merging parties might have less incentive to innovate and they might reduce R&D investment and delay the release of new products to the market, consequently causing an adverse impact on innovation in the whole market. It seems likely that Chinese antitrust officials will continue to consider the technological factor and will apply the damaging innovation theory when necessary for reviewing complicated transactions.
  • Structural conditions and conditions requiring certain actions to be taken may be combined as remedies. Finally, in the Bayer/Monsanto Merger, MOFCOM imposed both structural conditions (requiring global divestiture of certain of Bayer’s businesses) as well as conditions requiring certain actions to be taken (requiring that the Parties make their platforms and digital agricultural products available to Chinese users). Similar combined remedies were imposed in two of the three other approved mergers in 2018. Again, it seems likely this trend will continue.

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[1] In April 2018, the anti-monopoly law enforcement agencies under the three ministries, i.e. the Ministry of Commerce, the National Development and Reform Commission and the State Administration for Industry and Commerce, were incorporated into the newly-formed State Administration for Market Regulation (“SAMR”) based on the State Administration for Industry and Commerce.

[2] See Announcement No. 31 [2018] of the Ministry of Commerce – Announcement on Anti-monopoly Review Decision concerning the Conditional Approval of Concentration of Undertakings in the Case of Acquisition of Equity Interests of Monsanto Company by Bayer Aktiengesellschaft Kwa Investment Co. [Effective], available at http://fldj.mofcom.gov.cn/article/ztxx/201803/20180302719123.shtml.

 

Putting China’s Fair Competition Review System Into Action

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National emblem of the People's Republic of China Law360 Article on Putting China’s Fair Competition Review System Into Action by Shelley Zhang and David Goldstein

In June 2016, China promulgated a Fair Competition Review System (FCRS), which is intended to ensure that competition agencies foster competitive markets in China.  Recently, China’s competition agencies jointly issued the Implementing Rule of the Fair Competition Review System, which provides guidance regarding the FCRS,  including review mechanisms and procedures, review criteria, policy guidance, and supervision and accountability.  Orrick partners Shelley Zhang and David Goldstein have published an article, “Putting China’s Fair Competition Review System Into Action,” in Law360 today providing an overview of the implementing rules.  Click here to access the article.

 

 

China’s Fair Competition Review System, 1 Year Later

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Orrick Partner Shelly Zhang Headshot China's Fair Competition Review System, 1 Year Later

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.

 

 

 

 

China’s NDRC Seeks Comments on Draft Guidelines for Price-Related Behavior of Industry Associations

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Flag map of People's Republic of China China’s NDRC Seeks Comments on Draft Guidelines for Price-Related Behavior of Industry Associations

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.

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A Six-Month Update of China’s Fair Competition Review System

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A Six-Month Retrospective of China's Fair Competition Review system established by the June 2016 China State Council Opinion to protect against the potential abuse of administrative power by Chinese gonvernment agencies that could result in anti-competitive effects. Picture of Xinhuamen, the Gate of New China, in Beijing., the formal entrance to the Zhongnanhai government compound including China's State Council.

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”).[1]  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.[2]

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China’s and Japan’s Antitrust Enforcement Agencies Warm Up To Each Other

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Chinese and Japanese crossed flags increased communication, cooperation and coordination among Chinese and Japanese antitrust enforcement agencies

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.

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China’s Fair Competition Review System: China Takes Another Significant Step Eight Years After Enacting the Anti-Monopoly Law

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Rshutterstock_99699011-2ecognizing 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,”[1] 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.

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