Anti-monopoly Law enforcement against collective boycotts

Introduction

In approximately 10 years of Anti-monopoly Law enforcement there have been a number of public enforcement cases associated with collective boycotts among competitors (see Table 1).(1) The National Development and Reform Commission (NDRC), the State Administration for Industry and Commerce (SAIC) and their competent subsidiaries have all investigated collective boycotts among competitors and issued infringement decisions, as well as – in one case – a commitment decision.

Table 1: public enforcement involving collective boycott behaviour

Shopping mall collective boycott case

On March 21 2018 the Shandong subsidiary of the SAIC (SAIC Shandong) found six companies which operate home decor and furniture shopping malls to have violated Article 13(1)(v) of the Anti-monopoly Law, which governs collective boycotts among competitors.(2) Each company received a relatively small fine of Rmb100,000 (approximately $16,000), as they were found only to have reached, and not implemented, a restrictive agreement.

In 2016 the six companies jointly executed a letter to all tenants of the shopping malls (ie, home decor and furniture retailers), asking them to refrain from participating in sales activities organised by various media, websites and third-party sales platforms. The restriction was essentially an exclusive dealing request, forbidding the retailers from dealing with parties other than the shopping malls run by the six companies.

SAIC Shandong considered each company's business scope and found that they all undertook:

• the sale of wholesale and retail furniture, building and decoration materials, lamps and arts and crafts; and
• the rental of space in the same geographical area.

Therefore, SAIC Shandong held that the six companies competed directly. It then considered the business of the parties being boycotted (ie, the various media, websites and third-party sales platforms) and held that for many, this overlapped with the business of the six companies. Therefore, the media, websites and third-party sales platforms whose business overlapped with the six companies were the latter's competitors.

In its decision, SAIC Shandong found that the six companies' boycott of their competitors had:

• impeded business dealings between the tenants and the boycotted media, websites and third-party sales platforms; and
• restricted the rights of the tenants to choose their trading counterparties.

Legal basis and analytical framework of collective boycotts

The legal basis for penalising a collective boycott among competitors in China can be found in Article 13(1)(v) of the Anti-monopoly Law, which prohibits competitors from reaching agreements that collectively boycott business dealings. This provision is supplemented by the Provisions of the Administration for Industry and Commerce on the Prohibition of Monopoly Agreements, Article 7 of which lists the following types of prohibited collective boycott agreement entered into by parties in competitive relationships pursuant to Article 13(1)(v) of the Anti-monopoly Law:

• a collective refusal to supply or sell commodities to specific undertakings;
• a collective refusal to purchase or sell the commodities of specific undertakings; and
• a collective restriction of specific undertakings from conducting business dealings with competitors.

Therefore, a 'collective boycott' under the Anti-monopoly Law essentially refers to an agreement or concerted practice among two or more competitors which agree not to deal with trading counterparties (usually distributors or suppliers) in order to exclude or restrict competition on the markets in which they are active.

Notably, in the context of IP rights licensing, illegal collective boycott behaviour can include cross-licensing and standard setting, whereby a group of competing IP rights holders enter into exclusive agreements in order to exclude others from being licensed the relevant IP rights.

In accordance with Article 13(1)(v) of the Anti-monopoly Law, collective boycott agreements entered into by competitors are presumed to violate the law. However, such presumption can be rebutted subject to Article 15 of the law if the parties being challenged can prove, for instance, that such behaviour:

• has efficiencies;
• will not severely restrict competition on the relevant market; and
• will enhance consumer welfare.

Therefore, the analytical framework of collective boycotts among competitors under the Anti-monopoly Law is analogous to that for 'by object' offences under EU competition law. To date, no public enforcement records have been published which show that Article 15 of the Anti-monopoly Law has been successfully asserted as a defence where presumption is established.

Is market power an assessment factor?

A review of the decisions set out in Table 1 suggests that market power is not a determining factor in the assessment of a collective boycott by the Anti-monopoly Law enforcement agencies. Therefore, a party need not have market power in order to be penalised for collective boycott behaviour. Nonetheless, in its infringement decisions issued to three Estazolam active pharmaceutical ingredients (API) manufacturers in 2016, the NDRC discussed the fact that the relevant markets were the Estazolam API and tablet markets and that the three penalised companies were active on both markets.(3) It also found that since the three Estazolam API manufacturers were the only actual competitors on the Estazolam API market, the collective boycott agreement among them not to supply Estazolam API to Estazolam tablet manufacturers aimed to exclude their competitors from the downstream Estazolam tablet market by depriving the tablet manufacturers of essential inputs. Thus, in this case, market power assisted the assessment. However, it is not a key factor in a finding of a prohibited collective boycott.

Article 17 of the Anti-monopoly Law, which prohibits abuse of dominance, can also be applied to collective boycott agreements among competitors where the parties exercising the boycott are collectively dominant on the relevant market and have abused this dominance. The NDCR applied this doctrine of collective dominance in its 2017 infringement decisions against two parties which were found to have collectively abused their dominance on the Isoniazid API market in China by charging excessive prices.(4) One of the parties penalised in this case had a market share of no less than 10%. However, when joined with the market share of the other penalised party, their combined market share was over two-thirds of the relevant market, and it was on this basis that dominance was presumed (arguably together with other factors).

Comment

The public enforcement efforts set out in Table 1 show that the Anti-monopoly Law enforcement agencies are increasingly investigating and finding fault with collective boycotts among competitors. Collective boycotts can:

• constitute an independent violation of the Anti-monopoly Law; or
• be used to implement illegal price-fixing agreements among competitors, which may lead to a number of acts that can constitute a violation and may have an effect on the setting of fines.

The presumption of illegality for a collective boycott among competitors requires a high level of compliance. As such, businesses should be aware that while an independent decision not to deal with distributors or suppliers may not raise Anti-monopoly Law concerns, an agreement with competitors not to do so with the aim of excluding competitors or achieving an agreed price could raise such concerns.

For further information on this topic please contact Hao Zhan, Ying Song or Stephanie Wu Yuanyuan at AnJie Law Firm by telephone (+86 10 8567 5988) or email ([email protected], [email protected] or [email protected]). The AnJie Law Firm website can be accessed at www.anjielaw.com.?

Endnotes

(1) Based on the information published by the NDRC, the SAIC and their relevant subsidiaries on their respective official websites.

(2) SAIC Competition Enforcement Announcement (2018) 6, available in Chinese here.

(3) NDRC Administrative Penalty Decisions (2016) 5 to 7, available in Chinese here, here and here.

(4) NDRC Administrative Penalty Decisions (2017) 1 to 2, available in Chinese here and here.

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