China: Antimonopoly Law
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After a relatively quiet first half of the year in terms of notable legislative developments and enforcement efforts, the latter months of 2011 saw a string of watershed events relating to China’s Anti-Monopoly Law (AML). From October to December there was a flurry of significant merger review decisions, the announcement or conclusion of several high-profile anti-competitive conduct investigations, and noteworthy efforts by the Chinese competition authorities to strengthen coordination with their foreign counterparts.
These events, and an increasing awareness of the importance of antitrust compliance for business operations in China, ensured the AML was a hot topic in China business circles by year’s end. Now in effect for well over three years, the AML regime is firmly cementing its place alongside other mature antitrust regimes as a key and active player in the global antitrust system. With two of the three appointed Anti-Monopoly Enforcement Authorities (AMEAs) now escalating their enforcement efforts, the scene is also set for another significant year of AML developments in 2012.
In this article, we summarise the key developments during 2011, and examine what they mean for the future of antitrust enforcement in China.
The increasing sophistication of Mofcom analysis is evident from the 2011 decisions
In the first nine months of 2011 there was only one published decision by the AMEA responsible for merger review, the Anti-Monopoly Bureau of the Ministry of Commerce (Mofcom). The decision statement in that case, which saw Mofcom conditionally clear the US$7.8 billion merger of Russian potash producers OAO Uralkali (Uralkali) and OAO Silvinit (Silvinit) on 2 June, contained a more detailed outline of key facts and the rationale for Mofcom’s concerns than was the case for previous published decisions (a trend that was continued in decisions published later in the year). Additionally, it contained more evidence of alignment with the approach of mature foreign regulators regarding applied theories of harm, incorporating a relatively sophisticated discussion of both unilateral and coordinated effects issues identified from the deal.
Concluding that the transaction may restrict competition in China in the context of factors such as increased market concentration and prevailing high barriers to entry in the market for supply of potassium chloride, Mofcom’s conditions effectively require the merged entity to ensure the status quo is maintained regarding supply and price-setting mechanisms applicable to Chinese buyers who (particularly in the fertiliser industry, where potassium chloride is a key input) strongly rely on potassium chloride imports.
Several further conditional clearance decisions came in quick succession in the final months of 2011. For the most part, these decisions were not viewed as particularly controversial, and with several high-profile clearances of foreign takeovers of Chinese companies also occurring in this period (such as the Yum!/Little Sheep and Nestlé/Hsu Fu Chi deals), Mofcom was generally considered to be evidencing positive signs of close alignment with the review approaches of mature foreign regimes. However, there were aspects of each of the conditional clearance decisions that have attracted close scrutiny from international observers.
On 31 October, Mofcom imposed conditions on the acquisition by Alpha Private Equity Fund V (Alpha V) of textile factory machinery manufacturer Savio Macchine Tessili SPA (Savio), one of only two producers of electronic yarn clearers for automatic winders (which are essentially devices that clean yarn when it is being wound, ensuring it is less likely to contain faults). For the independent observer, perhaps the most interesting aspect of this decision was that Mofcom’s concerns arose from the fact that Alpha V already had an investment in the only other producer of electronic yarn clearers, Uster Technologies Co Ltd (Uster). Alpha V holds the largest stake in Uster, but its 27.9 per cent stake is well under the 50 per cent level that usually triggers an assumption of control under the China regime. Mofcom nevertheless determined that it was possible Alpha V may, after acquisition of Savio, be able to coordinate the business operations of the two competitors, effectively creating a market monopoly. Interestingly, Mofcom did not come to a definitive position on Alpha V’s ability to control Uster in this context, but concluded that, on the evidence provided to it (and after having regard to matters such as Uster’s shareholding structure, and the structure and history of voting processes at both shareholder and board meetings), such a possibility could not be discounted.
As there is no documented guidance on the issue of when a minority shareholder may be deemed to have control over an undertaking, the decision provides a small degree of illumination for an otherwise uncertain area of antimonopoly practice in China, and ultimately suggests there is a degree of alignment with the approach of foreign regulators such as the European Commission on this issue. However, it is also true that this remains an area where there is much discretion for Mofcom and little guidance for the business sector, which imbalance it is hoped the regulator will address within 2012.
Just 10 days later, conditions were imposed on the establishment of a proposed coal gasification joint venture between by GE (China) Co Ltd (GE China) and a subsidiary of energy company Shenhua Group Corporation Limited (Shenhua). According to the decision statement, it is intended that a certain technology relating to the coal gasification process would be transferred to the newly established joint venture by the GE group, and that it would thereafter on-license that technology (and provide associated engineering services) to third parties.
According to the decision statement, Mofcom was concerned that in combining the strength of Shenhua (which controlled a significant portion of certain types of coal that were an essential input for the gasification process) with GE China’s strong position in the coal-water slurry gasification licensing market, the joint venture would be in a position to restrict competition in the relevant market. Accordingly, Mofcom imposed conditions aimed at ensuring the parties could not use their combined strength to force customers of either the relevant coal input or the licensed technology to also source the other aspect from the joint venture or parents. The parties were also required to refrain from any conduct that would increase the costs of using other relevant gasification technologies.
This was Mofcom’s first published decision relating to the formation of a joint venture, confirming that such transactions do require notification if the concerned parties meet the relevant turnover thresholds (as was understood to be the case from past Mofcom practice, but was not previously clearly stated in the AML-related implementing rules, or any Mofcom decisions).
Another key aspect of the decision is that it is only the second adverse Mofcom decision directly concerning a Chinese company (the Shenhua subsidiary), the other being the decision to block Coca-Cola’s proposed acquisition of China’s Huiyuan Juice Group in March 2009. While this is seen as a positive sign in terms of the AML being applied as a ‘level playing field’, many observers of the regime continue to voice concerns as to whether there is any real likelihood of major acquisitions by State-Owned Enterprises in China being subject to the same degree of scrutiny as other (and in particular foreign-to-foreign) deals in the near future.
On 12 December 2011, Mofcom announced conditional clearance of the US$1.4 billion acquisition by Seagate Technology (Seagate) of the hard disk drive business of Samsung Electronics (Samsung). Notably, Mofcom was alone among international competition regulators in requiring remedies for this transaction, with the US and EU unconditionally clearing the transaction before Mofcom announced its decision.
According to the decision statement, Mofcom considered the merger would be likely to restrict competition by removing one of only five hard disk drive manufacturers from the market and to increase the possibility of cooperation among the remaining players. Seagate was reported to account for 33 per cent of the market and Samsung for 10 per cent.
In order to reduce the potential for negative impact on competition, Seagate was ordered to adopt several measures aimed at ensuring Samsung’s hard disk drive business effectively remained an independent competitor in the market in the short to (potentially) medium term, such as establishing an independent subsidiary responsible for setting the price for and conducting sales of Samsung’s products independently, with whom Seagate would be prohibited from exchanging competitively sensitive information. Among further conditions, Seagate was also required to increase the production of Samsung hard disk drives within six months of the merger clearance, and to invest at least US$800 million every year into research and development within three years of the merger clearance.
The requirement to effectively keep Samsung’s brand as a separate competitor will continue for at least one year. Thereafter, Seagate may apply to Mofcom to waive this requirement - which application Mofcom will consider in the content of the market conditions prevailing at that time.
This decision has attracted considerable attention internationally, as other competition regulators around the world such as those in the EU and US had previously cleared the deal without identifying a need to impose conditions. While Mofcom’s analysis in relation to this case has for the most part not attracted criticism, it has led some observers to question whether Mofcom may be prone to placing a greater emphasis on protecting the immediate interests of domestic consumers than would be the case for other leading review agencies, for whom the primary focus of merger assessments is whether competition as a whole in relevant markets is likely to be seriously harmed by a notified deal.
High clearance rates, but lengthy reviews
In a press conference in late December 2011, Shang Ming, the director general of Mofcom’s Antimonopoly Bureau, reported that 160 reviews had been concluded to that point in 2011. Mofcom has also since reported that the total number of merger review cases handled by Mofcom by the end of 2011 is 382, with 10 transactions cleared subject to conditions, and just one deal blocked. This suggests an unconditional clearance rate of approximately 97 per cent, which is higher than for many mature foreign merger control regimes.
The increasing volume of cases Mofcom is now handling, and the officials’ tendency to request very detailed information about the transaction parties and the markets in which they participate (both in and outside of China), appears to be reducing the prospect of companies achieving fast clearance decisions - even in cases that raise no obvious competition concerns.
In relation to the four published decisions during 2011, Mofcom’s formal review process took approximately 12 weeks (Uralkali/Silvinit), eight weeks (Alpha V/Savio), 25 weeks (GE China/Shenhua), and six months (Seagate/Samsung). In relation to the first two mentioned decisions, it is also worth noting that the relatively moderate formal review period was supplemented by a two to three month period between submission of the relevant notification and its acceptance (when considered complete) by Mofcom. However, it must also be noted that in at least some of these cases the delays, either at the pre-acceptance or formal review stages, were understood to be due, in a large part, to Mofcom considering that deficient or unreliable information had been provided on a large number of key matters.
New documented guidance on the regime, and the related security review process
Notwithstanding its heavy notification review workload, Mofcom continues to expand the volume of guidance and implementing regulations relating to the AML merger regime. 2011 saw the publication of the following key documents:
- a draft version of Interim Measures on Investigating and Disposing of Suspected Concentration between Undertakings Failing to File Notification in Accordance with the Law (Interim Measures on Notification Violation) that details the steps Mofcom may take to investigate whether a business operator has failed to comply with the mandatory notification obligation under the AML merger control system, the penalties that may apply in such cases, and various related matters. A finalised version of these interim measures was then issued in early 2012;
- a finalised set of merger assessment rules, being the Interim Provisions on Evaluation of Impact of Concentrations of Business Operators. These rules expand on various ‘key considerations’ for merger reviews that are set out in the AML, and also briefly articulate various theories of harm that Mofcom may have in regard to analysing transactions. The rules came into effect on 5 September 2011; and
- the Rules of Ministry of Commerce on Implementation of Security Review System for Merger and Acquisition of Domestic Enterprises by Foreign Investors (Security Review Rules), which replace an earlier interim version of such rules and set out key details of a new national security review process applicable when foreign investors merge with or take control of Chinese enterprises in ‘sensitive’ sectors (such as those relating to agricultural products, vital energy and resources, essential infrastructure, crucial transportation services, key technologies, and major equipment manufacturing).
Commencement of this process had been anticipated well before 2011, as article 31 of the AML provides that transactions of the aforementioned type should undergo national security review. The review process technically commenced in March after China’s State Council adopted the Circular of the General Office of the State Council on Establishment of a Security Review System Regarding M&A of Domestic Enterprises by Foreign Investors, but it was the commencement of the Security Review Rules on 1 September 2011 that provided real clarity regarding when and how the review process would apply. It is understood that several cases have been reviewed under this new process, however, to date there is no known adverse decision outcome.
The Antimonopoly and Anti-Unfair Competition Bureau of the State Administration of Industry and Commerce (SAIC) and the Price Supervision and Antimonopoly Bureau of the National Development & Reform Commission (NDRC) are the AMEAs charged with enforcing the AML prohibitions relating to monopoly (namely, restrictive) agreements and abuse of dominance. Their jurisdiction in relation to these two prohibitions is somewhat crudely divided into price-related conduct (NDRC) and non-price conduct (SAIC).
In the absence of significant enforcement efforts by these AMEAs in prior years, attention was largely focused on their capacity building endeavours and drafting of AML-related implementing rules. However, that situation was largely reversed in 2011.
Indeed, neither authority published any new guidance relating to the conduct prohibitions in 2011. Accordingly, three implementing rules on these prohibitions that they adopted in late 2010 (being the SAIC Rules on Prohibition of Abuse of a Dominant Market Position, Rules on the Prohibition of Monopoly Agreements and the NDRC Antimonopoly Pricing Rules) remain the only formal articulation of their assessment methodology for cases in this area. Unfortunately, the level of detail in these rules is fairly limited.
The lack of extensive guidance in the rules has not deterred the two authorities from tackling what they consider to be relatively obvious domestic cartel activity, which has been the main focus of conduct rule enforcement since the AML commenced (although before 2011 most anti-cartel enforcement continued to be conducted under the authority of pre-AML laws). This is not entirely surprising, as it is common for new competition regimes to focus on horizontal issues. However the absence of any clear enforcement activity in relation to other types of arrangements that may technically fall for consideration under the general prohibition of monopoly agreements in the AML means there is ongoing uncertainty regarding the extent to which vertical restrictions other than resale price maintenance practices (which are clearly capable of infringing the law, although the assessment standard remains unclear) can or will be challenged under this prohibition.
High profile enforcement action that was implemented or publicly announced in relation to this prohibition during 2011 included:
- the NDRC’s imposition on 4 January of a fine of 500,000 renminbi on Zhejiang Fuyang Paper Association (a collective of paper manufacturers in Fuyang City) for coordinating price fixing and output limitation activities among members. This is believed to be the NDRC’s first imposition of a fine under the AML; and
- publication on 26 January of details of the decision by the Jiangsu AIC (a subordinate body to which relevant AML-related investigation and enforcement powers were delegated by the national-level SAIC) to fine the Lianyungang City Construction Material and Machinery Association in Jiangsu Province 200,000 renminbi due to its coordination of market-sharing activities by member concrete manufacturers. A notable aspect of this case was the Jiangsu AIC’s decision not to impose the maximum possible fine (500,000 renminbi) due to the association’s active cooperation during the investigation.
2011 also saw the first high-profile enforcement action by the AMEAs in relation to a violation of the AML abuse of dominance prohibition. Specifically, on 14 November 2011 the NDRC announced that it had imposed fines on two private pharmaceutical companies (Weifang Shuntong Pharmaceuticals and Weifang Huaxin Pharmaceuticals) totalling approximately 7 million renminbi for abuse of dominance in a market relating to blood pressure medication. Specifically, the NDRC determined that after the companies had cornered the market in the raw material used to make the tablets, via their appointment as the exclusive sales agent in China for the two principal manufacturers of the relevant raw material, the companies had raised the price per bottle by almost 700 per cent for some trading partners. Consequently, it appears unfair high pricing and imposing unreasonable trading conditions were the main anti-competitive practices found to constitute abuse of dominance behaviour. This is the highest fine NDRC has imposed for antitrust infringements since the AML commenced.
An even more high-profile investigation against abuse of dominance prohibition issue was announced by the NDRC on 9 November 2011 when it made known that it is investigating two large Chinese state-owned enterprises (SOEs) − China Telecom Corporation Limited (China Telecom) and China United Network Communications Corporation Limited (China Unicom) - in relation to alleged abuse of dominance behaviour in the market for the provision of access to the broadband backbone network. Specifically, the investigation relates to suspicions that the companies, who collectively (according to the NDRC) control more than two-thirds of the relevant market in China, charged rival operators higher fees for broadband access while failing to optimise network speed.
The case has reportedly caused significant controversy within the ranks of the Chinese government, where there is still believed to be significant differences of opinion on the extent to which SOEs (and particularly those SOEs who operate under close supervision by a Chinese Ministry, which in the case of China Telecom and China Unicom is the Ministry of Industry and Information Technology) should be accountable to the AMEAs. This will complicate the investigation process, and there is some speculation the case may be resolved through some form of ‘settlement’ (indeed, China Telecom and China Unicom are known to have requested that the investigation be halted, after committing to remedy some of the trading arrangements under review by the NDRC).
If the companies are found to have violated the abuse of dominance prohibition, the NDRC has the power to impose fines of 1 per cent to 10 per cent of the revenue of these two operators in the previous year, which could be an enormous amount given the massive revenues of the companies concerned. Additionally, there is nothing to preclude any companies adversely impacted by the conduct of China Telecom and China Unicom from bringing private actions.
The investigation will be watched closely by both domestic and international observers, both for its implications on the status of the AML regime in China, and to see what evidence arises regarding the present sophistication of this competition authority in terms of procedural case-handling and substantive analysis. If the investigation is pursued to a sufficient extent, a major question it may help to answer is just how closely the Chinese authorities are aligned with other mature competition regulators in their approach to abuse of dominance cases, particularly as the basic situation concerned by the case appears similar to several margin-squeeze cases brought by the European Commission in recent years. The limited NDRC guidance (the aforementioned Antimonopoly Pricing Rules) in the area of discriminatory pricing and abuse of dominance cases more generally certainly allows for such alignment, but is too broadly and imprecisely stated to allow for any strong conclusions to be drawn at this point. Accordingly, a specific decision on this case, if published, may be enlightening.
2011 also witnessed one of the first widely reported cases in which the so-called ‘administrative monopoly’ provisions in chapter V of the AML (which prohibits government agencies from abusing their regulatory or administrative powers to interfere in competition, particularly regarding, but not limited to, inter-provincial and inter-regional business) have been successfully invoked by complainants.
A municipal government in east Guangdong Province was held to have engaged in a violation of the law and accordingly has been required to modify some of its rules and practices impacting on the commercial sector. The decision, handed down by the Guangdong Provincial Government on 12 June 2011, related to conduct by the Heyuan Municipal Government in east Guangdong Province. Specifically, the municipal government was found to have violated the AML by restricting the promotion and sale of GPS vehicle-tracking systems in its region. Three GPS operators filed a complaint with the Guangdong Administration for Industry and Commerce (Guangdong AIC), claiming the Heyuan Municipal Government had abused its administrative power. After investigation, the Guangdong AIC made an official proposal to the Guangdong Government asking for rectification of Heyuan Government’s abusive conduct.
Given the long history of state control over many key sectors of the Chinese economy, and ongoing concerns about anti-competitive practices involving government agencies in China, the administrative monopoly prohibitions are potentially a very significant aspect of the AML, and thus news of this enforcement action was heralded as a significant step forward for the antimonopoly regime in China. Although the relevant AML provisions have been criticised (including the matter of administrative monopoly conduct not being punished in a similar manner to conduct rule infringements but instead being referred to a superior agency of the perpetrator with suggestions for punishment of the perpetrator and rectification of the situation), their successful use in the reported case above indicates that, going forward, they may still have some potential to positively impact on the behaviour of government agencies in China.
Parties who suffer loss as a result of a business operator’s contravention of the AML can institute a civil action to recover that loss. The Supreme People’s Court (SPC) has designated the relatively well-regarded and well-trained intellectual property divisions of the People’s Courts to handle AML cases at first instance, and is developing judicial interpretations that will address matters such as standing and burden of proof. However, as discussed below, the ongoing work on development of civil action rules has not prevented a limited number of civil actions in this area from being permitted to proceed.
The SPC has previously reported that 11 AML-related private action cases had been accepted for hearing by China’s courts up to June 2010. However, most of those cases (which predominantly concern abuse of dominance claims, and were in many cases brought by activist lawyers in China) appear to have failed, due to plaintiffs providing insufficient evidence of the defendant’s dominant position. Although this was seen to have some positive implications (such as an appropriately high evidentiary standard was being required for establishing key elements of an infringement of the AML), it was also considered that the failure of these cases in part reflected a general lack of guidance for litigants and courts alike in the handling of AML-related cases.
That may be one reason that reports of acceptance of private action cases have diminished, and the SPC appears to have turned its focus in respect of AML issue to finalising case-handling rules relating to AML litigation.
On 25 April 2011, the SPC published a draft version of the relevant Provisions on Issues Concerning the Application of Law in relation to Trials of Monopoly Civil Dispute Cases (Draft
Private Action Rules), and conducted consultation on these rules until
1 June 2011. Among other things, the Draft Private Action Rules provide that:
- private actions can generally be brought whether or not the AMEAs have investigated or made a determination on a relevant matter, although the courts may elect to suspend hearing a civil case if an AMEA is in the process of its own investigation;
- the plaintiff will usually bear the burden of proving the existence of alleged anti-competitive conduct by a defendant, as well as any injury in respect of which compensation is claimed and a sufficient link between that injury and the defendant’s conduct. However an exception is made for common types of cartel and resale price maintenance agreements, which will automatically be deemed to restrict competition, and will therefore be presumed anti-competitive and unlawful unless the parties to the relevant agreement can show that this is not the case (or that a relevant defence applies);
- market dominance will be deemed to be held by certain public utilities, business operators vested with exclusive qualification for supplying certain products or services and business operators involved in supplying a product that lacks effective competition (and in respect of which purchasers are highly dependant);
- plaintiffs can apply to the court for a ruling that the defendent must submit relevant evidence, provided certain conditions are met (such as that the plaintiff has made its own reasonable efforts to obtain the evidence from the defendant, and the evidence can prove that the plaintiff has been, or is likely to be, harmed by the alleged anti-competitive behaviour); and
- subject to some exceptions, a two-year statute of limitations period will normally apply for civil cases relating to violations of the AML, with the period beginning on the day the defendant knows, or should have known, about the relevant violation.
Since the publication of the Draft Private Action Rules, which are still awaiting finalisation, there have only been a handful of well-publicised private action cases in this area. These include the following cases:
- on 7 September 2011, the Shanxi Combined Transportation Group Company (SCTG) filed a law suit with the Taiyuan Xinghualing District People’s Court against the Taiyuan Bureau of Railways (SCTG Case). On 15 September 2011, the Taiyuan Xinghualing District People’s Court accepted the SCTG Case. SCTG alleged that it had submitted two applications to the Taiyuan Bureau of Railways for establishing new railway ticket agent stores on 25 January 2011, but Taiyuan Bureau of Railways did not respond to such applications. According to SCTG, Taiyuan Bureau of Railways’ conduct was a violation of the Antimonopoly Law (AML), and constituted administrative omission. Thus SCTG filed the administrative lawsuit;
- on 1 November 2011, a lawsuit was filed by the Chinese internet encyclopaedia Hudong against the leading Chinese search engine company Baidu and it was tried in the Beijing First Intermediate People’s Court. Hudong accused Baidu of abusing its dominant position in the search engine market in China by blocking and de-grading Hudong’s website and webpage, and requested 1 million renminbi in compensation. The case remains at trial, and Hudong has also filed an application with the SAIC to request it also investigate Baidu’s conduct; and
- on 15 December 2011, a judgment was delivered by the Intermediate People’s Court of Changsha City, Hunan Province. Under the judgment, the plaintiff, Mr Liu Dahua, failed in his lawsuit accusing an automobile manufacturer and service company of infringing the AML’s abuse of dominance prohibition by charging unfair high prices for certain auto spare parts they supplied and which were not otherwise made available to customers. The court held that the plaintiff failed to provide sufficient evidence establishing that the defendant companies held a dominant market position in the relevant market. The plaintiff lodged an appeal on the same day.
Meanwhile, on 4 November 2011, mobile internet software technology provider UC formally announced that it intended to bring a law suit against Tecent (which runs a popular online instant messaging service) for unfair competition conduct such as anti-competitive bundling practices.
It is notable that many of the AML-related private action cases heard by China’s courts to date have concerned new-technologies, such as internet search engines. In addition to these cases, AMEA officials have spoken publicly about the fact that sectors such as the internet have been the subject of a high volume of AML-related complaints. This reflects a trend that is evident in mature antitrust jurisdictions, with the European Commission and US Federal Trade Commission’s ongoing investigation into complaints about Google being a prime example.
Other notable developments during 2011
MOUs with foreign competition authorities
In January and March 2011, the SAIC and NDRC respectively signed MOUs on competition law with the UK Office of Fair Trading (OFT), supplementing a prior MOU agreed between the same parties in November 2010. Then, on 27 July 2011, all three AMEAs signed an MOU with the US FTC and Department of Justice.
Each of these 2011 MOUs contemplate high-level consultations among the signatory agencies. They also provide for cooperation in areas such as development of competition policy and the exchange of experiences and knowledge on competition law enforcement. However, while the MOUs are a key step towards formalising a long-term cooperation framework between the AMEAs and the relevant UK and US agencies, they contain no clear contemplation of joint antitrust enforcement in the near future.
Drafting of Guidelines on Antimonopoly Enforcement in the Field of Intellectual Property Rights (IPR Guidelines) continues by the SAIC, which is working in consultation with the other AMEAs and bodies such as China’s State Intellectual Property Office (SIPO). The guidelines build on a single IPR-focused provision in the AML (article 55) that expressly prohibits abuse of IPRs that restrict or eliminate competition. According to the most recent draft reviewed by our firm, the IPR Guidelines contain some promising signs of alignment between the Chinese approach in this field and the current approach of prominent foreign competition regulators. For example, the draft:
- indicates that IPR-related conduct will not generally be viewed with any heightened suspicion or subject to any different analysis than other conduct;
- states that business operators who possess IPRs will not be automatically deemed to enjoy market power in a market relating to that IPR; and
- contemplates a form of ‘safe harbour’ mechanism, with IPR-related vertical agreements to be exempt from challenge provided that the parties to those agreements do not exceed certain aggregate market share thresholds.
The draft also comments on an issue of major concern to many foreign IPR-holders; the possibility of investigations and action relating to refusals to license IPRs. Basically, the draft states that the AMEAs will not investigate a unilateral refusal to license that is unconditioned or non-discriminative - but may investigate relevant cases of unfair and discriminative refusals to license, or refusals to license that occur without justification or as a means of enforcing other restrictive terms or tying arrangements. In this context, it is also worth noting that on 12 October 2011 SIPO issued for public comment draft amendments to the ‘Measures for Compulsory Patent Licensing’, which contain provisions indicating that neither the AMEAs nor China’s courts will have the power to grant compulsory patent licences to remedy violations of the AML. Instead, any such orders would be at the discretion of the State Council’s patent administration department, upon review of a relevant decision by the NDRC/SAIC and related application by a concerned party for a compulsory licence order.
Drafts of the IPR Guidelines have been circulating since 2009, and given the evidence of a scaling-up of AML conduct prohibition enforcement efforts by the NDRC and SAIC, there is now strong demand for the guidelines to be finalised promptly to aid in compliance efforts - particularly given the likely ongoing focus on new technology sectors noted earlier in this article.
Prior to 2011, the AML’s merger control regime was, without question, the main focus of AMEA enforcement efforts, and thus the main area of domestic and international interest in relation to the AML. Although the regime was still considered to have significant ‘blind spots’ (such as due to Mofcom’s apparent reluctance to penalise
business operators who failed to notify relevant deals), it was having a significant and discernable impact on business operations in China.
Slowly, but surely, application of the AML is widening. As illustrated in the preceding paragraphs, cartel cases under the AML are now occurring with some regularity, and the first formal and high-profile abuse of dominance investigation has also commenced. Additionally, the prospects of successful private actions in these areas also appears set to rise, with the SPC now well advanced in developing rules for such actions that should provide more clarity, and assistance, to plaintiffs.
Meanwhile, those ‘blind spots’ in the AML regime also appear to be closing. Finalisation of the Interim Measures on Notification Violation, early in 2012, is likely to pave the way for imposition of the first fines on business operators who fail to make required deal notifications. It is also understood that two further important documents, the Provisions on Conditional Clearance of Concentration (which provides explicit guidance on how conditions that may be imposed in conditional clearance decisions may be negotiated, imposed and enforced), and the Interim Measures for Investigating and Disposing of Suspected Monopolistic Concentrations of Undertakings below the Thresholds for Notification (which outlines the circumstances in which Mofcom may initiate investigation of transactions that do not trigger mandatory notification under the AML, and the reporting and review processes that then apply) should be adopted within 2012.
All of these developments suggest that we are on the cusp of a formative period in the AML’s short history. Business operators who are present in (or sell into) China should thus ensure they are taking all necessary steps to ensure compliance with the law lest they become part of one of 2012’s major topics in this area.