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. According to Article 17, undertakings with a dominant position in the relevant market are banned from conducting the following abusive activities:
- selling commodities at unfairly high prices or buying commodities at unfairly low prices;
- without justifiable reasons, selling commodities at prices below cost;
- without justifiable reasons, refusing to deal with their trading counterparties;
- without justifiable reasons, requiring trading counterparties to exclusively deal with themselves or with the undertakings designated by them;
- without justifiable reasons, conducting tie-in sales of commodities or imposing other unreasonable trading conditions on transactions;
- without justifiable reasons, applying differential treatments on trading prices and other terms among trading counterparties with equal standing; or
- other acts of abuse of dominant market position determined as such by the AML enforcement authorities under the State Council.
In brief, the year 2019, as the first year since institutional reform was completed, has seen recognised development in legislation and enforcement activities.
The legislative update is reflected by the release of several new regulations entering into force from 1 September 2019 and drafts for comments, among which are interim provisions on monopoly agreement, abuse of market dominance and administrative monopoly Acts respectively, providing clearer guidance on China's antitrust enforcement activities.
From the perspective of public enforcement, the State Administration for Market Regulation (SAMR), as the consolidated antitrust enforcement agency, kept a more rigorous enforcement attitude towards anticompetitive conduct. In 2019, SAMR published 19 decisions on alleged monopoly agreements and abuse of market dominance in aggregate.
Year in review
i Public enforcement
Investigation cases published by the SAMR
In 2019, the SAMR and its local branches initiated 103 investigations into anticompetitive conduct, among which 15 investigations are about abuse of market dominance, and closed 44 of them. In 2019 SAMR's website published five market dominance cases with two suspended cases and three cases resulting in punishment.
Investigation into Phenobarbital API by the Jiangsu AMR (suspended)2
On 20 February 2019, the Jiangsu AMR issued the decision of suspending the investigation into Nantong Jinghua Pharmaceutical Co, Ltd. The company was suspected of engaging in unjustifiable refusal to deal by abusing its dominant market position in the phenobarbital active pharmaceutical ingredient (API) market. Except for being sold continuously to sporadic pharmaceutical production and distribution companies such as Shangqiu Xinxianfeng Pharmaceutical Co, Ltd and Henan Wanlong Pharmaceutical Co, Ltd and sold one time to two pharmaceutical production companies in Shanxi, the API of phenobarbital produced by the party has never been sold to any other domestic pharmaceutical production companies. In addition, some of the regular customers of the party and many domestic pharmaceutical production companies have all been refused by the party when they offered to buy the API. Pursuant to Article 45 of the AML, Nantong Jinghua Pharmaceutical Co, Ltd proposed commitments to the Jiangsu AMR on 16 November 2017 and apply for the investigation suspension, and Jiangsu AMR ultimately suspended the investigation on 20 February 2019.
Investigation into gas supply by Jiangsu AMR (suspended)3
On 20 February 2019, the Jiangsu AMR issued the decision of suspending investigation into Yancheng ENN Gas Co, Ltd. The company was suspected of engaging in unjustifiably imposing unreasonable trading conditions by abusing its dominant market position in the pipeline gas supply market. In the supporting construction contract of pipeline natural gas facilities concluded between the party and the users when opening an account for gas consumers of industry and commerce groups, it is agreed that 'the dividing point of property right for gas supply and usage facilities shall be the property line of Party A (note: the user), i.e., gas facilities outside the property line belong to Party B (note: the party) while those inside the property line belong to Party A' and 'upon gas supply, Party B shall be responsible for maintenance and management of the gas transmission and distribution facilities at the backward direction of the gas flow on the dividing point of property right (included) and provide one year's warranty free of charge for gas facilities (excluding gas facilities and appliances of the use) at the direction of gas flow on the dividing point of property right after they pass the acceptance inspection, and they shall be maintained by Party A itself after the warranty period' where 'backward direction of the gas flow on the dividing point of property right (included)' refers to the area outside property line and 'the direction of gas flow on the dividing point of property right' refers to the area inside property line. Pursuant to Article 45 of the AML, Yancheng ENN Gas proposed commitments to the Jiangsu AMR on 24 August 2017 and applied for the investigation suspension, and Jiangsu AMR ultimately suspended the investigation on 20 February 2019.
Investigation into Eastman by Shanghai AMR (completed)4
On 16 April 2019, the Shanghai AMR imposed a fine of 24.38 million yuan on Eastman (China) Investment Management Co, Ltd for abuse of market dominance in relation to mainland China's ester alcohol film-forming agent market. The company was accused of limiting the trade parties to only trade with it without any justifiable causes through the following methods: (1) signing and implementing exclusive agreements with relevant domestic coatings companies that included provisions on minimum purchase quantities and take-or-pay clauses; and (2) signing and implementing exclusive agreements with most favoured nation (MFN) clauses subject to the effective conditions of minimum purchase quantity. The fine was equivalent to 5 per cent of Eastman (China) Investment Management Co, Ltd's 2016 sales revenue.
Investigation into water supply by the Tianjin AMR (completed)5
On 12 July 2019, the Tianjin MAR imposed a fine of 7,438,622.77 yuan on Tianjin Water Supply Group Co, Ltd for abuse of market dominance in relation to water supply. The company was accused of engaging in unjustifiably imposing the following unreasonable trading conditions: requiring the real estate development enterprises to use, when constructing secondary water supply facilities, the intelligent electric control cabinets and remote monitoring substations produced by Tianjin Huacheng Water Supply Engineering Co, Ltd designated by the Tianjin Water Supply Group. The fine was equivalent to 3 per cent of Tianjin Water Supply Group Co, Ltd's 2016 sales revenue.
Investigation into water supply by the Jiangsu AMR (completed)6
On 12 October 2019, Jiangsu MAR imposed a fine of 2.05 million yuan on Suqian Zhengyuan Water Supply Co, Ltd for abuse of market dominance in relation to water supply. The company was accused of engaging in unjustifiably imposing the following unreasonable trading conditions: requiring the real estate development enterprises to engage the company for the construction of the building water installation projects. The fine was equivalent to 4 per cent of Suqian Zhengyuan Water Supply Co, Ltd's 2016 sales revenue.
In summary, the above cases relate to abuse of market dominance handled by the SAMR. Ones handled by its provincial branches in 2019 are listed below.
|Investigated party||Industry||Investigating authority||Monopoly conduct||Case initiated||Status|
|Nantong Jinghua Pharmaceutical Co, Ltd||Pharmaceutical||Jiangsu AMR||Unjustifiable refusal to trade||2016||Suspended on 20 February 2019|
|Yancheng ENN Gas Co, Ltd||Gas supply||Jiangsu AMR||Unjustifiably imposing unreasonable trading conditions||–||Suspended on 20 February 2019|
|Eastman (China) Investment Management Co, Ltd||Chemical||Shanghai AMR||Unjustifiably limiting the trade parties to only trade with it||2017||Completed by issue of penalty|
|Tianjin Water Supply Group Co, Ltd||Water supply||Tianjin AMR||Unjustifiably imposing unreasonable trading conditions||2016||Completed by issue of penalty|
|Suqian Zhengyuan Water Supply Co, Ltd||Water supply||Jiangsu AMR||Unjustifiably imposing unreasonable trading conditions||2017||Completed by issue of penalty|
ii Private enforcement
Hytera v. Motorola7
On 14 September 2017, the plaintiff, Hytera Communications Corporation Limited (Hytera) brought a lawsuit to Beijing Intellectual Property Court, alleging that the defendants Motorola Systems (China) Investment Co, Ltd, Motorola Systems (China) Co, Ltd, Motorola Systems (China) Co, Ltd, Beijing Branch (together Motorola) had abused market position in the communication market of specific cities' metro private network. The plaintiff petitioned the court for Motorola to stop its monopolistic behaviour and compensate the loss of 49.266 million yuan and reasonable expenses of 1.056 million yuan. After almost 20 court investigations and hearings since 2017, on 31 December 2019, the court issued the first instance judgement, which found that Motorola, while dominant in some of the relevant markets claimed by the plaintiff, did not conduct abuse of dominance and dismissed all the claims of the plaintiff.
The parties' debate focused on the definition of relevant market and whether Motorola had abused its market domination. Hytera alleged that Motorola has a dominant position in the wireless communication market of Chengdu Metro private network. Motorola announced that if the user had used Motorola's product previously, the subsequent product would have better connectivity performance when continuing to use Motorola's product. Hytera alleged that this action restricted the Chengdu Metro to dealing with Motorola, excluding Hytera from entering the bid and that the defendant's refusal to open the API for connectivity also constituted refusal to deal, with these behaviours cause material damage to Hytera.
The defendant argued that the relevant market of this case should be the China wireless communication equipment market for urban rail transit. Even in the 'Chengdu market' claimed by Hytera, Motorola should not be deemed to have a dominant market position. The API is not necessary for connectivity, and Motorola's refusal to open the API is a legitimate exercise of intellectual property rights, which is a reasonable reason. Motorola itself does not have the ability to limit the transaction, and there is no objective fact that the transaction is limited by Motorola. Furthermore, there is no evidence showed that Hytera had suffered any damage as a result of any of Motorola's actions. The claims of Hytera have neither factual basis nor legal basis.
Beijing Intellectual Property Court heard this case in chamber at the end of 2019. The court held the opinion that, in the bidding market, the requirements of bidding documents determine the scope of operators to participate in the competition. Since each bidding event will have corresponding bidding requirements, each single bidding event constitutes a separate relevant market. In the plaintiff's claim of Chengdu Metro line 2, 3, 4 in the tender documents, the new line switches interconnected with each line is mandatory, because of the switch between interconnected applies only to the same manufacturer of the equipment, and Motorola won the previous bids. Consequently, Motorola has a dominant market position.
However, market dominance is not illegal per se. The AML only prohibits abuse of market dominance, for instance, designating specific trading counterparty without reasonable ground. Thus, in this case, if Motorola's restriction could be deemed as unreasonable conduct, it would have been liable for Hytera's loss. More specifically, one of the preconditions for judging whether it constituted a restricted transaction was whether Motorola had the intention to require the Chengdu Metro party to trade only with it. But none of the limited trading behaviour claimed by the plaintiff can be deemed as Motorola intending to restrict trading between the Chengdu Metro and Motorola. Therefore, the defendant's behaviour does not constitute limited trading behaviour.
Huang Wende v. DiDi8
On 4 May 2018, a natural person Huang Wende (Huang) was temporarily charged 6 yuan by DiDi. Huang argued that DiDi's temporary price violated the 'unfairly high price' in Article 17 of the AML and filed a lawsuit to Zhengzhou Intermediate Court. Huang had lost in first instance trial in Zhengzhou and appealed to a higher court. On 24 September 2019, the IP Tribunal of the Supreme Court as the appeal court heard this case publicly, and the final judgment is still pending.
One controversial issue is whether cruise taxis are part of the relevant market. Huang claimed that cruise taxis are not part of the market. First, cruise taxis and ride-hailing are subject to different laws and regulations and legal permissions. Second, the two types of cars are different in terms of convenience, safety and market demand. Third, the online ride-hailing cars use online payment, but cruise cars usually use offline payment.
Didi argued that cruise cars and ride-hailing constitute a close alternative relationship and should be included in one relevant market. Ride-hailing and cruise cars belong to the same industry category, with the same nature and functions, and both provide convenient and personalised services for the majority of passengers. And the difference between cruise taxis and ride-hailing is getting smaller, and they are becoming integrated with each other.
As regards the issue of whether DiDi has a dominant market position, Huang pointed out that the official website of DiDi claimed that it had a '99% market share', therefore, it could be presumed to have a dominant market position. DiDi argued that, the statistical calibre of online ride-hailing service industries has changed from 2015 to 2018; the evidence of 99 per cent of the market came from a third party company's data in 2015. This data cannot be construed as actual market situation in 2018. Furthermore, Zhengzhou has 46 taxi companies and 18 online ride-hailing companies, and DiDi is facing fierce competition in the local market. In addition, the taxi market is always under dynamic competition, and, due to the low market entry threshold, DiDi has been subject to strong competition constraints and does not have a dominant market position.
As regards the issue whether the temporary price increase of DiDi could be deemed as the abuse of market dominance by charging higher price, Didi argued that the temporary price increase was for the purpose of regulating supply and demand, and it has economically reasonable and does not constitute a monopolistic high price. This action also complied with local government regulations. Moreover, the fees are paid to drivers, and DiDi has no intention of earning monopoly profits.
The Ministry of Transportation (MOC) mentioned that it had held several interviews with relevant online ride-hailing companies and requested them to conduct rectification to the dynamic pricing mechanism. On 12 July 2019, the MOC released the Opinions on Deepening Reform of Road Transport Prices (draft for comments), which states that online ride-hailing companies should disclose the pricing mechanism and dynamic pricing mechanism at least seven days in advance to the public. This draft has not come into force so far. The Supreme People's Court's judgment on this case is expected to be released in this year. That will notably bring demonstration effects to the online ride-hailing market.
2019 is a milestone for the China private antitrust enforcement, because the IP Tribunal of the Supreme Court was set up in this year. The IP Tribunal hears antitrust civil and administrative appeals, and that means it could unify the ruling standards and improve the quality of private litigations. The IP Tribunal has made a series of rulings on hot issues, such as arbitrability of monopoly disputes and regional jurisdiction of anti-monopoly cases in Huili v. Shell and JD.com v. Tmall. It has accepted Huang Wende v. DiDi, and has started the trial.
In addition, the competition concerns raised in Internet industry had drawn great attention of the whole society. Private litigations against internet companies are on the rise; for instance, JD.com, Tencent, Tmall and DiDi gained wide attention and heated discussion in the market. As these cases enter the substantive trial stage, it is expected they will be great precedents in maintaining the order of market competition and protecting the impetus of innovation.
In summary, the most high-profile private enforcement actions on abuse of market dominance between 2018 and 2019 (both completed and pending cases) are listed below.
Market definition and market power
The approaches for defining the 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 market 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 Guidelines on the Definition of Relevant Market (Guidelines). In accordance with the Guidelines, the basic approaches for defining the relevant market are analysis of demand-side substitutability and supply-side substitutability.
Article 8 of the Guidelines provides that the following factors may be considered when defining the relevant market.
Factors from the demand-side:
- 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.
Factors from the supply-side:
- 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 line of production, the competitiveness and marketing channels of the products provided after changing the line of production, etc.
Article 9 of the Guidelines provides the following factors to be considered when defining the relevant geographical market:
Factors from the demand-side:
- 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.
Factors from the supply-side:
- evidence that undertakings in other geographic areas respond to the change of price or other competitive factors; and
- instantaneity and feasibility of the supply from other geographic areas, for example, the cost for costumers to turn to undertakings in other geographic areas.
The Guidelines also mention the 'small but significant and non-transitory increase in price' method, a tool frequently used by both EU and US antitrust regulators.
ii Market dominance
Market dominance under the Chinese antitrust regime is defined in Article 18 of the AML and further elaborated by Article 5 of the Interim Provisions on Prohibition of Abuse of Market Dominance (The Abuse of Dominance Provisions).9 It refers to a position held by one or more undertakings that enables the undertakings to:
- control the price, volume or other trading terms10 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, so that the competitors cannot compete effectively post entry.
Article 18 of AML further elaborates the following factors by which market dominance should 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;
- the degree of dependence on the undertakings of other undertakings;
- entry into the relevant market by other undertakings; and
- other factors.
Article 11 of the Abuse of Dominance Provisions elaborates the following factors should be assessed additionally when the relevant market relates to the new economic-form area, such as the internet sector:
- competitive characteristic of related industries;
- business model, number of users, network effects, lock-in effects, technical characteristics, market innovation, ability to control and process relevant data;
- market power of undertakings in connected markets.
Article 12 of the Abuse of Dominance Provisions also elaborates the following factors should be assessed additionally when the relevant market relates to intellectual property:
- the substitution of its intellectual property;
- the dependence of the downstream market on the commodities provided by the use of intellectual property;
- the counterbalance ability of the counterparties to the undertakings.
iii Market dominance 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 market share in the relevant market|
However, the preliminary evidence of market dominance can be rebutted by showing lack of sufficient market power despite high market share.11
Also, it is important to point out that according to Article 13 of the Abuse of Dominance Provisions, market structure, related market transparency, related commodity homogeneity degree and consistency of undertaking's behaviour are the factors that should be considered when identifying two or more undertakings as having a dominant market position together. But under the preliminary evidence, if one of the undertaking in the aforementioned two or three undertakings has a market share of less than 10 per cent, this undertaking shall not be deemed to have a dominant position.12
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:
- 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 and imposing unreasonable trading terms have frequently come under antitrust scrutiny in 2019. Particularly, the enforcement agencies continue to monitor the pharmaceutical and other public utility sectors.
ii Exclusionary abuses
In China, according to the AML, abuse of dominance is not segmented into exclusionary abuse, discrimination and exploitative abuses. 'Exclusionary abuses' generally includes the dominant undertaking abuses its market dominance by excluding its competitors; for example, by exclusive dealing, refusing to deal, or tying or bundling.
The Abuse of Dominance Provisions, promulgated by the SAMR and effective on 1 September 2019, further elaborate on exclusive dealing, refusing to deal, or tying or bundling.
For refusing to deal, Article 16 of the Abuse of Dominance Provisions provides that without legitimate reasons, business operators with market dominance are prohibited from refusing to deal with the trading partners 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.
For exclusive dealing, Article 17 of the Abuse of Dominance Provisions provides that without legitimate reasons, business operators with market dominance are prohibited from carrying out the following acts to limit transaction:
- limiting their trading partners to engage in transactions only with them;
- limiting their trading partners to engage in transactions with business operators specified thereby; and
- forbidding their trading partners from transacting with specified business operators.
The aforesaid restrictive transaction behaviours may take the form of direct restrictions or indirect restrictions through setting transaction conditions.
On 16 April 2019, the Shanghai AMR imposed a fine on Eastman (China) Investment Management Co, Ltd for abuse of market dominance in relation to the mainland China ester alcohol film-forming agent Market. The company was accused of limiting the trade parties to exclusively trade with it without any justifiable causes through the following methods: (1) signing and implementing exclusive agreements with relevant domestic coatings companies that include provisions on minimum purchase quantities and take-or-pay clause; and (2) signing and implementing exclusive agreements with MFN clause subject to the effective conditions of minimum purchase quantity.
For tying or bundling, or imposing unreasonable transaction conditions, Article 18 of the Abuse of Dominance Provisions provides that without legitimate reasons, business operators with market dominance are prohibited from bundling their products or adding other unreasonable transaction conditions for their transactions as follows:
- breaching trading practices or consumption habits or disregarding the functions of commodities, and mandatory bundling different products or combine 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-sale service and others;
- adding unreasonable expenses in addition to the price; and
- adding transaction conditions unrelated to the subject of the transactions.
There is no precedent penalty regarding the type of discrimination (such as discriminatory pricing) under the abuse of market dominance in 2019 in China.
Article 19 of the Abuse of Dominance Provisions provides that without legitimate reasons, business operators with market dominance are prohibited from implementing the following preferential treatment regarding the transaction conditions for trading partners with identical conditions:
- different number of transactions, variety and quality grades;
- varying quantity discounts and other preferential terms;
- different payment conditions and delivery methods; and
- different contents and durations of the warranty, contents and timing of maintenance, technical assistance and other after-sale service conditions.
'Identical conditions' shall mean that there is no difference between the trading partners, which will have a substantial impact on aspects such as transaction security, transaction costs, scale and capabilities, creditworthiness status, transaction phase and duration of trading relationship.
iv Exploitative abuses
There is no precedent penalty regarding the type of exploitative practice (such as excessive pricing) under the abuse of market dominance in 2019 in China.
Article 14 of the Abuse of Dominance Provisions provides that business operators with market dominance are prohibited from selling goods at unfairly high prices or buying goods at unfairly low prices.
For determination of 'unfairly high prices' or 'unfairly low prices', the following factors may be considered:
- whether the selling price or purchase price is evidently highly or evidently lower than the price paid by other business operators for 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 evidently lower than the price paid by the same business operator for 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 beyond normal range or the purchase price is reduced beyond the normal range; and
- whether the price increase for sale of goods is evidently higher than the cost increase range, or if the price drop range for purchase of goods is evidently higher than the cost reduction range of the trading partner; and
- other relevant factors to be considered.
For determination of identical or similar market conditions, the factors such as sales channel, sales model, supply and demand situation, regulatory environment, transaction phases, cost structure and transaction situation shall be considered.
Article 15 regulates that without legitimate reasons, business operators with market dominance are prohibited from selling goods at a price below cost.
For determination of selling goods at a price below cost, it should be considered whether the price is lower than the average variable cost. Average variable cost shall mean each unit cost that varies in accordance with the changes in the quantity of goods produced. Where a free of charge model in new economic forms, such as the internet is involved, the circumstances such as, inter alia, the free goods provided by the business operator and the relevant chargeable goods shall be considered in a holistic manner.
Remedies and sanctions
In accordance with Article 47 of the AML, an undertaking that has abused its dominant position may be fined between 1 and 10 per cent of its turnover in the preceding year. Notably, since the establishment of SAMR, the authority adopted the overall turnover of a company in the preceding year as denominator for imposing fines on abuse of market dominance, rather than turnover of relevant products involved in the antitrust investigation. Additionally, the regulator may confiscate the 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 duration of the illegal conduct. Effective in September 2019, SAMR released the Interim Rules of Prohibition on Abuse of Market Dominance, which further explain the key points regarding imposing fines and confiscation of illegal gains.
ii Behavioural remedies
Along with sanctions, Article 47 of the AML provides that the regulator may impose cease-and-desist orders to stop illegal abusive conduct, although 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 SAMR to impose structural remedies on 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 1 September 2019, the Abuse of Dominance Provisions promulgated by the SAMR went into force and replaced previous regulations of the former SAIC and NDRC with regards to dominance.
The Abuse of Dominance Provisions relating to substantive provisions, such as how to define the market dominance power and the behaviours of abuse, are mainly integrated with provisions of the SAIC's 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 NDRC Regulations on Anti-Price Monopolies.
A notable procedural change is that the Abuse of Dominance Provisions provide a blanket authorisation for provincial AMRs to investigate and penalise abusive conduct within their respective administrative regions. Previously, investigations by provincial agencies into price-related abuses were authorised on a blanket scale by the NDRC, while investigations into non-price-related abuses were authorized on a case-by-case basis by the SAIC. The new Abuse of Dominance Provisions ended the fragmented regime of authorisation and will likely increase the efficiency in handling abuse of dominance cases.
Meanwhile, the Interim Provisions on Administrative Penalty Procedures for Market Administration (the Penalty Procedural Provisions) came into effect on 1 April 2019, and these cover the common procedural provisions regarding administrative penalties issued by the SAMR. By contrast, the Abuse of Dominance Provisions provide special provisions on investigating abuse of market dominance.
Considering these two sets of regulations, the stages of SAMR investigations are as follows:
- An antitrust investigation can be triggered largely from four possible sources:
- ex officio discovery;
- reports by undertakings;
- case transfer from other government agencies; and
- case assignment from higher-level agencies.
- The Abuse of Dominance Provisions provide that the SAMR shall be responsible for, or authorise the relevant provincial market regulatory authorities to be responsible for, investigation and punishment of the following monopoly acts:
- that have occurred across provinces, autonomous regions and centrally administered municipalities;
- that are complicated or have a significant impact nationwide; and
- that 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, commissioned by the SAMR, the provincial branches can conduct investigations in the name of the SAMR.
- It falls within the regulators' discretion to determine whether to open a formal investigation after receiving a lead.
- 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 or lost, or difficult to obtain later;
- seizing and detaining relevant evidence; and
- checking the bank accounts of the business operators under investigation.
- Undertakings under investigation can offer commitments at any stage of an investigation. The regulators are entitled to decide whether to accept the commitments. If the antitrust agency determines that the conduct at issue is likely to constitute an abuse of market dominance, the regulator will not accept commitments offered by the undertaking but will issue an administrative decision.
- The authorities may issue punishment decisions when they consider that the undertaking concerned has violated Article 17 of the AML. The regulators should publish the decisions.
- If unsatisfied with a decision, the undertakings under investigation may apply for an administrative review or file an administrative lawsuit with a court for judicial review.
The Abuse of Dominance Provisions do not specify the statutory deadlines of investigation; therefore, some procedures may last either for a relatively long time or short timeframe, depending 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'.
Among private actions, collective actions are available in China in the form of representative actions under Articles 53 and 54 of the Civil Procedure Law, which are similar to class actions in the United States. However, collective actions are not common either in antitrust disputes or in other causes of action. This is because the law has not provided clear guidance as to 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 antitrust collective action has been brought in China yet.
In contrast, private actions brought by putative individual victims are commonly seen, although the prevailing rate for antitrust plaintiffs is still low relative to other types of civil actions. The reasons are either 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 and does not cause any antitrust injury, but rather is a regular contract or tort dispute that is outside the scope of antitrust law.
As China enters the 12th 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 process for revising the AML for the first time in 12 years by unveiling a draft amendment for public comment. The draft amendment added a specific provision for assessing market dominance of internet companies, which echoed the analytical framework already adopted in the Abuse of Dominance Provisions (see Section III for more details). These provisions signal an emphasis on the fast-growing internet economy and potential increased enforcement in the coming years. However, since China has not issued an administrative decision against abuses in the internet sector yet, how the provisions are to be interpreted in practice will be closely watched.
Aside from the internet sector, industries that concern daily livelihood will continue to be top enforcement priorities. As discussed in Section II, the five administrative decisions issued in 2019 all concerned daily livelihood (three in public utilities, one in pharmaceutical and one in construction materials). Companies in these sectors are reminded to assess their market positions and scrutinise potential abuses on a regular basis.
Enforcement efficiency is also expected to increase as provincial AMRs have been given blanket authorisation for investigation. In fact, all the five abuse decisions in 2019 were issued by provincial AMRs (three by Jiangsu AML, one by Shanghai AMR and one by Tianjin AMR). More familiar with local firms and market conditions, the provincial AMRs will play a more active role in antitrust enforcement and ease the burden on the SAMR so that the latter can focus on more significant and complicated cases.
Private enforcement is also expected to step up in the coming year. Starting in 2019, the Supreme People's Court began to hear all appeals from first-instance judgments and rulings from local courts. While having issued a few important decisions to resolve procedural issues, the Supreme Court has yet to make substantive rulings that may have lasting and precedential value for China's antitrust enforcement going forward.
1 Zhan Hao is the managing partner and Song Ying is the partner at AnJie Law Firm.
9 This new regulation was released by SAMR on 26 June 2019 and entered into force on 1 September 2019.
10 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 or technical constraints.
11 See Article 19 of the AML.