Washington, DC – June 30, 2014 – The article co-authored by Lei Mei and titled “5 Things You Should Know About China’s Anti-Monopoly Law” was published in Competition Law360, IP Law360, Technology Law360, and International Trade Law360.
A copy of the article is reproduced below:
Since China’s Anti-Monopoly Law first took effect in 2008, China’s anti-monopoly law enforcement has moved into the fast lane. Chinese anti-monopoly law enforcement agencies have increasingly exercised their muscles regulating both domestic andmultinational corporations doing business in China, becoming one of the most important antitrust regulators in the world, along with U.S. and European counterparts.
On June 17, 2014, the Chinese Ministry of Commerce (MOFCOM) blocked the “P3” vessel-sharing alliance between Denmark’s AP Moeller Maersk, Switzerland’s Mediterranean Shipping Company and France’s CMA CGM, despite the deal already approved by U.S. and European regulators. This is the second disapproval by MOFCOM since its prohibition of Coca-Cola Co.’s acquisition of Chinese juice maker Huiyuan in 2009. Early this year, on April 8, 2014, MOFCOM approved Microsoft Corp.’s acquisition of Nokia Corp.’s mobile handset business, but surprised many by imposing additional conditions on Microsoft’s patent licensing practices.
Because China is a major component of the world economy, U.S. companies doing business in China must understand Chinese laws and enforcement procedures, including the current landscape of China’s anti-monopoly law. This article outlines five things U.S. companies should know about China’s anti-monopoly law.
First, U.S. companies should know the administrative agencies and courts that interpret and enforce the Chinese anti-monopoly Law. Specifically, China has three executive administrative agencies that enforce the Chinese anti-monopoly law: (1) MOFCOM’s Anti-Monopoly Bureau regulates mergers and acquisitions; (2) the State Administration for Industry and Commerce (SAIC) reviews monopolistic agreements, abuse of dominant market position, abuse of administrative power to eliminate or restrict competitions; and (3) the National Development and Reform Commission (NDRC) regulates monopolistic activities involving prices.
Since 2008, MOFCOM’s Anti-Monopoly Bureau has accepted applications from more than 800 business operators and processed more than 700 applications. The NDRC has handled anti-monopoly cases in the industries such as telecommunications, gold, milk powders, medicine and liquor. SAIC authorized the provincial-level industrial and commercial administrative enforcement agencies to investigate numerous cases involving monopolistic agreements, abuse of dominant market position and executive branches’ abuse of administrative power to restrict competitions.
In addition, according to “Supreme People’s Court’s Provisions on Several Issues Concerning the Application of the Law in Trials of Civil Dispute Cases Arising from Monopolistic Acts,” a civil lawsuit may be initiated in a people’s court by a nature person, legal person or other organization due to the suffering of a loss as the result of a monopolistic act or due to a dispute arising out of the provisions of an industry association that violate the anti-monopoly law. The court of first instance for an anti-monopoly case is the intermediate people’s court in a city where a provincial-level government is located or the intermediate people’s courts designated by the Supreme People’s Court.
Notable recent court proceedings include a landmark antitrust case brought by China’s Huawei Technologies Co. Ltd. against InterDigital Technology Corporation, an American company, for alleged abuse of market dominance in InterDigital’s patent licensing activities. A court of first instance found, among others, that InterDigital demanded excessive patent royalties from Huawei. This decision was affirmed by the next-level appellate court. The parties later settled.
Second, U.S. companies should know that the Chinese anti-monopoly law does not provide for criminal liability. Unlike the United States, China does not hold companies or individuals that violate Chinese antimonopoly laws criminally responsible. Rather, in China, violators of Chinese anti-monopoly laws are subject to administrative penalties and/or civil litigation.
Third, U.S. companies should know MOFCOM’s provisions on simple concentration cases, “Tentative Provisions on the Criteria Applicable to Simple Cases of Concentrations of Business Operators.” These provisions took effect on Feb. 12, 2014.
According to MOFCOM’s tentative provisions, a simple case of business concentration may be applied in the following situations: (1) in the same relevant market, all operators involved in the concentration have a combined market share of less than 15 percent; (2) upstream and downstream operators participating in the concentration have a combined market share of less than 25 percent in the upstream and downstream markets; and (3) if the operators are not in the same relevant market and it is not a case where the upstream and downstream operators are involved in the concentration, the operations have a combined market share of less than 25 percent in each relevant market.
Fourth, U.S. companies should know that when a company faces anti-monopoly law enforcement investigations and judicial review in China, its cooperative or uncooperative attitude plays a critical role. Because the Chinese anti-monopoly law provides in the penalty provisions that the anti-monopoly authority has wide latitude in imposing fines, from 1 percent to 10 percent of the sales revenue at issue, depending on the attitude of the company being investigated.
According to Article 46 of the Chinese anti-monopoly law, the anti-monopoly authority “shall confiscate the illegal gains and impose a fine of 1% up to 10% of the sales revenue in the previous year.” However, where any business operator voluntarily reports the conditions on reaching a monopoly agreement and provides important evidence to the anti-monopoly authority, the anti-monopoly authority may, at its discretion, “mitigate or exempt the business operator from punishment.”
In contrast, according to Article 52, if a business operator refuses to provide related materials and information, provides fraudulent materials or information, conceals, destroys or removes evidence, or refuses or obstructs investigation in other ways, the anti-monopoly authority has the discretion to impose additional fines.
Fifth, U.S. companies should familiarize themselves with Chinese administrative and procedural laws. These laws include the Administrative Punishment Law, Administrative Reconsideration Law, Administrative Procedure Law, State Compensation Law, the revised Company Law, and Tort Liability Law.
For example, Article 29 of the Administrative Punishment Law limits the authority of law enforcement agencies to continuing activities or past activities within the applicable statute of limitations. During any enforcement procedure, Chinese law enforcement agencies must strictly follow the Administrative Punishment Law. When an administrative department conducts an investigation or inspection, at least two law enforcement personnel must be present and produce their identity cards to the relevant party. Failure to follow this requirement will render the investigation or inspection illegal.
In addition, any law enforcement agency may collect relevant evidence during a site visit, but it must give the party at issue a property detention notice listing all of the collected items. At the conclusion of the investigation, the anti-monopoly authority must return items that are not particularly relevant.
Furthermore, if a law enforcement agency intends to impose a fine of 30,000 RMB (about $5,000) or more, it must hold an evidentiary hearing and the party at issue has the right to request a reduction of the fine. More importantly, if any party disagrees with the anti-monopoly authority’s decision of punishment, it can initiate an administrative review at the legal department of the same or higher level agencies, or request a judicial review at a local people’s court.
Now entering the sixth year after the Chinese anti-monopoly law’s enactment, China has emerged as a key antitrust regulator for multinational companies that have business in China. To succeed in China, U.S. companies doing business in China should familiarize themselves with the unique aspects of Chinese anti-monopoly law and the Chinese legal system.
–By Lei Mei and Lipeng Mei. Lei Mei is the managing partner of Mei & Mark in Washington, D.C. He is the author of the book “Conducting Business in China: An Intellectual Property Perspective” (Oxford University Press 2012). Lipeng Mei is a visiting scholar at the George Washington University Law School and a Ph.D. candidate at the University of International Business and Economics in Beijing, China. Lipeng Mei may be reached at firstname.lastname@example.org.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.