China’s SAMR Publishes Long-awaited Antitrust Guidelines On Leniency, Auto Sector And IP.
Legal News & Analysis - Asia Pacific - China - Competition & Antitrust
20 August 2020
In August 2020, China’s chief competition enforcement agency, the State Administration for Market Regulation (SAMR), announced the publication of the ‘2019 Compilation of Antitrust Regulations and Guidance’ (《2019年反垄断规章和指南汇编》).
This publication formally adopts four key guidelines (the Guidelines) relating to the enforcement of China’s primary competition statute, the Anti-Monopoly Law (AML), including: the (1) Guidelines to the Application of the Leniency Regime in Horizontal Monopoly Agreement Cases (Leniency Guidelines); (2) Guidelines to Commitments from Undertakings in Monopoly Cases (Commitments Guidelines); (3) Antitrust Guidelines for the Automobile Sector (Auto Sector Guidelines); and (4) Antitrust Guidelines for the Intellectual Property Field (IP Guidelines). Each of the guidelines are stated to be effective as from 4 January 2019.
The Guidelines touch upon crucial areas of enforcement principles or procedure, and have been long-awaited since draft forms of each document were first published for consultation a number of years ago. The publication of the Guidelines is therefore expected to provide welcome certainty regarding SAMR’s enforcement of the AML.
In this e-bulletin, we will provide a brief overview of each Guideline, and some of the key takeaways that you should be aware of.
Many competition law regimes around the world operate some form of leniency regime, allowing parties to anti-competitive conduct (typically ‘monopoly agreements’, or ‘cartels’) to report the infringing conduct in return for a reduction in penalties.
Accordingly, Article 46 of the AML states that antitrust enforcement agencies may offer immunity or a reduction in penalties on discretion for undertakings that report and provide crucial evidence in relation to monopoly agreements in breach of the AML. However, there has historically been some uncertainty in the application of leniency, particularly following the consolidation of antitrust enforcement powers under the SAMR in 2018.
The Leniency Guidelines therefore seek to formalise the framework around which leniency applications can be made to SAMR (or any other competition enforcement agency, such as a regional branch of SAMR), and the conditions on which leniency may be granted.
Key highlights of the Leniency Guidelines include:
· Leniency is only available in the context of ‘horizontal’ monopoly agreements between competing undertakings in breach of Article 13 of the AML, such as price fixing and market allocation, which are sometimes referred to as ‘cartel’ agreements.
· Leniency can typically be granted to up to 3 parties in relation to any monopoly agreement. This number can be increased in large or complex cases involving major undertakings, where further applicants come forward and offer crucial evidence to the enforcement agency.
· The first successful leniency applicant can be granted immunity from all penalties if the leniency application is submitted before the enforcement agency has established a case, or otherwise a reduction of the applicable fines by at least 80%. Full immunity is not available to any party that established the cartel, or otherwise coerced other members to join or stay in the cartel.
· The second successful leniency applicant may be granted a reduction of the applicable fines by 30-50%, whereas the third successful leniency applicant may be granted a reduction by 20-30%. Any further applicants may be granted a reduction of up to 20%.
· Leniency applicants must submit a formal leniency application setting out crucial evidence as required by the enforcement agency in order to benefit from the above immunity or reductions. Informal, anonymous enquiries may be made to the enforcement agency prior to the submission of a formal application, and there are stricter conditions on applicants seeking a leniency marker than seen in jurisdictions such as the EU or Hong Kong.
· One important factor to note is the lack of any explicit protections on confidentiality. This could mean that materials contained in a leniency application may be subsequently used against the leniency applicant, for example in damages claims from third parties that have suffered losses due to the cartel (known as “follow-on damages claims”). Potential leniency applicants must therefore take this consideration into account when considering whether to make such an application.
In addition to leniency, under Article 45 of the AML, any undertaking being investigated for anti-competitive (or ‘monopoly’) conduct may offer commitments to the enforcement agency in return for a termination of the investigation. These commitments should include practical measures to reduce or remove any anti-competitive outcome of the conduct being investigated.
The procedure for offering such commitments is now formalised in the new Commitments Guidelines.
Key highlights of the Commitments Guidelines include:
· Whilst Article 45 of the AML does not explicitly state the scope of its application, the Commitments Guidelines explicitly rules out the possibility of undertakings offering commitments in relation to "hard-core"cartels between competing undertakings.
· An enforcement agency will typically not accept commitments from undertakings after it has issued the advance notice on administrative penalties in relation to any infringement.
· The enforcement agency shall have discretion as to the duration applicable to any commitments agreed. If an undertaking is of the view that it has fulfilled its commitments, or that there has been a material change of competitive conditions, prior to the expiry of the duration of a commitment, it may apply to the enforcement agency for an early termination.
· When considering whether to accept commitments offered, the enforcement agency can consider the following factors:
(i) the subjective attitudes and intentions of the undertaking involved in monopoly conduct;
(ii) the nature, duration, consequences and impact of the monopoly conduct; and
As the title suggests, the Auto Sector Guidelines targets antitrust issues that commonly arise in the automobile sector. The automobile sector is one that is often targeted by competition law regulators around the world, particularly in the EU, where there is an active investigation into anti-competitive conduct in the context of emissions technology.
However, the Auto Sector Guidelines provide substantive commentary and guidance on many key issues that can be read across to other sectors, such as in relation to vertical relationships and different forms of contractual restrictions that may be imposed between supplier and distributor (such as geographical restraints of distribution activities).
Key highlights of the Auto Sector Guidelines include:
· Vertical geographical and customer restraints are presumed to fall within the efficiencies exemption set out in Article 15 of the AML if they are entered into between parties that have less than 30% market share. However, this is a rebuttable presumption and the market share threshold should not be applied rigidly, and discretion should be exercised by enforcement agencies.
· The safe harbour does not apply to ‘core prohibitions’, which include restrictions on ‘passive’ sales by distributors (where a customer from a restricted geographical area or customer group approaches a distributor to purchase a relevant product), restrictions on cross-supplies between distributors and restriction on the sale of spare parts to end users.
· Whilst recommended prices, guide prices or maximum resale prices are generally acceptable under the AML, they can become problematic if a party pressures or incentivises all (or most) distributors to adhere to these prices, such that they are ‘fixed’ resale prices in effect.
The operation of intellectual property (IP) law can seem incongruous with the operation of competition law in certain respects: the former offers protections (and often exclusivity) to the rights holder, whereas the latter seeks to promote competition within the market. This is addressed in Article 55 of the AML, which states that the valid and lawful exercise of IP rights shall be exempted from the AML, whereas the abuse of IP rights through conduct that excludes or restricts competition shall be subject to the AML.
The intersection between the two areas of law is now clarified via the IP Guidelines, which sets out various principles applicable to IP related arrangements, such as licensing.
Key highlights of the IP Guidelines include:
· Agreements relating to IP rights shall not be considered a monopoly agreement under Article 13(1)(6) or Article 14(3) of the AML, if one of the following conditions are met:
· Arrangements relating to IP rights (such as transfer of IP rights, or exclusive licences) that give rise to a change of control, or otherwise allows an undertaking to exercise decisive influence over another, could constitute a notifiable concentration for merger control purposes.
· When assessing whether the holder of standard essential patent rights may be considered to have a dominant position, regard should be had not only to the market position of the rights holder, but also factors such as the value, scope and applicability of the standard, whether there are substitutable standards or technologies, the reliance of any industry on the relevant standards, the maturity and interoperability of the standard and the practical likelihood of replacing a technology contained within the standard.
· The holder of standard essential patent rights can be deemed to have excluded or restricted competition by seeking injunctive relief or an order of a court in order to coerce a licensee to accept unreasonably high licensing fees or other unreasonable contractual conditions.
The HSF Kewei Competition, Regulation and Trade team contains a team of experts in the competition law regime in China and across Asia. If you would like to know more about the contents of this e-bulletin, please get in touch with one of the contacts listed below.
For further information, please contact:
Adelaide Luke, Herbert Smith Freehills