China: Pivotal reform to Anti-monopoly Law coincides with increased antitrust enforcement

In summary

This article provides an overview of China’s major antitrust developments in 2022 covering new legislation, enforcement, merger review, private actions, abuse of administrative power and an outlook for 2023.

Discussion points

• Amendments to Anti-monopoly Law
• Draft ministerial rules and administrative regulations
• Draft judicial interpretation
• Developments in conduct enforcement and merger review
• Highlighted private actions

Referenced in this article

• Amendments to Anti-monopoly Law
• Draft Regulation on Merger Control Filing Thresholds
• Draft Provisions on Prohibition of Monopoly Agreements
• Draft Provisions on Prohibition of Abuse of Dominance
• Draft Provisions on Prohibition of Elimination and Restriction of Competition through Abuse of Intellectual Property Rights
• Draft Provisions on Prohibition of Elimination and Restriction of Competition through Abuse of Administrative Power
• Draft Provisions on Merger Control Review
• Draft Provisions on Issues of the Application of Laws in Monopoly-related Civil Disputes
• SAMR’s penalty decision for abuse of dominance by China National Knowledge Infrastructure

Introduction

The year 2022 marked the pinnacle of the reform of China’s Anti-monopoly Law (AML). Amendments to the AML (the Amended AML) were formally adopted, and the State Administration for Market Regulation (SAMR) and the Supreme People’s Court (SPC) released draft revisions to various antitrust rules in tandem. These changes or proposed changes cover almost the full spectrum of antitrust issues and will have a significant impact on the antitrust landscape in China going forward. It is undeniable that antitrust enforcement in China has been increasingly active in the past year.

On the merger side, the number of merger notifications has continued to increase. Although the number of released penalties due to failure to file decreased
from 2021 levels, SAMR has been very busy reviewing a large array of historical gun-jumping transactions voluntarily notified to SAMR in 2022. Importantly, SAMR launched a pilot programme delegating partial merger review authority to the relevant Administration for Market Regulation (AMR) at the local level.

On conduct enforcement, the volume of published penalty decisions on monopoly agreements and abuse of dominance continues to surpass 2021 levels. In particular, SAMR concluded its investigation against the largest Chinese academic journal database owner in response to a public outcry, imposing
in 2022 the highest antitrust fine in China (87.6 million yuan). On
litigation, 2022 also witnessed several landmark cases handed down by the SPC including, in particular, the first successful follow-on private action in China.

It remains to be seen how antitrust enforcement and litigation will be reshaped by the Amended AML in 2023 as the revised administrative and judicial antitrust rules remain unpublished. The year 2023 may also present a watershed for merger reviews if the proposed new merger filing thresholds are formally adopted. Despite these uncertainties, corporates doing business in China have already been encouraged to rethink their antitrust strategies.

Legislation and judicial interpretations

The paramount antitrust legislative event in 2022 was the adoption of the Amended AML, which took effect on 1 August 2022. In response to the legislative agenda of amending the AML by the National People’s Congress in 2018, the initially proposed amendments were released by SAMR on 2 January 2020 for public consultation with a revised draft submitted to the National People’s Congress for its first reading in October 2021 and for its second reading on
21 June 2022. The final text was passed – unexpectedly quickly – only three days after the second reading. The Amended AML is generally viewed as opportune as relevant law and practice have been challenged due to their lack of certainty.

Following the adoption of the Amended AML, proposed revisions to the relevant ministerial rules, administrative regulations and judicial interpretations have been released. Specifically:

• On 27 June 2022, SAMR published a series of draft ministerial rules, including Draft Provisions on Prohibition of Monopoly Agreements; Draft Provisions on Prohibition of Abuse of Dominance; Draft Provisions on Prohibition of Elimination and Restriction of Competition through Abuse of Intellectual Property Rights; Draft Provisions on Prohibition of Elimination and Restriction of Competition through Abuse of Administrative Power; and Draft Provisions on Merger Control Review (collectively, the Draft Antitrust Rules). The public consultation period for the Draft Antitrust Rules ended on 27 July 2022. The Draft Antitrust Rules will replace SAMR’s existing interim provisions, comprising the major governmental rules of SAMR on antitrust enforcement.
• On the same day as the release of the Draft Antitrust Rules, SAMR also published draft amendments to the State Council’s Regulation on Merger Control Filing Thresholds (the Draft Amendments to Merger Control Filing Thresholds), which is contemplated to increase the existing turnover thresholds as well as to add a new threshold to catch acquisitions by sizeable Chinese companies that would otherwise be below the current thresholds. The public consultation period for the Draft Amendments to Merger Control Filing Thresholds ended on 27 July 2022.
• On 18 November 2022, the SPC released the Draft Provisions on Issues of the Application of Laws in Monopoly-related Civil Disputes (the Draft Judicial Interpretation). The Draft Judicial Interpretation, which will replace the existing 2020 version of the provisions, proposes substantial changes and new rules on procedural and substantive issues. The public consultation period for the Draft Judicial Interpretation ended on 9 December 2022.

The final text of the above revisions has yet to be released as at late December 2022. More substantive details regarding the Amended AML and draft rules are provided below.

Amended AML

The Amended AML preserves the main changes proposed in previous drafts with limited but substantial nuances in language. The Amended AML emphasises the fundamental role of competition policy in China’s market economy and formally introduces, among other things, a stop-the-clock mechanism to merger review, a relaxed approach towards resale price maintenance (RPM), a safe harbour for certain vertical agreements, platform-specific rules, enhanced penalties, and liabilities for organisers and facilitators of monopoly agreements. The Amended AML brings China’s antitrust regime into a new era, but uncertainties remain in many critical areas.

Key changes with respect to merger control

Stop-the-clock mechanism

The Amended AML allows SAMR to suspend a merger review if:

• the notifying parties fail to provide requested information or materials so that the merger review cannot proceed;
• new circumstances or new facts that materially impact the merger review occur and the merger review cannot proceed without examining the new circumstances or facts; or
• the proposed remedies require further assessment and the relevant undertakings request a suspension.

The stop-the-clock mechanism can provide SAMR with more time when reviewing complex merger cases, in particular those involving remedy negotiations. Under the existing law, SAMR has a period of up to 180 calendar days to clear a merger filing, which, in practice, is usually extended by the pull-and-refile approach when it is not feasible for SAMR to finish its review within 180 days.

In response to the public concerns that the stop-the-clock mechanism may cause uncertainty regarding timing in less complex cases, SAMR has demonstrated a cautious approach to its application, indicating on various occasions that the stop-the-clock mechanism would only be considered in exceptional cases during the simplified procedure.

Power to call in below-threshold transactions

Pursuant to the Amended AML, if there is evidence proving that a transaction that falls below the merger control filing thresholds has or may have the effect of eliminating or restricting competition, SAMR can require the parties to notify the transaction. This new provision grants a broad power to SAMR to call in below-threshold concentrations – in particular, acquisitions of mavericks or nascent competitors by incumbent digital giants (killer acquisitions), which have also attracted antitrust scrutiny in other jurisdictions.

Setting priorities for merger control review

The Amended AML provides, through a newly added article, that SAMR shall set up a classification system for its merger reviews and strengthen its focus of review on concentrations in important sectors that concern national strategies and people’s living to improve review quality and efficiency. As the first step in establishing a classification system, SAMR launched a pilot programme detailing the delegation of part of its merger review work to local AMRs (see below).

Key changes with respect to anticompetitive conduct

Relaxed approach to RPM

Under the Amended AML, RPM remains presumed to be illegal but will not be prohibited if the undertakings concerned can prove a lack of anticompetitive effects.

Previously, China, like the European Union and many other jurisdictions, considered RPM to be illegal per se, unless exempted by efficiency-related conditions (ie, the equivalent of article 101(3) of the Treaty on the Functioning of the European Union). In addition, China has also endorsed a bifurcated approach to RPM in public enforcement and private proceedings, as anticompetitive effects need to be proved in court cases by plaintiffs but need not be proved by law enforcers.

The Amended AML clarifies that the lack of anticompetitive effects can serve as a defence against public enforcement. However, it is unclear what level of evidence that SAMR would consider sufficient.

Safe harbour for certain vertical agreements

The Amended AML introduces a market share-based safe harbour for vertical agreements in certain circumstances. The new safe harbour provision in the Amended AML, however, is quite vague as it does not provide specific market share thresholds but states that:

if undertakings can prove that their market shares in the relevant markets are below the standards provided by the State’s antitrust authorities, and meet other conditions provided by the same, such vertical agreements will not be prohibited.

The legal text does not expressly limit the safe harbour to non-RPM vertical agreements, but including the language of ‘meeting other conditions provided by the [State’s antitrust authorities]’ creates uncertainty with regard to whether RPM will benefit from the safe harbour provision.

Liabilities of organisers and facilitators of monopoly agreements

The Amended AML provides that undertakings shall not organise or provide substantial assistance to the parties to a monopoly agreement. Previously, the AML only prohibited the organisation of monopoly agreements by trade associations. The new provision will empower SAMR to hold liable any organiser or facilitator of a monopoly agreement and to tackle hub-and-spoke agreements more effectively.

Key changes with respect to legal liabilities

Maximum failure-to-file and gun-jumping fines 10 times higher

For an unreported merger that does not lead to competition concerns, the Amended AML has increased the maximum fine from 500,000 to 5 million yuan. When anticompetitive effects are found, the maximum fine will be further increased to up to 10 per cent of the notifying party’s group turnover in the past year. If SAMR considers a failure-to-file incident to be a particularly severe violation, in theory, the fine can be up to 50 per cent of the notifying party’s turnover in the past year.

Personal liability for monopoly agreements

The Amended AML introduces personal liability for substantive antitrust violations for the first time. Previously, personal liability was only imposed for procedural violations (obstruction of an antitrust investigation). The Amended AML provides that legal representatives, principal responsible persons and directly responsible persons can now be fined up to 1 million yuan if they are personally responsible for a monopoly agreement. Although it remains to be seen how actively SAMR would exercise such a power, adding personal fines to its toolbox in itself is evidence of China’s resolution to enhance deterrence.

Uplifted fines

Antitrust fines can be further increased to a range between two and five times of the initial amount if the circumstances of an antitrust violation are particularly serious, and have a particularly egregious impact and particularly serious repercussions. These standards are not clarified in the Amended AML, but this new rule will open the door to an unprecedented level of monetary antitrust fines in China.

Potential criminal liability

The Amended AML introduces a new article stipulating that persons committing antitrust infringements may be held criminally accountable if the infringement constitutes a crime. Some commentators consider that this new stand-alone article leaves room for the criminalisation of anticompetitive conduct, not just obstruction of antitrust investigations. However, the implementation of that would require a future amendment to China’s Criminal Law.

Credit records impacted

Antitrust penalties upon undertakings will be reflected in their credit records following relevant national provisions and will be announced to the public. However, it is unclear what the ‘relevant national provisions’ refer to and where public announcements will be made. One certainty is that the price of infringing antitrust law in China is becoming higher.

Other notable changes

Introduction of public interest antitrust litigation

The Amended AML introduces a new channel of public interest litigation through which public prosecutors can initiate civil public interest litigation before courts when the concerned anticompetitive conduct harms social welfare. This new procedure has been introduced to facilitate plaintiffs’ recovery of civil damages in antitrust proceedings.

Digital economy

The ‘General Principles’ chapter of the Amended AML now states that the elimination or restriction of competition through the abuse of data, algorithms, technologies, capital advantage and platform rules is prohibited. In the ‘Abuse of Dominance’ chapter, a new paragraph has been added to prohibit dominant undertakings from using data, algorithms, technologies and platform rules to impose unreasonable restrictions on other undertakings.

Draft Antitrust Rules

Draft Provisions on Prohibition of Monopoly Agreements

The Draft Provisions on Prohibition of Monopoly Agreements propose 15 per cent as the specific threshold for safe harbour for certain vertical agreements, a standard stricter than the European Union’s 2022 Vertical Block Exemption Regulation as well as that contained in other existing antitrust guidelines in China, such as the Antitrust Guidelines on the Automobile Industry and the Antitrust Guidelines in the Field of Intellectual Property Rights. In addition, the draft provisions added definitions of ‘organiser’ and ‘facilitator’ of monopoly agreements as well as definitions of ‘potential competitors’ in the context of horizontal restraints.

Draft Provisions on Prohibition of Abuse of Dominance

The Draft Provisions on Prohibition of Abuse of Dominance reflect the features specific to abuse of dominance in the digital economy. In particular, self-preferencing by platforms is expressly recognised as a type of abusive conduct. The draft provisions define ‘self-preferencing’ as including prioritising one’s own products and the abuse of non-public data of competing merchandisers to develop own products or business decisions. In addition, merchandise value and the ability to control data flow have been added to the factors to be considered in assessing the market power of platforms.

Draft Provisions on Prohibition of Elimination and Restriction of Competition through Abuse of Intellectual Property Rights

The Draft Provisions on Prohibition of Elimination and Restriction of Competition through Abuse of Intellectual Property Rights reflect some of the features of the Guidelines on Intellectual Property Rights-related Antitrust Issues, including behavioural merger remedies addressing intellectual property concerns. The draft provisions also propose detailed rules on antitrust infringements concerning patent pools; standardisation; fair, reasonable and non-discriminatory (FRAND) licensing; and the organisation of collective management of copyright.

Draft Provisions on Merger Control Review

The Draft Provisions on Merger Control Review reflect the substantial changes to merger review under the Amended AML. Notably, with regard to the stop-the clock mechanism, the draft provisions further propose that the notifying parties are entitled to request an extension of the deadline for providing requested information, and SAMR may stop the clock only if they fail to supply the requested information by the extended deadline. In terms of SAMR’s power to call in below-threshold transactions, the draft provisions propose specific procedural rules:

• if the transaction concerned is completed at the time of filing, SAMR can require the parties to supplement a filing within 180 days and require parties to cease implementation of the transaction or take other necessary measures; or
• if the transaction is not completed at the time of filing, the parties to the transaction cannot complete the transaction before obtaining clearance from SAMR.

Draft Provisions on Prohibition of Elimination and Restriction of Competition through Abuse of Administrative Power

The Draft Provisions on Prohibition of Elimination and Restriction of Competition through Abuse of Administrative Power propose amendments to the scope of the definition of ‘abusive conduct’ in accordance with the Amended AML and specify the examples of certain types of abusive conduct. The draft provisions also propose investigative measures and procedural protections for investigations on abuse of administrative power. Principles concerning a fair competition review system have also been added to the draft provisions.

Draft Amendments to Merger Control Filing Thresholds

SAMR has proposed revising the Chinese merger control filing thresholds through raising the existing filing thresholds and introducing a new threshold that is designed to catch killer acquisitions by sizeable Chinese companies.

The proposal is that the combined worldwide turnover test will rise from 10 billion to 12 billion yuan; the combined Chinese turnover test will rise from 2 billion to 4 billion yuan; and the individual Chinese turnover test will rise from 400 million to 800 million yuan.

If the primary test regarding existing filing thresholds is not met, if one party has more than 100 billion yuan in turnover in China in the previous financial year and the other party (merging party or target) has a market value (or valuation) of 800 million yuan or more and more than one-third of the other party’s worldwide turnover generated from China in the previous financial year, it will be considered a killer acquisition.

Notably, the proposed market value test is being widely debated as the Draft Amendments to Merger Control Filing Thresholds have not specified the acceptable approach to calculating market value or valuation. It remains to be seen whether the new test will be adopted.

Draft Judicial Interpretation

The Draft Judicial Interpretation restates and extensively supplements the existing judicial interpretation issued in 2012 in terms of procedural and substantive rules. Some of the proposed substantive rules introduce novel elements or considerations that go beyond the Draft Antitrust Rules.

Jurisdiction of Chinese courts

The Draft Judicial Interpretation expressly provides that the jurisdiction of Chinese courts extends to extraterritorial anticompetitive conduct. Plaintiffs may choose the place where the damage occurred or that has proper local nexus, or plaintiff’s domicile, as a venue. The Draft Judicial Interpretation also seeks to clarify that arbitration clauses should not preclude the jurisdiction of the courts.

Burden of proof

The Draft Judicial Interpretation proposes to lower the plaintiff’s burden of proof of, among other things, the existence of concerted action, relevant market definition and the anticompetitive effect of RPM. In collective dominance cases, the defendant’s evidence that multiple undertakings are in material competition or under effective competitive restraints from other undertakings may rebut the presumption of collective dominance.

Civil remedies

Under the Draft Judicial Interpretation, orders to restore competition can be imposed as behavioural relief in addition to cessation of infringement. In terms of monetary awards, the Draft Judicial Interpretation provides that plaintiffs may claim direct injury as well as acquirable interests. Acquirable interests can be measured by comparison with the counterfactuals in the absence of the antitrust infringements in question. This calculation approach is generally in line with previous court decisions.

Interactions between administrative investigations and civil proceedings

The Draft Judicial Interpretation introduces the courts’ discretion to suspend a civil proceeding until the administrative investigation on the same conduct is concluded. This mechanism is envisaged to lower the burden of proof on plaintiffs by utilising the facts discovered in administrative investigations. The Draft Judicial Interpretation also proposes a collaboration mechanism through which the courts may transfer the clues of antitrust infringements to the antitrust authorities when the alleged conduct is determined to have violated the Amended AML in a civil proceeding.

Substantive rules

Monopoly agreement and abuse of dominance

The Draft Judicial Interpretation supplements the existing rules on monopoly agreements and abuse of dominance, adopting a similar analytical framework in administrative proceedings. Moreover, the Draft Judicial Interpretation proposes new concepts and more detailed rules that are not found in the Amended AML or SAMR’s antitrust rules and guidelines. For example:

• Regarding monopoly agreements, the Draft Judicial Interpretation clarifies that undertakings within the same group would not be deemed as competitors in the context of horizontal restraints and expressly excludes agency agreement from the scope of RPM restraints. Reverse payment is, for the first time, listed as a type of monopoly agreement subject to antitrust scrutiny, which seems to correspond to the SPC’s recent decision in AstraZeneca AB v Jiangsu Aosaikang Pharmaceutical Co, Ltd. In terms of the analytical framework for vertical restraints, the Draft Judicial Interpretation expressly adopts a balancing test similar to the rule-of-reason approach, under which the courts would weigh the pro-competitive and anticompetitive effects of RPM and non-price-related vertical restraints.
• Regarding abuse of dominance, compared to the Draft Antitrust Rules, the Draft Judicial Interpretation proposes slightly more detailed factors for determining the existence of unfair pricing, pricing below cost, refusal to deal, exclusive dealing, tying, unfair trading conditions and discriminatory treatments.

A comparison between the Draft Judicial Interpretation and the Draft Antitrust Rules does not indicate a bifurcation in the analytical framework, but one can reasonably expect that the courts and antitrust authorities may not adopt identical views towards similar antitrust arguments.

Platform economy

The Draft Judicial Interpretation introduces more detailed rules on various antitrust issues in the platform economy compared to SAMR’s literature, featured with references to the concurrent provisions of the E-commerce law. For example, the Draft Judicial Interpretation clarifies that most-favoured-nation clauses may constitute horizontal restraints, vertical restraints or abuse of dominance under the Amended AML, as well as infringements under the E-commerce Law such as unfair restrictions by platforms. In terms of unfair restrictions or trading conditions, self-preferencing and discriminatory treatment by platforms, the Draft Judicial Interpretation specifies that undertakings operating on the platforms may bring actions against these types of conduct under either the Amended AML or the E-commerce Law.

Conduct enforcement

Enforcement in 2022 focused on sectors that concern national strategies and people’s living, including healthcare, public utilities, education, construction materials, automobiles and financial services. The platform economy continues to be under the radar, evidenced by a highlighted abuse of dominance penalty imposed on an academic journal network’s database owner for its exclusive dealings and excessive pricing. In addition, an RPM penalty decision for the first time clarified that RPM is not a justified practice in the franchising model.

Cartels

There were 11 infringement decisions on cartels published in China in 2022. The challenged types of cartels include price fixing, market division, output limit and joint boycott. One industrial association was also held liable for cartel behaviour.

Table 1: Cartel cases in China published in 2022

RPM

SAMR and local AMRs were more active in enforcement against RPM in 2022. There were five published infringement decisions concerning RPM in 2022, compared with two in 2021. RPM under the franchise model was fined for the first time and non-price-related vertical restraints were, once again, considered in an RPM case.

Table 2: RPM cases in China published in 2022

Abuse of dominance

On 26 December 2022, SAMR penalised three companies that jointly operate China National Knowledge Infrastructure (CNKI) for abuse of dominance.^[1] CNKI is a Chinese academic journal network publishing database owner that primarily provides online knowledge database services to universities, institutes, public libraries and other users, as well as value-added services such as plagiarism checking. SAMR determined that CNKI dominated the Chinese academic literature online database services market and had abused its dominance since 2014 by:

• entering into exclusivity agreements prohibiting academic journal publishers and universities from authorising any third party to use their academic journals, doctoral and master’s degree theses or other academic literature data; and
• excessive pricing – CNKI offered database services at unfairly high prices by continuously and substantially increasing service prices, so SAMR concluded that these practices violated articles 22(1) and 22(4) of the Amended AML and ordered CNKI to cease illegal conduct and pay a fine of 87.6 million yuan, amounting to 5 per cent of its sales in 2021.

All the residual penalty decisions on abuse of dominance in 2022 were issued by SAMR’s local counterparts, including predominantly exclusive dealing or tying and unreasonable trading conditions affecting local water or gas supply.

Merger review

In 2022, SAMR’s merger review capacity was under significant pressure, evidenced by the decrease of the average length of reviews compared to 2021. The number of cleared cases increased from last year, with around 740 approvals, including five conditional approvals. Moreover, the staff reshuffle, the introduction of the e-filing system, the investigations of historical platform gun-jumping cases and the covid-19 outbreak reportedly contributed to the general slowdown in the merger review process. Importantly, SAMR established a pilot programme delegating partial merger review mandate to local AMRs in Beijing, Shanghai, Chongqing, Guangdong Province and Shaanxi Province with the purpose of alleviating some of SAMR’s burden in reviewing certain simple cases, which is expected to improve the overall efficiencies in the years to come.

Pilot programme

Corresponding to the merger review classification system envisaged in the Amended AML, SAMR launched a three-year pilot programme detailing delegation of part of its merger review work to five provincial-level AMRs. The initial period of the pilot programme will run from 1 August 2022 to 31 July 2025.

According to SAMR’s announcement dated 8 July 2022, simple cases with proper local nexus can be assigned to relevant local AMRs. The initial filing should be made to SAMR and SAMR has discretion as to whether to assign a case to a local AMR. Delegated local AMRs shall be responsible for reviewing the delegated cases, and SAMR shall make decisions on the basis of the AMRs’ review reports and opinions.

Conditional clearance

The conditional clearance cases in 2022 were:

• GlobalWafers/Siltronic;^[2]
• AMD/Xilinx;^[3]
• II-VI/Coherent;^[4]
• Shanghai Airport/Eastern Air Logistics/JV;^[5] and
• Korean Air/Asiana Airlines.^[6]

Shanghai Airport/Eastern Air Logistics/JV is the first conditionally cleared transaction between Chinese state-owned enterprises, which rebuts the conventional perception that merger reviews of Chinese state-owned enterprise deals always go smoothly.

The fact that three of the five conditional clearance cases in 2022 are semiconductor deals demonstrates that the semiconductor industry continues to be the focus of SAMR’s merger reviews. SAMR imposed behavioural remedies in the decisions of GlobalWafers/Siltronic (horizontal overlaps), II-VI/Coherent (vertical relationships) and AMD/Xilinx (neighbouring relationships) issued
on 20 January 2022, 28 June 2022 and 21 January 2022, respectively. Commitments of supply guarantee and FRAND terms were required by SAMR in all three decisions. SAMR also imposed structural remedies to address the horizontal concern identified in GlobalWafers/Siltronic, requiring divestiture of GlobalWafers’ zone melting wafer business.^[7]

It is worth mentioning that SAMR has reportedly initiated an evaluation of the remedies imposed in previous semiconductor deals in the context of the escalating US–China chip war. SAMR has long been wary of the effectiveness of supply commitment in semiconductor deals, evidenced by frequent checks on foreign export control laws during remedy negotiations. After the US Department of Commerce’s Bureau of Industry and Security issued new export controls targeting advanced computing and semiconductor sectors in China on 7 October 2022,^[8] SAMR reportedly reached out to the relevant merged entities to understand whether their commitments to maintain supply to China could be adversely impacted by the new trade restrictions.

Failure-to-file and gun-jumping decisions

SAMR issued 45 failure-to-file penalty decisions in 2022. The decrease
from 2021 (107 published decisions) by no means shows a cooling off of gun-jumping investigations. It is reported that a large array of historical gun-jumping transactions were voluntarily notified to SAMR before the adoption or effective date of the Amended AML, but SAMR has not published any failure-to-file penalty decisions since the Amended AML came into force. It remains to be seen whether SAMR may apply the new penalty rules retroactively to gun-jumping transactions notified or investigated before the Amended AML took effect.

The record of failure-to-file penalties in 2022 demonstrates again that:

• minority investments should be treated with care as to whether they may amount to control within the meaning of Chinese merger rules; and
• failures to file no-nexus transactions are also on SAMR’s radar – 19 of
  the 45 failure-to-file penalty decisions concerned acquisitions of 15 per cent or fewer shares.

In particular, SAMR published a penalty decision against the German insurer Munich Re for failing to file its acquisition of a 15 per cent interest in Covanta Europe. Covanta Europe is primarily engaged in the waste-to-energy business in Ireland and no nexus to China was found based on publicly available resources. While no competition issue was identified, Munich Re was nevertheless fined 300,000 yuan for failing to obtain Chinese antitrust clearance before closing the acquisition.

Litigation

As discussed above, the Amended AML introduces public interest litigation through which public prosecutors can initiate civil public interest litigation when the concerned anticompetitive conduct harms social welfare. It remains unclear which types of cases public prosecutors would be interested in, as no public interest litigation had been brought to the courts as at late December 2022. However, an announcement issued by the Supreme People’s Procuratorate on 1 August 2022 highlighted ‘internet, public utilities, and healthcare sectors’ as the areas of focus.^[9]

Groundbreaking private litigation

First successful follow-on damages action

On 15 December 2022, the SPC overturned the lower court’s dismissal of an individual’s follow-on suit against SAIC-GM, an automobile manufacturer and seller, and one of its dealers, supporting the individual’s claims for damages as a result of an RPM agreement between the companies.^[10] SAIC-GM was fined by Shanghai Price Bureau (the predecessor of Shanghai AMR) back in 2016 for RPM in distribution of certain automobiles. The individual purchaser claimed damages against the relevant dealer and SAIC-GM in 2018, but such claims were dismissed by the Shanghai Intellectual Property Court in 2020. In supporting the individual’s appeal, the SPC held that plaintiffs generally do not bear the burden of proof in an antitrust infringement if such an infringement was affirmed in an effective and final penalty decision. The SPC further laid out that parties to an RPM agreement shall be deemed as joint tortfeasors in private actions, and the amount of the damages should be determined based on the differences between the competitive price and the non-competitive minimum resale price stipulated by the relevant RPM agreement.

First judicial finding of collective market dominance

On 14 September 2022, the SPC published a verdict in relation to a private litigation against China Mobile (China’s leading telecommunications operator), which shed useful light upon how to assess collective dominance.^[11] Although China Mobile, in itself, does not have a market share high enough (eg, 50 per cent or above) to indicate dominance, it gains collective dominance when the other two major telecommunications operators (China Telecom and China Union) are taken into account (combined, they account for 75 per cent or more). The SPC further found that the three players adopted similar anticompetitive template contracts that contained restrictive provisions. On that basis, the SPC confirmed the existence of collective market dominance.

Patent settlement agreement annulled for horizontal restraints

On 22 February 2022, the SPC handed down a ruling that a settlement agreement for the purposes of resolving patent disputes constituted a cartel and violated the AML.^[12] The settlement agreement executed in 2016 provided, among others, that Huaming, the alleged infringer of Taipu’s patent concerning off-circuit tap changers is restricted to produce only one specific type of off-circuit tap changer. Huaming also agreed to distribute other types of off-circuit tap changers only through Taipu and at prices provided by Taipu. Huaming sought annulment of the settlement agreement in 2019 on the grounds that the settlement agreement constituted a horizontal monopoly agreement.

At issue was whether patent protection could serve as an antitrust justification to the settlement agreement. In upholding Huaming’s appeal, the SPC held that the settlement agreement had clearly gone beyond what is required to resolve patent disputes and, in substance, was unrelated to the protection of intellectual property rights. With typical cartel arrangements – such as output restriction, market division and price fixing – the contractor agreement between Huaming and Taipu is a horizontal monopoly agreement, which is prohibited by the AML.

Outlook

The adoption of the Amended AML already served as a milestone for antitrust developments in China, but the reform of accompanying administrative and judicial antitrust rules is expected to achieve momentum in 2023. It remains to be seen how future conduct enforcement and antitrust litigation will be reshaped by the Amended AML. The year 2023 may also be significant for merger reviews if the merger filing thresholds are formally amended. Despite the uncertainties, it is likely that corporates doing business in China might rethink their antitrust strategy.

Notes