Interpretation of the main points of the revised draft of the Anti-Monopoly Law

2020 01/14


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.


Second, monopoly agreements

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.


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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.)