China: Overview

In summary

This chapter provides an overview of China’s antitrust developments in 2020, covering legislation, mergers, enforcement, private actions and related economic conferences.

Discussion points

  • Covid-19 and the State Administration for Market Regulation’s (SAMR) responses;
  • long-awaited draft amendments to the Anti-Monopoly Law (AML) and antitrust guidelines;
  • key statistics for antitrust enforcement;
  • progress in merger review (particularly new developments in variable interest entity (VIE) cases); and
  • antitrust as discussed at the annual highest-level conference and investigation into platform companies.

Referenced in this article

  • Draft amendments to the AML (the Draft Amended AML);
  • Antitrust Guidelines on the Automobile Industry (the Auto Guidelines);
  • Antitrust Guidelines on the Leniency Rules;
  • Antitrust Guidelines on the Commitment Rules;
  • Antitrust Guidelines on the Intellectual Property Rights (the IPR Guidelines);
  • Draft Antitrust Guidelines on the Platform Economy (the Draft Platform Economy Guidelines);
  • SAMR’s penalty decisions for Tencent, Alibaba and Hive Box;
  • SAMR’s investigation into Alibaba; and
  • the Central Economic Work Conference.

Introduction

The year 2020 marked a number of ‘firsts’ for China’s antitrust development. To name a few: the first proposal for revising the AML, the first guidelines regarding the car industry and intellectual property rights (IPRs), the first draft legislation targeting platform companies and the first unconditionally cleared simple case involving a VIE structure. Other than these ‘firsts’, continued progress is equally noticeable – a shorter merger review time frame, an easier submission procedure, and more consolidated and clearer merger review rules, all of which indicate SAMR becoming one of the most effective merger control watchdogs in the world. While SAMR still falls short in taking a hard stance against digital giants compared with its EU and US counterparts, the latest initiatives it has taken in the platform arena have attracted global attention and left antitrust practitioners in suspense.

Covid-19

Covid-19 is an unavoidable topic for 2020 – while it presented challenges for antitrust authorities around the globe, SAMR managed to speed up its merger review process, particularly with respect to simple cases. The first half of 2020 saw an average review period for simple cases of less than 14 days, shorter than any quarter in 2019 (in fact, shorter than any prior quarter in SAMR’s history). The pandemic also changed the submission practice for merger review cases – while there are no laws officially normalising purely electronic submissions, paperless submissions to, and electronic correspondence with, SAMR are now a common practice. Moreover, in terms of formalities, SAMR appears to have relaxed the requirements on the legalisation of formality documents for companies registered in the countries where the local Chinese embassy is closed due to covid-19. SAMR’s inclination to facilitate merger review is also demonstrated in its Announcement on Supporting Anti-Monopoly Law Enforcement for Epidemic Prevention and Control and Resumption of Work and Production, released on 4 April 2020, [1] where SAMR claims to keep accelerating merger review in the context of epidemic control. It is expected that the practice changes brought about by covid-19 will remain even post-covid-19, and the trend of shorter merger review processes (particularly for simple cases with less competition concern) will continue in the years to come.

Legislation

The year 2020 also had legislative progress – including, notably, the publication of the Draft Amended AML, eight antitrust guidelines (including three for public comments) and the interim provisions on merger review. However, for some of these promulgated rules, the legislative process had been ongoing for years – for instance, all of the four guidelines published in August 2020 (respectively concerning cars, IPRs, leniency and commitment) were initially released for public comments between 2016 and 2017. The final promulgation was thought to have been delayed due to the reform of China’s antitrust enforcement agencies in 2018.

Draft Amended AML

On 2 January 2020, SAMR released a consultation draft on the proposed amendments to the current AML, [2] which is the first time the legislator has sought to amend the AML since it came into effect in 2008. The key proposed changes with respect to merger control include the following:

  • a raised fining cap for failure to file or gun jumping. The maximum fine for the breach of filing obligation is raised under the Draft Amended AML from 500,000 renminbi to 10 per cent of the relevant undertaking’s turnover from the preceding year;
  • a ‘stop-the-clock’ mechanism. The Draft Amended AML formally introduces the stop-the-clock mechanism, under which the review period is suspended when the parties are submitting supplemental information or negotiating remedies with SAMR, or have applied for or agreed to the suspension. The mechanism appears to address the ‘pull-and-refile’ practice commonly seen in SAMR conditional approval cases; and
  • the delegation of the authority to revise filing thresholds. The Draft Amended AML proposes to shift the authority to change the turnover thresholds from the State Council to SAMR, which could potentially lead to more frequent amendments of the filing turnover thresholds.

The key proposed changes with respect to anticompetitive conduct include the following:

  • liabilities for monopoly agreement facilitators. The current AML does not expressly provide for legal liabilities for undertakings that organise or facilitate the conclusion of monopoly agreements. The Draft Amended AML proposes that such undertakings are subject to the same penalties as those that actually conclude the agreements; and
  • increased penalty caps for conduct violations. Under the Draft Amended AML, the penalty cap for concluding a monopoly agreement without actual implementation will be raised from 0.5 million renminbi to 50 million renminbi, representing an increase by 100 times. The maximum penalty for trade associations organising anticompetitive conduct will be increased from 0.5 million renminbi to 5 million renminbi. In the context of obstruction of an investigation, the penalty for individuals will be increased from 0.1 million renminbi to 1 million renminbi, and the penalty for undertakings will be raised from 1 million renminbi to 1 per cent of the turnover of the preceding year (where there is no such turnover, 5 million renminbi). The current AML does not specify the penalty for undertakings participating in a monopoly agreement but where there is no turnover in the preceding year, the Draft Amended AML introduces a 50 million renminbi cap.

As above, the most significant changes in the Draft Amended AML are probably the raising of fine caps, which, if promulgated in its current form, are expected to deter companies that may otherwise break the law for the existing low monetary penalties (particularly with respect to merger filing obligations).

The revision of the AML has been included as one of the key legislative missions for China in 2021, as announced by the Commission of Legislative Affairs on 21 December 2020. [3]

Four antitrust guidelines

The publication of the long-awaited four antitrust guidelines was sudden but not surprising, given that their respective consultation drafts were released long ago. What is surprising is that while these guidelines were first seen in a book published in June 2020, they were actually marked to have been in effect since 4 January 2019. The guidelines were also published on SAMR’s website along with interpretation notes, [4] which shed light on the legislative motives. Generally, these four guidelines have not been significantly revised compared with prior consultation drafts. An overview of each of the guidelines is set out below.

The Auto Guidelines, [5] being the first set of antitrust guidelines in China focusing on the car industry, provide guidance on, among other things, the approach to product and geographical market definition in the car industry, and the thresholds of ‘safe harbours’ based on market share. Notably, the Auto Guidelines explicitly state that safe harbours are not applicable to three types of territorial and customer restrictions: namely, restrictions on passive sales, restrictions on cross-supply between distributors and restrictions on distributors from selling spare parts to end customers that are ‘necessary’ for aftermarket maintenance services. While many antitrust issues addressed by the Auto Guidelines are not unique to the car industry, it is not clear to what extent the Auto Guidelines can be applied to other sectors.

The Antitrust Guidelines on the Leniency Rules [6] provide practical guidance for leniency application with respect to horizontal monopoly agreements, including on:

  • the timing for the leniency application;
  • essential materials to be submitted by the first leniency applicant and the subsequent applicants;
  • conditions for leniency to be granted;
  • the marking system for the first applicant; and
  • the penalty exemption for applicants.

The Antitrust Guidelines on the Commitment Rules [7] cover:

  • the conduct scope of commitments, which excludes certain types of hardcore horizontal agreements,such as price-fixing, quantity-restricting and market-dividing;
  • the time for proposing and withdrawing commitments;
  • types of the commitment;
  • factors in assessing the commitment;
  • the form and contents of submitted commitments;
  • public consultation; and
  • suspension, termination and resumption of investigation, depending on the status of the commitment.

The IPR Guidelines [8] are less prescriptive than the above three guidelines and aim to provide a general framework on analysing antitrust problems related to IPRs. The IPR Guidelines are the first set of antitrust guidelines in China specifically relating to IPRs.

It remains to be seen whether two other draft guidelines published years before will be promulgated: namely, the Guidelines on Determining Undertakings’ Illegal Gains from Monopolistic Conduct and Fines against Such Undertakings [9] and the Guidelines on General Conditions and Procedures for the Exemption of Monopoly Agreements, [10] as their respective consultation periods ended more than four years ago.

Two compliance guidelines

On 18 September 2020, SAMR released the Guidelines on Antitrust Compliance of Undertakings (the Antitrust Compliance Guidelines) [11] and the Draft Guidelines on Overseas Antitrust Compliance (the Draft Overseas Guidelines). [12] Before the publication of these national guidelines, at least eight local administrations for market regulation (AMR) had published their own local guidelines. [13]

The Antitrust Compliance Guidelines guide undertakings on how to establish and implement internal antitrust compliance schemes. The Antitrust Compliance Guidelines recommend, among other things, that undertakings establish antitrust compliance departments, require their senior management to make full commitments regarding antitrust compliance, and report to SAMR on the status of the establishment and implementation of their compliance schemes.

The Draft Overseas Guidelines attempt to assist Chinese undertakings operating overseas to defend antitrust risks outside China. Notably, the Draft Overseas Guidelines stand out with their level of detail – not only do they set out comprehensive measures relating to broader subjects such as risk identification, evaluation and reporting, but also include very specific measures corresponding to each main type of antitrust risk. It can be seen from the Draft Overseas Guidelines that there is heightened awareness as to the importance of Chinese undertakings’ compliance with overseas antitrust laws, especially against the backdrop that Chinese companies are gaining increasing attention in the global economic arena.

Draft APIs Guidelines

Released on 13 October 2020, the Draft Antitrust Guidelines on the Active Pharmaceutical Ingredients (the Draft APIs Guidelines) [14] are the first set of antitrust guidelines in China focusing on active pharmaceutical ingredients (APIs). The Draft APIs Guidelines have shed light on, among other things: the approach to define product and geographical markets relating to APIs (eg, the broader APIs industry should normally be further segmented into the API manufacturing market and the API distribution market); and typical anticompetitive agreements and abusive conducts that are prohibited in relation to APIs. The APIs sector has always been a focus of Chinese antitrust agencies – up to now there have been more than 10 antitrust enforcement decisions regarding APIs, and the Draft API Guidelines have further reflected China’s enduring antitrust enforcement priority towards the pharmaceutical industry.

Draft Platform Economy Guidelines

Released on 10 November 2020, the Draft Antitrust Guidelines on the Platform Economy (the Draft Platform Economy Guidelines) [15] mark the first time that SAMR has sought to provide specific guidance on antitrust matters related to internet platforms, and send a clear signal to the market that SAMR intends to put an end to its tolerating attitude towards the Chinese powerful big techs’ potential abuse of market power to the detriment of consumer welfare and long-term innovation and healthy development of market economy. At a more detailed level, the Guidelines have provided responses to many current issues. For example,they clarify that transactions involving VIE structures are subject to China’s merger control review just as non-VIE-related transitions; network effects across platforms should be taken into account when defining relevant product markets in cases that involve platforms; in relation to enforcement against abusive conduct, absence of market definition might be allowed in the case of practical difficulties; and the anticompetitive effect of most-favoured nation clauses and the hub-and-spoke practice (with competitors on the ‘spoke’ side and platforms acting as the ‘hub’) are explicitly recognised. The Draft Platform Economy Guidelines also discuss predatory pricing, refusal to supply, exclusive dealing, tying and discriminatory treatments in the context of platform economy.

One may say that there were signals regarding SAMR’s concerns over the platform economy long before the release of the Draft Platform Economy Guidelines. For example, back in July 2020, SAMR held a conference with 20 Chinese internet platform giants, including Tencent, Alibaba and Baidu, where SAMR made them commit to ‘maintaining the market order and promoting healthy development of the industry’. [16]

Interim provisions on merger review

As of 2020, SAMR has reviewed over a thousand merger filings. [17] However, the merger review rules were previously scattered around in various existing antitrust rules, which posed difficulties to undertakings seeking clearances. The Interim Provisions on the Review of the Concentration of Undertakings (the Interim Provisions) [18] were therefore introduced on 23 October 2020 to provide ‘all-in-one’ guidance regarding merger review. Notably, the Interim Provisions clarify that SAMR can delegate the power of conducting merger review to its provisional counterparts. The Interim Provisions also shorten the statutory investigation period – for preliminary investigation, from 60 days to 30 days; for further investigation, from 180 days to 120 days.

New measures on security review of foreign investment

On 19 December 2020, the Ministry of Commerce (MOFCOM) and the National Development and Reform Commission (NDRC) jointly promulgated the Measures on Security Review of Foreign Investment (the Security Review Measures), [19] which became effective on 18 January 2021. The Security Review Measures represent China’s latest efforts to develop a comprehensive foreign investment review regime, following the country’s adoption of the Foreign Investment Law in January 2020. The highlights in the Security Review Measures include:

  • expanding the types of foreign investments subject to security review to include greenfield investments and foreign investments in China in any other form, leaving the regulators with great leeway in applying the new measures;
  • establishing a special working mechanism office to be in charge of the security review;
  • expanding the covered sectors to include, for example, ‘important’ information technology and online products and services, and ‘important’ financial services;
  • simplifying the procedures and clarifying the timelines for the security review, for example, removing the prior requirement that certain cases (where there is significant divergence within review panel) need to be reported to the State Council; and
  • explicitly specifying the consequences of non-compliance with the security review, including the divestiture of equity interests or assets or otherwise reversing the impact on national security, but no monetary penalties are provided.

Enforcement

SAMR stressed its enforcement focus at the beginning of 2020 in a Xinhuanet interview, stating that it aims to strengthen the enforcement in the industries related to people’s livelihood, such as APIs and public utility. This enforcement focus was later reiterated in SAMR’s 2020 semi-annual review. [20]

Cartels

There were nine published infringement decisions on cartels in 2020. All of the undertakings concerned were Chinese companies, and all of these cases concern ‘sectors that are closely related to the people’s livelihood’. See Table 1 for a list of cartel cases in China published in 2020.

Table 1: Cartel cases in China published in 2020

Release dateUndertakingsConductEnforcement agencyFineConfiscation of illicit gains
7 February 202012 concrete manufacturersPrice-fixing, output restriction and market sharingZhejiang AMR12 manufacturers were fined 4.15 million renminbi in total; one undertaking was exempted from penaltyNo
9 March 202017 driving training schoolsPrice-fixingGuizhou AMRThe undertaking was fined 3–6% of their respective turnover in 2018 (3.3 million renminbi in total)No
14 May 2020A motor vehicle inspection trade association and its membersPrice-fixingGuangdong AMRThe trade association was fined 400,000 renminbi; the members were fined 1–3% of their respective turnover in 2017 (1.36 million renminbi in total)No
24 June 202019 concrete manufacturersPrice-fixingGuangdong AMRThe undertakings were fined 1–2% of their respective turnover in 2016 (7.65 million renminbi in total)No
2 July 20202 bottled liquefied gas suppliersMarket sharingHunan AMROne undertaking was fined 3% of its turnover in 2018, amounting to 1.75 million renminbi; another undertaking was exempted from penaltyNo
29 July 20203 used vehicle trade market service providersPrice-fixing and market-sharingHubei AMRThe undertakings were fined 4% their respective turnover in 2018 (0.19 million renminbi in total)No
22 October 202011 used car dealersPrice-fixing and market-sharingNingxia AMR10 undertakings were fined 4% of their respective turnover in 2018 (1.33 million renminbi in total); one undertaking was exempted from penaltyYes
5 November 20205 used car dealersPrice-fixingZhejiang AMRThe undertakings were fined 2–5% of their respective turnover in 2019 (5.5 million renminbi in total)Yes
24 November 20204 driving training schoolsPrice-fixingAnhui AMRThe undertakings were fined 2% of their respective turnover in 2018 (0.415 million renminbi in total)Yes

RPM

SAMR and its local counterparts were less active in enforcement against resale price maintenance (RPM) in 2020. There was no published infringement decision concerning RPM in 2020, while there were 4 in 2019.

The only relevant decision – the termination of the Lenovo RPM investigation – was made on 9 March 2020, following a compliance report submitted by Lenovo in November 2019, which effectively assuaged the competition concerns raised by Beijing AMR. Lenovo presented its efforts to implement the corrective measures, including terminating the RPM practices, reviewing existing distribution contracts, cutting prices of the concerned products and services, and introducing antitrust compliance training sessions. Upon review of the report and after on-site inspections, Beijing AMR concluded that Lenovo’s actions were able to effectively address the competition concerns arising from the alleged RPM. It remains to be seen whether commitment will play a more significant role in future RPM cases.

Abuse of dominance

There were seven published infringement decisions concerning abuse of dominance in 2020. The utilities and pharmaceutical sectors remained an enforcement focus. The two highest fines were levied in the cases where there exists obstruction of investigations. Table 2 lists cases concerning abuse of dominance in China published in 2020.

Table 2: Cases concerning abuse of dominance in China published in 2020

Release dateUndertakings and relevant marketAbusive conductEnforcement agencyFineConfiscation of illicit gains
14 April 20203 API distributors*

Product market: injection-use calcium gluconate API.

Geographic market: China
Excessive pricing and imposing unreasonable trading conditionsSAMRThe undertakings were fined 7–10% of their respective turnover in 2018 (204 million renminbi in total).

Two of the distributors with 14 employees were separately penalised by SAMR for obstructing the investigation by refusing to provide information or destroying evidence, or both

Yes
19 May 2020A local gas supplier

Product market: pipeline natural gas for urban residential use.

Geographic market: downtown of Minhe County
TyingQinghai AMRThe undertaking was fined 9% of its turnover in 2017, amounting to 4.46 million renminbi.

The undertaking was separately fined 700,000 renminbi due to its deliberate concealing of relevant facts and destroying evidence

No
24 July 2020A local gas supplier

Product market: pipeline natural gas for urban residential use.

Geographic market: Meng County
Exclusive dealingShanxi AMRThe undertaking was fined 2% of its turnover in 2018, amounting to 1.34 million renminbiYes
27 July 2020A local gas supplier

Product market: pipeline natural gas for urban residential use.

Geographic market: urban area of Xinzhou and Xinfu District
Exclusive dealingShanxi AMRThe undertaking was fined 2% of its turnover in 2018, amounting to 1.28 million renminbiYes
9 Nov 2020A funeral home

Product market:

cremation services market.

Geographic market: Jiangshan City

Imposing unreasonable trading conditionsZhejiang AMRThe undertaking was fined 6% of its turnover in 2019, amounting to 0.65 million renminbiYes
17 Nov 2020Wanbangde

Pharmaceutical Group Zhejiang Medicine Sales Co, Ltd

Product market:

Bromhexine hydrochloride API.

Geographic market: China
Imposing unreasonable trading conditionsZhejiang AMRThe undertaking was fined 3% of its turnover in 2019, amounting to 2.24 million renminbiYes
16 Dec 2020Nanjing Water Group Gaochun Limited Liability CompanyExclusive dealingJiangsu AMRThe undertaking was fined 4% of its turnover in 2019, amounting to 1.82 million renminbiNo
* Two distributors have appealed to Beijing First People’s Intermediate Court. The appeal is still pending.

Merger review

In 2020, SAMR unconditionally cleared 458 transactions and conditionally cleared four. There was no prohibition decision in 2020.

Conditional clearance

The conditional cases in 2020 include the following:

  • GE BioPharma/Danaher; [21]
  • Cypress/Infineon; [22]
  • Mellanox/Nvidia; [23] and
  • WABCO/ZF. [24]

With respect to conditional cases, SAMR continued its preference for behavioural remedies and imposed pure behavioural remedies in all cases except GE BioPharma/Danaher.

The four conditional cases

Interestingly, in all four cases except GE BioPharma/Danaher, it was vertical and conglomerate issues, rather than horizontal overlaps, that prompted SAMR’s concerns – the remedies in each of those cases contain a similar mix of requirements to offer fair, reasonable and non-discriminatory (FRAND) terms, to maintain separate supplies of individual products and to avoid bundling.

Another point is the pull-and-refile practice, which is commonly seen in SAMR conditional cases. In Cypress/Infineon, however, the transaction was cleared without pull-and-refile. The absence of pull-and-refile in Cypress/Infineon is remarkable considering the sensitivity around semiconductor industry, not to mention covid-19 circumstances. WABCO/ZF also did not experience pull-and-refile despite covid-19.

Moreover, in WABCO/ZF, the conditions are automatically lifted after six years. This reflects SAMR’s relaxation of the duration of behavioural conditions, which was first seen in the KLA-Tencor/Orbotech merger and Zhejiang Garden Bio-chemical High-tech/Royal DSM JV in 2019.

With regard to the inclination towards ‘wait and see’, in both Cypress/Infineon and Mellanox/Nvidia, China was the last jurisdiction where the transaction was cleared and, interestingly, also the only jurisdiction where conditions were imposed.

Failure to file and gun-jumping

There are 14 cases related of failure to file and gun-jumping published by SAMR in 2020, slightly fewer than that in 2019 (17 cases). However, 2020 witnessed China’s first failure-to-file decision on a private equity (PE) house (MBK Partners) regarding its acquisition of a 23.53 per cent stake in Shanghai Siyanli, a nationwide beauty salon chain in China. [25] The penalty signified not only that SAMR’s attention could extend to PE houses, but also that SAMR is stepping up scrutiny of minority stake acquisitions. No less important is SAMR’s first penalty decision on an extra-territorial joint venture (JV) transaction: Taiwan Cement Corporation and Ordu Yardimlasma Kurumu were each fined 300,000 renminbi for failing to notify their establishment of a JV, which appears to have no nexus to China, and the filing obligation was triggered by the JV partners alone. [26]

Breakthroughs on VIE

In 2020, SAMR, for the first time, unconditionally cleared a transaction with a VIE structure in a simple case involving the establishment of a joint venture between units of Leading Smart and Yum China (Mingcha Zhegang case). [27]

Not long after the Mingcha Zhegang case, towards the end of 2020, SAMR ramped up its enforcement against platform companies and further published three enforcement decisions involving VIE structures:

  • Alibaba was fined 500,000 renminbi for its failure to notify its 2017 acquisition of control in Intime Retail (Group) Company Limited, which runs department stores and shopping malls in China;
  • Tencent’s subsidiary China Literature Limited was fined 500,000 renminbi for its failure to notify its 2018 acquisition of 100 per cent interest in New Classics Media Limited, which is active in the media and entertainment industry; and
  • Hive Box was fined 500,000 renminbi for its failure to notify its 2020 acquisition of 100 per cent interest in China Post Smart Delivery Technology Co, Ltd, which supplies intelligent express mail box and express terminal delivery services.

While SAMR did not find anticompetitive effects from the three transactions, the fines, however, are the highest possible under the current China antitrust regime.

These events (along with the Draft Platform Economy Guidelines’ explicit reference to the filing obligation for VIE-related cases) officially mark an end of the period when notifiable deals with VIE elements could escape antitrust scrutiny in China and indicate SAMR’s determination to retroactively look into past transactions involving VIE structures.

Private actions

Based on China Judgements Online, there were around 75 antitrust civil actions in China in 2020, [28] representing an increase of 36 per cent since 2019. See Table 3 for selected private actions in 2020.

Table 3: Selected private actions in 2020

Concluded cases:

Date of judgmentPartiesCourtsIssuesMarket definitionFinding
28 May 2020Huaduo v. NetEaseGuangdong High People’s CourtExistence of dominant position and abusive conduct (defendant restricted players’ rights to live-stream the game)Product market: internet game service.

Geographic market: Mainland China

The court dismissed the case because it held that the defendant did not have a dominant position in the relevant market
28 June 2020Wang Linlin v. Beijing LianjiaBeijing Intellectual Property CourtExistence of dominant position and abusive conduct (defendant charged unfairly high prices and imposed unreasonable conditions)Product market: brokerage service for the sale, purchase and rental of newly-built and resold housing resources, and voluntary dealing of existing housing resources.

Geographic market: city of Beijing

The court dismissed the case because it held that the defendant did not have a dominant position in the relevant market

Ongoing cases:

PartiesCourtsIssuesLatest development
Mr Wang v. Beijing Sankuai TechnologyBeijing Intellectual Property CourtAbusive conduct (defendant excluded Alipay as a payment method)29 October 2020 – the court accepted the lawsuit
JD v. Alibaba

(Pingduoduo and vip.com joined in as third parties)

Beijing High People’s CourtAbusive conduct (Alibaba’s implementation of ‘choose-one-from-two’)24 to 26 November 2020 – Beijing High People’s Court organised the non-public cross-examination.
Hytera v. MotorolaShenzhen Intermediate People’s Court

(Shenzhen Intermediate Court)

Abuse of dominance25 March 2019 – Hytera filed for litigation, accusing Motorola of abusing its dominance in the market for licensing of standard essential patents (SEPs) regarding cost-optimised private network communications and sought 70 million renminbi in compensation for financial losses and other expenses.

10 December 2020 – hearing at the court

Hairui v. Yigong, Enruite & Hicin [29]Nanjing Intermediate People’s Court;

Supreme People’s Court (Supreme Court)

Abusive conduct (defendants engaged in fixing prices, restricting transactions and imposing unreasonable trading terms)18 March 2020 – the plaintiff was awarded approximately 68.8 million renminbi (record-high damages in antitrust civil litigations in China).

18 December 2020 – the appeal was heard before the Supreme Court.

Shanghai High People’s Court’s different approach to RPM

On 30 July 2020, the Shanghai High People’s Court (the Shanghai High Court) upheld a lower court’s decision to dismiss an antitrust lawsuit concerning anticompetitive vertical agreements and abuse of dominance. [30] Specifically, the Shanghai High Court held that in the context of civil procedures, RPM agreements would only be considered to infringe the AML if they are proved to have anticompetitive effects. The Shanghai High Court’s decision did not refer to Supreme Court’s ruling in Yutai, [31] which appeared to suggest a different interpretation about the approach to RPM in civil lawsuits. In Yutai, the Supreme Court clarified that in civil lawsuits, anticompetitive effects are a necessary element to consider RPM because they serve as the basis to establish civil damages, not because RPM is not illegal per se.

The arbitrability of abuse of market dominance

On 24 December 2020, the Supreme Court released its retrial verdict in relation to Shanxi Changlin Co, Ltd’s (Shanxi Changlin) allegation that Shell China Co, Ltd (Shell) has abused its dominant position. [32] Shanxi Changlin is one of Shell’s distributors, and within the distribution agreement between the parties, there is an arbitration clause pursuant to article 2 of the Chinese Arbitration Law. In view of the above, the Supreme Court held that the concerned dispute regarding abuse of market dominance should be resolved in accordance with the arbitration clause. This is the first time that the Supreme Court has ruled that an antitrust dispute is arbitrable.

Shenzhen Intermediate Court’s confirmation of jurisdiction over global SEP licensing rate

On 4 December 2020, Shenzhen Intermediate Court dismissed Sharp’s jurisdiction challenge in the lawsuit filed by OPPO over licensing of SEPs, [33] making itself likely to be the first Chinese court confirming the jurisdiction over global SEP licensing rate by a court order. The court clarified that the factors to be considered in determining the jurisdiction include not only the locations of the patent and its implementation, contract conclusion and performance, but also contract negotiation, the FRAND principles, and the principles of efficiency and the most significant connection in solving disputes.

Abuse of administrative power

There are eight published cases related to the abuse of administrative power in 2020. The concerned sectors include education, construction, transportation, insurance, gas supply and human resourcing. With the introduction of fair competition review into the AML and the joint announcement made by SAMR, NDRC, the Ministry of Finance and MOFCOM regarding the plan to promote and develop fair competition on 9 May 2020, [34] it is anticipated that enforcement against the abuse of administrative power will be strengthened in 2021.

Outlook on 2021

Priority in national economic plan

On 18 December 2020, the Central Committee of the Communist Party and the State Council jointly held the three-day Central Economic Work Conference (the Conference), an annual meeting of the highest level in China directing the national economic plan for the next year from a macroscopic perspective. Eight key priorities for economic development in China for 2021 were identified at the Conference, which include ‘strengthening anti-monopoly regulation and preventing disordered capital expansion’, highlighting the significance of antitrust law in China’s agenda relating to social governance.

Investigations into platform companies

On 24 December 2020, SAMR announced that it has formally launched an investigation against the exclusive practice (dubbed ‘choose-one-from-two’ in Mandarin) of Alibaba Group. A spokesperson of Zhejiang AMR confirmed that the headquarters of Alibaba Group had been raided. So far, no details have been released in relation to SAMR’s investigation. It is expected that SAMR will take an increasingly hard stance to tighten its rein on platform companies in 2021.


Notes

[1] Full text is available at: http://www.gov.cn/zhengce/zhengceku/2020-04/06/content_5499512.htm.

[13] Including the AMRs of Zhejiang, Shanghai, Heilongjiang, Jiangxi, Jilin, Shandong, Henan and Hebei.

[16] SeeTwenty internet platform giants committed to maintaining the market order and promoting healthy development of the industry’. Full text is available at: http://www.cqn.com.cn/zgzlb/content/2020-07/20/content_8618271.htm?t=pc.

[17] SeeThe Interpretation of The Interim Provisions on Review of Concentration of Undertakings’. Full text is available at: http://gkml.samr.gov.cn/nsjg/xwxcs/202010/t20201027_322667.html.

[20] See ‘AMRs Support Pandemic Prevention and Resumption of Production and Promote Anti-Monopoly Work in the First Half of the Year’. Full text is available at: http://www.samr.gov.cn/xw/df/202008/t20200803_320456.html.

[21] The proposed acquisition of General Electric Healthcare Life Sciences Biopharma Business (GE BioPharma) by Danaher Corporation (Danaher). The full decision is available at: http://www.samr.gov.cn/fldj/tzgg/ftjpz/202002/t20200228_312297.html.

[22] The proposed acquisition of Cypress Semiconductor (Cypress) by Infineon Technologies (Infineon). The full decision is available at: http://www.samr.gov.cn/fldj/tzgg/ftjpz/202004/t20200408_313950.html.

[23] The proposed acquisition of Mellanox Technologies (Mellanox) by Nvidia Corporation (Nvidia). The full decision is available at: http://www.samr.gov.cn/fldj/tzgg/ftjpz/202004/t20200416_314327.html.

[24] The proposed acquisition of WABCO Holdings Inc (WABCO) by ZF Friedrichshafen (ZF). The full decision is available at: http://www.samr.gov.cn/fldj/tzgg/ftjpz/202005/t20200515_315255.html.

[27] The proposed establishment of a joint venture by Shanghai Mingcha Zhegang Management Consulting Co., Ltd. and Huansheng Information Technology (Shanghai) Co, Ltd. The announcement form is available at: http://www.samr.gov.cn/fldj/ajgs/jzjyajgs/202004/t20200420_314431.html. The clearance note is available at: www.samr.gov.cn/fldj/ajgs/wtjjzajgs/202007/t20200722_320099.html.

[28] See China Judgements Online (available at: https://wenshu.court.gov.cn), with case type as ‘civil case’, cause of action as ‘antitrust dispute’, and year of judgement as ‘2020’).

[29] Yangtze River Pharmaceutical Group & Yangtze River Pharmaceutical Group Guangzhou Hairui Pharmaceutical (Hairui) v. Hefei Yigong Medicine (Yigong), Hefei Enruite Pharmaceutical (Enruite), and Nanjing Hicin Pharmaceutical (Hicin), Nanjing Intermediate People’s Court.

[30] Wuhan Hanyang Guangming Trading Co, Ltd v. Shanghai Hankook Tyre Sales Co, Ltd, Shanghai High People’s Court.

[31] Hainan Yutai Technology Feed Co, Ltd. v. Hainan Price Bureau, Supreme People’s Court.

[32] Shanxi Changlin Co, Ltd. v. Shell China Co, Ltd., Supreme People’s Court.

[33] OPPO Guangdong Mobile Communication Co, Ltd v. Sharp Corporation, Shenzhen Intermediate People’s Court.

[34] Notice on Furthering the Fair Competition Review. The full text is available at: http://www.gov.cn/zhengce/zhengceku/2020-05/15/content_5511833.htm.

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