China Anti-Monopoly Law Update: 2015 Review and 2016 Forecast

Adrian Emch, Partner, and Jiaming Zhang, Hogan Lovells, Beijing

To get an overview of the major anti-monopoly law developments in China in 2015 and a prediction of how the landscape might shift in 2016, Hong Kong Lawyer reached out to competition/antitrust law specialists, Adrian Emch, Partner, and Jiaming Zhang of Hogan Lovells’ Beijing office.

2015 Review

In retrospect, 2015 will possibly be viewed as a year of transition for Chinese antitrust law. On the one hand, there appears to have been a change in pace in the enforcement of the Anti-Monopoly Law (“AML”). On the other hand, certain antitrust developments in 2015 reflect continuity with prior enforcement trends and policies.

Change in 2015

In the Chinese antitrust field, 2015 started with the landmark Qualcomm decision. The decision is frequently viewed as one of the most, if not the most, controversial antitrust case in China in the past years. The National Development and Reform Commission (“NDRC”) imposed a record fine of around RMB 6 billion on Qualcomm for alleged abuse of dominance. To our knowledge, this fine is the second highest imposed on a single company in an individual case in the history of antitrust law – on a global basis.

In the lead-up to the Qualcomm decision, there had been numerous complaints against a perceived bias in Chinese antitrust law enforcement, especially by foreign stakeholders (including the US government). Perhaps as a reaction to these complaints, the three Chinese antitrust authorities – NDRC, the State Administration for Industry and Commerce (“SAIC”) and the Ministry of Commerce (“MOFCOM”) – took somewhat of a "lower profile" in 2015 after Qualcomm.

In parallel with the lower intensity in enforcement activity, the antitrust authorities undertook wide-ranging normative efforts in 2015. NDRC was busy drafting AML implementation guidelines on the abuse of intellectual property rights (“IPRs”); leniency; commitments; exemption procedure; calculation of fines and illegal gains; and rules for the automobile sector. SAIC was preparing its own proposal for guidelines on AML enforcement in the IPR field. MOFCOM was drafting guidance on IPR aspects in merger control, and worked on updating its merger filing guidance.

Beyond this general shift towards a "lower profile" enforcement approach, to an extent, there were other notable changes in 2015. For example, as some sort of departure from prior practice, more enforcement cases in 2015 targeted state-owned enterprises (“SOEs”) or challenged government-mandated anti-competitive conduct.

As to SOEs, for instance NDRC's Yunnan branch investigated and sanctioned four state-owned telecommunications operators for suspected cartel conduct. SAIC's local office in Liaoning sanctioned a tobacco company with a statutory monopoly for abuse of dominance. MOFCOM fined a series of SOEs for failure to file reportable mergers. The courts also examined cases involving allegations of anti-competitive conduct by SOEs – for example, Sinopec's refusal to deal case in Yunnan, though the appeal judgment in 2015 turned to be in the company's favor.

As to government-orchestrated anti-competitive conduct, NDRC was particularly active in 2015. The authority significantly stepped up enforcement against "administrative monopolies," challenging anti-competitive actions by a variety of government bodies throughout China, such as the Shandong Department of Transportation, the Yunnan Communications Bureau, and a local Health and Family Planning Commission in Bengbu, Anhui Province.

In merger control, several developments indicated change in 2015. For instance, the so-called "simple case" procedure – though launched by MOFCOM in 2014 – really took off in 2015, as the number of filings under the new procedure surged to above 250 (compared to around 80 in 2014). Another important change to streamline the merger review process was the internal restructuring of MOFCOM's Anti-Monopoly Bureau. In September 2015, MOFCOM decided to convert the Consultation Division into an additional case team division, together with the Legal Division and Economics Division. Today, all cases are allocated to one of the three divisions, and a single case team from one of the divisions is responsible for reviewing a case from submission to clearance.

Continuity in 2015

While 2015 brought many changes, there were also clear indications of continuity with past enforcement and policies. For example, a clear link with pre-2015 enforcement was that high technology and IPRs continued to be targets of AML enforcement, though perhaps in a more subdued way. For example, enforcement against abusive licensing of standard essential patents (“SEPs”) continued throughout 2015: NDRC adopted the Qualcomm decision; SAIC issued the regulation on AML enforcement in the IPR field, which includes a specific SEP provision; and MOFCOM imposed SEP remedies in the Nokia/Alcatel-Lucent case.

For NDRC specifically, continuity with prior enforcement was visible in its actions in the automobile industry, and its handling of international cartel cases. In 2015, NDRC and its local offices continued antitrust campaigns against automobile manufacturers and dealers. For example, in April, NDRC's Jiangsu branch fined Mercedes-Benz and its dealers for engaging in anti-competitive agreements on resale prices (around RMB 350 and 7 million, respectively).

Similarly, in December 2015, NDRC published a set of decisions sanctioning eight international shipping lines for alleged price fixing and market allocation, and imposed a fine of around RMB 407 million in total. These decisions reflect continuation of NDRC's enforcement against international cartels, starting with the LCD panels and Auto parts and bearings cases in 2013 and 2014.

For its turn, SAIC's enforcement showed some continuity in 2015, for example in Liaoning Cigarettes, a tying case in the tobacco industry – in line with abuse of dominance cases against tobacco wholesalers brought by SAIC's provincial offices in Inner Mongolia and Jiangsu in 2014.

2015 Take Aways

Overall, 2015 was a "mixed bag" of developments characterized by both change and continuity – with the authorities generally taking a "lower profile" in enforcement activities, but an increased focus on normative efforts.

2016 Forecast

Going into 2016 and beyond, we would expect that – after finalising their normative projects – the officials at the Chinese antitrust authorities would go back full-steam to case handling. We would not be surprised if AML enforcement were to accelerate again soon.

On the substantive front, some of the enforcement cases in 2015 – for example, the first refusal to deal decision by an administrative antitrust authority (in the Qingyang case, by SAIC's local branch in Chongqing) – and the guidelines on the IPR field and the automotive sectors may take Chinese antitrust law into new directions going forward. For instance, it may well be that the new guidelines for the automotive sector identify new types of illegal conduct (such as territorial restrictions imposed on distributors by non-dominant suppliers), and that such changes would expand to other sectors.