Restraints of trade and dominance in China: overview

A Q&A guide to restraints of trade and dominance in China.

The Q&A gives a succinct overview of restraints of trade, monopolies and abuses of market power in China. In particular, it covers the regulatory authorities and the regulatory framework, the scope of rules, exemptions, exclusions, statutes of limitation, notification, investigations, penalties and enforcement, third party damages claims, EU law, joint ventures and proposals for reform.

For information on merger control, regulatory framework and regulatory authorities, relevant triggering events and thresholds in China, visit Merger control in China: overview.

This Q&A is part of the global guide to competition and cartel leniency. For a full list of jurisdictional Restraints of Trade and Dominance Q&As visit www.practicallaw.com/restraintsoftrade-guide. For a full list of jurisdictional Merger Control Q&As visit www.practicallaw.com/mergercontrol-guide.

For a full list of jurisdictional Cartel Leniency Q&As, which provide a succinct overview of leniency and immunity, the applicable procedure and the regulatory authorities in multiple jurisdictions, visit www.practicallaw.com/leniency-guide.

Contents

Restraints of trade

Scope of rules

1. Are restrictive agreements and practices regulated? If so, what are the substantive provisions and regulatory authority?

Regulatory framework

Concerted practices and restrictive agreements are collectively referred to as monopoly agreements and are regulated under Articles 13 and 14 of the PRC Anti-Monopoly Law (AML) respectively.

Article 13 prohibits competing business operators from reaching the following horizontal monopoly agreements (Article 13, AML):

  • Fixing or changing prices.

  • Restricting production or sale volume

  • Dividing the sales market or raw material procurement market

  • Restricting the purchase of new technologies and equipment, or restricting the development of new technologies and equipment

  • Joint boycott.

Article 14 prohibits business operators from reaching the following vertical monopoly agreements with their trading counterparts (Article 14, AML):

  • Fixing resale prices.

  • Restricting the lowest resale prices.

In addition to the above typical types of monopoly agreements that are expressly prohibited under Articles 13 and 14 of the AML, enforcement agencies have the discretion to identify other horizontal or vertical monopoly agreements that should be prohibited under the AML regime.

According to the literal interpretation of the relevant provisions, monopoly agreements (either horizontal or vertical) are strictly forbidden, unless the parties can prove that the relevant agreements fall within the exemptions stipulated under Article 15 of the AML (see Question 3). However, in practice courts may take a rule of reason approach in adjudicating vertical agreement cases. In the Rainbow v Johnson & Johnson case, the Shanghai High People's Court evaluated both the anti-competitive effects and pro-competitive effects of the vertical agreement in question, and determined that the agreement had adverse impact on the market. The National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC) have each issued more detailed provisions about their own AML enforcement practices in relation to the monopoly agreements, including:

  • Rules on Anti-Price Monopoly (issued by NDRC on 29 December 2010, effective as of 1 February 2011).

  • Procedural Rules on Administrative Enforcement regarding Anti-Price Monopoly (issued by NDRC on 29 December 2010, effective as of 1 February 2011).

  • Rules of Administration for Industry and Commerce on the Prohibition of Monopoly Agreement (issued by SAIC on 31 December 2010, effective as of 1 February 2011).

  • Procedural Rules of Administration for Industry and Commerce on Investigating Cases of Monopoly Agreements and Abuse of Dominant Market Position (issued by SAIC on 26 May 2012, effective as of 1 July 2009).

Regulatory authority

The Price Supervision and Anti-Monopoly Bureau of the NDRC is responsible for regulating price-related monopolistic practices (for example, price-fixing). SAIC is responsible for regulating non-price-related monopolistic practices (for example, dividing the market).

NDRC can delegate its authority to the provincial level Development and Reform Commissions/Price Bureaus, and SAIC can delegate its authority to the provincial level Administration for Industry and Commerce. In practice, many cases are handled by provincial level enforcement agencies authorised by the NDRC or SAIC

See box, The regulatory authority.

 
2. Do the regulations only apply to formal agreements or can they apply to informal practices?

Monopoly agreements prohibited by the Anti-Monopoly Law include both formal agreements and other forms of agreements like decisions and concerted actions. The agreements can be in written form or in oral.

 

Exemptions

3. Are there any exemptions? If so, what are the criteria for individual exemption and any applicable block exemptions?

If a business operator can prove that the relevant agreement is reached for any of the following purposes, it is not subject to the Anti-Monopoly Law (AML) regulations concerning monopoly agreements:

  • Technological improvement or researching and developing new products.

  • Standardising products or implementing specialisation for the purpose of enhancing quality, lowering costs and improving efficiency.

  • Strengthening the competitiveness of small and medium-sized enterprises.

  • Realising public interest, such as energy conservation, environment protection, disaster relief and so on.

  • Alleviating serious sales drop or over-production during the recession.

  • Protecting legitimate interests in foreign trade and foreign economic co-operation.

  • Any other conditions provided by the laws and the State Council.

In addition, to apply the first five exemption categories, a business operator must also prove that the monopoly agreement does not severely restrict competition in the relevant market and that consumers can benefit from such arrangement.

However, according to publicly available information, there are no precedents where companies subject to administrative investigations are immune from penalties by successfully invoking the above statutory exemptions. To date, there has been only one civil action where the defendant successfully invoked Article 15 to be immune from liabilities of a cartel violation.

In addition to exemptions under Article 15, the co-operative or collaborative acts between agricultural producers and rural economic organisations are not subject to the regulation of the AML and therefore will not be deemed as monopoly agreements.

 

Exclusions and statutes of limitation

4. Are there any exclusions? Are there statutes of limitation associated with restrictive agreements and practices?

Exclusions

No de minimis provisions excluding small agreements or specific exclusions of any other types of agreements or practices are prescribed by the Anti-Monopoly Law (AML) or the relevant rules.

Statutes of limitation

For administrative penalties, if a violation is not discovered within two years as of the time when it is committed, no punishment can be imposed by anti-trust enforcement agencies. If the violation is of a continual or continuous nature, the two-year period is calculated from the date when the violation ends.

For civil liabilities, the statute of limitations is two years from the time that the claimant becomes aware of or should have become aware of the infringement caused by monopoly practices. According to the Supreme People's Court's judicial interpretation on the trial of anti-trust civil cases, when a claimant reports the monopolistic act to an AML enforcement agency, the statute of limitation will be suspended from the date of report. If the AML enforcement agency decides not to file the case, or to rescind the case or terminate the investigation, the statute of limitation will be calculated anew from the date on which the claimant is aware of or should have been aware of the AML enforcement agency's decision. If the AML enforcement agency, after the investigation, concludes on the existence of monopolistic acts, the statute of limitation will be calculated anew from the date on which the claimant is aware or should have been aware that the decision made by the AML enforcement agency on confirming the reported act as constituting a monopolistic act becomes legally effective.

 

Notification

5. What are the notification requirements for restrictive agreements and practices?

Notification

There is no notification system for restrictive agreements and practices in China.

Informal guidance/opinion

There are no formal notification procedures. However, consulting with the relevant authorities can be a way to obtain informal guidance.

Responsibility for notification

Not applicable.

Relevant authority

Not applicable.

Form of notification

Not applicable.

Filing fee

Not applicable.

 

Investigations

6. Who can start an investigation into a restrictive agreement or practice?

Regulators

The regulator can initiate an investigation on its own initiative or based on complaints from third parties, such as business operators and industrial associations. If other government provides information about suspected violations, the regulator may launch investigations into the relevant matters on their discretion. It is unclear if the regulators have carried out any public market monitoring activities. However, they do pay special attention to those industries of vital importance to the nation's economy and the people's livelihood, such as the pharmaceutical industry.

Third parties

The regulator can initiate an investigation based on a complaint from a third party. There is no special requirement for the format of a complaint. However, the Anti-Monopoly Law (AML) requires the AML enforcement agencies to conduct necessary investigation, if the complaint is made in written form and the complainant have provided relevant facts and evidence (Article 38, AML). In fact, according to publicly available information, most of the National Development and Reform Commission's investigations were triggered by third party complaints.

Where an investigation is started upon a complaint from a third party, the regulator will keep the identity of the third party confidential.

 
7. What rights (if any) does a complainant or other third party have to make representations, access documents or be heard during the course of an investigation?

The Anti-Monopoly Law (AML) provides that relevant interested parties have the right to state their opinions during the investigation and the AML enforcement agencies must verify the facts, reasons and evidence raised by the interested parties. In addition, before the administrative decisions are made, the party concerned can request to hold a hearing and the interested parties can apply to attend such hearing.

Representations

A regulator will initiate an investigation when a third party makes a complaint in written form with relevant facts and evidence (see Question 6). The State Administration for Industry and Commerce (SAIC) further provides in its implementation rules that a written complaint must include the following information:

  • Basic information about the complainant (not applicable for anonymous complaints).

  • Basic information about the party against whom the complaint is made.

  • Relevant facts of the suspected monopolistic acts.

  • Relevant evidence.

  • Whether the third party has made any complaints to other authorities or filed any proceedings to the court on the same facts.

However, if the complaint is made anonymously, on specific law violating facts and relevant evidence, SAIC will register and verify the relevant information. Although the National Development and Reform Commission (NDRC) does not explicitly require the complainant to provide the above specific information, according to relevant NDRC's rules, after the receipt of relevant facts and evidence, the price supervision agencies will conduct an investigation on the following issues:

  • Whether the third party has made any complaints to other authorities or filed any proceedings to the court on the same facts.

  • Basic information about the party against whom the complaint is made.

  • Relevant facts and evidence provided the third party.

  • Other matters that need to be investigated.

In practice, a complainant or other third party can also submit responses at the regulator's request.

Document access

The AML or the relevant rules do not grant rights to a third party to get access to the documents relating to the investigation.

Be heard

According to the Administrative Penalty Law, before the administrative authorities make administrative decisions, the party concerned can request to hold a hearing.

 
8. What are the stages of the investigation and timetable?

Currently, the National Development and Reform Commission or the State Administration for Industry and Commerce provide no clear regulations concerning the stages and timetable of the investigation. In practice, the duration of investigations handled by the Anti-Monopoly Law enforcement agencies varies, ranging from several months to a few years.

 

Publicity and confidentiality

9. How much information is made publicly available concerning investigations into potentially restrictive agreements or practices? Is any information made automatically confidential and is confidentiality available on request?

Publicity

Under the Anti-Monopoly Law (AML) and relevant rules, the publicity concerning investigations into suspected monopolistic practices including restrictive agreements or practices is quite limited. In practice, the AML enforcement agencies tend to keep the investigation procedures confidential. However, the agencies can, at times, disclose the name of the investigated entities, their suspected illegal conducts, and the investigation status. As for the final decisions, the State Administration for Industry and Commerce (SAIC) has established an online information release platform (www.saic.gov.cn/zwgk/gggs/jzzf) for the closed investigations launched by SAIC and its provincial branches, while the National Development and Reform Commission (NDRC) has published its penalty decisions made at the central level since 2014. As at 19 May 2016, SAIC published the full text of its decisions on a total of 37 investigations on the platform and NDRC published the full text of five of its investigations. It is understood that NDRC is aiming to gradually publish the full texts of all of its enforcement decisions.

Automatic confidentiality

The AML enforcement agencies must keep the identity of a complainant confidential (see Question 6, Third parties) (Article 38, AML). Article 41 of the AML generally stipulates that the AML enforcement agencies and their personnel must "maintain the confidentiality of relevant business secrets that are learned during the process of investigation". Therefore, the business secrets that become known to AML enforcement agencies during the investigation must also automatically be kept confidential. In addition, the enforcement agencies enjoy discretion on determining whether to keep other information about the investigation confidential.

Confidentiality on request

There are no provisions in the AML and the relevant rules stipulating that the parties can request the AML enforcement agencies to keep certain information confidential. The relevant parties may still file a request if it is justified. However, NDRC and SAIC have discretion in this respect.

 
10. What are the powers (if any) that the relevant regulator has to investigate potentially restrictive agreements or practices?

The Anti-Monopoly Law enforcement agencies can adopt the following measures to investigate potentially restrictive agreements or practices of a business operator:

  • Entering the business premises of the business operators who are under investigation or any other relevant places to conduct inspections.

  • Making enquiries of the business operators, interested parties, or other relevant entities or individuals, and requesting them to provide relevant explanations.

  • Inspecting and duplicating the relevant business documents, agreements, accounting books, business correspondences, electronic data, files, or documentations of the business operators, interested parties, or other relevant entities or individuals.

  • Seizing and detaining the relevant evidence.

  • Enquiring into the bank account of the business operator.

Before the above measures are adopted, a written report must be submitted to the principal of the relevant enforcement agency for approval.

 

Settlements

11. Can the parties reach settlements with regulators to bring an early resolution to an investigation? If so, what are the circumstances for doing so and the applicable procedure?

There is no settlement procedure in China. However, companies can seek to apply for a suspension procedure by making commitments.

 
12. Can the regulator accept remedies (commitments) from the parties to address competition concerns without reaching an infringement decision? If so, what are the circumstances for doing so and the applicable procedure?

During the investigation, the business operator under investigation can undertake to remove the anti-competitive effects of the suspected monopolistic practice within an approved period. The Anti-Monopoly Law (AML) enforcement agencies can decide whether to accept the commitments and suspend the investigation. During the suspension of the investigation, the agencies will supervise the performance of the undertaking and will have the right to resume the investigation if any of the following occur:

  • The operator fails to perform its commitments.

  • There are significant changes to the facts on which the suspension decision was made.

  • The suspension decision was made on the basis of incomplete or inaccurate information submitted by the business operator.

Where the agencies consider that the business operator has fulfilled its commitments, the regulator may decide to terminate the investigation.

The National Development and Reform Commission (NDRC) is now drafting Guidelines for Commitment in Anti-Monopoly Cases for the Anti-monopoly Commission under the State Council, which intend to provide detailed rules on the applicable procedures regarding the commitment programme. The NDRC released Draft Commitment Guidelines seeking public comments on 2 February 2016. According to the Draft Commitment Guidelines, the commitment procedure will only be applicable to other monopolistic conducts than horizontal monopoly agreements on price fixing, on restricting production or sales quantity, or on allocation of sales market or raw material procurement market. The commitments can be made at any stage starting from the commencement of the investigation until the issuance of the advance notice of administrative penalty decision. However, if after investigation the AML enforcement agency holds that a suspected monopolistic conduct constitutes an AML violation, the agency will not accept any commitment made by the operator concerned.

When making commitments and applying for suspension of the investigation, the business operator must submit a written application with the following information:

  • The suspected monopolistic conduct under the investigation and its possible impact.

  • The specific measures in the commitment to be taken to eliminate the consequences of the conduct.

  • The timeline and approach to fulfil the commitment.

  • Other contents that need be covered by the commitment.

Furthermore, the Draft Commitment Guidelines also confirm that the AML enforcement agencies' decision on suspension or termination of the investigation must not be interpreted as an affirmation on whether the business operator's conduct constitutes an anti-monopoly violation and must not be taken as relevant evidence to affirm the violation before the people's court.

By applying the suspension procedure, the AML enforcement agencies can decide to terminate the investigation without reaching an infringement decision after accepting the commitments from the business operators (see Question 11).

 

Penalties and enforcement

13. What are the regulator's enforcement powers in relation to a prohibited restrictive agreement or practice?

Orders

Where an operator is found entering into and implementing a monopoly agreement, the Anti-Monopoly Law (AML) enforcement agencies will issue an order to stop the implementation of the agreement.

The AML and the relevant rules provide no criminal sanctions for entering into a monopoly agreement, and therefore no orders will be made in the context of criminal prosecution.

Fines

The AML enforcement agency can confiscate the illegal gains and impose a fine ranging from 1% to 10% of the turnover in the preceding year (in the authors' experience, this refers to the undertaking's turnover generated in China in relation to the affected products, although it is not specified by law) on the business operator that entered into and implemented a monopoly agreement.

For those who have not implemented the monopoly agreement, a fine of no more than CNY500,000 can be imposed.

The AML and the relevant rules provide no criminal sanctions for entering into a monopoly agreement, and therefore no fines will be imposed in the context of criminal prosecution.

Personal liability

The AML and relevant rules do not impose liability of any kind on individuals such as the employees of a business operator that enters into and implements a monopoly agreement. Individuals who engage in producing commodities, operating or providing services are regarded as "business operators" under the AML (Article 12, AML).

Immunity/leniency

Article 46 of the AML provides the general rules of the leniency programme, stipulating that the AML enforcement agencies may, at its discretion, reduce or waive the sanctions on a business operator if the operator has voluntarily reported the relevant facts of entering into a monopoly agreement and provided important evidence to the regulatory authority.

Impact on agreements

Restrictive provisions in an agreement that violate the AML will be regarded as null and void.

 

Third party damages claims and appeals

14. Can third parties claim damages for losses suffered as a result of a prohibited restrictive agreement or practice? If so, what special procedures or rules (if any) apply? Are collective/class actions possible?

Third party damages

Third parties can claim damages for losses caused by a monopoly agreement by filing a civil action. Both stand-alone and follow-on actions are allowed.

Special procedures/rules

The Supreme People's Court's judicial interpretation of 1 June 2012 sets out some special procedures for the Anti-Monopoly Law (AML) civil actions, including the following:

  • The competent courts for the AML civil actions are limited to the:

    • intermediate people's courts of provincial capital cities;

    • intermediate people's courts designated by the Supreme People's Court; and

    • certain basic-level people's courts upon approval of the Supreme People's Court.

  • The claimant can directly bring an action before a competent court, or bring a follow-on action after the decision of the AML enforcement agencies affirming the existence of a monopolistic conduct.

  • A party can apply to the court to employ a professional institution or professionals to conduct market investigations or provide economic analysis reports on special issues of the case.

  • For horizontal monopoly agreements in violation of Article 13(1) to (5) of the AML), the defendant will assume the burden of proof, which can prove that the agreement does not have the effect of excluding or restricting competition.

Collective/class actions

There is no class action system under China's litigation regime. Instead, China's Civil Procedure Law provides for a joint application regime, where numerous plaintiffs can select representatives to represent the group of the plaintiffs. Under the joint action regime, the court possesses the right to issue public notices instructing other potential applicants to register with the court within a certain period of time. Judgments or orders rendered by the court are binding on applicants who have not registered with the court but have initiated legal proceedings within the statute of limitation.

Additionally, the Civil Procedure Law (amended in 2012) and Law on the Protection of Consumer Rights and Interests (amended in 2013) grant organisations such as consumer associations the rights to bring lawsuits against behaviours detrimental to the consumers' legitimate rights and interests. However, as to whether other trade or professional associations are qualified to bring claims on behalf of their members, it remains to be tested in practice. Since this mechanism is not well established in China, it is still unclear as to how to implement it in practice, especially with regard to the calculation of damages. In addition, in practice, the People's Court also seems to be very cautious when accepting the public interest litigation.

 
15. Is there a right of appeal against any decision of the regulator? If so, which decisions, to which body and within which time limits? Are rights of appeal available to third parties, or only to the parties to the agreement or practice?

Rights of appeal and procedure

Persons who disagree with a decision of the regulator can choose to apply for an administrative review with the competent authority or directly file an action before the competent court. An application for administrative review must be submitted within 60 days as of the date when the decision is known to the applicant. To appeal against the decision of the administrative review, the appellant can choose to file an application for a final award with the State Council or to initiate an administrative lawsuit before a competent people's court within 15 days on receiving the administrative review decision.

Otherwise, the appellant can directly bring an action to the court without first applying for administrative review within six months from the time when the applicant knows or should have known of the decision.

Third party rights of appeal

A third party can apply for an administrative review under the Administrative Review Law of China if it considers that its rights and interests are affected by the decision of an Anti-Monopoly Law enforcement agency. In addition, according to the Administrative Procedural Law, an individual or entity who has an interest in the administrative act can bring an action to the court. Those who have an interest in the administrative act and fail to institute proceedings, or those who have an interest in the outcomes of the case, can also participate in the proceedings as a third party.

 

Monopolies and abuses of market power

Scope of rules

16. Are monopolies and abuses of market power regulated under administrative and/or criminal law? If so, what are the substantive provisions and regulatory authority?

Regulatory framework

Abuses of a dominant position (or abuses of market power) are regulated under Chapter 3 of the Anti-Monopoly Law (AML). In addition, the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC) have each issued more detailed provisions, including:

  • Rules on Anti-Price Monopoly (issued by the NDRC on 29 December 2010, effective as of 1 February 2011).

  • Procedural Rules on Administrative Enforcement against Anti-Price Monopoly (issued by NDRC on 29 December 2010, effective as of 1 February 2011).

  • Rules of Administration for Industry and Commerce on the Prohibition of Abuse of Dominant Market Position (issued by SAIC on 31 December 2010, effective as of 1 February 2011).

  • Procedural Rules of Administration for Industry and Commerce on Investigating Cases of Monopoly Agreements and Abuse of Dominant Market Position (issued by SAIC on 26 May 2012, effective as of 1 July 2009).

Regulatory authority

Under the AML regime, NDRC is responsible for price-related abuses, and SAIC is responsible for non-price-related abuses (see Question 1).

 
17. How is dominance/market power determined?

A dominant position is defined as the ability of a business operator to control prices, quantities or any other trade conditions in the relevant market, or the ability of an operator to obstruct and affect the entry of other business operators into the relevant market. In determining the existence of dominant position, the following factors should be considered (Article 18, Anti-Monopoly Law (AML)):

  • The market share of the business operator and the competition condition in the relevant market.

  • The operator's ability to control the sales market or the raw material procurement market.

  • The financial and technological strength of the operator.

  • The reliance by other business operators on the operator.

  • The difficulty of market entry.

  • Other relevant factors.

A single or collective dominant position can be presumed in any of the following circumstances unless proved otherwise (Article 19, AML):

  • A business operator holds 50% or more of the market share.

  • Two operators hold an aggregate of two-thirds or more of the market share with the market share of each operator exceeding one-tenths.

  • Three operators hold an aggregate of three-quarters or more of the market share with the market share of each operator exceeding one-tenths.

 
18. Are there any broad categories of behaviour that may constitute abusive conduct?

A business operator with a dominant position is prohibited from abusing its position in the following manner (Article 17, Anti-Monopoly Law (AML)):

  • Setting unfairly high sale prices or unfairly low purchase prices.

  • Setting below-cost prices without justifiable reasons.

  • Refusing to deal with trading counterparts without justifiable reasons.

  • Requiring trading counterparts to deal exclusively with itself or with the undertakings designated by it without justifiable reasons.

  • Tying sales without justifiable reasons or imposing other unreasonable trading conditions.

  • Applying discriminatory prices or other trading conditions to trading counterparts with equal standing without justifiable reasons.

    Committing any other abuses as defined by the AML enforcement agencies of the State Council.

Exemptions and exclusions

 
19. Are there any exemptions or exclusions?

There are no exemptions for or exclusions from the violation of abuse of market dominance.

 

Notification

20. Is it necessary (or, if not necessary, possible/advisable) to notify the conduct to obtain clearance or (formal or informal) guidance from the regulator? If so, what is the applicable procedure?

There is no notification system available under the Anti-Monopoly Law for abusive conduct.

 

Investigations

21. What (if any) procedural differences are there between investigations into monopolies and abuses of market power and investigations into restrictive agreements and practices?

There is no procedural difference between investigations into abuses of market power and investigations into monopoly agreements.

 
22. What are the regulator's powers of investigation?

The regulator's powers of investigation regarding abuse of dominance are the same as those for monopoly agreements and practices (see Question 10).

 

Penalties and enforcement

23. What are the penalties for abuse of market power and what orders can the regulator make?

A business operator found abusing its dominant position can face the following sanctions:

  • Being ordered to stop the illegal act.

  • Having their illegal gains confiscated.

  • Having a fine imposed amounting to 1% to 10% of its turnover in the preceding year (in the authors' experience, this refers to the undertaking's turnover generated in China in relation to the affected products, although it is not specified by the law).

There are no criminal sanctions or liabilities under the Anti-Monopoly Law and the relevant rules for abuse of market power.

 

Third party damages claims

24. Can third parties claim damages for losses suffered as a result of abuse of market power? If so, what special procedures or rules (if any) apply? Are collective/class actions possible?

Third party damages

Third parties can claim damages for losses due to a business operator's abuse of dominance by filing civil actions. Both stand-alone and follow-on actions are allowed.

Special procedures/rules

In addition to the special rules listed under Question 14, the Supreme People's Court's judicial interpretation sets out specific rules for civil actions arising from abuse of dominance, including the following:

  • The claimant must prove that the defendant has a dominant position in the relevant market and has abused its dominant market position, whereas the defendant has the burden to establish a defence or justification of its conduct.

  • Where the alleged monopolistic conduct is an abuse of a dominant market position by a public utility or any other business operator that has a monopolistic position under law, the people's court may, in light of the market structure and the specific circumstances of competition, determine that the defendant has a dominant position in the relevant market, unless such a determination can be overturned by evidence to the contrary.

  • A claimant may use information externally released by a defendant as evidence to prove that the defendant has a dominant market position. Where the information externally released by the defendant is sufficient to prove that the defendant has a dominant market position in the relevant market, the people's court may make a determination on this basis, unless such a determination can be overturned by evidence to the contrary.

Collective/class actions

There is no class action system under China's litigation regime. Instead, China's Civil Procedure Law provides for a joint application regime, where numerous plaintiffs can select representatives to represent the group of the plaintiffs (see Question 14).

 

EU law

25. Are there any differences between the powers of the national regulatory authority(ies) and courts in relation to cases dealt with under Article 101 and/or Article 102 of the TFEU, and those dealt with only under national law?

Not applicable.

 

Joint ventures

26. How are joint ventures analysed under competition law?

The Anti-Monopoly Law (AML) and relevant rules do not provide any guidelines specifically on the issues concerning joint ventures. However, in practice, the AML enforcement agencies take a similar point of view with the competition authorities in other major jurisdictions that a joint venture may be reviewed in the context of a notifiable concentration of operators or a restrictive agreement. There is no special treatment for joint venture as an exception to anti-competitive arrangements.

 

Inter-agency co-operation

27. Does the regulatory authority in your jurisdiction co-operate with regulatory authorities in other jurisdictions in relation to infringements of competition law? If so, what is the legal basis for and extent of co-operation (in particular, in relation to the exchange of information)?

The three Chinese Anti-Monopoly Law (AML) enforcement agencies (that is, the Ministry of Commerce (MOFCOM), the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC)), have signed memoranda of understanding (MoUs) with their counterparts in various foreign jurisdictions.

For example, in July 2011, MOFCOM, NDRC and SAIC signed an MoU with the US Federal Trade Commission (FTC) and Department of Justice (DoJ), laying out the framework for long-term co-operation between the anti-trust agencies on both sides.

In September 2012, NDRC and SAIC signed MoUs with the Directorate General for Competition of the European Commission to enhance the co-operation and co-ordination on anti-trust matters between the EU and China.

In addition, the NDRC has separately entered into MoUs with the:

  • Competition Bureau of Canada.

  • Australian Competition and Consumer Commission (ACCC).

  • Japan Fair Trade Commission (JFTC).

  • UK Office of Fair Trading (OFT).

  • Korea Fair Trade Commission (KFTC).

The SAIC has signed MoUs with the:

  • OFT.

  • KFTC.

  • ACCC.

  • Competition authority of Russia.

  • Portuguese Competition Authority.

  • Brazilian Counsel for Economic Defence.

Under some MoUs, such as those with the US and the EU, the signatories agree to exchange information and/or directly co-ordinate their enforcement activities. In the Qualcomm investigation, an abuse of dominance case, it is reported that the NDRC and the KFTC exchanged experience and information related to their investigations into the company.

 

Recent cases

28. What are the recent developments, trends or notable recent cases concerning abuse of market power?

After more than a year's investigation into Qualcomm, the National Development and Reform Commission (NDRC) made an announcement of its investigation decision in a press release on 10 February 2015. About 20 days later, NDRC published the full-text of the decision on its official website on 2 March 2015.

According to NDRC's decision, it considers that Qualcomm has a dominant position in the licence market of standard-essential patents (SEPs) for wireless communication technology and in the baseband chip markets of CDMA, WCDMA, LTE (that is, 2G, 3G and 4G), and it abused that position by conducting three types of abusive behaviour.

  • Qualcomm imposed unfairly high patent licence royalties, which is prohibited by Article 17(1) of the Anti-Monopoly Law (AML), considering that:

    • Qualcomm refused to disclose its patent list and included expired patents in its patent portfolio licensed to Chinese licensees;

    • Qualcomm requested that Chinese licensees grant back their patents free of charge, and refused to deduct the value of such patents from royalty fees or to pay for such patents in other ways;

    • Qualcomm charged relatively high royalty fees and unreasonably used the net sale price of mobile phones, which incorporated its technology, as the base for its royalty fees.

  • Qualcomm tied sales of SEPs with non-SEPs without justification, which is prohibited by Article 17(5) of the AML.

  • Qualcomm imposed unreasonable conditions when dealing with Chinese enterprises, which is prohibited by Article 17(5) of the AML. In particular, Qualcomm threatened to refuse to sell baseband chips to Chinese enterprises if they did not sign patent licence agreements containing unreasonable terms, and it prohibited the licensees from challenging the licence agreements.

Based on the above, NDRC decided to order Qualcomm to stop its illegal conducts and to impose a fine of CNY6.088 billion, which amounts to 8% of Qualcomm's revenues generated in China.

In early 2016, the NDRC outlined its anti-trust enforcement priorities for 2016, targeting sectors of pharmaceuticals, medical devices, autos, shipping, telecommunication, finance and industrial materials. Besides, the NDRC will continue paying attentions to the implementation of IP rights.

 

Proposals for reform

29. Are there any proposals for reform concerning restrictive agreements and market dominance?

According to the working arrangements of the Anti-Monopoly Commission under the State Council, the National Development and Reform Commission is drafting six guidelines respectively on auto industry, abuse of IP rights (the State Administration for Industry and Commerce, the Ministry of Commerce and the State Intellectual Property of the PRC are also involved), the commitment programme, the leniency programme, exemptions and calculation of fines and illegal gains. These guidelines are likely to provide more clarification to the general provisions under the current Anti-Monopoly Law regime.

 

Online resources

Central People's Government of the PRC

W www.gov.cn

Description. This is the official website of the Central People's Government of the PRC, where the official Chinese version of applicable legislation can be found (for example, the Anti-Monopoly Law and the PRC Administrative Penalty Law).

Price Supervision and Anti-Monopoly Bureau of the National Development and Reform Commission (NDRC)

W http://jjs.ndrc.gov.cn

Description. This is the official website of the Price Supervision and Anti-Monopoly Bureau of NDRC. It contains the official Chinese version of NDRC's anti-trust regulations, news release of some investigation decisions and other latest events held by the Bureau.

Anti-monopoly and Anti-Unfair Competition Enforcement Bureau of the State Administration for Industry & Commerce (SAIC)

W www.saic.gov.cn/fldyfbzdjz

Description. This is the official website of the Price Supervision and Anti-Monopoly Bureau of NDRC. It contains the official Chinese version of SAIC's anti-trust regulations, news release of some investigation decisions and other latest events held by the Bureau.

Supreme People's Court of the PRC

W www.court.gov.cn

Description. This is the official website of the Supreme People's Court of the PRC. It contains the official Chinese version of the Judicial Interpretation.



The regulatory authorities

Price Supervision and Anti-Monopoly Bureau of the National Development and Reform Commission (NDRC)

Head. Zhang Handong
Contact details. 38 S Yuetan Street
Beijing
China
100824
T +86 10 6850 1554
E jiajiansi@163.com
W http://jjs.ndrc.gov.cn

Outline structure. It comprises the following nine divisions:

  • General affairs.
  • Legislative affairs.
  • Supervision and guidance.
  • Price inspection.
  • Fee-charging.
  • Market prices supervision.
  • First division of anti-price monopoly investigation.
  • Second division of anti-price monopoly investigation.
  • Competition policy and international co-operation.

Among these, the First and Second Divisions of Anti-Price Monopoly Investigation, and the Competition Policy and International Co-operation Division are engaged in price-related AML enforcement.

Responsibilities. NDRC is responsible for:

  • Drafting laws and regulations of price supervision and inspection.
  • Guiding and organising price supervision and inspection.
  • Handling activities and cases involving violation of price-related laws.
  • Handling price-related monopoly activities and reconsideration cases and appeals concerning the punishment of price violations.

Procedure for obtaining documents. Not applicable.

Anti-monopoly and Anti-Unfair Competition Enforcement Bureau of the State Administration for Industry & Commerce (SAIC)

Head. Ren Airong
Contact details. 8 Sanlihe Donglu
Xiechengqu
Beijing
China
100820
T +86 10 8865 0507
E dfa@saic.gov.cn
W www.saic.gov.cn/fldyfbzdjz

Outline structure. It comprises the following five divisions:

  • General affairs.
  • Anti-monopoly enforcement.
  • Anti-monopoly law guidance.
  • Anti-unfair competition.
  • Supervision and co-ordination.

Among these, the Anti-Monopoly Enforcement Division and Anti-Monopoly Law Guidance Division are responsible for enforcing the AML.

Responsibilities. SAIC is the regulatory authority in charge of enforcement against monopoly agreements, abuses of dominant position as well as abuses of administrative power (except price-related monopoly practices). Moreover, it is also responsible for drafting specific measures on anti-monopoly and anti-unfair competition and undertaking enforcement actions of anti-unfair competition cases.

Procedure for obtaining documents. Not applicable.



Contributor profiles

Susan Ning, Senior Partner

King & Wood Mallesons

T +86 10 5878 5010
F +86 10 5878 5599
E susan.ning@cn.kwm.com
W www.kingandwood.com

Professional qualifications. China, 1988

Areas of practice. Anti-trust and competition; international trade.

Recent transactions

  • Advised on anti-trust and competition law issues under the Anti-Monopoly Law (AML) and Anti-Unfair Competition Law and various competition provisions spread over several pieces of legislation.
  • Assisted various clients to cope with anti-trust investigation launched by the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC). Assisted clients to apply for leniency treatment before the AML enforcement authorities.
  • Advised on merger clearance before the Ministry of Commerce and advising on AML compliance issues.
  • Represented clients in private litigations under the AML.
  • Undertaken more than 200 anti-trust merger control filings on behalf of various clients, comprising mostly multi-national companies.
  • Established the Anti-trust and Competition Group in King & Wood Mallesons.

Languages. Mandarin, English

Professional associations/memberships. Currently chairs the Antitrust Committee of the Inter-Pacific Bar Association and is an active participant of the American Bar Association's anti-trust forum.

Publications Has published a number of textbooks and articles including the following:

  • China Anti-Monopoly Law Guide, CCH Hong Kong Limited, 2010 (textbook).

  • China's Anti-Monopoly Law: Retrospect and Prospect on the Fourth Anniversary, Asian Legal Business, August issue, 2012 (article).

  • Judicial interpretation of the Supreme Court is having a significant impact on Chinese Anti-Monopoly cases, IFLR, online, 2012 (article).

Kate Peng, Partner

King & Wood Mallesons

T +86 10 5878 5071
F +86 10 5878 5599
E pengheyue@cn.kwm.com
W www.kingandwood.com

Professional qualifications. China, 2004; New York, US, 2012

Areas of practice. Anti-trust and competition; intellectual property.

Recent transactions

  • Represented domestic and multi-national companies in competition investigations before the NDRC and the SAIC.
  • Advised clients on reviewable practice under the AML, particularly on their practice in the IP field.
  • Represented clients in anti-trust litigations.
  • Handled numerous merger control filings before the Ministry of Commerce.

Languages. Mandarin, Cantonese, English

Sibo Gao, Associate

King & Wood Mallesons

T +86 10 5661 2483
F +86 10 5878 5599
E gaosibo@cn.kwm.com
W www.kingandwood.com

Professional qualifications. China, 2014

Areas of practice. Anti-trust and competition.

Recent transactions

  • Advised domestic and multinational companies in competition investigations and leniency applications before the NDRC and the SAIC.
  • Advised clients on merger clearance.

Languages. Mandarin, English


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