In China, the main law governing cartel activities is the Antimonopoly Law (AML), which was adopted at the 29th session of the 10th National People’s Congress on 30 August 2007 and became effective as of 1 August 2008. Since 2008, the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC) (collectively, the AML enforcement authorities) have also promulgated several rules governing both substantive and procedural aspects of enforcement against cartels:

  • a Rules on Anti-price Monopoly (issued by the NDRC on 29 December 2010, effective as of 1 February 2011) (NDRC Rules);
  • b Rules on Administrative Enforcement Procedure regarding Anti-price Monopoly (issued by the NDRC on 29 December 2010, effective as of 1 February 2011) (NDRC Procedural Rules);
  • c Several Provisions on Regulating the Price-Related Administrative Penalty Power (issued by the NDRC, effective as of 1 July 2014) (NDRC Penalty Rules);
  • d Provisions and Procedures on Investigation and Handling Cases of Monopoly Agreements and Abuse of Dominant Market Position by the Administration for Industry and Commerce (issued by the SAIC, effective as of 1 July 2009) (SAIC Procedural Provisions); and
  • e Rules of Administration for Industry and Commerce on the Prohibition of Monopoly Agreement Behaviours (issued by the SAIC on 31 December 2010, effective as of 1 February 2011) (SAIC Provisions).

Under the authorisation of the Anti-Monopoly Commission (AMC) under the State Council, the NDRC is drafting six antitrust guidelines, of which the following are applicable to cartel investigations: Draft Guidelines on the Application of the Leniency Program to Cases Involving Horizontal Monopoly Agreements (Draft Leniency Guidelines); Draft Guidelines on General Conditions and Procedures on the Exemption of Monopoly Agreements (Draft Exemption Guidelines); Draft Guidelines on Commitments Made by Business Operators in Antitrust Cases (Draft Commitment Guidelines); and Draft Guidelines on Determining Illegal Income of Undertakings’ Monopolistic Behaviours and Fines (Draft Fines Guidelines). These draft guidelines were published by the NDRC in the first half of 2016 to solicit public comments, and the final versions are expected to be issued by the AMC.

Before the AML was enacted, the Anti-Unfair Competition Law of 1993, the Price Law of 1998 and the Bidding Law of 2000 contained certain provisions addressing cartel issues. For example, the Bidding Law regulates in detail collusive bidding and the penalties. This chapter will focus on the AML and the relevant rules promulgated by the NDRC and the SAIC.

ii Types of cartel agreements

The AML mainly follows the EU pattern and prohibits the following monopoly agreements between competing business operators (Article 13 of the AML):

  • a fixing or altering the prices of commodities;
  • b restricting the production quantity or sales quantity of commodities;
  • c dividing sales markets or procurement markets of raw materials;
  • d restricting the procurement of new technologies and new equipment, or restricting the development of new technologies and new products;
  • e jointly boycotting transactions; or
  • f any other monopoly agreement as defined by the AML enforcement authority of the State Council (i.e., the NDRC or SAIC).

Monopoly agreements are defined under the AML as agreements, decisions or other concerted conducts that eliminate or restrict competition.

iii Enforcement authorities

Under the AML, cartel enforcement involves an administrative process. As previously mentioned, the cartel enforcement authority is shared between the NDRC, which is responsible for price-related cartel agreements, and the SAIC, which is responsible for non-price related cartel agreements.

The NDRC and the SAIC delegate their power to their subordinate counterparts. The NDRC generally delegates its power to the provincial price authorities, while the SAIC delegates its power to provincial administrations for industry and commerce (AICs) on a case-by-case basis.

II COOPERATION WITH OTHER JURISDICTIONS

Antitrust enforcement is characterised by extensive international cooperation. Over the years, the NDRC and the SAIC have maintained close dialogue with their foreign counterparts and have signed various memoranda of understanding (MOUs).

Notably, in July 2011, the NDRC, the SAIC and the Ministry of Commerce (MOFCOM, responsible for merger control) signed an MOU with the United States Federal Trade Commission and the Department of Justice, laying out the framework for long-term cooperation between both sets of antitrust agencies. The MOU provides for high-level consultation among all five agencies as well as separate communications between individual agencies. It also envisages that the two sides may seek information or advice from each other regarding matters of competition law enforcement and policy.

On 20 September 2012, the NDRC, the SAIC and the Directorate General for Competition of the European Commission (DG Competition) signed an MOU, aiming to strengthen cooperation and coordination between the NDRC, the SAIC and DG Competition in the area of competition legislation, in particular cartels, other restrictive agreements and abuse of dominant market positions under the AML. In addition to exchanging views on matters regarding competition legislation, the MOU also envisages the exchange of non-confidential information and direct coordination of their enforcement activities should the two sides pursue enforcement activities concerning the same or related matters.

The NDRC has also separately entered into MOUs with the UK Office of Fair Trading (OFT) and the Korea Fair Trade Commission (KFTC). The SAIC has signed MOUs with the OFT, the KFTC, the Russian competition authority, the Australian Competition and Consumer Commission, and the Brazilian Administrative Council for Economic Defence.

The signing of MOUs provides the basis for case cooperation between the NDRC or the SAIC and their foreign counterparts on investigations against international cartels. To date, however, there have been no specific cases where the NDRC or the SAIC have cooperated with foreign agencies in a cartel investigation.

As there is no criminal liability for entering into a cartel agreement under the AML, it is unlikely that the NDRC or the SAIC would accede to extradition requests from foreign jurisdictions regarding Chinese citizens, or make extradition requests to pursue foreign nationals. According to the Extradition Law of China, the conduct, based on which a foreign country makes an extradition request, must constitute a crime under both Chinese law and the law of the requesting country. None of the MOUs signed by the NDRC or the SAIC with their foreign counterparts envisage any cooperation in relation to extradition or extraterritorial discovery.

III JURISDICTIONAL LIMITATIONS, AFFIRMATIVE DEFENCES AND EXEMPTIONS

i Extraterritorial jurisdiction

Pursuant to Article 2 of the AML, the AML will apply to monopoly conduct occurring overseas if the conduct has the effect of restricting or eliminating competition in the Chinese market. Due to the extraterritorial application of the AML, the NDRC and the SAIC have the authority to investigate cartel activities occurring in another country if the cartels have affected the domestic Chinese market. Therefore, even if a cartel agreement is concluded overseas, and the companies that enter into the cartel agreement have no physical presence in China or any substantial contact with China, the NDRC and the SAIC are still entitled to investigate the cartel and the companies as long as the cartel has affected the Chinese market.

For example, in the Japanese auto parts case, the NDRC found that the cartel involved several operators outside the territory of China. However, the products were sold to Chinese car makers with prices agreed between cartelists, thus having an impact on the Chinese market. Therefore, the NDRC exerted its extraterritorial jurisdiction in order to investigate those cartelists located outside of China, and concluded that their behaviour had violated Article 13(1) of the AML.

ii Exemptions

Pursuant to Article 15 of the AML, the prohibition against cartel agreements will not apply where a business operator is able to prove any of the following:

  • a the objective is for technological improvement or research and development of new products;
  • b the objective is to raise product quality, lower costs, improve efficiency, standardise product specifications or standards, or implement specialisation;
  • c the objective is to increase the efficiency of small and medium-sized enterprises and to strengthen their competitiveness;
  • d the objective is to fulfil public interest objectives such as energy conservation, environmental protection and disaster relief;
  • e the objective is to alleviate a serious drop in sales quantity or obvious overproduction in times of recession;
  • f the objective is to protect legitimate interests in foreign trade and economic cooperation; or
  • g any other circumstances stipulated by the laws and the State Council.

In addition, a company intending to invoke exemptions under items (a) to (e) above must also prove that the agreement it has entered into would not severely restrict competition in the relevant market, and that the agreement would bring about benefits for consumers.

However, antitrust authorities rarely apply Article 15 to cartel cases in practice. According to publicly available information, no cartel cases have yet been exempted based on the above-mentioned exemptions.

In addition to the aforementioned cross-industry exemptions, Article 56 of the AML provides an exemption for the agricultural industry: the AML will not apply to cooperative or collaborative acts between agricultural producers and rural economic organisations in business activities such as the manufacturing, processing, sale, transportation and storage of agricultural products. There are no other industry-specific exemptions available thus far.

IV LENIENCY PROGRAMMES

i Legal basis and scope of leniency programme

Article 46 of the AML provides general rules for a leniency programme, indicating that where an operator has voluntarily reported the relevant facts on entering into a monopoly agreement to the regulatory authority and provided important evidence, the regulatory authority may, at its discretion, reduce or waive the sanction for such an operator. According to this provision, leniency treatment can only be applied to monopoly agreements. For other monopolistic conduct, such as abuse of a dominant market position, the leniency programme is not applicable.

There are two constitutive requirements for leniency application. One is that the applicant needs to voluntarily make a report on the monopoly agreement to the regulatory authority, and the other is that the applicant needs to provide important evidence that is crucial for the authorities to launch an investigation or to affirm monopolistic agreement behaviour, including the business operators involved in the monopoly agreement, the scope of products involved, the content of the monopoly agreement and the way such an agreement was reached, and how such an agreement was implemented.

There is no Immunity Plus or Amnesty Plus in the AML or the rules issued by the NDRC and the SAIC.

In addition, Article 46 does not distinguish between horizontal and vertical agreements, but rather uses the general term ‘monopoly agreement’. In practice, in order to ensure the efficiency and effectiveness of its enforcement activities, the NDRC applies its leniency programme to both horizontal and vertical agreements. For example, in the infant formula case, the NDRC granted full immunity to three milk powder manufacturers who voluntarily reported their RPM violations and provided important evidence related thereto. The Draft Leniency Guidelines, however, are formulated to be applied to horizontal monopoly agreements (i.e., cartels) only, which indicates a change to the current approach.

ii Comparison of leniency programmes of the NDRC and the SAIC

The NDRC Procedural Provisions and the SAIC Provisions each set out the details of their own leniency programmes, which show some subtle differences in, among others, the sliding scale of fine reductions and treatment of the organiser or ringleader of a cartel.

The NDRC Procedural Provisions provide that the NDRC may grant full immunity to the first applicant who voluntarily reports the facts of the monopoly agreement and provides important evidence to the NDRC. The wording suggests that the first applicant may not necessarily be granted full immunity by the NDRC.

Compared with the NDRC Procedural Provisions, the SAIC programme has more certainty. The SAIC Provisions expressly provide that immunity from fines shall be provided to a business operator who is the first to voluntarily report relevant information regarding the monopoly agreements, as well as providing material evidence, and offers comprehensive and voluntary cooperation during the investigation.

The two programmes also differ in that the SAIC programme explicitly provides that the SAIC may not exempt or reduce penalties for the organiser of a cartel agreement, whereas the NDRC programme does not explicitly exclude this possibility.

Another important difference between the two is that the SAIC programme provides no further guidance on the sliding scale of leniency; it only indicates that the civil fines imposed on the subsequent applicants other than the first may be alleviated at the sole discretion of the SAIC. On the other hand, the NDRC programme explicitly stipulates that the second applicant of the programme may receive a reduction of no less than 50 per cent, and the other subsequent applicants may receive reductions of no more than 50 per cent.

Under the AML, no administrative fines or any other legal responsibilities are imposed on the employees of a company that enters into a monopoly agreement. Therefore, there is no immunity or leniency for individual employees.

The Draft Leniency Guidelines are expected to unify the differences between the NDRC and the SAIC programmes. As stipulated by the Guidelines, the first leniency applicant will receive no less than an 80 per cent fine reduction or full immunity, the second applicant will receive a 30 per cent to 50 per cent fine reduction, and the subsequent applicants will receive no more than a 30 per cent fine reduction. Moreover, the Guidelines also provide that the business operator that coerces or organises other business operators to participate in the conclusion and implementation of the monopoly agreements will generally not be granted full immunity, but the operator can receive certain reduction of penalties.

iii Application of leniency programme

Since 29 July 2013, the SAIC has launched a publication platform for antitrust enforcement decisions, where the final penalty decisions of all cases that have been closed will be published on the SAIC’s website, including 23 cartel cases as of 10 December 2016. As regards the NDRC, according to an announcement made by a senior NDRC official in November 2014, the agency is aiming to gradually publish the full text of all its enforcement decisions. As of 10 December 2016, the NDRC has published the full administrative penalty decisions of seven cases, of which one is an abuse of dominance case, one is a vertical monopoly agreement case and the other five are cartel cases.

According to the decisions that have been published by the NDRC, most of the leniency applicants were granted full immunity or reduction of fines to some extent, pursuant to the leniency programme. In particular, NDRC officials expressed on several occasions that the agency encourages cartelists to apply for leniency programmes for the purpose of getting full immunity or a reduction of fines. As for the SAIC, according to the decisions disclosed on its publication platform, there is no clear indication that operators under investigation applied for lenient treatment according to Article 46 of the AML (except for one case where the local AIC granted full immunity to the first leniency applicant), and therefore it is not clear how the SAIC would implement the leniency programme.

iv Highlights of the Draft Leniency Guidelines

The Draft Leniency Guidelines provide more detailed guidance as to how to apply for the leniency programme.

Pursuant to the Guidelines, when making the report on the engagement of the monopoly agreement, the following elements should be included in the report:

  • a participants to the monopoly agreement and their basic information (including the names, addresses, contact information and representatives);
  • b details of the communications regarding the monopoly agreement (including the time, place, content of communication, and participants);
  • c products or services, prices and quantity that are involved in the monopoly agreement;
  • d regions and market scale affected by the monopoly agreement;
  • e duration of the monopoly agreement; and
  • f explanation on the evidence submitted by the business operator.

As for the important evidence, the Draft Leniency Guidelines require that the evidence should be sufficient to enable the AML enforcement authority to initiate an investigation if it has not yet obtained clues or evidence of the case. If the AML enforcement authority has started an investigation, the important evidence must be the evidence with significant value added for the ultimate determination of the monopoly agreement, including:

  • a evidence with greater probative force or supplementary probative value regarding the conclusion and implementation of the monopoly agreement;
  • b evidence with supplementary probative force concerning contents of the monopoly agreement, the time of reaching and implementing of the monopoly agreement, products or services involved, and relevant participants; and
  • c other evidence that can enhance the probative force of the evidence regarding the monopoly agreement.

Moreover, to apply for the leniency programme, the Draft Leniency Guidelines require that, in addition to voluntarily reporting the facts of a monopoly agreement and providing important evidence, the applicants should also fulfil the following obligations:

  • a timely stop the suspected illegal conduct;
  • b cooperate with the AML enforcement authorities in the investigation in a prompt, continuous, comprehensive and faithful manner;
  • c properly preserve and provide evidence and information, and not conceal, destroy, transfer evidence or submit false material and information;
  • d not disclose information about the leniency application without prior approval of the AML enforcement authorities; and
  • e not engage in any other conduct that may affect the enforcement of the AML.

The Draft Leniency Guidelines introduce the marker system into the leniency programme for the first time. According to the Guidelines, if the business operator cannot provide all materials and information at the time it files for leniency, the operator can first submit a preliminary report to mark its ranking with the AML enforcement authority. In the preliminary report, the business operator must explicitly admit its involvement in the monopoly agreement and give a brief description of the conclusion and implementation of the monopoly agreement, including information as to the relevant participants, the products or services involved and time of conclusion and implementation. The AML enforcement authority will then issue a written opinion, requesting the business operator to supplement relevant materials within a limited period of time (no more than 30 days or 60 days under special circumstances). If the business operator can supplement the requested materials within the time limit, the AML enforcement authority will regard the time when the business operator submits the preliminary report as the time when the business operator files the leniency application.

V PENALTIES

i Statutory basis for and types of liability

Under the AML, cartel behaviour is treated as an administrative rather than a criminal offence. Pursuant to Article 46 of the AML, where a business operator has entered into and implemented a monopoly agreement, the NDRC or the SAIC will order the business operator to stop the illegal conduct and confiscate the illegal income, and impose a fine ranging from 1 to 10 per cent of the sale amount of the preceding year. Where a monopoly agreement has been entered into but has not been implemented, a fine of up to 500,000 yuan may be imposed. In practice, the penalty of confiscation has rarely been implemented by the NDRC. The agency normally only imposes the other two forms of penalties (i.e., imposing a certain amount of fines and ordering the business operator to stop the illegal conduct).

Article 46 also provides the following administrative sanctions for an industry association that has violated the AML by organising a monopoly agreement between business operators in the industry: a fine of up to 500,000 yuan may be levied and the industry association may be deregistered if the case is serious.

In addition to the administrative sanctions, pursuant to Article 50 of the AML, cartelists bear civil liabilities if the cartel arrangement causes losses to others.

As previously mentioned, the AML does not provide for any criminal liabilities arising from cartel activities either for business entities or individual employees. Bid rigging, however, may be subject to criminal liability. Article 223 of the Criminal Law regulates the crime of collusion in offering a bidding price. Bidders who act in collusion with each other in offering bidding prices, thus jeopardising the interests of the tenderee or of other bidders, will be sentenced to fixed-term imprisonment of up to three years, or criminal detention if the circumstances are serious.

ii Factors considered in determining the fine

Pursuant to Article 49 of the AML, when determining fines, the authorities must consider factors such as the nature, seriousness and duration of the illegal acts. The SAIC Provisions contain similar rules. According to Article 10 of the SAIC Provisions, when determining the specific amount of the fine, the SAIC must consider factors such as the nature, details, seriousness and duration of the illegal acts. Further, if a business operator voluntarily ceases any acts amounting to monopoly agreements, the SAIC may, at its discretion, reduce the penalty for such business operators, or exempt them from the penalty.

The NDRC Penalty Rules, which took effect as of 1 July 2014, provide more detailed guidance on the determination of fines. The NDRC Penalty Rules explicitly stipulate five kinds of decision that could be made by the NDRC and its provincial counterparts: no punishment, mitigated punishment, lighter punishment, due punishment and heavier punishment. Similar to the relevant rules set forth in the SAIC Provision, when considering the penalties to be imposed, the NDRC and its provincial counterparts would take into account factors such as the seriousness and duration of the illegal acts, whether the operator ceases the monopoly agreement on its own initiative, whether the operator proactively eliminated or mitigated the harmful effects of the illegal acts, whether the operator cooperates with the authorities, the role of the operator in the monopoly agreement, etc.

The Draft Fines Guidelines, published on 17 June 2016, provide more detailed guidance on the calculation of illegal gains and fines to be imposed on business operators that violate the AML. In particular, the Draft Fines Guidelines introduce a ‘three-step’ fine calculation method, which consists of:

  • a Step one: determination of sales value of the business operator in the preceding year, which is the fiscal year prior to the initiation of the relevant investigation or to the cessation of the monopolistic conduct if the conduct has been ceased before the AML enforcement authority initiates an investigation.
  • b Step two: determination of the basic percentage for calculating the basic amount of fines by considering the nature (3 per cent for cartel violations under Article 13(1), (2) and (3) and 2.5 per cent for cartel violations under Article 13(4), (5) and (6)) and the duration of the illegal conduct (adding 1 per cent for each additional year and for the period more than six months but less than one year and 0.5 per cent for the period less than six months).
  • c Step three: making adjustments to the basic percentage by considering other factors in relation to heavier, lighter or mitigated punishment and in accordance with the seriousness of the illegal conducts, thereby determining the final percentage for calculating the fines and calculating the final amount of fines to be imposed.
iii Suspension procedure

Article 45 of the AML provides that where, during the investigation of alleged monopoly conduct by the AML enforcement authorities, the business operator under investigation undertakes to adopt specific measures to eliminate the consequences of such conduct within the time period approved by such agencies, the AML enforcement authorities may decide to suspend the investigation (the ‘commitment programme’).

Although the AML does not restrict the application of the commitment programme, the Draft Commitment Guidelines provide that for horizontal monopoly agreements regarding fixing or altering the prices of commodities, restricting the production quantity or sales quantity of commodities and dividing sales market or procurement markets of raw materials (i.e., cartels prescribed by Article 13(1)-(3)), the law enforcement agencies shall not accept any commitment made by the operators concerned and suspend the investigation.

Application for suspension

The SAIC Procedural Provisions and the NDRC Procedural Provisions further clarify how a business operator under investigation can apply for suspension of the investigation. Pursuant to the two rules, an application for suspension of investigation must be made in writing, and at the least specify:

  • a the facts about the alleged violation of law and its potential impact;
  • b specific measures to be adopted for elimination of the impact of the conduct; and
  • c the schedule for fulfilment of the commitment.
Decision on suspension of investigation

Pursuant to the SAIC Procedural Provisions, the SAIC may take into account factors such as the nature, duration, consequences and social impact of the conduct when making a suspension decision. The decision must also be in writing.

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

Termination of investigation

Even if a suspension decision is made, the AML enforcement authority continues to monitor the implementation of the commitments made by the business operator, and the business operator must submit written reports of its fulfilment of the commitments to the authority within a specified time period.

The AML enforcement authority may decide to terminate the investigation provided that the business operator has duly performed its commitments and eliminated the consequence of their conducts.

Resumption of investigation

The AML enforcement authority must resume its investigation if:

  • a the business operator fails to fulfil its undertakings;
  • b the facts on which the suspension decision is based change significantly; or
  • c the suspension decision was made on the basis of incomplete, untrue or misleading information provided by the business operator.

VI ‘DAY ONE’ RESPONSE

i Scope of the authorities’ investigative power

To be prepared for a dawn raid, it is essential for companies to be aware of the scope of the authorities’ investigative powers. Pursuant to Article 39 of the AML, the NDRC or the SAIC may adopt the following measures in the investigation of a cartel agreement:

  • a enter the business premises or any other relevant premises of the business operator under investigation to carry out an inspection;
  • b interview the business operator under investigation, the interested parties or any other related organisations or individuals, and require them to provide a relevant explanation;
  • c inspect or make copies of relevant documents and materials such as certificates, agreements, accounts books, business correspondence and electronic data of the business operator under investigation, interested parties or any other related organisations or individuals;
  • d seize or impound the relevant evidence; or
  • e enquire into the bank accounts of the business operator.

To adopt the foregoing measures, a written report must be submitted to the key person in charge of the AML enforcement authority for approval.

ii Limitation of investigatory power

Article 40 of the AML provides that, when conducting an inspection, at least two officials must be present, and they must present identification showing their authority to carry out the inspections.

If the enforcement agencies conduct face-to-face or telephone interviews of relevant personnel, they must keep written records of the interview. The interviewees have the right to verify the written records before they sign and confirm the content.

Article 41 of the AML provides that the AML enforcement authority and its personnel are obligated to keep confidential any commercial secrets that come to its notice during the enforcement process.

iii Privilege

The concept of attorney–client privilege does not exist in Chinese law, so confidential communications between a lawyer and a client are not privileged.

Article 33 of the Lawyer’s Law provides that lawyers must protect the confidentiality of their clients’ private information and, if they are aware of any of their clients’ trade secrets, they must also protect them. Article 33 does not, however, exempt lawyers from being forced to disclose this information in a judicial action. According to Article 70 of the Civil Procedure Law, a court can order a lawyer to testify about a client’s private information or trade secrets in a judicial proceeding.

In addition, Chinese law does not protect any legal document and correspondence that is marked ‘confidential and privileged’, meaning that lawyers and their clients are not exempt from disclosing information that would otherwise be protected by attorney–client privilege outside China.

iv Penalties for refusing to cooperate with the authorities

According to Article 52 of the AML, any party that refuses to provide the relevant materials or information to the AML enforcement authority, provides false materials and information, conceals, destroys or removes evidence, or commits any other act to refuse or obstruct investigation, may be ordered by the AML enforcement authority to make reparations; a fine of up to 20,000 yuan may be imposed on individuals, and a fine of up to 200,000 yuan may be imposed on organisations. Where the case is serious, fines of between 20,000 yuan and 100,000 yuan may be imposed on individuals, and fines of between 200,000 yuan and 1 million yuan may be imposed on organisations. Where the case constitutes a criminal offence, criminal liability shall be pursued in accordance with the law.

VII PRIVATE ENFORCEMENT

i Statutory basis of civil antitrust action

Article 50 provides the legal basis for private AML civil actions, stipulating that business operators who engage in monopolistic conducts and cause damages to others must bear civil liabilities.

In April 2011, the People’s Supreme Court of China (Supreme Court) released the Provisions on Issues Concerning the Application of Law in relation to Trials of Monopoly Civil Dispute Cases (Draft Judicial Interpretation) to solicit public comments. In May 2012, the Supreme Court officially promulgated the Provisions on Several Issues Concerning the Application of Law in Hearing Civil Cases Caused by Monopolistic Conduct (Judicial Interpretation) governing AML private actions. The Judicial Interpretation, effective since 1 June 2012, contains 16 articles covering standing of plaintiffs, jurisdiction, burden of proof, evidentiary rules, expert witnesses, the judicial process, form of civil liabilities and the statute of limitations.

According to the Judicial Interpretation, any individual, legal person or other entity that is harmed by monopolistic acts or that has disputes over anticompetitive contract clauses or by-laws of trade associations has the standing to bring an AML civil action. Although the Judicial Interpretation does not expressly grant indirect purchasers the right to sue, it appears that as long as an indirect purchaser can prove that it has suffered actual damages as a result of the defendant’s monopolistic conduct, it has the right to sue under the AML.

The Judicial Interpretation also confirms that a plaintiff can either bring a tort action or a non-tortious action, for example, to invalidate clauses in a contract or by-laws of trade associations that are in violation of the AML. In addition, since the AML does not mandate ex ante administrative proceedings, the Judicial Interpretation recognises that a plaintiff can either directly bring a stand-alone action or a follow-on action after the decision of the AML enforcement authorities becomes effective.

Since China enacted the AML in 2008, the number of private litigations has been on the rise. The number of all cases accepted by the courts rose significantly in 2012. The majority of such cases concern abuse of dominance, and the courts rarely found a violation of the AML. According to publicly available information, no civil damages claims have yet been brought by cartel victims.

The number of antitrust civil litigation cases in China over the past few years is as follows:

  • a August 2008–2009: 10 cases accepted, six cases closed;
  • b 2010: 33 cases accepted, 23 cases closed;
  • c 2011: 18 cases accepted, 24 cases closed;
  • d 2012: 55 cases accepted, 49 cases closed;
  • e 2013: 72 cases accepted, 69 cases closed; and
  • f 2014: 86 cases accepted, 79 cases closed.
ii Joint action

There is no exact equivalent to class actions in the Chinese litigation system. Instead, China’s Civil Procedure Law provides for a joint application regime. If applicants have a common cause of action or if their action belongs to the same category, they may apply to a court jointly. This right to file joint applications is contingent upon the court approving such a joint action and upon the applicants agreeing to file such an action together.

Where there are numerous plaintiffs in a joint application, representatives may be selected by and from the group of plaintiffs. After obtaining special authorisation from the plaintiffs that they represent, the representatives may attend open court trials, change or waiver claims, recognise claims of the opposing party, settle with the opposing party or enter into a settlement agreement with the opposing party, or lodge a counterclaim or appeal. Actions undertaken by such representatives will be effective in relation to all joint applicants, except for certain major decisions, such as confirmations, modifications and waiver of claims of actions.

In joint actions, the court possesses the right to issue public notices, which state the particulars and claims (in respect of joint applications), instructing other potential applicants to file with the court within a certain time. Judgments or orders rendered by the court are effective for all joint applicants. The same judgments or orders are binding on applicants who have not filed with the court but instituted legal proceedings within the court’s aforementioned time limit.

Joint actions provide the opportunity to pool resources. However, to date there appear not to have been any public joint AML applications before the courts in China.

In addition to the above, the newly amended Civil Procedure Law (amended in 2012) and Law on the Protection of Consumer Rights and Interests (amended in 2013) provided organisations such as consumer associations with the legal rights to bring lawsuits against activities detrimental to the consumers’ legitimate rights and interests. There has not yet been a case of consumer associations filing lawsuits against cartel behaviour.

iii Calculation of damages

The Judicial Interpretation does not provide detailed rules on how to calculate damages if a plaintiff is injured by monopolistic conduct, including a cartel agreement. Therefore, the basic principle of recovery of actual losses must be followed in determining the damages. Nevertheless, the Judicial Interpretation provides that, upon the request of the plaintiff, the court may include any reasonable expenses paid by the plaintiff for the investigation and prohibition of monopolistic conduct in the damages.

iv Interplay between government investigations and private litigation

As previously mentioned, both stand-alone and follow-on litigations are allowed under the AML private action regime.

In practice, the administrative enforcement process and the judicial process may overlap. The Draft Judicial Interpretation has several provisions on how to reconcile this interrelationship. For example, it provides that, in a follow-on litigation, the parties do not have to bear the burden of proving facts that have already been determined by the AML enforcement authorities in relation to whether actions constituting monopolistic conduct took place. It also provides that, if the monopolistic conduct at dispute is being investigated by an administrative agency without coming to any finding, the courts may still conduct a comprehensive review of the parties’ claims and render judgment, or decide to suspend the civil lawsuit if necessary.

The Draft Judicial Interpretation also touches upon the evidence surrendered voluntarily in a leniency programme, and provides that, if such evidence is not yet public but is necessary for cross-examination in a court litigation, the courts may adopt measures to protect the confidentiality of such evidence.

Unfortunately, the officially enacted Judicial Interpretation chooses to stay silent on the foregoing issues. According to the Head of the Intellectual Property Division of the Supreme Court in a press interview, issues that are too controversial have all been removed. The only remaining provision that sheds light on how an administrative proceeding may interact with a judicial proceeding relates to the statute of limitation. Pursuant to the Judicial Interpretation, the statute of limitation will be terminated if a plaintiff reports the monopolistic conduct at dispute to the enforcement authorities. If the administrative authorities decide not to initiate a case, or to annul the case or terminate the investigation, the time limitation of legal proceedings will be recalculated from the day on which the plaintiff knows of or should know of the non-initiation, annulment or termination of the investigation. In practice, the role an administrative decision will play in a follow-on litigation and how the judiciary will interact with AML enforcement authorities remain to be tested. In general, the findings and conclusions of AML enforcement authorities are not binding on the court. However, such findings and conclusions are more likely to be adopted by the people’s court compared with other documented evidence in accordance with Article 77(1) of the Provisions on Evidence, which provides that the documents formulated by state organs or social bodies according to their respective functions are, as a general rule, more forceful than other written evidence. Therefore, a valid decision finding the defendant in violation will be a persuasive, influential and valuable piece of evidence in the follow-on litigation.

As for the materials submitted in accordance with the leniency programme, the Draft Leniency Guidelines provide more clear guidance on whether it will be adopted in a court proceeding. According to the Draft Leniency Guidelines, all reports submitted and documents generated under the Guidelines must be kept in special archives by the AML enforcement authorities and must not be disclosed to any third party without the consent of the business operator concerned; in the meantime, the documents must not be used as evidence in relevant civil proceedings, unless otherwise stipulated by the laws.

VIII CURRENT DEVELOPMENTS

i SAIC developments

On 29 July 2013, the SAIC held a press conference to announce that it has launched a publication platform for antitrust enforcement decisions. As of 10 December 2016, the final penalty decisions of 42 cases have been published on the SAIC’s website, among which 23 cases relate to cartels. The most recent cases closed in 2015 and 2016 are listed in the tables below.

Case

Decision

Amount of penalty

Investigated conduct

Leniency application

Monopoly agreement organised by Shale Brick Association and participated in by 29 undertakings in Mayang Autonomous County

1 January 2015

1.3894 million yuan in total

Horizontal monopoly agreement of output restriction and market allocation

Not mentioned

Monopoly agreement organised by Guangdong Comics Youyi Association

9 July 2015

100,000 yuan in total

Horizontal monopoly agreement of jointly boycotting transactions

Not mentioned

Monopoly agreement reached among 12 insurers in Hubei Province

June 2015

210,300 yuan in total

Horizontal monopoly agreement of market allocation

Not mentioned

Monopoly agreement reached by seven concrete companies in Hunan Province

November 2015

180,000 yuan in total

Horizontal monopoly agreement of market allocation

Full immunity was granted to the first applicant

Monopoly agreement reached by 17 insurance companies in Jiangxi Province

28 December 2015

5,278,783 yuan in total

Horizontal monopoly agreement of market allocation

Not mentioned

Monopoly agreement reached by 23 accounting firms in Shandong Province

21 March 2016

1,982,600 yuan in total

Horizontal monopoly agreement of market allocation

Not mentioned

Monopoly agreement organised by insurance association and participated in by 27 insurance firms in Hubei Province

6 May 2016

200,000 yuan in total

Horizontal monopoly agreement of market allocation

Not mentioned

Monopoly agreement reached by three high-technology companies in Anhui Province

18 September 2016

410,613.85 yuan in total

Horizontal monopoly agreement of market allocation

Not mentioned

ii NDRC developments

Unlike the SAIC, as of 10 December 2016, the NDRC has published six administrative penalty decisions (including five cartel cases and one abuse of dominance case) on its official website, four of which involve the leniency programme. From the publicly available information, the NDRC and its provincial agencies levied fines in several cartel cases in 2015 and 2016. Some examples of these cases are listed in the table below.

Case

Decision

Amount of penalty

Investigated conduct

Leniency application

Monopoly agreements reached by pure car carriers

December 2015

407 million yuan in total

Horizontal monopoly agreement of price-fixing and market allocation

Lenient treatments were granted to the cartel participants according to the leniency programme

Monopoly agreements reached by manufacturers of allopurinol

January 2016

4 million yuan in total

Horizontal monopoly agreement of price-fixing and market allocation

Not mentioned

Monopoly agreements reached by manufacturers of Estazolam

July 2016

2.6 million yuan in total

Horizontal monopoly agreement of jointly boycotting and price-fixing

Shandong Xinyi Pharmaceutical voluntarily provided facts about monopoly agreement after agencies had found key evidence. Therefore, the NDRC is of the view that the leniency programme was not applicable

Monopoly agreements reached by 31 providers of vehicle inspection services and an industry association in Xi’an, Shangluo and Yangling

April 2016

5,769,561 yuan in total

Horizontal monopoly agreement of price-fixing

Not mentioned

Pure car carriers cartel case

On 31 December 2015, the NDRC published its final decision on its website against eight pure car carriers for their participation in an international cartel, where the NDRC found that during 2008 to the September 2012, the pure car carriers had frequently conducted bilateral or multilateral communications via phone calls, meetings, social gatherings and special visits and exchanged sensitive information, discussed prices, allocated customers and lanes, and therefore reached and implemented agreements on prices quoted to certain roll-on/roll-off cargo manufacturers regarding businesses in relation to China maritime transportation. The NDRC concluded that the above-mentioned behaviour of the eight pure car carriers constituted a violation of Article 13(1) on monopoly agreements on price-fixing and Article 13(3) on allocation of sales market of the AML. Therefore, the NDRC imposed the penalties on the eight pure car carriers as follows:

  • a Applied leniency treatment to the first three applicants, who had seriously violated the law and should have been fined for 10 per cent of their turnover in relation to China in 2014. The first applicant received full immunity, the second applicant received a 60 per cent fine reduction and was imposed a fine of 4 per cent of the company’s turnover in relation to China in 2014, the third applicant received a 30 per cent fine reduction and were imposed a fine of 7 per cent of the company’s turnover in relation to China in 2014.
  • b For the companies that seriously violated the law but confessed illegal behaviour and submitted evidence regarding the facts that were not found by the NDRC, they received a certain fine reduction because of their cooperation, and received a fine of 9 per cent of company turnover and 8 per cent of company turnover respectively.
  • c For the companies that were only involved in relatively less infringements and played a minor role in the conclusion of the monopoly agreements, they were respectively fined 6 per cent, 5 per cent and 4 per cent of the company turnover.
Estazolam case

On 27 July 2016, the NDRC published its final decision regarding the Estazolam case. In this instance, three local pharmaceutical companies (Huazhong Pharmaceutical Co, Ltd, Shandong Xinyi Pharmaceutical Co, Ltd and Changzhou Siyao Pharmaceutical Co, Ltd) were fined 2.6 million yuan in total for reaching and implementing monopoly agreements on joint boycotting the sales of estazolam API and on raising the prices of estazolam tablets.

According to the final decisions published, the NDRC found that following the government’s announcement of a low-priced drug policy in 2014, the three companies concluded and implemented monopoly agreements by means of meetings, phone calls, text messages and emails in the estazolam API market to jointly boycott other estazolam tablet manufacturers and to fix or change the prices within the market. The NDRC found that between September 2014 and October 2014, the three companies held meetings in Zhengzhou City of Henan Province, where they reached a consensus on the following two points: (1) estazolam APIs shall be for internal consumption of these three companies and they shall refuse supply of estazolam APIs to other business operators; and (2) the three companies shall raise their respective estazolam tablet prices.

As a result, the NDRC found that after October 2014, these companies gradually stopped supplying estazolam APIs to other business operators and the majority of estazolam tablet manufacturers were forced to cease production because of lack of API input. In addition, the NDRC found that, starting from December 2014, the three companies gradually raised the price of estazolam tablets at similar times.

During the investigation, Changzhou Siyao argued that the cease of supplying estazolam APIs was the result of the restriction of its production capacity, while the price of estazolam tablet was set based on the national policy and market intelligence obtained from the market. However, after analysing the structure of relevant market, the communication among the companies and the concerted actions taken by the companies, the NDRC concluded that Changzhou Siyao implemented monopoly agreements on joint boycott transactions and price-fixing.

During the investigation, Shandong Xinyi voluntarily provided facts about the monopoly agreement and applied for leniency treatment. However, the NDRC is of the view that the leniency programme is not applicable to Shandong Xinyi because the report was made after the investigation team had obtained key evidence.

In the end, the NDRC decided that since Huazhong Pharmaceutical played a leading role in the events, the company was imposed a fine of 1,571,829 yuan, amounting to 7 per cent of its annual estazolam tablet sales in 2015. Since Shandong Xinyi actively cooperated with the NDRC in the investigations, which constituted meritorious conduct, it received a mitigated penalty by which its fine was reduced to 2.5 per cent (547,563 yuan) of its annual estazolam tablet sales in 2015. For Changzhou Siyao, since it acted merely as a follower and had actively and voluntarily rectified its wrongdoing, the NDRC fined the company 3 per cent (484,431 yuan) of its annual estazolam tablet sales in 2015.

Footnotes

1 Susan Ning is a senior partner and Hazel Yin and Kate Peng are partners at King & Wood Mallesons.