Interpretation of the main points of the revised draft of the Anti-Monopoly Law
On 2 January 2020, the State
Administration for Market Regulation (SAMR) published the Draft for Comments on
the Amendments to the Anti-Monopoly Law (the "Draft for Comments"),
which is the first large-scale revision of the Anti-Monopoly Law that came into
effect in 2008. From the content point of view, the consultation draft is a
comprehensive revision based on the past 11 years of experience in anti-monopoly
law enforcement, and the revision content is very rich, including not only the
three pillars of the Anti-Monopoly Law, namely concentration of undertakings,
monopoly agreements and abuse of dominant market position, but also
anti-monopoly administrative investigation and legal liability. Although the
Draft does not have legal effect now, it plays a very important role in
enlightening the future direction of anti-monopoly law enforcement.
First, concentration of undertakings
First, control
Article 23 of the Anti-Monopoly Law, which is currently in force, only
stipulates the form of concentration of undertakings, and does not explain the
concept of control, which itself is of great significance in determining
whether a concentration of undertakings has arisen. Article 23 of the Draft
adds a new paragraph on right of control, which provides a general explanation
of the concept of right of control. According to the content of this paragraph,
control refers to the right or actual status of a business operator, directly
or indirectly, alone or jointly, that has or may have a decisive influence on
the production and business activities or other major decisions of other
business operators. Therefore, formally speaking, control in the sense of
concentration of undertakings includes direct control and indirect control,
separate control and joint control; In terms of content, control refers to the
right or actual state that has or may have a decisive impact on the operator's
production and business activities or other major decisions. This definition is
similar to the definition of control in EU competition law[1], in that the
right of right only needs to have the possibility of having a decisive effect
on other operators, without the need to prove that the decisive influence is
actually exercised now or in the future. This additional provision would
facilitate a more accurate grasp of what constitutes control.
Therefore, in practice, in the case of acquiring a minority stake, even if the
acquirer has not obtained a controlling position in the target company, there
is still the possibility of acquiring control. According to officially
announced cases, there are many cases in which control has been acquired as a
result of the acquisition of minority shares, and the establishment of the
concept of control is conducive to further clarifying the legislative basis for
law enforcement agencies to review minority equity acquisition cases.
Second, potential changes in anti-monopoly filing standards
Article 24 of the Draft provides new clarification on the anti-monopoly filing
criteria. First of all, paragraph 2 of Article 24 authorizes the State
Administration for Market Regulation to adjust the anti-monopoly declaration
threshold, in other words, the State Administration for Market Regulation can
formulate and modify the declaration standards according to the level of
economic development, industry scale, etc., the current anti-monopoly
declaration standards were promulgated and implemented in August 2008, and now 11
years have passed, and the current level of economic development and industry
scale are not the same as 11 years ago, therefore, In the future, SAMR may
revise the current filing standards to raise the current filing threshold.
In addition, according to Paragraph 3 of Article 24 added in the Draft for
Comments, if a concentration of undertakings does not meet the reporting
standards, but has or may have the effect of eliminating or restricting
competition, the Anti-Monopoly Authority under the State Council shall conduct
an investigation in accordance with law. Therefore, legally speaking, the State
Administration for Market Regulation still has the power to investigate the
concentration that does not meet the anti-monopoly filing standards, which is a
fallback clause, although so far, there have been no cases investigated for
failing to meet the anti-monopoly filing standards, but this fallback clause is
not meaningless. On March 9, 2017, the German Bundestag approved the Ninth
Amendment to the Anti-Competition Restriction Act[2], which introduced a new
declaration standard of transaction price, and similar to China's current
anti-monopoly filing standards, the German anti-monopoly declaration standards
before the revision only used turnover as the basis for determining whether
declarations were required. The purpose of the new filing criteria in Germany
is to ensure that start-ups that may generate significant competitive concerns
in the future, especially Internet-related start-ups, are subject to the German
merger control regime if the company has no or little turnover at the time of
the transaction. Therefore, the Ninth Amendment introduces the transaction
price consideration on the basis of turnover, so that the acquisition of target
companies with small turnover is also subject to the review of the German
Federal Cartel Office if it reaches a certain transaction price. I understand
that paragraph 3 of Article 24 of the Draft serves as a catch-all clause to
provide a basis for the State Administration for Market Regulation to enforce
anti-monopoly regulations against start-up enterprises that do not meet the
filing standards but can generate significant competitive concerns, especially
Internet-related start-ups.
Third, true and accurate data and information
Article 51 is added to the Draft for Comments, which states that when the
documents or materials provided by the declarant exist or may be untrue or
inaccurate and need to be re-examined, the Anti-Monopoly Authority under the
State Council may, at the request of the interested party or ex officio,
conduct an investigation in accordance with the law and revoke the original
review decision. Article 51 makes it possible for transactions that have been
approved by antitrust for providing untrue or inaccurate materials to face the
consequences of revoking the original review decision and being reinvestigated.
The purpose of this article is to urge the declaring party to provide true and
accurate data and information when making antitrust declarations.
Fourth, the stop-meter system
Article 30 of the Draft provides for a suspension system for anti-monopoly
review. According to the current Anti-Monopoly Law, the first stage of
anti-monopoly review is 30 days, calculated from the date of filing, the second
stage is a total of 90 days, and the third stage is 60 days; The review period
for the above 180 is often insufficient for those cases that are tried under
ordinary procedures, particularly those that may raise significant competition
concerns. In order to allow the Anti-Monopoly Bureau sufficient and reasonable
time to conduct the anti-monopoly review, Article 30 of the Draft introduces a
suspension system for anti-monopoly review, that is, the required time is not
included in the above-mentioned 180-day review period in the following
circumstances: 1. The review period is suspended upon the application or
consent of the declarant; 2. The business operator submits additional documents
and materials in accordance with the requirements of the Anti-Monopoly Law Enforcement
Agency under the State Council; 3. The Anti-Monopoly Authority under the State
Council conducts consultations with the business operator on additional
restrictive conditions in accordance with Article 33 of this Law.
Fifth, higher fines
A new Article 50 has been added to the Draft for Comments, which addresses new
penalties related to concentration of undertakings. According to the current
Anti-Monopoly Law, the maximum fine for concentration that should be declared
but implemented without declaration and concentration that is implemented
without approval after declaration is 500,000 RMB. In view of this small
penalty, many transactions that should file an anti-monopoly declaration do not
file an anti-monopoly declaration with the law enforcement agency in accordance
with the law, or choose to file an anti-monopoly declaration with the law
enforcement agency after the transaction is partially implemented. For example,
in the case of Canon's acquisition of Toshiba Medical, Canon chose to file an antitrust
filing with the antitrust law enforcement agency only after the first step of
implementing the transaction, when the Ministry of Commerce finally imposed an
administrative penalty of RMB 300,000 on the applicant Canon, while in the same
case, the European Commission imposed a fine of EUR 28 million on the acquirer
Canon in June 2019, a difference of more than 700 times between the two fines.
Article 50 of the Draft changes this situation in one fell swoop, according to
which the Anti-Monopoly Law Enforcement Agency shall impose a fine of not more
than 10% of the previous year's sales if a concentration of undertakings falls
under any of the following circumstances: (1) the concentration is carried out
without making a declaration when it should be declared; (2) Carrying out
concentration without approval after declaration; (3) Deciding in violation of
additional restrictive conditions; (4) Carrying out a concentration in
violation of the decision prohibiting the concentration of undertakings. Therefore,
for "rushing" cases, the maximum fine amount can reach 10% of the
operator's sales in the previous year. This new provision is also very similar
to EU legislation on snatching[3], except that EU legislation clearly
stipulates that the calculation base of the snatching fine is the aggregate
turnover of the operator's turnover in the previous fiscal year, so it is
foreseeable that the amount of the fine for snatching cases under EU
competition law will be very high. As for whether the previous year's sales of
business operators as stipulated in Article 50 of the Draft refer to the total
turnover of business operators or the turnover within the relevant geographical
market of business operators, it needs to be further clarified in subsequent
cases.
Therefore, given that the Draft greatly increases the amount of fines for
potential run-up cases, the economic costs incurred by run-up will be higher,
therefore, for concentrations that meet the filing criteria, we suggest that an
anti-monopoly declaration should be filed with the State Administration for
Market Regulation before implementation.
First, vertical monopoly agreements
According to Article 14 of the Draft for Comments, the term "monopoly agreement" as used in this Law refers to an agreement, decision or concerted act that eliminates or restricts competition, and the second paragraph of the current Anti-Monopoly Article 13 on horizontal monopoly agreements is deleted. In Ruibang v. Johnson & Johnson Vertical Monopoly Agreement, the Shanghai High Court discussed whether the provisions of horizontal monopoly agreements with the premise of eliminating or restricting competition also apply to vertical monopoly agreements, and ultimately found that the principle of reasonable analysis should be applied to the determination of vertical monopoly agreements. For example, in the Hainan Yutai Vertical Monopoly Agreement case, the Hainan Provincial High Court to some extent recognized the practice of prohibition + individual exemption for the application of vertical agreements in administrative law enforcement. However, with regard to whether the principle of prohibition + exemption will continue to be maintained in the administrative law enforcement of vertical monopoly agreements, it needs to be further clarified. In addition, Article 17 of the Draft prohibits business operators from organizing or assisting other business operators to reach monopoly agreements. Therefore, in practice, if the upstream supplier is organized to help downstream distributors reach horizontal monopoly agreements, the upstream supplier may be punished.
Second, a higher amount of fines
According to Article 53 of the Draft for Comments, a fine of up to RMB 50 million may be imposed on a business operator that has no sales in the previous year or has not yet implemented the monopoly agreement reached. Therefore, monopoly agreements that are reached but not implemented are themselves subject to a high penalty risk.
3, abuse of market
dominance
Regarding the abuse of a dominant market position, the Draft mainly adds a
provision in Article 21: In determining that operators in the Internet sector have
a dominant market position, they should also consider factors such as network
effects, economies of scale, lock-in effects, and the ability to hold and
process relevant data. This new provision reflects the focus of antitrust
legislation on the Internet sector.
Compared with other industries, the determination of market dominance in the
Internet field is more complicated and has its own industry particularities, so
the factor of market share is not necessarily the most critical factor in
determining the existence of market dominance in the Internet field. For
example, in the 360 v. Tencent Monopoly case, when Tencent's market share in
the PC and mobile instant messaging service markets exceeded 80%, the Supreme
People's Court still found that Tencent did not have a dominant market
position. Therefore, for the Internet industry, the determination of its market
dominance needs to consider a variety of factors, including network effects,
economies of scale, lock-in effects, and the ability to master and process
relevant data.
4. Criminal responsibility
China's current Anti-Monopoly Law does not stipulate criminal liability for
monopolistic acts. Article 57 of the Draft stipulates that if a business
operator commits a monopolistic act and causes losses to others, it shall bear
civil liability according to law. Where a crime is constituted, criminal
responsibility shall be pursued in accordance with law. Therefore, for the
first time, the consultation draft introduces criminal liability for
monopolistic conduct through legislation, and there is a possibility that
company executives and employees will be criminalized for monopolistic conduct.
However, the Draft for Comments does not regulate what criminal liability is
triggered by monopolistic behavior, so this part needs to be further defined
and explained by the Criminal Law Amendment.
U.S. antitrust law has long criminalized monopolistic conduct, and for EU
competition law, the European Commission does not have the power to impose
criminal penalties for monopolistic conduct because EU member states have not
passed legislation authorizing the European Commission to impose criminal
penalties, but EU member states have discretion as to whether monopolistic
conduct is criminally penalized, such as the United Kingdom, under which cartel
conduct may result in imprisonment or fines. Therefore, the introduction of
criminal liability in the Draft for Comments is in line with the trend of
anti-monopoly law enforcement in the world.
[1]“Control
shall confer the possibility of exercising decisive influence on an
undertaking.”
[2] See: https://www.gesetze-im-internet.de/gwb/BJNR252110998.html
[3]“The Commission may by decision impose fines not
exceeding 10%of the aggregate turnover of the undertaking concerned.”
(This article is translated by software translator for reference only.)
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