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News blog27 June 202210 min read

Brief Analysis on Revision of PRC Anti-Monopoly Law and its Implication

Brief Analysis on Revision of  PRC Anti-Monopoly Law and its Implication

Written by Mr. Charles Feng, IP Expert and collaborator of the China IP SME Helpdesk

PRC Anti-Monopoly Law (“AML”) which was enacted on August 30, 2007 and implemented since August 1, 2008, has been playing increasingly important role in the development and regulation of Chinese economy in last 15 years. On June 24, 2022, the Standing Committee of National People’s Congress issued Decision on Revision of AML which is the first time of revision since the enactment of the law.

Subsequent to multiple attempts in different aspects via issuance of different administrative regulations and circulars by different administrative bodies, the revision focused on a few hot topics, including the “regulation against irregular expansion of capital”, the “regulation against platform based monopoly” etc., aiming to perfect the regulation to prevent monopoly, enhance the implementation of law, provide legal liability for violators and remedies for victims, etc.

 

  1. Background and Challenges

Current AML regime focused on restriction against the monopoly acts which includes (1) Monopoly agreement (2) Abuse of dominant market position and (3) Concentration of undertakings that has the effect of exclusion and restriction of competition.

According to the law, monopoly agreements refer to any agreements, decisions or other concerted action to exclude or limit competition by different business operators that include the horizontal monopoly agreement and vertical monopoly agreement.

Abuse of dominant market position refers to the situation where a business operator who owns dominant position unilaterally take actions that exclude or restrict competition. The core of the examination will be whether the competitor owns such dominant position and whether its act constitutes abuse.

Concentration of undertakings refers to the situation where different business operators merged with others by acquiring shares or concluding contracts. The concentration of undertakings may not necessarily constitute monopoly act however it has such risks.

The implementation of AML in past 15 years was generally smooth but widely regarded as cannot adapt to the rapid development of digital economy as well as its ensuing new type of monopoly acts including abuse of data, technology and capital advantages. As a result, the revision was a long-awaited and well expected one.

 

  1. Current Situation

The administrative punishment remains to be the major remedies while civil and criminal proceedings are also available.

According to the Annual Report of China Anti-Monopoly Law Enforcement issued in June 2022, the total amount of administrative fines against monopoly agreement increases from 1.04 hundreds million CNY in 2020 to 16.73 hundreds million CNY in 2021, the total amount of administrative fines against abuse of dominant market position increases from 1.2 billion CNY to 21.8 billion CNY. The number of cases of filing for examination of concentration of undertakings rises to 824 cases with 58.5% of increase. Therefore, the law requires perfection of enforcement efficiency as well as providing a stable expectation to business operators.

 

  1. Highlights of the Revision

 

  1. Perfection of Application and Examination against Concentration of Undertakings

The revised law added second and third paragraphs in its Article 26, which provided that “If a concentration of undertakings has not satisfied the standard of application as stipulated by State Council while there is evidence to prove that such concentration may have effect of exclusion or restriction of competition, then the Anti-Monopoly enforcement agency of State Council can request the application by business operators.” And “If the business operator fails to apply for examination as requested, the Anti-Monopoly enforcement agency of State Council is authorized to investigate.” Consequently, the Chinese Anti-Monopoly enforcement agency of State Council essentially has the authority to investigate at its discretion, as long as “there is evidence to prove that such concentration may have effect of exclusion or restriction of competition”. Actually, in the “Anti-monopoly Guide of the Anti-Monopoly Commission of the State Council for the Platform Economy Sector” (“Platform Guideline”) issued by Anti-Monopoly Commission of the State Council on February 7 2021, there has been similar provisions already.

The revised paragraph 2 of Article 32 provides that “Anti-Monopoly enforcement agency of State Council is authorized to decide the suspension of calculation of examination period and notify the business operator in writing at certain circumstance including (1) The business operator fails to provide document, materials that cause the failure to proceed the examination. (2) Occurrence of important new situation, new facts where the examination cannot be conducted without confirmation and (3) Necessity to evaluate restrictive condition that are affixed to the concentration of undertakings.

The revision aims to solve the issue of insufficiency in time due to limitation of 180 days, given certain issues occurred before or during the examination.

The revised law added Article 37 which provided that the Anti-Monopoly Enforcement Agency shall perfect the categorized and classified examination system as well as enhance the examination against the concentration of undertakings in core areas related to national economy and livelihood of people. The new provision provided the categorized and classified examination system aiming to focus resources to examination in those prioritized fields.

 

  1. Measures to Tackle New Issues Emerging from Platform Economy

The revised law has two related provisions. One of them provided in Article 9 of the part of General Provisions which provided, business operators shall not engage in the monopoly acts by using data, algorithms, capital advantages or otherwise platform rules, etc.as prohibited by the law. The other provided in second paragraph of Article 22 of abuse of market dominant position, specifically “the business operator having the dominant market position shall not engage in the monopoly conduct by using data, algorithms or platform rules, etc.as prohibited by the law.

Besides, the newly added Article 19 provided the liability of organizing monopoly agreement, specifically it provides that the business operators shall not organize with other business operators to form monopoly agreement or provide substantial assistance for others to form the monopoly agreement. Such provision will also be helpful to solve the issues regarding “hub-and-spoke collusion”.

Notably, the revised law adopted the term of business operator having the dominant market position shall not engage in the monopoly conducts by using data, algorithms capital advantages or platform rules, etc. which differs to the earlier draft of abusing data, algorithms, capital advantages or platform rules, etc. to exclude or restrict competition. Such wording waived the examination on the finding of “abuse” which has not been with clear standard by now, thus will generally be helpful to facilitate the enforcement actions with less checkpoints.

 

  1. Safe Harbor Mechanism to Monopoly Agreement

Article 18 has added two new paragraphs, specifically “with regard to the agreements as provided in the first and second paragraphs of the first clause, if the business operator can prove that the agreements have no effect of exclusion and restriction of competitive effect, they shall not be prohibited”.

In the second sub-section of the Article, it provides that “If a business operator can prove that its market share is lower than the standard provided by anti-monopoly enforcement agencies of State Council and in consistency with other conditions as stipulated by anti-monopoly enforcement agency of State Council, they shall not be prohibited”. The aforesaid provisions are the base of the Safe Harbor Mechanism, which provides that if the market share of business operators does not exceed the specific requirement, then even if there is a monopoly agreement, it cannot be regarded as having anti-competitive effect. The Safe Harbor Mechanism provides more space to business operators where the instability of application of law can be reduced, consequently the enforcement resources can be focused on those more important fields.

Actually, before the current revision, the Safe Harbor Mechanism has been included in a few different Anti-Monopoly Guidelines in different areas, e.g. Article 4 of Anti-Monopoly Guideline of Automobile Industry, Article 13 of Anti-Monopoly Guideline in Intellectual Property Fields. The revision includes the Safe Harbor Mechanism into the law will further expand the applicability of the mechanism in other areas. Nonetheless, it worth attention that the current Safe Harbor mechanism will only apply to vertical agreement rather than horizontal agreement as the latter is more harmful to competition. Notably, in competition law of EU, the safe harbor will also only apply to limited fields such as research, technological transfer and professional manufacture.

 

  1. Fair Competition Examination System

Article 5 of the revised law established the Fair Competition Examination System (“FCES”), which provides “The state establishes FCES, the administrative agencies or public managing organization that are authorized by law or regulation shall conduct fair competition examination when establishing regulation for economic activities of market entities.

FCES is very critical to avoid administrative monopoly. Specifically, Article 40 provided that the administrative agencies and policy makers shall not hamper the access of other business operator to the market, nor shall it apply unfair treatment to them, when establishing the regulations concerning market entrance, industrial development, invitation of investment, tender and bid, governmental purchase, regulation of business act, standard of certification. In June 1st, 2016, State Council issued its Opinion concerning Establishment of Fair Competition Examination System during Construction of Market System. On June 29, 2021, State Market Regulation Administration (SMRA) issued its Fair Competition Examination Rule which specifically provided the examination body, mechanism, process and standard of fair competition examination. During the year of 2021, 244 thousands of new policies are examined by the FCES, 442 thousand of past policies were abolished according to the result of the examination.

 

  1. Administrative Monopoly

Newly added Article 40 provided that administrative body as well as public managing organization as authorized by law or regulation shall not abuse its administrative power by entering agreement or memorandum with business operators, in order to hamper the entry to the market by other business operators or apply different treatment to the competitors that will exclude or restrict competition.

 

  1. Enhancement of Administrative punishment

The revised law provided in its Article 58, 62, 63, 64 that the anti-monopoly enforcement agency is authorized investigate against unit or individual on its violation as well as impose fines and record the illegality in the social trust recordation system.

Article 60 of the new law also provided the civil public interest litigation that shall be initiated by People’s Procuratorate at municipal level or above.

 

 

2008 AML (Fines)

2022 AML (Fines)

No turnover in the last year

No

Less than 5M CNY

Monopoly agreement established and not implemented

Less than 500K CNY

Less than 3M CNY

Refusal to cooperate during the investigation of concentration of undertakings

Individual: Less than 500K CNY

  1. 10% of turnover of last year with effect of exclusion or restriction of competition
  2. 5M CNY without effect of exclusion or restriction of competition.

Refusal to cooperate during the investigation of concentration of undertakings

Unit: Less than 1M CNY

  1. Unit: 1% of turnover of last year;

No turnover or difficult to calculate: up to 5M CNY.

  1. Individual: up to 500K CNY

Very serious circumstance

No

2-5 times of above amount

Other punishment

No

Record at trust recordation and publish to public.

 

  1. Progress and Unsolved Issues

Although the revision made significant progress for the legislation, it still needs improvements.

  1. Clarification for application of Safe harbor

The revised law provided its market share shall be lower than the standard provided by anti-monopoly enforcement agencies of State Council and shall be in consistency with other conditions as stipulated by anti-monopoly enforcement agency of State Council, which needs further clarification by specific rules.

  1. Calculation of Fines

The term of turnover is overbroad and vague which may cause misunderstanding, e.g. whether the turnover shall be calculated nationwide or worldwide, turnover in related market or overall turnover needs further clarifications.

 

Mr. Feng is an IP Specialist with substantial experience on intellectual property and anti-trust law. Mr. Feng was ranked as one of Top 15 China IP Lawyers by Asian Legal Business under Thomson Reuters as well as ranked as Top IP Attorney by WTR from 2020 through 2022. Mr. Feng was also recommended by LegalBand as Leading IP litigator and Leading non-litigation lawyer consecutively from 2016 through 2021. A case represented by Mr. Feng was ranked as one of 50 Model IP Cases by Supreme People’s Court of China in 2013.

 

For more information, please contact lawyer below.

Charles Feng 

Senior Partner, East Concord Partners

Fchao7847athotmail [dot] com (Fchao7847[at]hotmail[dot]com) Charles_fengateast-concord [dot] com (Charles_feng[at]east-concord[dot]com)

Cell Phone:     +86-13910336970 

Tel:      +86-10-65107029             Wechat:      Fchao7847

 

Details

Publication date
27 June 2022