SAIC Fines Tetra Pak for Abuse of Dominant Market Position

On 16 November 2016, the State Administration for Industry and Commerce (“SAIC”) announced it had levied a RMB 667,724,176.88 administrative fine against Swedish packaging company Tetra Pak International S.A. (Tetra Pak) and five of its Hong Kong and China-registered subsidiaries for abuse of its dominant market position in the liquid food paper-based aseptic packaging materials, packaging equipment and technical services markets.

The SAIC is China’s enforcement authority for non-price-related anti-competitive behaviour under the Anti-monopoly Law of the People’s Republic of China 2007 (“2007 Anti-monopoly Law”).

According to Art. 17 of the 2007 Anti-monopoly Law, the term “dominant market position” refers to a market position held by undertakings capable of controlling commodities’ prices or quantities or other transaction terms in a relevant market, or preventing or exerting an influence on the access of other undertakings to the market.

Article 17 enumerates six specific types of conduct which constitute an abuse of a dominant market position, as well as a “catch-all” clause for conduct identified by an enforcement authority as an abuse of a dominant market position.

According to the announcement, the SAIC held that Tetra Pak had violated Art.17 by:

  • Restricting its raw materials suppliers from providing paper to its competitors.
  • Tying sales of packaging materials to the provision of packaging equipment and technical services.
  • Providing cumulative sales volume discounts, personalised purchase volume discounts and other loyalty discount schemes.

According to commentators, this marks the first penalty imposed by the SAIC for abuse of a dominant market position, as well as the first case involving loyalty discounts under the 2007 Anti-monopoly Law.

Market Reaction

Bai Yong, Counsel, Clifford Chance, Beijing

“Several aspects of the decision are worth noting. First, as loyalty rebates is not listed as a specific type of abusive conduct under the 2007 Anti-monopoly Law, this is the first time the SAIC referred to the “catch-all” clause under Art. 17 of the 2007 Anti-monopoly Law. The analysis generally mirrors international practice, though the SAIC’s approach is different in that it focused on the specific characteristics and conditions of the relevant market when analysing Tetra Pak’s rebate schemes. Second, the decision provides guidance on the methods for calculating fines. The fine imposed amounted to 7 percent of Tetra Pak’s sales revenue in mainland China (the 'relevant market'), which is consistent with the approach adopted by the NDRC. Third, the SAIC clarified the meaning of 'preceding year'. The fine was calculated based on the revenue in 2011, which was the year preceding the initiation of the investigation.”

Action Items

General Counsel for companies that could be deemed to hold a dominant market position in China should review client sales and licensing agreements and other arrangements in view of their actual or potential impact on competition through provisions such as loyalty discounts or restrictions on suppliers dealing with the client’s competitors. In certain cases, counsel may wish to seek specialist advice or recommend discussing concerns directly with the SAIC and the other competition regulators to gain an increased level of certainty into the regulators’ interpretations of these arrangements and of the company’s justifications for their potentially anti-competitive conduct.

Jurisdictions: