2023 Anti-Trust Law: new rules in China

Yang Chen

JunHe, Beijing

yangchen@junhe.com

After the unveiling of the revised Anti-Monopoly Law, amended in 2022 (the ‘AML Amendments’), 2023 has been a year of progressive antitrust legislation in China. A flurry of updated regulations and mechanisms were published to further clarify the AML Amendments, absorbing past enforcement experience for the purpose of facilitating the implementation of the AML Amendments.

Regulatory clarification: four implementation rules for the AML Amendments

On 24 March 2023, the State Administration for Market Regulation (SAMR) issued four amended supporting rules for implementing the revised AML after nine months of public consultation, all of which came into effect on 15 April 2023. The four supporting rules provide detailed and concrete guidelines on monopoly agreements, abuse of market dominance, merger control review and administrative monopoly. Below are the main takeaways.

Provisions on Prohibition of Monopoly Agreements (the ‘Monopoly Agreements Provisions’)

POTENTIAL COMPETITORS

The Monopoly Agreements Provisions for the first time included the concept of ‘potential competitors’ at the legislative level. The Monopoly Agreements Provisions define potential competitors as potential undertakings that may enter the relevant market for competition. The SAMR further explains, in its interpretation of the provisions, that a potential competitor is an undertaking ‘with the feasibility of entering the relevant market within a certain period of time’. It’s noteworthy that, under the draft version, the potential competitors were defined as ‘undertakings with the plan and feasibility of entering the relevant market for competition within a certain period of time’, but the final version removed the subjective criterion of ‘plan’ for sake of certainty. We understand that the current version is consistent with widely accepted rules across the globe.

According to the relevant rules in the EU, the assessment should be based on reasonable and objective factors and the mere theoretical possibility of entering a relevant market is not sufficient to constitute a potential competitive relationship. Moreover, though SAMR has not provided further clarity regarding the 'certain period of time', the relevant rules of its counterpart of the EU may be of relevance where the period of time generally means within three years.

SAFE HARBOUR RULE

This was first introduced by the revised AML against vertical monopoly agreements (including resale price maintenance (RPM)) and further illustrated in the Monopoly Agreements Provisions. The draft version initially provided a threshold of 15 per cent, while the final version removed the specific threshold, indicating that there is still no aligned view on the threshold. Therefore, RPM is still currently highly risky in China, regardless of the market share of the undertakings concerned.

HUB-AND-SPOKE CONSPIRACY 

The AML has left open explanation on hub-and-spoke conspiracy, and the gap has been filled by the Monopoly Agreements Provisions, which explicitly sets out the definition of ‘organizing’ and ‘substantial assistance’. Pursuant to the Monopoly Agreements Provisions, ‘organizing’ mainly refers to the following situations:

1. where an undertaking is not a party to a cartel arrangement but plays a decisive or leading role in the scope of the subject matter, the main content and the conditions for its performance during the conclusion or implementation of the cartel arrangement; and
2. an undertaking enters into an agreement with several counterparties separately, making the competitive counterparties entering into cartel arrangement by liaison of will or exchange of sensitive information via the undertaking. 

Moreover, ‘substantive assistance’ refers to the situation where an undertaking provides necessary support, creating key facilitation conditions or providing other important assistance for competitive counterparties in entering cartel arrangements.

Provisions on Prohibition of Abuse of Market Dominance (the ‘Abuse of Market Dominance Provisions’)

CLARIFICATION OF RULES IN PLATFORM ECONOMY 

For undertakings in platform economy, the Abuse of Market Dominance Provisions clarify market definition approaches, which can be considered based on commodities on either side of the platform, or as a whole hinging upon multilateral commodities concerned in the platform, or respectively as multiple separate relevant markets in the field of platform economy. In addition, undertakings with market dominance are prohibited from using data and algorithms, technology, platform rules to engage in abusive conduct. It is worth noting that in the exposure draft, self-preference was once listed as an abusive conduct, but was removed in the final draft. Nonetheless, this does not mean that self-preference would not be subject to the AML in China, as it may be caught by the discrimination treatment or the catch-all clause of the relevant article regarding abusive conduct in the AML. 

COLLECTIVE DOMINANCE 

The AML outlines that if the combined market share of two undertakings exceeds two-thirds, or that of three undertakings exceeds three-quarters, it can be presumed that these businesses hold a collective dominant market position. The Abuse of Market Dominance Provisions further clarify the assessment factors in determining collective dominance, including without limitation to consistency of undertakings’ behaviours, market structure, market transparency, degree of homogeneity of the relevant products, etc.

Provisions on the Review of Concentrations of Undertakings (Merger Control Review Provisions)

CLARIFICATION ON ‘GUN-JUMPING’ 

Under the Merger Control Review Provisions, SAMR clearly defined what constitutes ‘gun-jumping’ to facilitate undertakings complying with the law. The non-exhaustive list includes: (1) completion of the registration of changes in shareholders or rights; (2) appointment of senior management personnel; (3) actual participation in business decision-making and management; (4) exchange of sensitive information with other operators; and (5) substantial business integration.

SAMR’S CALL-IN FOR BELOW-THRESHOLD TRANSACTIONS WITH ANTI-COMPETITIVE EFFECTS

SAMR has the power to review transactions that is below the filing thresholds but have or may have anti-competitive effects. The Merger Control Review Provisions further clarify how SAMR’s call-in would be proceeded. Under the provisions, the undertakings are required, upon receipt of SAMR’s notice, to make a notification within 120 days of notice and, if the transaction is already implemented, to suspend the transaction.

Intersection between antitrust law and intellectual property law

The intersection between antitrust law and intellectual property (IP) law has long been the focus of legal academia and practical implementation of the AML, and great progress has been made during 2023. On 29 June 2023, SAMR issued the Provisions on Prohibition of the Abuse of Intellectual Property to Exclude or Restrict Competition (the ‘IP Monopoly Provisions’) providing clearer guidance or navigating IP-related antitrust issues, which replaced the previous one promulgated by the former State Administration for Industry and Commerce in 2015. The main takeaways of the IP Monopoly Provisions are summarised as below.

IPR – related monopoly agreement 

The IP Monopoly Provisions addressed several issues that have been long the focus of the AML. Among others, the provisions clearly state that IP rights (IPR) must not be exploited to form or aid in creating anticompetitive agreements, ie, the hub-and-spoke agreements where IPR serves as a means to facilitate or significantly contribute to anticompetitive collaborations is explicitly forbidden. The safe harbour rule’s applicability to vertical agreements involving IP is reiterated by the provisions, where the specific threshold remains unchanged compared to those specified in the Guidelines on Anti-Monopoly in the Field of Intellectual Property Right (ie, neither of the parties has a market share exceeding 30 per cent in the relevant market). The provisions further provide clear compliance guidance on specific business model in the IPR field, such as patent pool and standard formulation. For example, members of a patent pool shall not exchange competitively sensitive information such as prices, output, market divisions, etc, or otherwise the patent pool may constitute a horizontal monopoly agreement. Also, competing formulators of a certain standard shall not jointly exclude specific undertakings from participating in the standard-setting, otherwise the standard formulation may constitute a horizontal monopoly agreement.

Market dominance in the field of IPR

The IP Monopoly Provisions provide detailed criteria in identifying and address abuse of market dominance, including supplementing and exemplifying the factors in identifying market dominance in the field of IPR, the determination rules on abusing behaviours such as unfairly high prices, as well as the justifications for the undertakings’ abusive behaviours. Specifically, the IP Monopoly Provisions promulgate that for justifications to stand, factors to be taken into consideration include: (1) whether the behaviour is conductive to encouraging innovation and promoting fail competition in the marketplace; (2) whether the behaviour is necessary for protecting IPR; (3) whether the behaviour could promote product safety, technical effect and product performance; (4) whether the behaviour is for the actual needs of the counterparty and in line with legitimate industrial practices and trading customs.

Merger filing guidance: Anti-monopoly Compliance Guidelines for Concentration of Undertakings (the ‘Merger Control Guidelines’)

On 11 September 2023, SAMR issued the Merger Control Guidelines, which offered practical guide for undertakings in merger control filing. The Merger Control Guidelines provide for thorough instructions, including factors to be considered by SAMR in control analysis (in particular, veto rights over the appointment and removal of senior management, annual budgets and business plans would suggest control). The Merger Control Guidelines also address potential global filing obligation for Chinese undertakings, suggesting more schedule on deal timetable.

More efficiency for soft antitrust enforcement: ‘three notices and one letter’ mechanism

On 6 December 2023, SAMR and the State Council’s Office of the Anti-Monopoly and Anti-Unfair Competition Commission jointly issued the ‘three notices and one letter’ mechanism (the ‘Mechanism’), which aims to streamline antitrust enforcement with increased efficiency. The Mechanism provides for the following regulatory approaches consisting of reminders, interviews and formal investigation stages, including: (1) letter of reminder to prevent antitrust risks, which serves as a proactive measure reminding and urging undertakings to rectify identified antitrust issues within a designated time period; (2) notice of talk to interview relevant personnel in charge of the undertakings requesting for proposed improvement measures, in case the first notice failed; (3) notice of investigation, which is triggered if there is preliminary evidence proving the existence of anti-competitive conduct or the undertakings concerned refuse to accept or hinder the investigation; and (4) notice of administrative penalty or advice after the antitrust enforcement agencies made its decision. Soft enforcement has already been utilised by SAMR in June, when SAMR held regulatory talk with four pig breeders for a non-poaching initiative. With the Mechanism, it is expected that the overall antitrust enforcement in China will be more efficient.