2019 Compilation of Antitrust Regulations and Guidance released in China

2019 Compilation of Antitrust Regulations and Guidance released in China
01.09.2020 389

 In August 2020 the “2019 Compilation of Antitrust Regulations and Guidance” was published by the China Industry and Commerce Press at the request of the China’s main competition authority – the State Administration for Market Regulation. The book is divided into three parts: the first with guidelines, prohibitions and regulations, the middle, which provides official explanations and commentary to aforementioned, and the last, which specifies the relevant laws, regulations and normative documents, such as the Antitrust Law and the Administrative Litigation Law.

The first part contains the final edition of four crucial anti-monopoly guidelines, relating to the implementation of China’s competition law, which are in particular: the Antitrust Guidelines for Automobile Sector, the Guidelines to the Application of Leniency Policy in Horizontal Monopoly Agreement Cases, the Guidelines for Operators’ Commitments in Monopoly Cases and the Antitrust Guidelines for IP. The preparation of first drafts was launched by the Anti-Monopoly Committee of the State Council of China in June 2015, and then in February 2017 the drafts for public suggestions and advice were released. In the beginning of 2019 such drafts with several updates received the approval of the State Council but have not been made public. The recent publication finally promulgates these four guidelines and provides the readers with all necessary explanations. Although for now the book is only available in Chinese bookstores in hard version, some Chinese field actors and media (King&Wood Mallesons, Sohu, etc.) as well as the draft themselves have already given us some insights on the key provisions:

The Antitrust Guidelines for Automobile Sector addresses the competition issues on China’s national automobile market, summarizes anticompetitive practices possible to perform on automotive and after-sale markets in terms of horizontal and vertical agreements and abuse and gives exact guidance to the methods of assessment of anticompetitive agreements and abuse of dominance that are likely to eliminate or limit competition in the industry.

Key points:
Although the Anti-Monopoly Law (Articles 13, 14) of China prohibits both horizontal and vertical anticompetitive agreements, some cases may still be exempted from the application of these articles, which are, in particular:
· Economic entities with less than 25-30% of market share;
· Horizontal agreements on scientific research and development, specialization, technical standardization, joint production or joint purchases;
· Fixed resale price or limited minimum resale price for the first promotion period of ‘green’ vehicles;
· Distributors that only serve as a ‘middleman’ to help the supplier and the consumer to execute the transaction;
However, such exemption is not available for those that restrict ‘passive’ sales or cross-supplies, limit warranty service or circulation of warranty spare parts, force to advertise or to purchase aged or unwanted goods, prohibit to choose contractor or materials etc.
No supplier is allowed to abuse its dominant position on the market and thus can not prohibit its spare parts supplier to place his own labels on the product, unjustly limit after-sale supplies or spare part circulation. The supplier also must ensure the availability of all technical information, testing devices and instruments, necessary for service.
No authority or organization that possesses administrative power is allowed to abuse such power in order to restrict or limit fair competition, i.e. impose unreasonable market entry barriers, prohibit certain transactions etc.

The Guidelines to the Application of Leniency Policy in Horizontal Anticompetitive Agreement Cases provides specific information on the applicable scope of leniency, time and procedure of applications, information and documents necessary to submit and conditions to be meet in order to be granted leniency.

Key points:
· Leniency may be applied for either before or after the case is opened and the investigation is started but before the penalty is imposed, so that the applicant is not obliged to wait till the official procedures but still has to apply before the advance notice on penalty is issued;
· Various levels of leniency are to be applied according to the order of applicants or, in the other words, ‘the first to come is the first to get’. Thereby, the first to apply for leniency may be exempted from penalty of have a reduction of over 80%, the second applicant gets a reduction of 30-50%, while only a 30% reduction or less is available for the third. Only three first applicants in total may be granted with leniency, however, such number can be increased by the relevant authority for the cases of high complexity.
· As the government encourages market actors to communicate at earliest possible, the operators are allowed to apply and to report both in written or oral at their convenience.

The Guidelines for Economic Entities’ Commitments in Competition Cases determines the scope of commitments, the form of their submission, withdrawal and revision, as well as the channels of communication between economic entities and competition enforcement agencies and the measures related to such commitments.

Key points:
· Commitments shall not be accepted for cases related to such cartel conduct as price fixing or maintanance, restricting production or sales quantity, dividing sales market or raw material purchase market etc.;
· New Guidelines encourage undertakings to make their commitments at earliest and allow to commit before the advance notice on penalty is issued. No commitment shall be accepted after the enforcement agency have made the final decision on penalty or the advance notice has been issued.
· The undertakings are allowed to apply for revision of commitment, if significant changes have arisen in their business situation or on the market. If due to such changes the fulfilment of commitment becomes unnecessary, the undertaking may also apply for its prior termination.

The Antitrust Guidelines for IP indicates the key principles of identification of IP rights abuse, the agreements likely to eliminate or limit competition, abuse of dominant position and the economic concentration related to intellectual property.

Key points:
The Guidelines explicitly states that the possession of IP rights itself does not provide its holder with dominant market position, but some abusive behavior in relation to the following agreements may result into limitation or restriction of fair competition, regarding the scope of actions and the particular features of specific rights:
· Joint research and development;
· Cross licensing;
· Sole or exclusive grant-back;
· No-challenge clause;
· Creation of standards etc.
However, a safe harbor exists for such agreements, provided that one of following conditions is met:
· The joint market share of competitive parties at the respective market does not exceed 20%;
· The joint market share of non-competitive parties at any market does not exceed 30%;
· The market share of an economic entity is hard to determine or does not reflect its market position, but, apart from the technologies controlled by parties, another four or more substitute technologies that can be purchased from other operators for a reasonable price exist at the market.
The following cases are mentioned in the Guidelines as potential abuse of dominant position or could be considered monopolistic practice and therefore requiring more thorough analysis and higher attention:
· Unfairly high price for IP rights licensing;
· Refuse to provide IP rights license;
· Patent pool;
· Application to court for prohibition or limitation of usage of certain IP;
· Collective administration of copyrights.

As can be seen from above, the new publication provides market actors with precise guidelines on anti-monopolistic measures and explicitly stipulates relevant provisions concerning Leniency, Commitments, IR rights and Automotive Industry. By doing so, the Administration intends to clarify the antitrust laws and regulation to Chinese firms and companies and to encourage them to increase awareness and to grow competition consciousness, which totally follows the key goals of SAMR operation.


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