I Introduction

Article 17 of the Chinese Anti-Monopoly Law (AML) prohibits undertakings with a dominant position in the relevant market from abusing their market dominance. According to Article 17, and subject to the rule of reason, such undertakings are banned from conducting the following seven kinds of abusive activities:

  • a selling commodities at unfairly high prices or buying commodities at unfairly low prices;
  • b without justifiable reasons, selling commodities at prices below cost;
  • c without justifiable reasons, refusing to enter into transactions with their trading counterparties;
  • d without justifiable reasons, requiring trading counterparties to make transactions exclusively with themselves or with the undertakings designated by them;
  • e without justifiable reasons, conducting tie-in sales of commodities or imposing other unreasonable trading conditions on transactions;
  • f without justifiable reasons, applying differential prices and other transaction terms among trading counterparties on an equal footing; or
  • g other acts of abuse of dominant market positions confirmed as such by the AML enforcement authorities under the State Council.

Public enforcement of the AML is carried out by three authorities: the Ministry of Commerce (MOFCOM), which is in charge of merger review; the National Development and Reform Commission (NDRC), which is responsible for combating price-related anticompetitive activities; and the State Administration for Industry and Commerce (SAIC), which regulates non-price-related anticompetitive activities.

In accordance with Article 17 of the AML, abusive activities include both price and non-price-related anticompetitive activities. For example, ‘selling commodities at unfairly high prices' is price-related, while ‘refusing to enter into transactions with their trading counterparties' is deemed non-price-related. The NDRC and SAIC (and their local branches) are the two agencies in charge of antitrust enforcement against abuse of market dominance.

The NDRC, SAIC and the Anti-Monopoly Commission of the State Council (the AMC)2 have released a series of regulations and guidelines in relation to enforcing Article 17 of the AML. Since December 2015, the NDRC, SAIC and the AMC have continued putting their efforta into drafting the AML guidelines, aiming to improve the transparency and predictability of enforcement activities regarding abuse of market dominance. In this respect, the NDRC has released the following for public opinion: Guidelines for the Abuse of Intellectual Property Right,3 Guidelines for Business Operators' Commitments in Anti-monopoly Cases (Guidelines for Commitments),4 Anti-monopoly Guidelines for Automobile Industry,5 Guidelines on the General Conditions and Procedures for Monopoly Agreement Exemption6 and Guidelines on Recognising the Illegal Gains Obtained by Business Operators from Monopolistic Acts and Determining the Amount of Fines.7 The SAIC has also released its version of Guidelines for the Abuse of Intellectual Property Rights for public opinion;8 and the AMC released Guidelines for Abuse of Intellectual Property Rights for public opinion on 23 March 2017 by combining opinions of both NDRC and SAIC.9

II Year in Review

2016 has witnessed a rise of cases related to abuse of market dominance cases, especially in relation to public utility sectors.

i Public enforcement
Cases pursued by the NDRC and its provincial branches

After the Qualcomm case, the NDRC to some extent switched its enforcement focus to cartels and vertical restraints in the pharmaceutical and healthcare sectors. While at the provincial level, the local price bureaus paid more attention on abuse of dominant positions in public utility sectors. For instance, The Price Bureau of Hubei Province imposed fines on five gas suppliers that were determined as charging customers unfairly high prices.10 Furthermore, the Price Bureau of Jilin Province investigated Jihad Group Information Network Technology Ltd for imposing unreasonable trading conditions on transactions, and the Price Bureau of Liaoning Province investigated China Unicom Dandong branch for tying cable broadband products with telecommunication services. All of these cases were concluded in early 2017.11

Cases pursued by the SAIC and its provincial branches

Investigation against Qingdao XinaoXincheng Gas Limited Company12

In March 2016, Shandong AIC closed an investigation against Qingdao Xinao Xincheng Gas Limited Company. This case concerned abuse of dominance of the gas company by charging its users with prepayments without a legal basis or justified reason. Shandong AIC imposed a fine of 6,818,534 yuan on the company, which is equivalent to 3 per cent of the company's turnover in 2013, and meanwhile confiscated illegal gains of 52,308 yuan.

Investigation against Alashanzuoqi City Water Supply & Drainage Company (completed)13

In April 2016, Inner Mongolia AIC completed an investigation against Alashanzuoqi City Water Supply & Drainage Company. This case concerns abuse of dominance of the company by forcing its users to purchase water meters and construction services provided by the company without a legal basis or justified reason. Inner Mongolia AIC imposed a fine of 451,600 yuan, which is equivalent to 2 per cent of the company's turnover in the previous year, and meanwhile confiscated illegal gains of 300,741 yuan.

Investigation against Inner Mongolia Broadcast Television Network Group Ltd Xilingol Branch (completed)14

In June 2016, Inner Mongolia AIC completed an investigation against Mongolia Broadcast Television Network Group Ltd Xilingol Branch. This case concerns abuse of dominance of the company by forcing its users to pay an extra 4 yuan for basic premium TV programmes in addition to the basic TV fee, without justified reasons. Inner Mongolia AIC imposed a fine of 98,000 yuan, a penalty equivalent to 1 per cent of the company's turnover in the previous year, and confiscated illegal gains of 91,600 yuan.

Investigation against Inner Mongolia Chifeng City Salt Company (completed)15

In August 2016, Inner Mongolia AIC completed an investigation against Inner Mongolia Chifeng City Salt Company. This case concerns abuse of dominance of the company by supplying different types of edible salt to retail dealers in different regions without justified reasons. Inner Mongolia AIC imposed a fine of 1,047,814 yuan; a penalty equivalent to 2 per cent of the company's turnover for the previous year, and confiscated illegal gains of 1,940,544 yuan.

Investigation against Urumqi Water Group Ltd (completed)16

In October 2016, Xinjiang AIC completed an investigation against Urumqi Water Group Ltd This case concerns abuse of dominance of the company by forcing its users to exclusively deal with undertakings appointed by the company. XinJiang AIC imposed a fine of 1,493,891 yuan; a penalty equivalent to 1 per cent of the turnover in 2013.

Investigation against Suqian Yinkong Water Ltd (completed)17

In November 2016, Jiangsu AIC completed an investigation against Suqian Yinkong Water Ltd. This case concerns abuse of dominance of the company by forcing real estate developers to exclusively deal with undertakings appointed by the company. Jiangsu AIC imposed a fine of 1,835,071 yuan; a penalty equivalent to 3 per cent of the company's turnover in the previous year, and confiscated illegal gains of 3,665,347 yuan.

Investigation against Hunan Salt Inc, Yongzhou Branch (completed)18

In October 2016, Hunan AIC completed an investigation against Hunan Salt Inc, Yongzhou Branch. This case concerns abuse of dominance of the company by tying different types of edible salt without justified reasons. Hunan AIC imposed a fine of 272,887 yuan; a penalty equivalent to 1 per cent of the company's turnover in 2014, and confiscated illegal gains of 698,300 yuan.

Investigation against Wujiang Huayan Water Ltd (completed)19

In December 2016, Jiangsu AIC completed an investigation against Wujiang Huayan Water Ltd. This case concerns abuse of dominance of the company by imposing unreasonable trading conditions on transactions, without justified reasons. Jiangsu AIC imposed a fine of 21,429,419 yuan; a penalty equivalent to 7 per cent of the company's turnover in 2014.

Investigation against Suqian Petrochina Kunlun Gas (completed)20

In December 2016, Jiangsu AIC completed its investigation against Suqian Petrochina Kunlun Gas Co, Ltd. The company was determined as imposing unreasonable trading conditions on transactions, without justified reasons. Jiangsu AIC imposed a fine of 25,050,000 yuan; a penalty equivalent to 5 per cent of turnover in the previous year.

Investigation against State Grid Shandong Power Company and Yantai City Muping District Power Supply Company (suspended)21

In December 2016, Shandong AIC suspended an investigation against State Grid Shandong Power Company and Yantai City Muping District Power Supply Company. The companies were suspected of abusing their market dominance by appointing their affiliates as construction service companies. During the investigation, the companies admitted the illegal conduct and promised to promptly undertake internal rectification measures; Shangdong AIC, therefore, made a suspension decision.

Investigation against Jiangsu Power Company and Haian Power Supply Company (completed)22

In September 2014, Jiangsu AIC suspended an investigation against Jiangsu Power Company and Haian Power Supply Company. The companies were suspected of imposing unreasonable trading conditions on transactions. The companies submitted an application for suspension of the investigation in August 2014, and promised to undertake corrective measures. In January 2015, the companies submitted a written report for implementation of the corrective measures and applied for termination of the investigation. In August 2016, Jiangsu AIC decided to terminate the investigation in accordance with Article 45 of the AML.

Investigation against three state-owned telecoms companies (completed)23

In December 2016, Ningxia AIC decided to terminate the investigation against three major state-owned telecommunications operators, namely China Tietong, China Unicom and China Telecom, as it was based on a suspicion of tie-in sales without justified reasons. This was done in accordance with Article 45 of the AML, since the three state-owned companies had adhered to their commitments during the preceding suspension period.

Investigation against Chongqing Southwest No.2 Pharmaceutical Factory Co, Ltd (completed)24

In November2016, Chongqing AIC closed an investigation against Chongqing Southwest No.2 Pharmaceutical Factory Co, Ltd for refusal to deal. Chongqing AIC imposed a fine of 17,240 yuan and confiscated illegal gains of 482,884 yuan.

Investigation against Wuhan Xinxing Pharmaceutical Ltd (completed)25

In January 2017, Hubei AIC closed an investigation against Wuhan Xinxing Pharmaceutical Ltd. This case concerns abuse of dominance by imposing unreasonable trading conditions on transactions. Hubei AIC imposed a fine of 372,321 yuan; a penalty equivalent to 3 per cent of the company's turnover in 2015, and confiscated illegal gains of 1,836,900 yuan.

Investigation against Tetra Pak (completed)26

In January 2012, the SAIC launched an abuse of market dominance investigation against Swedish food processing and packaging company Tetra Pak.27 Tetra Pak was determined as tying the sale of packaging materials with its equipment, and practising differential discounting policies amongst its co-contractors.

In September 2014, the SAIC disclosed that it had been investigating in four sectors, including liquid product, packaging equipment, packaging materials and raw materials. The final decision was released in November 2016, with a fine of 667,724,177 yuan, which is equivalent to 7 per cent of the company's turnover in 2011.

Investigation against Microsoft (pending)

An investigation against Microsoft commenced in June 2014. In July of the same year, the SAIC conducted large-scale dawn raids at four of Microsoft's offices, in Beijing, Shanghai, Guangzhou and Chengdu at the same time, with the cooperation of nearly 100 enforcement officers from nine SAIC branches. At the current stage, the SAIC has publicised limited details of the case, and the case is ongoing.

The cases handled by the SAIC and its provincial branches in 2016 are summarised below:

Investigated party

Sector

Investigating authority

Conduct

Case opened

Status

Qingdao Xinaoxincheng Gas Limited Company

Pipeline gas supply

SAIC
(Shandong AIC)

Adding unreasonable conditions

2014

Completed

Alashanzuoqi City Water and Drainage Company

Urban water supply

SAIC
(Inner Mongolia AIC)

Adding unreasonable conditions

2015

Completed

Inner Mongolia Broadcast Television Network Group Ltd Xilingol Branch

TV service

SAIC
(Inner Mongolia AIC)

Adding unreasonable conditions

2015

Completed

Inner Mongolia Chifeng City Salt Company

Edible salt

SAIC
(Inner Mongolia AIC)

Differential treatment

2014

Completed

Investigation against Urumqi Water Group Ltd

Urban water supply

SAIC
(Xinjiang AIC)

Requiring trading counterparties to make transactions exclusively with the undertakings designated by them

2014

Completed

Suqian Yinkong Water Ltd

Urban water supply

SAIC

(Jiangsu AIC)

Requiring trading counterparties to make transactions exclusively with the undertakings designated by them

2015

Completed

Hunan Salt Inc, Yongzhou Branch

Edible salt

SAIC

(Hunan AIC)

Tying

2015

Completed

Wujiang Huayan Water Ltd

Urban water supply

SAIC
(Jiangsu AIC)

Adding unreasonable conditions

2015

Completed

Suqian Petrochina Kunlun Gas Co, Ltd

City pipeline gas supply

SAIC
(Jiangsu AIC)

Adding unreasonable conditions

2015

Completed

State Grid Shandong Power Company and Yantai City Muping District Power Supply Company

Power Supply

SAIC
(Shandong AIC

Requiring trading counterparties to make transactions exclusively with the undertakings designated by them

2014

Suspended

Jiangsu Power Company and Haian Power Supply Company

Power Supply

SAIC
(Jiangsu AIC)

Adding unreasonable conditions

2013

Completed

Ningxia branches of China Tietong, China Unicom and China Telecom

Telecommunications

SAIC
(Ningxia AIC)

Bundling

2013

Completed

Chongqing Southwest No. 2 Pharmaceutical Factory Co, Ltd

Pharmaceutical

SAIC
(Chongqing AIC)

Refusal to deal

2016

Completed

Wuhan Xinxing Pharmaceutical Ltd

Pharmaceutical

SAIC
(Hubei AIC)

Adding unreasonable conditions

2016

Completed

Tetra Pak

Food processing and packaging

SAIC

Tying, restraint on transaction, and loyalty rebates

2012

Completed

Microsoft

Software

SAIC
(Guangdong AIC)

Bundling

2014

Pending

ii Private enforcement
Wu Xiaoqin (Individual) v. Shaanxi Broadcast and TV Network Intermediate (Group) (completed)28

In 2012, Wu Xiaoqin, a cable TV user of Shaanxi Broadcast & TV Network Intermediary (Group), brought a lawsuit to Xi'an Intermediate People's Court, claiming the company bundled chargeable cable TV programmes with basic TV services.

The Xi'an Intermediate Court supported Wu Xiaoqin's claim that Shaanxi Broadcast and TV Network Intermediary (Group) abused its dominance in the local cable TV service market by tying the sales of basic services with paid services. The Shaanxi Broadcast & TV Network Intermediary appealed, and the High People's Court of Shaanxi province overturned the ruling of the lower Xi'an court in September 2013.

Wu Xiaoqin filed a petition for legal review with the Supreme People's Court, and in May 2016 the Supreme People's Court overturned the Shaanxi High People's Court's second-instance ruling. It was the first time for an individual plaintiff to win in civil antitrust case. This case is announced as a guide case in antitrust filed by the Supreme People's Court.

Yunnan Yingding v. Sinopec29

Sinopec and the Yunnan branch of Sinopec's trading company were alleged to have abused their market-dominant position by refusing to incorporate biodiesel produced from waste cooking oil by Yingding, a bio-energy manufacturer, into Sinopec's distribution system, without justifiable reasons. The lawsuit was filed with the Kunming Intermediate People's Court (the Kunming Court) in China's Yunnan province in January 2014.

The Kunming Court ruled against Sinopec despite not clearly addressing some issues, such as the definition of the relevant market, whether the conduct constituted refusal to deal in the sense of the AML, and whether any justifiable reason existed. Sinopec was ordered to incorporate Yingding's biodiesel within 30 days of the ruling dated 8 December 2014, in accordance with the Renewable Energy Law and the AML. Yingding and Sinopec have both appealed to the High People's Court of Yunnan Province.

With regard to the foregoing issues, the lawyer representing Sinopec, in the second instance, pointed out that the distribution channels for biodiesel were not the same as those for petroleum products, and oil sales were not the sole channels to which biodiesel manufacturers could resort. Thus, the relevant product market in this case should be defined as the market for fatty acid methyl ester. Specifically, Sinopec itself did not produce biodiesel and therefore was not Yingding's competitor. From this perspective, it was also hard to gauge whether the purpose of Sinopec's refusal to purchase Yingding's biodiesel constituted elimination or restriction of competition. Also, apparent problems with the quality of the biodiesel produced by Yingding also formed a significant argument for justifiable reasons for Sinopec.

This antimonopoly lawsuit - the first filed against a state-owned oil company in China - attracted the attention of the whole industry. The drafter of the national standard for biodiesel blend stock for diesel engine fuels, and an expert in economics were also brought in as expert witnesses to assist in clarifying facts before the court.

On 13 August 2015, Yunnan High People's Court reversed the first instance ruling and remanded the case on account of unclear facts and procedural errors, and this case was then sent back to the Kunming Court for retrial.

Kunming Intermediate Court held the retrial of the lawsuit in June 2016, and found that the pilot programme of switching gutter oil to biofuel had been confronting challenges from an enterprise development and commercial angle. Therefore, Kunming Intermediate Court determined that the two defendants' refusal-to-trade practice was justifiable because it was in line with their own economic benefits and consumers' interests without bringing about any monopolistic benefits. Yunnan Yingding appealed on the grounds that mistakes in fact-finding, erroneous application of the law and incorrect procedures were evident in the case. The hearing of second instance for the retrial was held on 28 April, 2017, and the final decision is awaited.

Four Chinese Rare Earth Companies v. Hitachi Metals (pending)30

Four Chinese rare earth companies, Ningbo Ketian Magnet, Ningbo Permanent Magnetics, Ningbo Tongchuang Strong Magnet Material and Ningbo Huahui Magnetic Industry, filed antitrust lawsuits against Hitachi Metals, a Japanese company, over alleged abuse of dominant position in the patent licensing market regarding rare earth magnets on 11 December 2014 with the Ningbo Intermediate People's Court (Ningbo Court) in Zhejiang province. The four Chinese rare earth companies claimed Hitachi Metals abused its market dominance and harmed industry competition by refusing to license the patents to them. The patents in this case are not standard-essential, and are used in the manufacturing of sintered neodymium iron boron (NdFeB) magnets, a rare-earth magnet alloy widely used in parts for aeroplanes, automobiles and other products. The cases were heard in the middle of December 2015 and early in March 2017 before Ningbo Court, and the second hearing was held on 10 March 2016 with experts of both parties being cross-examined. The final decision is awaited.

It should be recognised that there is no case law that holds a non-standard essential patent (SEP) as an essential facility up to date. The case will go down in history if the Chinese court decides that a non-SEP can be deemed an ‘essential facility'.

Qualcomm v. Meizu (completed)31

Qualcomm Inc filed a lawsuit against Meizu in the Beijing Intellectual Property Court in June 2016. The claims requests rulings that the terms of a patent licence offered by Qualcomm to Meizu comply with China's Anti-Monopoly Law, and Qualcomm's fair, reasonable and non-discriminatory licensing obligations. The claims also seeks a ruling that the offered patent licence terms should form the basis for a patent licence with Meizu for Qualcomm's fundamental technologies patented in China for use in mobile devices, including those relating to 3G (WCDMA and CDMA2000) and 4G (LTE) wireless communications standards. Although this lawsuit attracts interests from various groups and touches leading issues in China's antitrust enforcement history, the two parties reached a settlement in the end in December 2016.

Apple v. Qualcomm32

Apple Inc's China subsidiary has filed two lawsuits against Qualcomm Inc in China, according to the Beijing Intellectual Property Court's Chinese-language WeChat account on 25 January 2017. According to the account, Apple Electronics Products Commerce (Beijing) Co, Ltd filed a lawsuit alleging Qualcomm abused its dominance in the sale of baseband processor chipsets. The Apple subsidiary is seeking 1 billion yuan in damages. Apple Electronics also filed a second lawsuit, alleging Qualcomm refused to license its SEPs to Apple on fair, reasonable and non-discriminatory (FRAND) terms.

In summary, the most high-profile litigations of 2016-2017 are listed below:

Plaintiff

Defendant

Sector

Courts

Conduct

Case opened

Result

Wu Xiaoqin (Individual)

Shaanxi Broadcast and TV Network Intermediate (Group)

TV services

The Xi'an Intermediate Court; the High People's Court of Shaanxi province; the Supreme People's Court

Tying

2012

Completed

Yingding

Sinopec

Bio-energy

Kunming Intermediate People's Court; Yunnan High People's Court

Refusal to deal

2014

The plaintiff appealed to the High People's Court of Yunnan Province

Four Chinese rare earth companies

Hitachi Metals

Rare earth magnets

Ningbo Intermediate People's Court

Refusal to deal

2014

Pending

Qualcomm

Meizu

Baseband processor chipsets

Beijing IP Court

Selling at unfairly high prices

2016

Completed

Apple Electronics

Qualcomm

Baseband processor chipsets

Beijing IP Court

Refusal to license on FRAND terms

2017

Pending

III RELEVANT MARKET DEFINITION AND MARKET POWER

The approaches for defining relevant market and assessing market power presented in the black letter law of China are consistent with other major antitrust regimes.

i Relevant market definition

The basic principles related to abuse of dominance in the AML are similar to those of Article 102 of the Treaty on the Functioning of the European Union and Section 2 of the Sherman Act. The specification of market definition is stipulated in the Relevant Market Definition Guide (the Guide). In accordance with the Guide, the basic approaches for defining the relevant market are analysis of demand-side substitutability and supply-side substitutability.

Article 8 of the Guide provides that the following factors should be considered when defining the relevant market from the demand side:

  • a evidence of turning to other products when the price or other factors of the product concerned are changed;
  • b the appearance, characteristics, quality and technical features, and functionality of the product;
  • c price variance between products;
  • d the distribution channel; and
  • e other factors.

Article 9 of the Guide provides the following factors to be considered when defining the relevant geographical market from the demand side:

  • a evidence of turning to other regional products when the price or other factors of the product concerned are changed;
  • b the transportation cost and the characteristics of transportation;
  • c the region in which the majority of the demanders purchase the product in practice, and the regional distribution of major business operators' products;
  • d trade barriers such as tariff, regulations, and environmental and technical factors; and
  • e other factors.

The Guide also mentions the ‘small but significant and non-transitory increase in price' method (the SSNIP test, or hypothetical monopolist test), a tool frequently used by both EU and US antitrust regimes.

ii Market dominance

Market dominance under the Chinese antitrust regime is defined in Article 17 of the AML and further clarified by the implementing rules. It refers to a market dominant position held by one or multiple undertakings that enable the undertakings to:

  • a control the price, volume or other trading terms33 in the relevant market; and
  • b block or affect the ability of other undertakings to enter the relevant market, by impeding or delaying other undertakings' entry into the market, or substantially increasing other undertakings' entry costs, so that the competitors cannot compete effectively post-entry.
iii Market share presumption

As illustrated in the table below, Article 19 of the AML specifies the market-share thresholds that are regarded as preliminary evidence of market dominance:

Number of undertakings

Aggregated share in the relevant market

1

One-half

2

Two-thirds

3

Three-quarters

The preliminary evidence of market dominance can be rebutted by proof showing lack of sufficient market power despite high market share.34 In addition, under the preliminary evidence, if any of the undertakings has a market share of less than 10 per cent, this undertaking shall not be deemed to have a dominant position.35

iv Factors for assessment of dominance

The AML further elaborated the factors by which market dominance should be assessed in Article 18, including: (1) market share in relevant market the competition situation of the relevant market; (2) ability to control the sales markets or the raw material purchasing markets; (3) financial status technical conditions of the undertaking; (4) the degree of dependence of other undertakings; (5) entry to relevant market by other undertakings; and (6) other factors related to find a dominant market position.

IV Abuse

i Overview

Article 17 of the AML sets out a non-exhaustive list of seven types of behaviour that may be regarded as abuse of market dominance and are therefore prohibited. These behaviours are:

  • a excessive pricing or buying at an unfairly low price;
  • b selling below cost;
  • c refusal to deal;
  • d requiring a party to trade exclusively with the undertaking or other designated undertakings;
  • e tie-in or bundling, or imposing other unreasonable trading terms;
  • f price discrimination or imposing other discretionary trading terms; and
  • g other behaviours defined as abuse of dominance by antitrust regulators.

As early as 2015, the enforcement priority of the SAIC gradually shifted from monopoly agreements to abuse of dominance. In particular, practices including excessive pricing, tying and discriminatory treatment by public utility companies have frequently come under antitrust scrutiny. A total of 10 abuses of dominance cases involving public utility companies were concluded in 2016. Notably, the SAIC concluded the investigation against Tetra Pak for abuse of dominance through tying, exclusive dealing and adopting a loyalty discount scheme. This case is a landmark case since it is the first time that loyalty rebates were articulated as violation of the AML in China.

ii Exclusionary abuses

‘Exclusionary abuses' means the dominant undertaking abuses its market dominance by excluding its competitors, for example, by selling below cost, refusing to deal, or tying or bundling.

The concluded cases suggest that both the SAIC and NDRC seem to have an interest in exclusionary abuses. Notably, the SAIC's landmark penalty decision against Tetra Pak is the one of the best illustrations of exclusionary abuses, in which Tetra Pak was found to have abused its dominant position in aseptic paper packing equipment for liquid food, technology services relating to aseptic paper packing equipment for liquid food, and materials used for aseptic paper packing equipment for liquid food by conducting tying practices, restricting suppliers from selling raw material paper to competitors and also adopting a special loyalty discount scheme.

iii Discrimination (including discriminatory pricing)

The NDRC's investigations against Qualcomm and IDC in 2014 focused on whether the two companies abused their market dominance by charging excessive royalties and discriminatory licences.

2016 has seen the Tetra Pak case, in which the SAIC found that the company's special loyalty discount scheme (offering in particular customised discounts where a seller offers discounts at varying levels depending on the size and purchasing power of the customer, thereby targeting different classes or categories of customer), resulted in price discrimination among customers, as well as restricting the competition among competitors.

iv Exploitative abuses (including excessive pricing)

‘Exploitative abuses' means the dominant undertaking abuses its position by exploiting its customers or suppliers, for example, by selling at an unfairly high price or buying at an unfairly low price.

Also, a more recent decision in the pharmaceutical sector, namely the allopurinol API refusal-to-deal case, is worth noting, in that it demonstrates the SAIC's willingness and capacity to deal with exploitative abuses.

In addition, in the case of Wu Xiaoqing (individual) v. Shaanxi Broadcast and TV Network Intermediate, which went to appeal and retrial, the Supreme People's Court finally concluded that Shaanxi Broadcast and TV Network Intermediate (holding a dominate position in the cable TV services market in the province of Shaanxi), was in breach of the AML. It was held that charging an additional 15 yuan for providing add-on services besides the basic cable TV package negated the freedom of customers to choose whether to take such a service or not, and, therefore, constituted tying of sales of commodities and adding of other unreasonable trading conditions to transactions, as prohibited by Article 17 of AML.

V Remedies and Sanctions

i Sanctions

In accordance with Article 47 of the AML, an undertaking that has abused its dominant position may be fined between 1 per cent and 10 per cent of its turnover in the preceding year. In addition, the regulator may confiscate its illegal gains. Article 49 of the AML further states that when calculating the amount of the fine, the regulator shall consider factors such as the nature, gravity and the duration of the illegal conduct. As mentioned in Section I, supra, the NDRC has already released the draft of Guideline on Fines,36 which further explains the key points regarding imposing fines and confiscation of illegal gains.

ii Behavioural remedies (including interim measures)

Along with sanctions, Article 47 of the AML provides that the regulator may impose cease-and-desist orders to stop illegal abusive conduct, but there is no explicit legal basis regarding whether and how the regulator may impose such interim measures for abusive conduct. Previous cases provide little clarification in this regard, owing to their lack of transparency.

iii Structural remedies

To date, there are no effective antitrust-related laws, regulations or rules in China explicitly authorising the SAIC or the NDRC to impose structural remedies upon undertakings for violation of Article 17 of the AML. Accordingly, all previous cases suggest that the regulators do not adopt structural remedies for abuse of dominance.

However, Article 45 of the AML does not delineate the scope of the commitment that the undertakings under investigation may make, so it remains to be seen whether a dominance investigation can be closed on the basis of structural commitments. As mentioned above, on 2 February 2016 the NDRC posted a notice on its official website soliciting opinions for the Guideline for Commitments, which aims to clarify the scope of possible commitments to be borne by undertakings.

VI Procedure

Although the SAIC and the NDRC have their own respective procedural rules, they are consistent with each other. The stages of an SAIC or NDRC investigation are as follows:

  • a An antitrust investigation can be triggered largely from four possible sources: reports, transference from other government agencies, ex officio discovery and assignment by superior entities.
  • b The SAIC delegates antitrust enforcement to its provincial branches on a case-by-case basis, while the NDRC grants a general authorisation to local branches; the two authorities still maintain control at central government level for cases that carry a potentially nationwide impact.
  • c It falls within the regulators' discretion to determine whether to open a formal investigation after receiving the leads.
  • d Investigative measures include:

• conducting the inspection by entering the business premises or other relevant place;

• interviewing the business operators under investigation, interested parties or other relevant entities or individuals;

• checking and duplicating relevant documents, agreements, account books, business correspondence and electronic data, etc., for the business operators under investigation, interested parties, and other relevant entities or individuals;

• seizing and detaining relevant evidence; and

• checking the bank accounts of the business operators under investigation.

  • e The undertakings under investigation can offer commitments at any stage of an investigation. The regulators are entitled to decide whether to accept the commitments.
  • f The regulators may issue an exemption when the undertaking concerned fulfils the conditions set out by Article 15 of the AML; the authorities may also issue punishment decisions when they consider that the undertaking concerned has violated Article 17 of the AML. The regulators may publish the decisions but are not obliged to do so.
  • g If unsatisfied with the decision, the undertakings under investigation may apply for an administrative review or file an administrative lawsuit with a court for judicial review.

The SAIC and NDRC's investigations vary significantly in terms of duration, and no statutory deadlines apply. Therefore, the investigations may last for years, such as in the Tetra Pak and Microsoft cases.

VII FUTURE DEVELOPMENTS

Abuse of market dominance is a difficult area for antitrust enforcement because of the difficulties in defining relevant markets, proving market dominance and also what constitutes abusive conduct. However, we can still draw the following conclusions from the limited number of cases available.

First, industries related to livelihoods and utilities services have been a main target for Chinese antitrust authorities. It is reported that the Chinese antitrust authorities will continue to focus their investigation and enforcement efforts on livelihood-related industries, including those for pharmaceuticals, medical devices, auto parts and industrial materials. In service-related areas, the Chinese antitrust authorities will continue to pay close attention to utilities services, including those for electricity, gas, water supplies and telecoms. In addition, some emerging industries are also becoming a focus for antitrust enforcement, such as the internet industry.

Second, antitrust authorities may increasingly take measures to regulate abusive behaviours that are not expressly contained under Article 17(1) to (6), but rather may fall under the catch-all clause of Article 17(7) of the AML, which includes ‘other forms of abusing the dominant market position as determined by the antitrust authorities under the State Council'. For instance, at the end of 2016, the SAIC released a penalty decision on Tetra Pak's abuse of market dominance for issuing loyalty discounts, which was found to fall under this provision.

Third, apart from continuous enforcement activities, it is reported that the Auto Industry Antitrust Guidelines will come into force within 2017. Also, we anticipate the issuance of the draft guidelines with regard to the calculation of the amount of illegal gains and fines. The legislation suggests that China's antitrust enforcement authorities have gone into more depth and detail with this legislation than in previous years.

The facts as above suggest that abuse of dominant position may be the next focus of the AML. Moreover, transparency is expected to further improve in the future by the regular publishing of decisions.

Private enforcement is expected to remain active in the years to come given the scarcity of public enforcement resources. Undertakings' awareness of the AML is increasing thanks to eight years of promising enforcement. The Chinese courts' experience in dealing with complicated antitrust actions is accumulating as well. These encouraging facts may lead to more instances of active private enforcement combating abuse of dominance.

It is, however, still hard for plaintiffs to prove the defendant's dominant position in court. As is widely accepted by Chinese lawyers, judges and scholars in antitrust legal circles, the plaintiff's burden of proof is ‘too heavy' because in an antitrust-related civil lawsuit, the plaintiff is in a relatively weak position in terms of gathering sufficient evidence compared to the defendant who may occupy the dominant position. Therefore, it can also be anticipated that the Supreme Court may issue judicial interpretations or guidelines to further relieve the plaintiff's burden of proof, although this may not happen as soon as people would like.

1 Zhan Hao is the managing partner and Song Ying is a partner with AnJie Law Firm.

2 In accordance with Article 9 of the AML, the State Council shall establish an antimonopoly commission in charge of organising, coordinating and guiding antimonopoly work and performing the following duties:

a studying and drafting policies on competition;

b organising studies and assessment of competition in the market as a whole and publishing assessment reports;

c formulating and releasing antimonopoly guidelines;

d coordinating administrative enforcement of the AML; and

e other duties as prescribed by the State Council.

3 http://jjs.ndrc.gov.cn/fjgld/201512/t20151231_770233.html.

4 http://jjs.ndrc.gov.cn/fjgld/201602/t20160203_774286.html.

5 http://jjs.ndrc.gov.cn/gzdt/201603/t20160323_798376.html.

6 http://jjs.ndrc.gov.cn/fjgld/201605/t20160512_801559.html.

7 http://jjs.ndrc.gov.cn/fjgld/201606/t20160617_807541.html.

8 www.saic.gov.cn/fldyfbzdjz/gzdt/201602/t20160204_205344.html.

9 http://fldj.mofcom.gov.cn/article/zcfb/201703/20170302539418.shtml.

10 www.sdpc.gov.cn/dffgwdt/201607/t20160727_812598.html.

11 http://jjs.ndrc.gov.cn/gzdt/201703/t20170316_841142.html.

12 www.saic.gov.cn/zwgk/gggs/jzzf/201605/t20160517_168618.html.

13 www.saic.gov.cn/zwgk/gggs/jzzf/201605/t20160531_168926.html.

14 www.saic.gov.cn/zwgk/gggs/jzzf/201606/t20160628_169405.html.

15 www.saic.gov.cn/zwgk/gggs/jzzf/201609/t20160929_171496.html.

16 www.saic.gov.cn/zwgk/gggs/jzzf/201612/t20161212_173296.html.

17 www.saic.gov.cn/zwgk/gggs/jzzf/201612/t20161212_173296.html.

18 www.saic.gov.cn/zwgk/gggs/jzzf/201612/t20161223_173683.html.

19 www.saic.gov.cn/zwgk/gggs/jzzf/201702/t20170207_174857.html.

20 www.saic.gov.cn/zwgk/gggs/jzzf/201609/t20160929_171498.html.

21 www.saic.gov.cn/zwgk/gggs/jzzf/201701/t20170104_173944.html.

22 www.saic.gov.cn/zwgk/gggs/jzzf/201609/t20160929_171498.html.

23 www.saic.gov.cn/zwgk/gggs/jzzf/201702/t20170216_175092.htm, www.saic.gov.cn/zwgk/gggs/jzzf/201702/t20170216_175093.html and www.saic.gov.cn/zwgk/gggs/jzzf/201702/t20170216_175094.html.

24 www.saic.gov.cn/zwgk/gggs/jzzf/201612/t20161212_173297.html.

25 www.saic.gov.cn/zwgk/gggs/jzzf/201702/t20170210_174954.html.

26 www.saic.gov.cn/zwgk/gggs/jzzf/201611/t20161116_172375.html.

27 Tetra Pak, suspected of abusing market dominance, is under investigation. See www.saic.gov.cn, 10 July 2013, www.saic.gov.cn/ywdt/gsyw/zjyw/xxb/201307/t20130714_136373.html.

28 http://wenshu.court.gov.cn/content/content?DocID=2a673a72-5b62-4857-ae42-c8b835b0c096&KeyWord=%E5%8F%8D%E5%9E%84%E6%96%AD%E6%B3%95.

29 See this case at http://cnews.chinadaily.com.cn/2014-12/19/content_19129117.htm, and http://finance.chinanews.com/ny/2015/04-22/7227129.shtml.

30 See this case at www.zbmag.com/news_view.php?id=80, and www.hitachi.com.cn/about/press/2015/10-12/1118_a.html.

31 See this case at www.qualcomm.cn/news/releases-2016-06-23, and http://tech.qq.com/a/20161230/022944.htm.

32 http://mp.weixin.qq.com/s/T-7Sluv4E6jldsBgIaiKrw.

33 According to Article 17 of the Provisions of Anti-Price Monopoly, ‘other trading terms' include the factors that can have substantial impact on a market, such as grade of commodity, payment terms, method of delivery, aftersales service, trading options or technical constraints.

34 See Article 19 of the AML.

35 Ibid.

36 See http://jjs.ndrc.gov.cn/fjgld/201606/t20160617_807541.html.