On 2 January 2020 the State Administration for Market Regulation (SAMR) officially published the Draft Amendment to the Anti-monopoly Law (AML) for public comment. The draft amendment demonstrates the SAMR's strong position on monopoly behaviour and is based on 12 years of antitrust enforcement (ie, since the AML was enacted in 2008). The draft amendment conveys to the public that the Chinese authorities will strengthen enforcement relating to monopoly conduct. This article provides a summary of the draft amendment's main changes and the practical implications thereof (for further details please see "What's new in revised draft of Anti-monopoly Law?").
Article 17 of the AML draft amendment prohibits undertakings from organising or facilitating other undertakings to conclude monopoly agreements.
Article 53 of the draft amendment provides that undertakings without turnover in the preceding year or which conclude but do not implement monopoly agreements can be fined up to Rmb50 million. For undertakings which implement monopoly agreements, the antitrust authority will:
- order them to cease all monopoly conduct;
- confiscate illegal gains; and
- impose fines of between 1% and 10% of their turnover in the preceding year.
The abovementioned provisions also apply to organisers and facilitators which assist other undertakings to conclude monopoly agreements.
Comment
Under the existing AML, hub-and-spoke conspiracy had been only implied in the scope of monopoly agreements; however, the draft amendment provides an explicit legal basis for the 'hub' element. It is expected that further provisions on hub-and-spoke conspiracy will be provided in lower-level legislation (eg, the SAMR regulations) if this provision is included in the final amendment.
Second, the AML draft amendment increases maximum fines from Rmb500,000 to Rmb50 million for undertakings that have concluded but not yet implemented monopoly agreements.
Third, according to the draft amendment, undertakings with no turnover will also receive a fine. The current AML has no specific wording addressing such a scenario. In a number of 2019 cases (eg, concerning penalties on horizontal monopoly agreements among three vehicle safety technology testing companies in Xianning (Hubei Province) and horizontal monopoly agreements among eight concrete companies in Hengzhou (Zhejiang Province)), the SAMR confiscated illegal gains and ordered monopoly conduct to cease, but imposed no fines on undertakings which had no turnover in the preceding year. However, the draft amendment will revoke fine exemptions for undertakings with no turnover.
Fourth, undertakings that assist the conclusion of monopoly agreements will also be explicitly prohibited under the draft amendment.
Article 21 of the AML draft amendment provides that network effects, economies of scale, lock-in effects, the ability to control and process relevant data and other factors should also be considered when determining the market dominance of internet undertakings.
Comment
In recent years, competition issues in the internet sector have attracted significant attention from the antitrust authority. The Interim Provisions for Prohibiting Abuse of Market Dominance, which were published on 1 July 2019 and became effective on 1 September 2019, include a specific provision on the internet sector. Specifically, it provides that network effects, economies of scale, lock-in effects, the ability to control and process relevant data and other factors should be considered when determining market dominance in the internet sector, which is consistent with the draft amendment.
Article 23 of the AML draft amendment defines 'control' as the right or actual status of a business operator that has or may have a decisive influence, directly or indirectly, individually or jointly, on the production and operation activities or other major decisions of other business operators.
Article 24 of the draft amendment provides that the antitrust authority can formulate and update filing thresholds according to economic, industrial or other factors and make these public in a timely manner.
Article 30 provides that the time required under the following circumstances cannot be included in the timeframe for merger review procedures:
- the suspension period applied for or consented to by the filing parties;
- the period of submitting supplementary documents and materials by undertakings as required by the antitrust authority; and
- the period of negotiating restrictive conditions between the antitrust authority and the filing parties.
The specific provisions on 'stopping the clock' of merger reviews will be formulated separately by the antitrust authority under the auspices of state council.
According to Article 55, the anti-monopoly law enforcement agency will impose a fine of up to 10% of a business operators' turnover in the previous year under the following circumstances:
- implementing a concentration without filing;
- implementing a concentration after filing but without clearance;
- violating additional restrictive conditions; or
- implementing a concentration in violation of a blocking decision.
Comment
First, the AML draft amendment emphasises that when defining 'control', the key point is to assess whether there are controlling or veto rights over the target's business operations.
Second, the SAMR may be authorised to update filing thresholds, as these were established in 2008. With no further detailed provisions, some expect that the SAMR might adjust the filing thresholds annually, which would be similar to the antitrust authorities in other major jurisdictions.
Third, the 'stop the clock' rule might be introduced in Chinese antitrust legislation for the first time. If so, the SAMR would have greater discretion to extend the review period for non-simplified or conditionally cleared cases. The antitrust authority may have less need to request filing parties to withdraw in order to gain more time to deal with complex and high-profile cases.
Regarding gun-jumping cases, the current AML provides that the legal liability could be a fine capped at Rmb500,000 on the party which must approach the SAMR for a pre-notification. Under the draft amendment, the SAMR can impose up to 10% of a company's sales turnover in the preceding year, a penalty which is similar to that for monopoly agreements and abuses of dominance. For large companies with fully integrated production lines, the cost of closing without approval from the authority would be extremely high.
Although the AML draft amendment remains to be put into effect, the implications conveyed by the antitrust authority are impressive. Market players active in China should pay close attention to the development of Chinese anti-monopoly laws, especially given the potentially significant changes and liability. The regulatory boundaries of anti-monopoly behaviour have been increasingly refined. Cooperation with the antitrust authority's investigations will be expected and required more as a legal baseline rather than a simple attitude. Further, the draft amendment's introduction of new types of monopoly conduct (eg, hub-and-spoke conspiracy) will urge market players and their outside and in-house legal counsel to borrow more experience form international precedents, such as those in the European Union and the United States. Evidently, China's antitrust legislation and enforcement look set to be enhanced further in future.
