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29 August 2019
History of safe harbour rule under Anti-money Law
How does safe harbour rule benefit IP-related monopoly agreements?
De facto exception for hardcore monopoly agreement
Implications of safe harbour rule
Why does safe harbour rule not apply to all monopoly agreements?
On 1 July 2019 the State Administration for Market Supervision (SAMR) promulgated the following anti-monopoly regulations:
All three regulations will be formally implemented on 1 September 2019.
The regulations aim to address a number of issues, including the irregular enforcement standards which arose under China's three previous antitrust authorities. The regulations also aim to enhance the operability and transparency of Anti-monopoly Law enforcement in China.
Of the three regulations, the Interim Provisions for Prohibiting Monopoly Agreements have attracted the most attention. On 3 January 2019 the SAMR issued a draft of the provisions which introduced a safe harbour clause for non-IP-related monopoly agreements. This mechanism was the subject of considerable discussion and was expected to have a significant impact on China's antitrust practice. However, the safe harbour clause was removed from the final version of the provisions promulgated in July.
As debate continues as to whether to introduce a safe harbour clause to Chinese legislation – be that now or in the future (comments from relevant stakeholders are currently being solicited on amendments to the Anti-monopoly Law). Therefore, this article examines:
The safe harbour rule was first initiated in China on 7 April 2015, when it was included in the previous State Administration for Industry and Commerce's Rules on the Prohibition of Eliminating or Restricting Competition by Abuses of Intellectual Property Rights, which remain in full effect. The safe harbour provided for in these rules is designed to be a protective mechanism against certain competition restraints which unreasonably leverage IP rights in China.
At present, the above safe harbour rule applies only to IP-related monopoly agreements. Article 5 of the rules provides that, when an undertaking which satisfies the applicable market share threshold exercises its IP right, this will not be deemed a violation under the Anti-monopoly Law unless there is evidence demonstrating that such act has eliminated or restricted market competition. To satisfy the market share threshold, the following requirements must be met:
Enforcement-wise, the Chinese antitrust authorities have traditionally focused their attention on hardcore monopoly agreements. As the safe harbour rule does not generally apply to such agreements, some have argued that it is not as meaningful as expected. In China, horizontal monopoly agreements (eg, price fixing, output limitation market allocation agreements and restrictions on new technology and boycotting) and vertical monopoly agreements (eg, resale price maintenance agreements) can be deemed to be hardcore.
The abovementioned provisions do not imply that agreements by undertakings with a market share which exceeds the relevant threshold will be found to violate the Anti-monopoly Law. However, unlike in the European Union, the Chinese competition authority can open a full-blown antitrust investigation into an agreement which falls within the scope of the safe harbour.
Some commentators have argued that the safe harbour rule could enhance foreseeability in the private sector. Thus, the question remains as to why it was not maintained in the final version of the Interim Provisions for Prohibiting Monopoly Agreements.
No specific reference in upper-level statutes
The Anti-monopoly Law includes no reference (either explicit or implicit) to the safe harbour regime. One way to interpret this lack of reference in an upper-level law (other than being overly conservative) is to understand it as a congressional denial of such a mechanism. The Anti-monopoly Law was enacted by the Standing Committee of the National People's Congress. Thus, some commentators have argued that in order to introduce a safe harbour to the Chinese antitrust system, the law must provide for this. For example, in the IP sector, the safe harbour rule is rooted in congressional laws (eg, the IP Law, the Tort Law and the E-commerce Law) rather than just in administrative regulations.
Unique goals of IP-related antitrust laws
Some commentators have argued that the safe harbour rule was first introduced in IP-related antitrust laws due to its unique goals of incentivising innovation by providing inventors with a return on their innovations and fostering consumer welfare. This goal arguably warrants the safe harbour rule, which aims to establish a conditional safety zone for promoting technological competition and is so vital that governments are willing to tip the scales slightly. As such, a safe harbour rule which applies only to IP-related monopoly agreements is more justifiable.
No exemption for monopoly agreement reflects stringent law enforcement
Since the Anti-monopoly Law was implemented 10 years ago, enforcement has increased significantly – a trend which has been particularly noticeable in recent years following the establishment of the SAMR. In practice, according to public information, there has been no exemption for monopoly agreements. Given this tendency, many commentators believe that it will be difficult for any safe harbour initiative to obtain the necessary support from each level of the Chinese government. Hence, there seems to be a lack of urgency to extend the safe harbour rule to all monopoly agreements under the Anti-monopoly Law.
The safe harbour rule remains of insufficient value to be included in the Chinese antitrust regime, as it merely enhances foreseeability in the private sector and the SAMR's enforcement and resource allocation. Thus, efforts must be made to include the rule in the Anti-monopoly Law before the SAMR can establish detailed regulations. In addition, as there are concerns that small and medium-sized companies might abuse the rule, more research and provisionary attempts to introduce it are needed.
For further information on this topic please contact Hao Zhan, Ying Song or Zhan Yang at AnJie Law Firm by telephone (+86 10 8567 5988) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The AnJie Law Firm website can be accessed at www.anjielaw.com.
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