From May to June 2023[1], in legislation and policy-making area, the State Administration for Market Regulation (the “SAMR”) released the Provisions on Prohibiting Abuse of Intellectual Property Rights to Eliminate or Restrict Competition; published three draft antitrust compliance guidelines for comments, i.e., the Anti-monopoly Guideline for the Standard Essential Patent Field (Draft for Comments), the Antitrust Guidelines on Industry Associations (Draft for Comments) and Antitrust Compliance Guidelines on Concentration of Undertakings (Draft for Comments); and deployed the special actions to optimize the platform agreements; the State Council announced the legislative action plan for 2023, with actions contemplated including revision of the Rules of the State Council on Declaration Threshold for Concentration of Undertakings, and submission for consideration of the revised draft of Anti-Unfair Competition Law. In law enforcement area, the SAMR approved 112 merger cases without conditions in the months of May and June in 2023, implicating sectors of pharmaceutical, transportation, chemical, environmental protection, real estate, automobile, private equity fund, energy, etc. The SAMR made the decision to lift the restrictive conditions attached to the concentration of undertaking of 100% Share Acquisition of Gavilon by Marubeni. The SAMR announced decisions of administrative penalty on six cases involving monopoly agreement and three cases involving abuse of market dominance. In judicial area, the Supreme People’s Court (the “SPC”) reversed the first instance judgment of the Dispute between Yangtze River Group and Industrial Pharmaceutical over the Abuse of Market Dominance, dismissing Yangtze River Group’s initial complaints.
On May 10 and 19, 2023, the Shanghai Administration for Market Regulation[2] and the Beijing Administration for Market Regulation[3] announced the launch of special actions for anti-unfair competition law enforcement in the cities respectively. Such special law enforcement actions will be centered around three key points: (i) to investigate and deal with Internet unfair competition and to investigate and strike hard the unfair competition activities such as click farming and live sales of counterfeit products in order to escort the development of the digital economy; (ii) to focus on regulating the marketing behaviors concerning people’s livelihood, to strengthen the supervision of new types of commercial marketing behaviors, and to strike commercial bribery in key industries such as the sale of medicine, catering and tourism, etc.; (iii) to focus on the protection of the core competitiveness of enterprises and to strengthen the protection of trade secrets, business logos and business reputation.
On May 16, 2023, the SAMR released the Antitrust Guidelines on Industry Associations (Draft for Comments) seeking public comments[4]. The guidelines enumerate three types of high-risk behaviors that industry associations should avoid engaging in, including: (i) promoting sensitive information exchange, discussion or communication among undertakings within the industry; (ii) publishing prices that have guiding effects like guidance prices, benchmark prices, reference prices, recommended prices, forecast prices, or publishing price calculation formulas for the reference of undertakings in the industry; and (iii) publishing inaccurate or exaggerated cost trends, supply and demand conditions and other market information. At the same time, the guidelines specify the requirements and measures of self-compliance for industry associations, legal liabilities for engaging in monopolistic behaviors, and the corresponding credit disciplinary system, etc.
On May 31, 2023, the General Office of the State Council issued its legislative action plan for the year of 2023[5], with actions planned including revision of the Rules of the State Council on Declaration Threshold for Concentration of Undertakings, and submission of the draft revised Anti-Unfair Competition Law to the Standing Committee of the National People’s Congress for consideration.
On June 9, 2023, the SAMR released the Annual Report on China’s Antitrust Enforcement (2022)[6]. The report shows that in 2022, the antitrust law enforcement authorities have handled and closed 187 monopoly cases with a total confiscation and penalty amount of RMB 784 million, cleared 794 merger cases including 5 conditional clearance cases, and by doing so, the antitrust law enforcement authorities have strongly maintained the fair competition in the market and promoted the continuous optimization of a market-oriented, rule of law based and international business environment.
On June 15, 2023, the SAMR announced the deployment of the special actions on optimizing platform agreements[7], which will last for five-month and be implemented in four phases including mobilization and deployment, platform self-examination, local guidance and rectification, and SAMR’s assessment. Such special actions focus on large platform enterprises operating business closely related to consumers’ daily life, and urge and guide the platform enterprises to conduct a comprehensive self-examination of their agreements. For some of the platform agreements that are missing key provisions, the special actions propose to instruct the platform enterprises to supplement and improve the terms, focusing on the protection of the rights and interests of undertakings within the platform, consumer rights protection and other key aspects. In doing this, the special actions propose to give full play to the role of expert review committee on contract supervision, specifically, organize the key business persons and legal experts to conduct centralized review on the platform agreements, prepare the issue list and timely sending feedback to the platform enterprises. Further under the special actions, the authorities will facilitate the modification and refinement of the platform agreements with the platform enterprises in accordance with the issue list, eventually aiming to effectively protect the legitimate rights and interests of consumers, undertakings in the platform and other parties.
On June 19, 2023, the SAMR issued the Antitrust Compliance Guidelines on Concentration of Undertakings (Draft for Comments) [8]for public comments. The draft guidelines are specialized in the field of concentration of undertakings as addition to the Antitrust Compliance Guidelines for Undertakings. The undertakings may establish a specific antitrust compliance system of concentration of undertakings with reference to such guidelines based on their own circumstances such as business scale, management mode, frequency of concentration and compliance system, or incorporate relevant compliance elements of concentration of undertakings into their existing antitrust compliance management system.
On June 29, 2023, the SAMR issued the Provisions on Prohibiting Abuse of Intellectual Property Rights to Eliminate or Restrict Competition (“Provisions”)[9], which will take effect from August 1, 2023. Compared to the Provisions on Prohibiting Abuse of Intellectual Property Rights to Eliminate or Restrict Competition promulgated in 2015, the Provisions focus on the following aspects: (i) expanding the scope of “exclude and restrict competition by abusing intellectual property rights”, covering monopoly agreements and abuse of market dominance through exercising intellectual property rights, and concentration of undertakings that has or may have competitive concerns; (ii) refining the rules for determining monopolistic behaviors through exercising intellectual property rights in accordance with the amended Anti-Monopoly Law (2022). More specifically, improving and refining the rules for relevant market definition, the determination and presumption of market dominance, the identification of relevant monopolistic behaviors, and the factors to be considered in merger review and the specific types of restrictive conditions, with the characteristics of intellectual property rights and regulatory practice taken into account; and (iii) strengthening the regulation of typical and special monopolistic behaviors in the intellectual property field, such as engaging in monopolistic actions through patent consortia and by consortia members, market dominantor using standard essential patents to implement “patent hijacking”, and etc.
On June 30, 2023, the SAMR issued the Anti-monopoly Guideline for the Standard Essential Patent Field (“Draft for Comments”)[10] seeking public comments. The Draft for Comments proposes to provide guidance on the concepts, analytical principles, methods for relevant market definition, information disclosure rules, guidance on licensing commitments and good-faith negotiations of Standard Essential Patents (“SEPs”). It also sets out the specific circumstances and factors to be considered when determining illegal conducts achieved through the formulation and implementation of SEPs, such as monopoly agreements, licensing SEPs at unfairly high prices, refusal to licensing SEPs, tie-in sales related to SEPs, imposing other unfair transaction terms, differential treatment, and abuse of remedies, etc.
Enforcement Area
Merger Review
Non-conditional Clearance: From May to June 2023, 112 cases were cleared without condition by the SAMR (a year-on-year decrease of 3.45% compared with that from May to June 2022, and a month-on-month decrease of 14.5% compared with that from March to April 2023), implicating industrial sectors of pharmaceutical, transportation, chemical, environmental protection, real estate, automobile, private equity fund, energy, etc.
Lifting of Restrictive Conditions: On April 22, 2013, the Ministry of Commerce issued a notice (“Notice”), approving the case of 100% Share Acquisition of Gavilon Holdings, LLC (“Gavilon”) by Marubeni Corporation (“Marubeni”) with conditions, with the conditions imposed all being behavioral remedies. Such restrictive conditions continued to be implemented. On January 26, 2022, Viterra Limited (“Viterra”) and Marubeni entered into an agreement for the acquisition of 100% of the equity interest in Gavilon Argricultural Investment Co, Ltd., and upon completion of such transaction, Viterra acquired sole control of Gavilon Argricultural Investment Co, Ltd. Theis transaction was closed on October 3, 2022. Prior to the transaction, Marubeni had sole control over Gavilon’s soybean business; after the completion of the transaction, Viterra acquired sole control over Gavilon’s soybean business. In October 2022, Marubeni filed an application to lift the restrictive conditions based on the fact that it had sold all of Gavilon’s grain and ingredients business (including the soybean business). After its review, the SAMR found that during the enforcement of the Notice, the parties have fulfilled the obligations required by the Notice, and the undertakings to the concentration in this case have undergone significant changes, therefore, the continued implementation of the restrictive conditions attached to the Notice is no longer necessary, and the lifting of such restrictive conditions will not have the effect of excluding or eliminating competition in the relevant markets. As a result, the SAMR decided to lift the restrictive conditions attached to the Notice.
Monopoly Agreements
Abuse of Market Dominance
Judicial Area
On May 25, 2023, the SPC made a judgment on an abuse of market dominance case concerning Yangtze River Pharmaceutical Group Guangzhou Hairui Pharmaceutical Company Co., Ltd. (“Hairui Company”), Yangtze River Pharmaceutical Group Co., Ltd. (with Hai Rui Company collectively referred to as the “Yangtze River Group”) and Hefei Enruite Pharmaceutical Co., Ltd. (“Enruite”), Hefei Industrial Pharmaceutical Co. (with Enruite Pharmaceutical collectively referred to as “Industrial Pharmaceutical”) and Nanjing Haichen Pharmaceutical Co., Ltd.. The SPC revoked the first instance judgment in the case and dismissed Yangtze River Group’s claims[11].
With regard to the disputes at issue, the Court of First Instance ruled that: (i) Industrial Pharmaceutical immediately stop the conducts of abuse of market dominance. The court declared null and void the agreement on the purchase quantity and price in the purchase and sales contract for the API involved between Yangtze River Group and Industrial Pharmaceutical. The court also declared null and void the Supplementary Agreement to Technology Transfer Contract for Cefetamet Hydrochloride and Cefetamet Hydrochloride for Injection signed between Yangtze River Group and Industrial Pharmaceutical; (ii) Industrial Pharmaceutical compensate Yangtze River Group for economic losses in total of RMB 68.322371 million; (iii) Industrial Pharmaceutical compensate Yangtze River Group with attorney’s fees of RMB 0.5 million.The Industrial Pharmaceutical appealed against the first instance judgment.
The SPC concluded that the conducts of Industrial Pharmaceutical did not constitute abuse of market dominance, revoked the first instance judgment and rejected the requests of Yangtze River Group.
Key findings and rulings:
(1) The actual competitive constraints faced by an operator may be both direct and indirect; if indirect competitive constraints have sufficient influence on the operator’s behavior, the indirect competitive constraints should also be fully considered in the determination of market dominance. API is an intermediate input, and there is a correlation between the demand for the intermediate input and the demand for the downstream products using the intermediate input. Generally, the stronger the correlation, the more important are the indirect competition constraints imposed by the downstream market of the intermediate input on the upstream operators. The operators of a particular API may face both direct competition from operators supplying the same API and indirect competitive constraints brought about by competitive constraints on downstream preparation operators, meaning competition in the downstream preparation market may be transmitted to the upstream API market and create competitive constraints on that API operator.
(2) When the monopolistic act at issue involves the exercise of effective intellectual property rights, the analysis of the restrictive or exclusion effect on competition of the monopolistic act at issue requires consideration of the legal effects necessarily arising from the proper exercise of intellectual property rights in accordance with relevant law. If the so-called effect of excluding or restricting competition is the inevitable result of proper exercise of specific intellectual property rights in accordance with the law, and does not exceed the scope of legal effect contemplated by the intellectual property rights, such effect of excluding or restricting competition under the anti-monopoly law shall not be concluded.
(3) The main purpose of anti-monopoly law in regulating unfairly high prices is to maintain the order of market competition, protect consumer welfare and avoid harming consumer welfare in the event of persistent market failures. If an overpricing neither has a clear effect of excluding or restricting competition nor has an obvious detriment to consumer welfare, it is inappropriate to conclude that it constitutes an abuse of market dominance. The reason is that overpricing can be self-corrected through the market dynamics. The legal analysis of overpricing needs to emphasize on its actual or potential anti-competitive effects, and to avoid damaging the investment incentives of incumbent operators and potential entrants in the market, which could lead to a “chilling effect” reducing innovation and ultimately harming consumer welfare. Therefore, the determination and regulation of overpricing shall be particularly prudent.
(4) In determining that the operator abuses its dominance in a relevant market by attaching unreasonable trading conditions on transactions in another relevant market, in general, at least two conditions should be met at the same time: (i) the first condition look into the appearance, that is, the operator shall have explicit or implicit intention to attach unreasonable trading conditions, such as requiring that specific transactions must be bundled with other transactions, or requiring that transactions in other relevant markets be concluded as a prerequisite for concluding transactions in the relevant market in which the operator has a dominant market position; (ii) the second condition look into the effect and consequence, that is, the operator shall have improperly obtained undeserved benefits or harm the interests of the counterparty to the transaction, and have excluded or restricted competition in the relevant market by attaching unreasonable trading conditions.
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If you are interested in further information regarding China antitrust matters, please feel free to contact Qian Xiaoqiang Lvshi (qianxiaoqiang@haiwen-law.com) or Lin Xixiang Lvshi (linxixiang@haiwen-law.com) or other attorneys of Haiwen & Partners.
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