The Dominance and Monopolies Review: China
Article 17 of the Anti-Monopoly Law (AML) is the primary legal basis for regulating the abuse of market dominance in China. Accordingly, undertakings with a dominant position in the relevant market are banned from conducting the following abusive activities: exclusionary abuses; discrimination; exploitative abuses; and other acts of abuse of dominant market position.
The legislative update of 2020 began with the 2 January release of the first draft amendment to the AML for public opinion and ended with the promulgation of the Anti-monopoly Guidelines for the Platform Economy Industries (the Platform Guidelines) in February 2021, providing clearer guidance on China's antitrust enforcement activities.
From a public enforcement perspective, the State Administration for Market Regulation (SAMR), as the consolidated antitrust enforcement agency, kept a stricter enforcement attitude towards anticompetitive conduct and published a total of 18 decisions on alleged monopoly agreements and abuse of market dominance in 2020.
Year in review
i Public enforcement
Investigation cases published by the SAMR
In 2020, the SAMR published eight enforcement decisions (including one decision to terminate an investigation) involving abuse of dominance on its website. These enforcement actions were focused on sectors related to livelihood and utilities, specifically active pharmaceutical ingredients (API) (two cases), natural gas (four cases, including one terminated investigation), public water supply (one case) and funeral services (one case). One noteworthy highlight is that two of these enforcement decisions clearly send the message that the SAMR and its local bureaus have greatly increased the penalties for obstructing an investigation.
Investigation into calcium gluconate API by the SAMR (completed)
On 14 April 2020, the SAMR published an enforcement decision against three injectable calcium gluconate API distribution companies Shandong Kanghui Medicine Company Limited (Kanghui), Weifang Puyunhui Pharmaceutical Company Limited (Puyunhui) and Weifang Taiyangshen Company Limited Pharmaceutical (jointly, the Companies).2 The decision against the Companies featured a sky-high total fine of 325.5 million yuan for abuse of dominance, which sets a new record in China's pharmaceutical sector. In addition, the SAMR published 16 enforcement decisions against two of the companies and their executives and employees, imposing a total fine of 2.53 million yuan for obstructing the investigation.
From August 2015 to December 2017, the Companies abused their collective dominant position in the market for the sale of injectable calcium gluconate API in China by setting excessively high prices and imposing unfair trading conditions (e.g., forcing the preparation manufacturer to buy back the calcium gluconate injection). During the investigation, the Companies were the only three companies in China's market for the sale of injectable calcium gluconate API and each company was registered as an independent entity with no shareholding relationships. However, the SAMR deemed them to constitute one single business group, based on documents and information exchanged by personnel, business arrangements such as sales orders, volume and pricing, and financial control. Due to their obstruction of the investigation, two of the companies, Kanghui and Puyunhui, were separately fined 1 million yuan, the highest fine permitted according to the AML. For obstructive behaviour, fines were imposed on 14 employees, including legal representatives (100,000 yuan) and other personnel (20,000 yuan to 50,000 yuan).
These penalty decisions underline the importance of undertakings cooperating with competition authorities during investigations. In addition, the draft amendment to the AML increases the maximum penalty for obstructing investigations: for companies, it has increased from 1 million yuan to 1 per cent of the entity's previous year's sales (or 5 million yuan if there were no sales in the previous year or when sales are difficult to calculate); for personnel, it has increased from 100,000 yuan to 1 million yuan.
Summary of other cases
|Investigated undertakings||Industry||Competition authority||Monopoly conduct||Penalty||Case initiated||Status|
|Wanbangde Pharmaceutical Group Zhejiang Pharmaceutical Sales Co3||API||Zhejiang Administration for Market Regulation (AMR)||Unjustifiably imposing unreasonable trading conditions||A fine of 3% of previous year sales and confiscation of illegal gains||2018||Penalty imposed on 3 November 2020|
|Qinghai Province Minhe Chuanzhong Oil and Gas Co4||Natural gas||Qinghai AMR||Unjustifiable tie-in selling||A fine of 9% of previous year sales and confiscation of illegal gains (evidence of illegal gains was destroyed)|
Due to obstruction of the investigation, a fine of 700,000 yuan was imposed
|2018||Penalty imposed on 14 May 2020|
|Shanxi Jianke Natural Gas Technology Co5||Natural gas||Shanxi AMR||Unjustifiably restricting trading||A fine of 2% of previous year sales and confiscation of illegal gains||2019||Penalty imposed on 2 July 2020|
|Xinzhou City Gas Co6||Natural gas||Shanxi AMR||Unjustifiably restricting trading||A fine of 2% of previous year sales and confiscation of illegal gains||2019||Penalty imposed on 13 July 2020|
|Yancheng Xin'ao Gas Co7||Natural gas||Jiangsu AMR||Unjustifiably imposing unreasonable trading conditions||Investigation terminated||2015||Investigation termination decided on 8 July 2020|
|Nanjing Water Group Gaochun Co8||Public water supply||Jiangsu AMR||Unjustifiably restricting trading||A fine of 4% of previous year sales and confiscation of illegal gains||2017||Penalty imposed on 30 November 2020|
|Jiangshan City Funeral Home9||Funeral services||Zhejiang AMR||Unjustifiably imposing unreasonable trading conditions||A fine of 6% of previous year sales||2020||Penalty imposed on 22 October 2020|
ii Private enforcement
In the PRC, a private right of action exists against monopolistic undertakings. According to Article 50 of the AML, undertakings that carry out monopolistic activities are legally responsible for harmful results. Article 2 of the Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conducts further provides that the people's courts shall accept private litigation brought by parties that satisfy the requirements under the AML and the standing requirements under the Civil Procedure Law of the People's Republic of China (CPL).
The CPL also leaves open the possibility for collective action. People's courts have the ability to consolidate cases for related and similar claims of action by consent of all parties and approval of the court. Article 6 of the above-mentioned Provisions also reaffirms this right of the court to consolidate claims originating from the same monopolistic conduct.
There is currently no specific guidance on the calculation of damages in private antitrust actions; the specific calculation method varies from case to case. In practice, people's courts would usually only award damages based on consequential economic loss, not pure economic loss. Similarly, relevant regulations have not stipulated funding rules; the parties are entitled to secure third-party financial support at will.
In China, private litigation can be brought in parallel with public enforcement; however, the court may take ongoing public investigations as a priority. Moreover, the findings of competition authorities and court decisions are not binding in follow-on private litigation. However, guiding cases from the Supreme People's Court usually carry more precedential weight.
The following are some of the significant court decisions on private enforcement actions that have taken place during the past year.
Yangtze River Pharmaceutical v. Hefei Industrial Pharmaceutical Institute
Yangtze River Pharmaceutical Group and its manufacturing unit, Yangtze River Pharmaceutical Group, Guangzhou Hairui Pharmaceutical (Hairui), brought a lawsuit against Hefei Industrial Pharmaceutical Institute (HIPI), Hefei Enruite Pharmaceutical (Enruite) and Nanjing Hicin Pharmaceutical (Hicin) before the Nanjing Intermediate People's Court.10 Enruite engages in medicine development and is a subsidiary of biological medicine technology developer HIPI, while Hicin mainly produces and develops drugs. The Court accepted the case on 7 May 2019. After three pretrial cross-examinations, the Court officially heard the case on 29 September 2019. As the first API-related antitrust suit, it has attracted much attention.
In that case, the claimants alleged that the defendants engaged in antitrust activities, including setting unfairly high prices, restricting transactions without justification, implementing tie-in sales and attaching unreasonable transaction terms. The defendants argued that the case should be dealt with under the Contract Law instead of the AML because they had been in contractual relationships with the claimants for years. They also insisted that the concerned API does not constitute a relevant market under the AML, and that they did not implement tie-in sales nor attach unreasonable trading terms. As a result, they asserted that exclusive cooperation is justifiable.
Upon considering opinions from both sides, the Court made a number of important findings against the defendants. It found that the relevant market was desloratadine citrate disodium API in China, that the defendants had a dominant position and that the four actions alleged against the defendants violated the AML. HIPI and Enruite were ordered to immediately cease their abuse of market dominance activities. The agreement restricting the claimants from obtaining supplies of the API from other suppliers was invalidated. HIPI and Enruite were each ordered to compensate the two claimants 51,593,567 yuan for economic loss from paying unjustifiably high prices. HIPI was ordered to pay additional compensation of 16,728,771 yuan to the two claimants for charging them commission fees without justifiable reasons. The defendants also had to pay 500,000 yuan to cover legal fees. However, both claimants and defendants appealed against this ruling by the Court to the Intellectual Property Tribunal of the Supreme People's Court in April 2020; the case is still pending.
Samsung v. Ericsson
Between 7 December and 11 December 2020, Samsung and Ericsson filed lawsuits before Wuhan Intermediate People's Court11 and Eastern District Court of Texas, respectively, after failing to reach new licensing agreements on 2G, 3G and 4G standard essential patents (SEPs) upon the expiry of the old agreements reached in 2014. Ericsson accused Samsung of violating contractual commitments regarding patent royalties and patent licences, while Samsung requested that the Wuhan court determine the appropriate conditions for Ericsson and its units to license their 4G and 5G SEPs to Samsung on a global scale, including royalties.
On 25 December 2020, Wuhan Intermediate People's Court granted Samsung an anti-suit injunction against Ericsson, prohibiting Ericsson from filing applications: (1) with any court, customs administration, administrative law enforcement authority in China or other countries and regions, for procedures for interim or permanent injunction, or other administrative measures in respect of the relevant 4G and 5G SEPs; (2) in China or other countries and regions for determining the licensing conditions (including royalties) or licensing fees in respect of the relevant 4G and 5G SEPs or determining whether its relevant negotiation behaviour complied with fair, reasonable and non-discriminatory (FRAND) principles; and (3) with courts in China or other countries and regions for an anti-suit injunction order.
In response, Ericsson applied for a temporary restraining order and an anti-interference injunction in the US District Court for the Eastern District of Texas on 28 December 2020. The Texas court supported Ericsson, for there would be 'a substantial risk of irreparable harm to Ericsson, and to the jurisdiction of the court, if Samsung were to attempt to enforce or further pursue its anti-suit injunction against Ericsson. In contrast, the harm to Samsung of maintaining the status quo is negligible.'12 Samsung was, therefore, requested to refrain from (1) making any request, claim, application or motion further pursuing or enforcing an injunction from a foreign court – including but not limited to the Wuhan court – that would prohibit, deter, impose monetary fines on or otherwise limit in any way Ericsson's and all of its corporate parents', subsidiaries' and affiliates' ability to fully and completely prosecute this action, request and enforce relief, or that would impair the Texas court's ability to adjudicate any and all matters in this lawsuit; (2) making any request, claim, application or motion further pursuing or enforcing an injunction from a foreign court – including but not limited to the Wuhan court – that would prohibit or otherwise limit in any way Ericsson's, and all of its corporate parents', subsidiaries' and affiliates' ability to file suits or administrative actions to enforce or defend its US patent rights.
Summary of other influential cases
|Plaintiff||Defendant||Sector||Courts||Conduct||Case opened||Status of proceedings|
|Xiaomi||InterDigital||Telecommunications||Wuhan Intermediate People's Court||Abuse of dominance||2020||Two parallel proceedings pending|
|Changlin||Shell||Oil||Beijing IP Court||Abuse of dominance||2018||Claimant lost the retrial application|
|Tiyu Culture Co Ltd (OSports Media)||China Super League Co Ltd and Shanghai Yingmai Culture Co Ltd (Imagine China)||Media||Shanghai Higher People's Court,|
Shanghai IP People's Court
|Abuse of dominance||2018||Pending|
|Huang Wende (an individual)||DiDi Chuxing Co Ltd||Transportation and internet||Supreme People's Court||Abuse of dominance by charging unfairly high prices||2018||Pending|
|Song Xin (an individual)||China State Railway Group Co Ltd||Transportation||Changsha Intermediate People's Court,|
Hunan Higher People's Court
|Refusal to deal and designating a specific trading counterparty||2016||Claimant lost at first- and second-instance trials|
|JD.com||Tmall||Internet||Beijing Higher People's Court||Abuse of dominance||2018||Pending|
|Wu Zongli (an individual)||Yongfu County Water Supply Company||Public utilities||Nanning Intermediate People's Court||Tying||2018||Claimant won at first instance|
|Hytera||Motorola||Telecommunications||Beijing IP People's Court||Refusal to deal and designating a specific trading counterparty||2017||Claimant lost at first instance; appeal pending|
|Zhang Zhengxin (an individual)||Tencent||Internet||Beijing IP People's Court||Abuse of dominance||2019||Pending|
|Galanz||Tmall||Internet||Guangzhou IP People's Court||Abuse of dominance||2019||Pending|
Market definition and market power
The approaches for defining the relevant market and assessing market power in China are consistent with other major antitrust regimes.
i Relevant market definition
According to the AML and the Guidelines on the Definition of Relevant Market (the Guidelines), the basic approaches for defining the relevant market are analysis of demand-side supply-side substitutability.
Article 8 of the Guidelines provides factors to be considered defining the relevant product market.
- evidence of demanders switching to other products when the price or other factors of the product concerned are changed;
- the appearance, characteristics, quality, technical features and functionality of the product;
- price variance between products;
- the distribution channel; and
- other factors.
- evidence that other undertakings respond to the change of price or other competitive factors; and
- other undertakings' manufacturing process and techniques, their difficulties, time to be consumed, extra costs and risks in changing the production line and the competitiveness and marketing channels of the products provided after changing the production line, etc.
Article 9 of the Guidelines provides factors to be considered defining the relevant geographical market:
- evidence of demanders turning to other regional products when the price or other factors of the product concerned are changed;
- the cost and characteristics of transportation;
- the region in which the majority of customers purchase the product in practice, and the regional distribution of major business operators' products;
- trade barriers, such as tariffs, regulations and environmental and technical factors; and
- other factors.
- evidence that undertakings in other geographic areas respond to the change in price or other competitive factors; and
- instantaneity and feasibility of supply from other geographic areas; for example, the cost for costumers to turn to undertakings in other geographic areas.
The Platform Guidelines provide guidance for market definition in platform-related cases. When defining the relevant product market in cases related to the platform economy, demand substitutability analysis can be based on factors such as platform functions, business models, application scenarios, user groups, multilateral markets and offline transactions. When defining the relevant geographic market in cases related to the platform economy, a comprehensive assessment can take into account the actual region where most users choose products, language preferences and user consumption habits, relevant laws and regulations, the degree of competition constraints across different regions, online and offline integration, and other factors.
ii Market dominance
Article 18 of the AML and Article 5 of the Interim Provisions on Prohibition of Abuse of Market Dominance (ADP) refer to a position that enables the undertakings to:
- control the price, volume or other trading terms13 in the relevant market; and
- 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, such that competitors cannot compete effectively post entry.
Article 18 of AML further elaborates factors to be assessed:
- market share in the relevant market;
- the competition situation in the relevant market;
- the ability to control sales markets or raw material purchasing markets;
- the financial status and technical conditions of undertakings;
- other undertakings' degree of dependence on the allegedly dominant undertakings;
- entry into the relevant market by other undertakings; and
- other factors.
Article 11 of the ADP elaborates factors to be assessed in a new economic sector, such as the internet sector:
- competitive characteristic of relevant industries;
- business model, number of users, network effects, lock-in effects, technical characteristics, market innovation and the ability to control and process relevant data; and
- market power of undertakings in related markets.
Article 12 of the ADP also elaborates factors to be assessed in the intellectual property (IP) sector:
- the substitution of the IPs;
- the dependence of the downstream market on the commodities provided by the use of the IPs; and
- the counterbalance ability of the counterparties to the undertakings.
When it comes to platform operators, Article 11 of the Platform Guidelines sets out some special factors: (1) market share of the operator and its competitive situation in the relevant market, such as the number of active users, the number of clicks, duration of use and other indicators in the relevant market; (2) the operator's ability to control the market, such as the relevant platform's business model and network effects; (3) the financial and technical conditions of the operator, such as the application capacity and its ability to grasp and process relevant data; (4) the degree of dependence of other operators on the operator for the transaction, such as the duration of transactions, lock-in effects and user stickiness; and (5) the degree of difficulty for other operators to enter the relevant market, such as platform scale effect, user multiplicity and user switching costs.
iii Market dominance presumptions
As illustrated in the table below, Article 19 of the AML specifies the market-share thresholds regarded as preliminary evidence of market dominance.
|Number of undertakings||Aggregated market share in the relevant market|
However, the preliminary evidence of market dominance can be rebutted by showing a lack of sufficient market power.14
According to Article 13 of the ADP, market structure, related market transparency, the degree of related commodity homogeneity and consistency of the undertaking's behaviour should also be considered when identifying two or more undertakings as having a dominant market position together. However, if the preliminary evidence shows that one of the undertakings has a market share of less than 10 per cent, it shall not be deemed to have a dominant position.15
Article 17 of the AML lists several behaviours that are considered abuse of market dominance:
- excessive pricing or selling at an unfairly low price;
- selling below cost;
- refusal to deal;
- requiring a party to trade exclusively with the undertaking or other designated undertakings;
- tie-ins or the imposition of other unreasonable trading terms;
- price discrimination or the imposition of other discriminatory trading terms; and
- other behaviours defined as abuse of dominance by the antitrust regulators.
Practices including refusal to deal, exclusive dealing, imposing unreasonable trading terms and tying were frequently under scrutiny in 2020, especially in the natural gas, pharmaceutical and other public utility sectors.
ii Exclusionary abuses
In China, 'exclusionary abuses' is generally related to excluding competitors; for example, by exclusive dealing, refusing to deal or tying or bundling, which are elaborated in the ADP.
Refusing to deal
In Article 16 of the ADP, except for legitimate reasons, dominant business operators are prohibited from refusing to deal through the following methods:
- substantially reducing the existing number of transactions with their trading partners;
- delaying or interrupting existing transactions with their trading partners;
- refusing to engage in new transactions with their trading partners;
- setting restrictive conditions, making it difficult for their trading partners to trade with them; and
- refusing to let their trading partners in the production and business activities to use their necessary facilities with reasonable conditions.
Regarding internet platforms, the Platform Guidelines provide that a dominant operator in the platform economy abuses its position by refusing to engage in transactions with counterparties without justifiable reasons, or excluding or restricting market competition. The following factors may be considered:
- stopping, delaying or interrupting an existing transaction with a counterparty;
- refusing to enter into new transactions with counterparties;
- substantially reducing the number of existing transactions with counterparties;
- placing unreasonable restrictions and barriers in platform rules, algorithms, technology, traffic distribution, etc., to make it difficult for counterparties to conduct transactions; and
- refusing to deal with the counterparty on reasonable terms by an operator that controls the essential facility of platform economy industries.
In determining whether the relevant platform constitutes an essential facility, it is necessary to consider factors such as the situation of the platform in possession of data, the substitutability of other platforms, the existence of potentially available platforms, the feasibility of developing competitive platforms, the degree of reliance of the counterparty on the platform, and the possible impact of the open platform on the platform operator.
However, refusal to deal may be justified where:
- carrying out transactions becomes impossible for objective reasons, such as force majeure;
- the counterparty's transaction would impact security;
- the transaction would unduly diminish the interests of the operator in the platform economy industry; and
- the counterparty explicitly declares or performs non-compliance with FRAND platform rules.
Article 17 of the ADP provides that without legitimate reasons, dominant business operators are prohibited from:
- limiting their trading partners to engage in transactions exclusively with them;
- limiting their trading partners to engage in transactions exclusively with designated business operators; and
- forbidding their trading partners from transacting with specified business operators.
The aforesaid restrictive transactional behaviours may take the form of direct or indirect restrictions through setting conditions.
The Platform Guidelines provide specific factors in the platform economy industry:
- requiring the operators using the platform to engage in a 'pick one from two'16 or other conduct restricting the counterparty to an exclusive transaction with it;
- restricting the counterparty to the transaction to deal only with its designated operator or through restricted methods such as designated channels; and
- restricting the counterparty from engaging in transactions with specific operators.
The above limitations may be set through a written agreement, telephone call or oral agreement with the counterparty, or through the actual setting of restrictions or obstacles in platform rules, data, algorithms or technologies. The following may be used to assess whether a restriction of transaction occurs.
- Restrictions implemented by platform operators through punitive measures such as blocking stores, search downgrades, traffic restrictions, technical barriers and withholding of deposits can generally be identified as constituting a restricted transaction due to direct damage to market competition and consumer interests.
- Restrictions implemented by platform operators through subsidies, discounts, preferences, traffic flow resource support and other incentive schemes may have certain positive effects on platform operators, consumer interests and overall social welfare, but may also be deemed to constitute restrictive trading behaviour if there is evidence to prove that they have obvious exclusionary and restrictive effects on market competition.
Restricted transactions may be justified when they are necessary to:
- protect the interests of counterparties and consumers;
- protect IP, trade secrets or data security;
- protect specific resource inputs to the transaction; and
- maintain a sound business model.
Tying or bundling
Article 18 of the ADP provides that dominant business operators are prohibited from bundling their products or adding other unreasonable transaction conditions without legitimate reasons, for the following transactions:
- breaching trading practices or consumption habits or disregarding the functions of commodities, and requiring the bundling of different products or combined sales;
- adding unreasonable restrictions on contract duration, payment mode, transport and delivery of goods or the methods of service provision;
- adding unreasonable restrictions on sales regions, sales targets, after-sales service and others;
- adding unreasonable expenses in addition to the price; and
- adding transaction conditions unrelated to the subject of the transaction.
The Platform Guidelines provide specific factors in the platform economy industry:
- bundling different goods by means of formal terms and conditions, pop-up windows, mandatory operating steps, etc., that cannot be selected, changed or rejected by the counterparties to the transaction;
- compelling the counterparty to a transaction to accept other goods through punitive measures such as search downgrades, traffic restrictions and technical barriers;
- imposing unreasonable restrictions on the terms and manner of transactions, the way services are provided, the manner and means of payment, post-sale guarantees, etc.;
- charging unreasonable fees in addition to the transaction price; and
- collecting users' non-essential information compulsorily or adding transaction conditions, transaction processes and service items unrelated to the subject matter of the transaction.
Tying may be justified when it is:
- consistent with proper industry practice and trade customs;
- necessary to protect the interests of transaction counterparties and consumers; and
- necessary to enhance the value or efficiency of the use of the product.
There was no precedential penalty regarding discrimination (such as discriminatory pricing) in China in 2020. Article 19 of the ADP provides that without legitimate reasons, dominant business operators are prohibited from implementing the following preferential treatments to trading partners for transactions with identical conditions:
- differing numbers of transactions, their variety or quality grades;
- varying quantity discounts and other preferential terms;
- different payment conditions and delivery methods; and
- differing content and durations of warranties, or content and timing of maintenance, technical assistance and other after-sales service conditions.
'Identical conditions' means that there is no difference between the trading partners that would have a substantial impact on aspects such as transaction security, transaction costs, scale and capabilities, creditworthiness status, transaction phase and duration of the trading relationship.
The Platform Guidelines provide specific factors in the platform sector:
- differential transaction prices or other trading conditions based on big data and algorithms, according to the counterparties' ability to pay, consumption preferences, usage habits, etc.;
- application of differentiated standards, rules and algorithms; and
- application of differentiated payment conditions and transaction methods.
Equal standing means that there are no substantial differences between the counterparties in terms of transaction security, transaction costs, credit status, transaction links, transaction duration, etc., that materially affect the transaction. Differences in privacy information, transaction history, individual preferences, consumption habits and other aspects of the transaction counterparty obtained by the platform do not affect the determination that the conditions of the transaction counterparties are the same.
Discrimination may be justifiable in terms of:
- introducing different trading conditions based on the actual needs of the counterparty and in accordance with legitimate trading customs and industry practices;
- preferential activities for new users within a reasonable period of time; and
- random transactions based on FRAND platform rules.
iv Exploitative abuses
There was no precedential penalty regarding the type of exploitative practice (such as excessive pricing) in China in 2020.
Article 14 of the ADP provides that dominant business operators are prohibited from selling goods at unfairly high prices or buying goods at unfairly low prices. For the determination of 'unfairly high prices' or 'unfairly low prices', the following factors may be considered:
- whether the selling price or purchase price is evidently higher or lower than the price paid by other business operators for the sale or purchase of the same type of goods or comparable goods under identical or similar market conditions;
- whether the selling price or purchase price is evidently higher or lower than the price paid by the same business operator for the sale or purchase of goods in other regions with identical or similar market conditions;
- subject to basically stable costs, whether the selling price is raised or reduced beyond the normal range;
- whether the increase in the sales price or the decrease in the purchase price evidently exceeds the change in the cost of the same commodity; and
- other relevant factors.
For the determination of identical or similar market conditions, factors such as sales channel, sales model, the supply and demand situation, regulatory environment, transaction phases, cost structure and the transaction's context shall be considered.
Article 15 of the ADP stipulates that without legitimate reasons, business operators with market dominance are prohibited from selling goods at a price below cost.
For determining the meaning of selling goods at a price below cost, an important consideration is whether the price is lower than the average variable cost. The average variable cost means the unit cost's variance in accordance with changes in the quantity of goods produced. Where a free-of-charge model in new economic forms (such as the internet) is involved, circumstances such as the free services provided by the business operator in comparison to relevant paid-services shall be considered in a holistic manner.
The Platform Guidelines further stipulate that a dominant operator in the platform economy industry may abuse its position by selling goods at a price below cost without justification, thereby excluding or restricting competition in the market. The focus is on whether the operator excludes other competing operators through prices below cost, and whether, after excluding other operators from the market, it raises prices, makes unjustified profits and damages fair market competition and interests of consumers.
In calculating the costs, it is generally necessary to consider the cost linkages between the relevant markets and the multilateral market to which the platform relates.
The operator's below-cost sales in the platform economy industry may be justified when:
- developing other business within the platform within a reasonable period of time;
- facilitating the entry of new commodities into the market within a reasonable period of time;
- attracting new users within a reasonable period of time; and
- carrying out promotional activities within a reasonable period of time.
Remedies and sanctions
In accordance with Article 47 of the AML, regulators may fine an undertaking that has abused its dominant position between 1 per cent and 10 per cent of its turnover in the preceding year and confiscate illegal gains. Notably, since the establishment of the SAMR, the authority adopted the overall turnover of a company in the preceding year as a denominator rather than considering the turnover of product lines involved in the antitrust investigation. Article 49 further states that when calculating the amount of the fine, the regulator shall consider factors such as the nature, gravity and duration of the illegal conduct. In September 2019, the SAMR released the Interim Rules of Prohibition on Abuse of Market Dominance, which further explain the imposition of fines and confiscation of illegal gains.
ii Behavioural remedies
Article 47 also provides that regulators may impose cease-and-desist orders to stop illegal, abusive conduct, although there is no explicit legal basis regarding whether and how regulators may practice, and previous cases provide little clarification for lack of transparency.
iii Structural remedies
To date, there are no effective antitrust-related laws, regulations or rules in China explicitly authorising the SAMR to impose structural remedies on undertakings for violation of Article 17 of the AML. Accordingly, regulators did not adopt structural remedies in previous cases.
However, Article 45 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.
The majority of procedural rules are found in the ADP promulgated by the SAMR in 2019. The provisions concerning substantive provisions, such as defining market dominance power and abuse behaviours, are mainly integrated with the State Administration for Industry and Commerce (SAIC) Rules on the Prohibition of the Abuse of Market Dominance, the SAIC Regulation on Prohibition of Abuses of Intellectual Property Rights, the SAIC Provisions and Procedures on Investigation of Monopoly Agreements and Abuse of Dominant Market Position, and the National Development and Reform Commission (NDRC) Regulations on Anti-Price Monopolies. The provisions provide blanket authorisation for provincial market regulatory authorities (AMRs) to investigate and penalise abusive conduct within their respective administrative regions. Previously, investigations by provincial agencies into price-related abuses received blanket authorisation by the NDRC, while investigations into non-price-related abuses were authorised on a case-by-case basis by the SAIC. The new ADP ended the fragmented authorisation and increased the regulators' efficiency.
Also in 2019, the Interim Provisions on Administrative Penalty Procedures for Market Administration came into effect, covering the administrative penalties regime issued by the SAMR. By contrast, the ADP provide special provisions on investigations.
Considering these two sets of regulations, the stages of SAMR investigations are as follows.
An antitrust investigation can be triggered by:
- ex officio discovery;
- reports by undertakings;
- case transfer from other government agencies; and
- case assignment from higher-level agencies.
The ADP provide that the SAMR shall be responsible for, or authorise, the relevant provincial AMRs that are responsible for investigating and punishing monopolistic activities that:
- have occurred across provinces, autonomous regions and centrally administered municipalities;
- are complicated or have a significant national impact; and
- are deemed by the SAMR to be under its own jurisdiction. The provincial branches shall be responsible for enforcement against cases that have occurred within their administrative region. Further, when commissioned by the SAMR, the provincial branches can conduct investigations under the SAMR's name.
Investigative measures include:
- conducting an inspection by entering business premises or another relevant place;
- interviewing business operators under investigation, interested parties or other relevant entities or individuals;
- checking and duplicating, inter alia, relevant documents, agreements, account books, business correspondence and electronic data for the business operators under investigation, interested parties or other relevant entities or individuals;
- registering the evidence for preservation in advance where there is a likelihood that the evidence may be destroyed, lost or difficult to obtain later;
- seizing and detaining relevant evidence; and
- checking the bank accounts of the business operators under investigation.
At any stage of an investigation, undertakings can offer commitments that the regulators may later decide to accept. If the conduct is likely to constitute abuse of market dominance, regulators would then issue an administrative decision, or even punishment decisions for violations of Article 17 of the AML. Unsatisfied undertakings can then apply for an administrative review or file an administrative lawsuit for judicial review.
The ADP do not specify the statutory deadlines of investigation; therefore, the length of procedures depends on specific situations in individual cases.
The AML creates a private right of action against monopolistic conduct under Article 50, which provides that '[w]here the monopolistic conduct of an undertaking has caused losses to another person, it shall bear civil liabilities according to law'. The Supreme People's Court further clarifies that '[w]here a plaintiff directly files a civil lawsuit with the people's court or files a civil lawsuit with the people's court after a decision of the anti-monopoly law enforcement authority affirming the existence of monopolistic conduct comes into force, if the lawsuit satisfies other conditions for lawsuit acceptance as prescribed by law, the people's court shall accept the lawsuit.'
Collective actions are also available in China in the form of representative actions under Articles 53 and 54 of the CPL, which is similar to class actions in the United States. However, collective actions are not common because the law has not provided clear guidance on some key issues in representative action, such as the elements of representative action, the type of applicable cases, the division of damages awarded and the appeals mechanism. Hence, no collective antitrust action has yet been brought in China.
In contrast, private actions brought by putative individual victims are commonly seen because the plaintiffs are not in a position to carry the burden of proof or because the real issue in dispute is not an antitrust claim but, rather, is a regular contract or tort dispute.
As China enters the 13th year of AML implementation, it is expected to step up legislative and enforcement efforts against abuse of market dominance.
On 2 January 2020, the SAMR initiated the first revision of AML in 12 years by unveiling a draft amendment for public comment. The amendment added a specific provision for assessing the market dominance of internet companies. This provision echoes the analytical framework in the ADP (see Section III). In addition, antitrust guidelines for the platform economy, the Platform Guidelines, came into effect on 7 February 2021. These focus on the fast-growing internet economy and the potential for increased enforcement in coming years. However, because of ongoing investigations and dangling SAMR administrative decisions on abuse in the internet sector, the practical interpretation of provisions will be closely watched.
The industrial sector is another priority. Companies are regularly reminded to assess market positions and scrutinise potential abuse. On 5 April 2020, the SAMR outlined several enforcement measures to battle covid-19 and resume industrial production. This announcement illustrated more severe punishment for abuses hindering pandemic prevention and industrial production.
IP is also a focus of the SAMR. As demonstrated by the Anti-Monopoly Guideline for Intellectual Property Rights and Regulations on Prohibition of Abusing Intellectual Property Rights to Exclude and Restrict Competition, the SAMR will consider innovation as a more important factor when investigating cases concerning IP rights.
Enforcement efficiency is also expected to increase as provincial AMRs have been given blanket authorisation for investigations, which leaves the SAMR more capacity for complicated cases. Private enforcement is also expected to be upgraded. In 2019, the Supreme People's Court began to hear all appeals from first-instance judgments of local courts but has not yet made any precedential rulings.
1 Zhan Hao is the managing partner and Song Ying is a partner at AnJie Law Firm.
11 (2020) E 01 Zhi Min Chu No. 743.
13 According to Article 5 of the Interim Provisions on Prohibition of Abuse of Market Dominance, 'other trading terms' include the factors that can have substantial impact on a market, such as grade of commodity, payment terms, method of delivery, after-sales service, trading options and technical constraints.
14 See Article 19 of the Anti-Monopoly Law.
16 This is where one platform operator forces operators to exclusively choose its platform and not to use competing platforms.