In June 2020 the Anti-monopoly Bureau of the State Administration for Market Regulation (SAMR) published a new book, the 2019 Compilation of Antitrust Regulations and Guidelines, which contains four previously unpublished guidelines covering the automotive sector, IP rights, leniency policy and commitments by undertakings. The Guidelines on Leniency for Horizontal Monopoly Agreements (the leniency guidelines) detail the SAMR's leniency policies towards horizontal monopoly agreements (cartels) under China's antitrust law system.
Monopoly agreements by competitors are generally highly secretive and, except for extreme scenarios, the parties to such agreements lack an incentive to whistleblow to the competition authorities. The SAMR's leniency policy is formulated to encourage such parties to voluntarily self-report and hand over substantive evidence by granting them exemptions or fine reductions.
Article 46 of the Anti-monopoly Law (AML) provides that where an operator engaged in a monopoly agreement voluntarily reports said agreement and provides material evidence thereof to the authorities, they could be eligible for a reduction or exemption from punishment. Further, Articles 33 and 34 (among others) of the Interim Provisions on Prohibiting Monopoly Agreements promulgated by the SAMR:
- clarify how reductions or exemptions from penalties apply;
- define 'material evidence'; and
- set out factors used to 'mark' an applicant for consideration by the authorities.
Preparations for the leniency guidelines by anti-monopoly authorities go as far back as 2015. In June 2015 the Office of the Anti-monopoly Commission of the State Council organised the three former antitrust enforcement agencies (ie, the Ministry of Commerce, the National Development and Reform Commission (NDRC) and the previous State Administration for Industry and Commerce) to draft the leniency guidelines. In February 2016 the NDRC released the draft leniency guidelines to solicit public comments. In February 2017 the Office of the Anti-monopoly Commission of the State Council revised the draft leniency guidelines based on the opinions of the members and experts of the Anti-monopoly Commission under the State Council. Due to the administrative restructuring of the State Council, in August 2018 certain provisions of the draft leniency guidelines were further amended. On approval by the Anti-monopoly Commission under the State Council, the leniency guidelines were officially issued on 4 January 2019 and published along with the other three guidelines in the abovementioned book.
The current leniency guidelines provide relatively specific guidance to the SAMR and market players regarding how the SAMR's leniency policy should be implemented. Specifically, the leniency guidelines establish a 'marker' system with different fine reduction levels and clarify the requirements for obtaining leniency, reporting procedures and practices for the submission of material evidence. The leniency guidelines also provide guidance to enforcement agencies on leniency application reviews. Compared with the previous draft version, there are several changes to the application and review procedures and specific requirements to which the operators should pay more attention if applying for leniency in an antitrust investigation. This article elaborates on the main highlights and implications of the leniency guidelines.
The leniency policy applies only to horizontal monopoly agreements concluded between competitors as defined under Article 13(1) of the AML. Vertical monopoly agreements and abuse of market dominance are not applicable. Notably, not all applicants under the leniency policy will be fully exempt from penalties. The leniency guidelines provide that if an operator organises or forces other operators to participate in reaching or implementing monopoly agreements, or impedes other operators from terminating their illegal conduct, the authority will not grant an exemption but can instead allow a limited penalty reduction. A penalty reduction or exemption is generally applied against fines imposed on the parties to a monopoly agreement, but it will not allow such parties to keep ill-gotten gains under such an agreement.
When can operators apply for leniency?
The time limit for operators to apply for leniency is not strict. Operators can apply for leniency:
- before the enforcement agency initiates a case or launches an investigation procedure under the AML; or
- after the enforcement agency initiates a case or launches an investigation procedure but before issuance of a prior notice on an administrative penalty by the authorities.
Application report and key evidence required for leniency applications
When a party applies for a leniency, the following documents are required:
- the application report; and
- key evidence.
If the authority decides not to grant the leniency, it will not determine the illegal acts based on the relevant materials filed by parties for the purpose of a leniency application.
Application report
For the first applicant, the application report must include:
- basic information on the parties to the monopoly agreement, including but not limited to their name, address, contact details and representative;
- a description of the monopoly agreement's main contents, including but not limited to the time and place that the agreement was reached or implemented, the main content, the specific participants and the stage the operators have reached in agreeing to and implementing the agreement;
- the geographical scope and market scale affected by the agreement;
- the duration of the agreement's implementation;
- an explanation of the evidence; and
- details of whether the party has applied for a leniency in other jurisdictions.
For subsequent applicants, the application report must cover:
- the participants in the monopoly agreement;
- the products or service involved; and
- the time and place that the agreement was reached or implemented.
Key evidence
The leniency guidelines clarify that, for the first applicant, 'key evidence' refers to materials that:
- the enforcement agencies have not yet collected and which would be sufficient to trigger an investigation; or
- are sufficient for the agencies to find a monopoly agreement if the enforcement agencies have already initiated a case or an investigation procedure.
For subsequent applicants, 'key evidence' refers to materials that the enforcement agencies have not collected and would be of significant or probative value in detecting a monopoly agreement – including:
- how the agreement was reached and implemented;
- its main content;
- the timeline involved in reaching and implementing it;
- the products or services involved; and
- the relevant participants.
Other requirements for leniency
In addition to the above requirements, the leniency guidelines request the applicant to:
- immediately terminate the illegal conduct (except where the authority requires applicants to continue such conduct);
- cooperate with the authorities in a prompt, consistent, full and reliable manner in the investigation;
- properly preserve and provide evidence and information and not conceal, destroy or transfer evidence or provide false material or information;
- not disclose applications for leniency without the authorities' consent; and
- not carry out that may affect the investigation.
A marker system is applied in many jurisdictions worldwide. In the European Union, the marker system "is designed to preserve and protect the applicant's place in a leniency queue for a definite period of time".(1) The leniency guidelines establish a marker system in China and provide an exemption for the first applicant that meets its requirements; for each subsequent successful applicant, it provides a reduction in fines. Only the first immunity applicant can hold their marker's priority without delivering all of the required evidence: if an operator initially submits a monopoly agreement information report to the authorities and then provides related key evidence, the authority can decide to mark the time of the initial submission as that of applying for leniency and request the applicant to supplement all related materials generally within 30 days or 60 days for special cases. If the first applicant cannot supplement the related materials within the required period, it will lose its priority under the marker system; if so, the next successful applicant for a reduction in penalties can automatically become the first-in-time immunity applicant.
The leniency guidelines clarify the following range of fine reductions available to undertakings for the first, second or third place applicants:
- The first applicant is exempt from a penalty or a reduction of fines by no less than 80%.
- The second applicant has a 30% to 50% reduction.
- The third applicant has a 20% to 30% reduction.
- Subsequent applicants have no more than 20% reduction.
In general, the enforcement agency may grant leniency to up to three operators in an investigation. If a high-profile case is relatively complicated and involves more than three parties to agreements applying for leniency, the enforcement agency can grant reductions in penalties to more than three applicants. Similarly, the confiscation of illegal gains may also be referred to the exemption or reduction of fines on parties of monopoly agreements, subject to the authority's discretion.
Decision and publication of leniency
Subject to the leniency guidelines, the authorities can publish the leniency decision if they agree to grant an exemption or reduction of fines to the applicants. Without the relevant parties' consent, the application report and all other related materials submitted for the leniency application cannot be published and none of the other third parties can review it. This provision may to some extent relieve companies' practical concerns that the materials submitted for a leniency application can be used as evidence against them in future civil actions by other parties.
The leniency policy provides a valuable and practical approach to help global antitrust enforcement agencies in the detection and termination of infringing monopoly agreements. The leniency guidelines propose a relatively reliable leniency system under the AML, which is of great significance for improving the effectiveness of antitrust enforcement, while providing a valuable source of guidance for Chinese market players to follow.
Endnotes
(1) "Use of Markers in Leniency Programs", Working Party 3 on Cooperation and Enforcement, European Union, 16 December 2014.
