ICLG – CARTELS AND LENIENCY 2021
2020-11-10
1 The Legislative Framework of the Cartel Prohibition
1.1 What is the legal basis and general nature of the cartel prohibition, e.g. is it civil and/or criminal?
The Anti-monopoly Law of China (the "AML") regulates cartels. In addition, the Interim Provisions on the Prohibition of Monopoly Agreements issued by the State Administration of Market Regulation ("SAMR") in 2018 and the Guidelines for the Application of the Leniency Program to Cases Involving Horizontal Monopoly Agreements (the "Leniency Guidelines") issued by the Anti-monopoly Committee of the State Council ("AMC") in 2019 (published in June 2020) provide more detailed provisions to regulate cartels and leniency.
Where an undertaking has violated the AML by entering into and implementing a cartel arrangement, SAMR or the market regulatory departments of the People's Governments of provinces, autonomous regions, and municipalities directly under the Central Government (the "Provincial Market Regulatory Department" or "PMRD") may impose administrative penalties pursuant to the AML. An undertaking which has violated the AML by entering into and implementing a cartel arrangement and causes others to suffer losses may bear civil liability in a private antitrust litigation. Cartel arrangements do not attract criminal liability in China.
1.2 What are the specific substantive provisions for the cartel prohibition?
The concept of monopoly agreements under the AML
The monopoly agreements defined under the AML are agreements, decisions or other coordinated acts that eliminate or restrict competition.
1. Agreements:
Agreements can be in written or verbal form.
2. Decisions:
Decisions are not a multilateral legal act, but a unilateral legal act. Although many undertakings participate in the voting, the decision is made by a single entity, such as an association. The independence of individual undertakings does not exist because their individual intentions are aggregated by the decision and become a single overall intention. Although the decision is applicable to every member of the association, including the members who vote against the decision and do not participate in the voting, the legal consequences are different. The undertakings which voted against the decision and did not participate in the voting shall not be liable for the cartel arrangement in the decision.
3. Exchange of information:
Exchange of information between competing undertakings, by itself, is not prohibited under the AML, unless agreements, decisions or other coordinated acts can be found.
4. Coordinated acts:
To identify other coordinated acts, the following factors shall be considered:
1) whether the market behaviours of undertakings are consistent or not;
2) whether there is any intentional contact or information exchange between undertakings;
3) whether undertakings can reasonably explain the consistency of the behaviours; and
4) the market structure, competition status, market changes and other situations of the relevant markets.
Cartel prohibitions under Article 13 of the AML
The following cartel arrangements between competing undertakings are prohibited under Article 13 of the AML. The Interim Provisions on the Prohibition of Monopoly Agreements provides detailed rules to identify the scope of the cartel arrangements:
1. Price fixing:
a) fixing the price level, range, profit, discounts, handling fees and other expenses;
b) adopting a standard formula for calculating prices; or
c) limiting the discretion of the parties on pricing.
2. Restricting the production volume or sales volume:
a) restricting or fixing the production volume, stopping production, or restricting the production volume of specific types or models of products; or
b) restricting the volume of products launched in the market, or restricting the sales volume of specific types or models of products.
3. Dividing sales markets or procurement markets:
a) dividing the sales area, market share, sales target, sales revenue, or sales profit;
b) dividing the categories, volume, and timing of sales of products; or
c) dividing the procurement area, category, volume, time or supplier of materials.
4. Restricting the procurement of new technology/equipment or restricting the development of new technology/products:
a) restricting the purchase or use of new technology/processes;
b) restricting the purchase, lease or use of new equipment/products;
c) restricting the investment in, and R&D of, new technology/products; or
d) refusing to use new technology/processes/equipment/products.
5. Joint boycott:
a) jointly refusing to supply or sell products to a specific undertaking;
b) jointly refusing to purchase or sell products of a specific undertaking; or
c) jointly restricting a specific undertaking from trading with undertakings which are in competition with them.
6. Any other horizontal monopoly agreement as defined by the anti-monopoly enforcement agency of the State Council.
Exemptions
Under Article 15 of the AML, the cartel prohibition rules under the AML are not applicable if undertakings can prove the following:
1. at least one of the following public interests or efficiencies can be realised through the cartel arrangement:
a) advancing technology or researching and developing new products;
b) improving product quality, lowering cost, increasing efficiency, unifying specifications and standards, or implementing a division of labour based on specialisation;
c) improving the operation efficiency and competitiveness of small- and medium-sized undertakings;
d) realising public interests such as energy conservation, environmental protection, and rescue and relief efforts;
e) alleviating problems related to a serious drop in sales or obvious overproduction during an economic downturn;
f) protecting legitimate interests during foreign trade or foreign economic cooperation; or
g) other circumstances specified by laws or the State Council;
2. causation:
a) the specific form and effect of the cartel arrangement realise the public interests or efficiencies; and
b) the causation between the cartel arrangement and the public interests or efficiencies, and whether the cartel arrangement is necessary in order to realise the public interests or efficiencies;
3. the cartel arrangements do not seriously restrict competition in the relevant market; and
4. they enable consumers to share the benefits therefrom, such as lowering the price, improving the quality, or introducing new types of products into the market.
1.3 Who enforces the cartel prohibition?
SAMR and PMRD are the authorities which investigate cartel arrangements and render decisions of penalties independently without relying on the People's Court.
SAMR essentially regulates the following functions: antitrust; drug safety supervision; quality inspection; fair competition and commercial bribery; issuance of business registration; certification and accreditation; and management of intellectual property rights, etc. The Anti-monopoly Bureau under SAMR carries out antitrust investigations against cartel arrangements. More specifically, the Division of Monopoly Agreement Investigation of the Anti-monopoly Bureau under SAMR is in charge of cartel investigation.
According to the AML, AMC was established to organise, coordinate and supervise anti-monopoly-related activities. AMC generally serves as a policy-making body and is not involved in the specific antitrust cases.
Cartel arrangements are not criminal violations in China. Therefore, except for bid rigging or obstructing law enforcement by means of violence or threat, the criminal prosecution authorities' role is very limited in China's cartel enforcement.
1.4 What are the basic procedural steps between the opening of an investigation and the imposition of sanctions?
A cartel investigation usually starts from a whistle-blowing or a leniency application by a member of cartel. SAMR or PMRD may on its discretion initiate an investigation if it has reason to believe that there has been a cartel infringement.
Pre-investigation
At this stage, SAMR or PMRD will conduct an external investigation to understand the background and verify the evidence obtained to determine whether to formally initiate the antitrust investigation. SAMR or PMRD may issue a Notice of Appointment for an Interview to the target by specifying the time, place, topics and relevant requirements for the interview. Usually, the case handler will produce an interview record for each interview. PMRD may communicate with SAMR before initiating the investigation.
Initiation of the investigation
PMRD shall, within seven working days after the initiation of an antitrust investigation, report the case to SAMR for its records. No notice of investigation can be obtained by the entity under investigation.
Leniency applications
An undertaking under investigation may file a leniency application to SAMR or PMRD. SAMR or PMRD shall decide whether to give a mitigated penalty or exempt the undertaking from a penalty by considering factors including the time sequence of the voluntary reporting by the undertaking, the degree of importance of the evidence provided, and the relevant information on the conclusion or implementation of the monopoly agreement concerned.
Fact-finding and dawn raids
SAMR and PMRD have broad investigative power and may take the following measures during the fact-finding stage:
1. Dawn raid:
After the initiation of the investigation, SAMR and PMRD may carry out a dawn raid on the place of business of the undertaking under investigation by conducting an on-site inspection to collect and fix evidence, conducting interrogations, and requesting the undertaking under investigation to provide documents. In practice, the team leader of the dawn raid will show the undertaking under investigation a Notice of Antitrust Investigation, which states the undertaking under investigation, the starting date of the dawn raid, the leader of the investigation team, the team members, the obligation of cooperation, and the contact person. If a dawn raid is carried out in the venue of a third party, a Notice of Assistant in the Antitrust Investigation will be presented to the target by stating the target, the obligation of cooperation and the contact person.
Undertakings which are under investigation and interested parties have the right to voice their views. SAMR or PMRD shall verify the facts, reasons and evidence presented by undertakings under investigation and interested parties.
2. Preserve electronic data:
The case handlers shall produce a record after the collection of the electronic data by stating the time, place, object, producer, production method and process of the electronic evidence. The undertaking under investigation, witness, producer, and case handler shall co-sign the record after the production.
3. Request for information ("RFI"):
SAMR and PMRD could issue a RFI to collect certificates, agreements, accounts, correspondence, computer data, and other documents belonging to the undertaking, interested parties, and other relevant entities and individuals. The RFI will specify the requested documents or information and the date of submission.
4. Check bank account:
SAMR and PMRD have the authority to check the undertaking's bank account by identifying the undertaking under investigation and the period during which the bank account information is sought.
The dawn raid could last for a few days or a week. The fact-finding process may last for several months, even years, and the scope of the investigation may be upstream, downstream or involve competitors of the undertaking under investigation.
Decisions on the cancellation, suspension, resumption or termination of the investigation
The investigation can be cancelled if no violation can be found. The investigation can be suspended if the undertaking which submits an application agrees to undertake certain specific measures that will lead to the elimination of the effect of the suspicious practices within a time limit designated by SAMR or PMRD. If such measures are well implemented in the agreed period of time, SAMR or PMRD may terminate the investigation. The investigation could be resumed if the measures are not implemented as promised.
Expert argumentation meeting
There is an Expert Committee under the Anti-monopoly Commission of the State Council. Experts in the Expert Committee can be called on by SAMR to attend an expert argumentation meeting to give an expert opinion on the findings and preliminary decisions of SAMR. There are experts working for PMRD on certain cases to provide expert reports and analysis to back up the findings of PMRD.
Examination by the Department of Legal Affairs
When the investigation is completed, the case handler shall draft an investigation report, and submit the report along with the case materials to the Department of Legal Affairs for examination. The Department of Legal Affairs will review the following:
1) whether there is a jurisdiction;
2) whether the basic information of the parties concerned is clear;
3) whether the facts of the case are clear and the evidence is adequate;
4) whether the nature of the antitrust conduct is correctly determined;
5) whether the application of law is correct; and
6) whether the procedures are legitimate and the investigation is properly handled.
The Department of Legal Affairs may agree with the report, propose to correct, propose to make supplementary investigation, or issue other opinions/suggestions.
Oral notice for the finding of the case
After the expert argumentation meeting, SAMR or PMRD will release its findings and preliminary decision to the undertaking under investigation orally. The oral notice may include the proposed fine base and the proposed rate of fine. The undertaking under investigation can provide SAMR with a statement or argument to challenge the facts and the application of law.
Prior notice for administrative penalties
After communication between SAMR or PMRD and the undertaking under investigation, the authority will issue the Prior Notice for the Administrative Penalty. This is a notice in written form stating the facts, the violation found, the fine base and the rate of fine. It will state the right for the undertaking under investigation to make a statement, argument or apply for a hearing. The undertaking under investigation may challenge the legal finding, submit counterevidence, and calculate the fine base and the rate of fine to reduce the penalty.
Hearing
The undertaking under investigation has the right to request a hearing. Such request must be made within three working days from the date when the Prior Notice for the Administrative Penalty is received. There is no charge for the hearing. Hearings are organised by the legislative affairs offices of SAMR or PMRD. The case handler, the undertaking under investigation and the agent thereof will participate in the hearing. Third parties, witnesses, translators, and experts may also be allowed to join the hearing. A hearing shall proceed as follows:
1. the case handler provides the facts and evidence of the illegal acts committed by the undertaking under investigation, the advice on the imposition of an administrative penalty and the basis thereof;
2. the undertaking under investigation makes statements and presents its defence;
3. the third party makes statements (if applicable);
4. cross-examination and debate; and
5. the host consults the final opinions of the parties in the order of the third party, the case handler and the undertaking under investigation.
The undertaking under investigation may present evidence on the spot to prove its claim, and the host shall consider the evidence. The undertaking may seek a non-confidential version of the investigation files on the spot or prior to the hearing in order to conduct a cross-examination.
After the end of a hearing, the host shall write a hearing report stating its handling opinions and suggestions, and send the report to the case-handling agency together with the hearing records.
Final decision on the administrative penalty
After the undertaking under investigation provides the statement, argument and/or attends the hearing, SAMR will issue the final decision on the administrative penalty. The wording of the decision could be negotiated if it contains a trade secret of the undertaking under investigation.
Publication
A decision on the administrative penalty, or a decision on the suspension or termination of the investigation, will be released to the public through SAMR's website: http://www.samr.gov.cn/fldj/tzgg/xzcf/.
Administrative review or administrative lawsuit
If the undertaking under investigation does not accept a decision made by SAMR, it may apply for an administrative review or file an administrative lawsuit.
There is no statutory timeline for a cartel investigation. The duration of an antitrust investigation depends on the complexity of the case, the authority's internal priorities, the cooperation of the undertakings under investigation, etc.
1.5 Are there any sector-specific offences or exemptions?
The AML does not identify any sector-specific offences. Certain guidelines may provide more detailed rules regarding cartel offences, but they are all within the scope of the AML. Exemptions, however, are available for certain sectors.
Agricultural
Article 56 of the AML provides that the AML shall not apply to cooperative or collaborative acts between agricultural producers and rural economic organisations in business activities such as the manufacture, processing, sale, transportation and storage, etc. of agricultural products. This article is only applicable to agricultural producers and rural economic organisations; the industrialised undertakings in the agricultural sector cannot enjoy this exemption. In addition, this article is only applicable to cartel activities; abusive conduct and resale price maintenance ("RPM") could still be caught under the AML. For instance, if farmers in several villages raise the prices of crops, meat, milk, or eggs at the same time, such price fixing conduct is exempted under Article 56 of the AML.
- "Agricultural producers" refers to undertakings and individuals operating agricultural crop cultivation, forestry, animal husbandry, and fisheries in agricultural land and separate facilities.
- The rural economic organisation is the main body of rural collective asset management and is a special economic organisation. At this stage, the local government authorities above the county level can be responsible for issuing organisation registration certificates to the rural economic organisations, and the rural economic organisations can then go through the relevant procedures of bank account opening with the relevant departments in order to carry out business operation and management.
API
The Guide to the Pricing Behavior of Undertakings Dealing in Drugs in Short Supply and Active Pharmaceutical Ingredients ("API Guideline") issued in November 2017 regulates the cartel activities related to active pharmaceutical ingredients ("API"). According to the API Guideline, the conclusion of any of the following horizontal monopolistic price agreements by competing undertakings of API is prohibited under the AML:
1. fixing the price level or the range of price;
2. fixing the tender price;
3. fixing agency fees, distribution fees, market discounts and other expenses influencing the price;
4. fixing the benchmark price, profit rate, gross profit rate, etc. for transactions with any third party;
5. agreeing upon the standard formula of calculation of the price of API;
6. fixing the price by limiting the output or sales volume;
7. fixing the price by dividing the market;
8. fixing the price by restricting the purchase of new technology/equipment or the development of new technology/products;
9. fixing the price by boycotting transactions; and
10. fixing the price in any other disguised form.
Automobile
According to Article 5(1) of the Antitrust Guidelines for the Automotive Industry (the "Auto Guidelines") issued by AMC in 2019 (published in June 2020), "certain types of horizontal agreements, for instance, research & development agreement, agreement on specialisation, technology standardization agreement, joint production agreement, and joint purchase agreement, would generally improve the efficiency and promote competition and are conducive to increasing the benefits of the consumers. For instance, the horizontal agreements during the R&D and production processes of the new energy automobile may enable the undertakings to share the investment risks, improve the efficiency and promote social public interests. Hence, undertakings in automotive industry that reach the aforesaid horizontal agreements that can improve efficiency and promote competition may prove that the provisions of Article 13 of the AML do not apply to their agreements pursuant to Article 15 of the AML".
It is important to note that the Auto Guidelines reshapes the rules on vertical monopoly agreements in China, and its impact extends beyond the automotive industry.
1.6 Is cartel conduct outside your jurisdiction covered by the prohibition?
Cartel conduct outside China is covered by the AML. According to Article 2 of the AML, the AML applies to monopolistic conduct outside China as long as such conduct eliminates or restricts market competition in China.
SAMR can carry out an antitrust investigation against a cartel outside of China that may have an effect in China. In general, SAMR shall assess whether the cartel may have any anti-competitive effect in China before the initiation of an antitrust investigation in order to establish the jurisdiction. In practice, however, SAMR may determine whether the cartel may have any anti-competitive effect in China after the initiation of the investigation.
PMRDs take charge of an antitrust investigation regarding a cartel within their administrative region. If the anti-competitive effect in China only affects one province, autonomous region, or centrally-administered municipality, PMRD in that region may have jurisdiction over cartel conduct outside China.
To establish that conduct outside China has an anti-competitive effect in China: (1) the product under investigation must be imported into China; and (2) there must be a reasonable causal nexus between the alleged conduct and the anti-competitive effect in China.
2 Investigative Powers
2.1 Please provide a summary of the general investigatory powers in your jurisdiction.
Table of General Investigatory Powers
Investigatory power | Civil/Administrative | Criminal |
Order the production of specific documents or information | Yes | N/A |
Carry out compulsory interviews with individuals | Yes | N/A |
Carry out an unannounced search of business premises | Yes | N/A |
Carry out an unannounced search of residential premises | Yes* | N/A |
· Right to 'image' computer hard drives using forensic IT tools | Yes | N/A |
· Right to retain original documents | Yes | N/A |
· Right to require an explanation of documents or information supplied | Yes | N/A |
· Right to secure premises overnight (e.g. by seal) | Yes | N/A |
* An unannounced search of residential premises shall be carried out with the assistance of the public security department.
2.2 Please list any specific or unusual features of the investigatory powers in your jurisdiction.
1. Pre-notice of the inspection is not required
The AML does not place any restrictions on the time and the duration of the inspections for SAMR or PMRD to inspect the business premises, nor does it require SAMR or PMRD to notify the undertakings under investigation in advance before conducting the inspections. In practice, if notified in advance, some undertakings under investigation may destroy, alter or conceal evidence, or even collude with each other against antitrust investigations, so that key evidence may not be obtained, and the purpose of the antitrust investigations cannot be achieved. It should be noted that although SAMR or PMRD can enter the business premises for the inspection without pre-notice, it still needs to inform the target of the authority of the antitrust enforcement agency, and the rights of the undertaking under investigation when entering for the inspection.
2. Can SAMR or PMRD inspect residential premises?
The Constitution, the Criminal Law, and the Criminal Procedure Law stipulate that the homes of citizens of the People's Republic of China are inviolable, and the unlawful search of, or intrusion into, a citizen's home is prohibited. Entering a citizen's home to conduct a search must meet the purpose of collecting criminal evidence, and must normally be conducted by the public security departments and the People's Procuratorates. Other agencies have no right to enter a citizen's home to conduct a search without authorisation by the law.
If a citizen's home is used as business premises, the citizen's home falls into the concept of business premises, and SAMR or PMRD can enter such "business premises" to conduct an inspection. When entering into the premises for the inspection, SAMR or PMRD should limit the scope of the inspection to the business premises of the undertaking under investigation, and should not expand to the civic life area.
3. Can SAMR or PMRD enter the business premises by force?
The AML does not authorise SAMR or PMRD to enter the business premises by force. SAMR or PMRD cannot break locked doors or locked filing cabinets. If SAMR or PMRD uses force to enter the business premises for the inspection, it may interfere with the property rights and privacy rights of the undertaking under investigation.
If the undertakings under investigation delay SAMR or PMRD's entry into the business premises by various reasons, in order to conceal, destroy, and transfer evidence, and to obtain time for collusion, SAMR or PMRD may request the public security departments to cooperate with the investigation and to use force to enter the business premises for the inspection, in order to quickly collect the illegal evidence of the undertakings under investigation and achieve the goal of the antitrust investigation.
4. The scope of the inspection
The approach towards the inspection of business premises by SAMR or PMRD is different from the searching of business premises by investigators of public security departments and People's Procuratorates. According to the Criminal Procedure Law, in order to collect criminal evidence and track down an offender, investigators may search the person, belongings and residence of the criminal suspect. When a search is to be conducted, a search warrant must be produced to the person who is to be searched. Searches of the persons of women shall be conducted by female officers. SAMR or PMRD does not have such power to search.
In general, SAMR or PMRD cannot search the person, belongings or residence of an individual. However, this does not mean that SAMR or PMRD's inspection power is limited to obtaining relevant documents, materials and information via observation; SAMR or PMRD could search desktops, laptops, cell phones, locked rooms or cabinets with the cooperation of the undertakings under investigation. Since the desktops, laptops and cell phones may contain both working information and personal information, the case handlers shall limit their search within the scope of the antitrust investigation.
5. Accessing and copying information of the listed companies that has not been disclosed
According to the Securities Law, the directors, supervisors and senior management personnel of the issuer shall ensure that the issuer discloses information promptly and fairly, and that the information disclosure is true, accurate and complete. This means that the listed companies and related information disclosure obligors shall disclose important information to all investors at the same time to ensure that all investors have equal access to the same information, and shall not disclose it to specific individuals or entities in advance without permission.
The Securities Law does not expressly prohibit law enforcement agencies from accessing and copying information that has not been disclosed. In practice, SAMR and PMRD believe that the undertaking under investigation has no right to refuse the antitrust law enforcement agency to access and copy information on the grounds that it has not been disclosed.
6. Seizing and detaining relevant evidence
According to the AML and the Administrative Coercion Law: (1) the scope of seizure and detainment is limited to the relevant evidence, and so irrelevant documents and materials cannot be seized or detained; (2) it is not permitted to seize or detain daily necessities of the citizens and dependents thereof; and (3) the premises, facilities or other properties of the party concerned which have been seized by a State organ in accordance with the law may not be seized again.
The decision of seizure or detainment shall indicate:
1. the name and address of the party concerned;
2. the reasons, basis and duration of the seizure or detainment;
3. the name and quantity of premises, facilities or other properties which have been seized or detained;
4. the procedure and time limit for applying for administrative reconsideration or for bringing an administrative lawsuit; and
5. the name and seal of the administrative agency and the date.
The list of seized or detained properties shall be made in duplicate, and the party concerned and the administrative agency shall each keep one copy.
7. The limitation of checking bank accounts
SAMR or PMRD can only check the bank account of the undertaking under investigation. It cannot check the bank accounts of affiliated companies, interested parties or any other third parties.
The information that a financial institution provides in the inquiry of SAMR or PMRD should be limited to the deposit information, including the account of the undertaking under investigation, the deposit situation, and the accounting vouchers, account books, and statements related to the deposit. SAMR or PMRD may take a note, copy, or take photos as needed, but it may not take the originals.
2.3 Are there general surveillance powers (e.g. bugging)?
1. No surveillance powers
No laws or regulations provide SAMR or PMRD with general surveillance powers. On the contrary, the relevant laws and regulations restrict the surveillance powers.
According to Articles 1032 and 1033 of the Civil Code of China (to be effected on January 1st, 2021), a natural person shall enjoy the right to privacy. No organisation or individual may infringe upon the right to privacy of any other person by spying, invading and harassing, disclosing or publishing relevant information or by any other means. Unless otherwise prescribed by the law or specifically agreed by the rights holders, no organisation or individual may carry out any of the following acts: entering, taking pictures of or peeping into others' houses or hotel rooms or other private spaces; or taking pictures of, peeping into, wiretapping, or making public the private activities of others.
In addition, the Provisions of the Supreme People's Court on Several Issues of Evidence in Administrative Litigation provides that the evidence obtained from secret photography, secret recording, and wiretapping, infringing the legitimate rights and interests of others, cannot be used as the basis for the determination.
2. Secret recording taken by a whistle-blower
Before the initiation of an antitrust investigation, a whistle-blower may collect evidence secretly by a secret recording under abnormal circumstances. As long as it does not infringe on the legitimate rights and interests of others, it will be considered by SAMR or PMRD, and may be used as the foundation to initiate an antitrust investigation.
3. Audio-visual materials from a public camera
The antitrust law enforcement agency once collected the surveillance video of a hotel. The video shows that a group of managers from competing entities entered the hotel's meeting room at the same time and walked out of the meeting room two hours later. Combined with the reimbursement invoices for the managers of these entities, it was proved that these competitors had held a meeting at the same time and in the same place. The surveillance video of the hotel was the key evidence in that case.
2.4 Are there any other significant powers of investigation?
According to the AML, when investigating suspected monopolistic practices, SAMR or PMRD may take the following measures:
1. inspecting the undertaking's place of business and other relevant locations;
2. conducting interrogations of the undertaking, interested parties, and other relevant entities and individuals, requiring that they provide explanations;
3. reviewing and making copies of certificates, agreements, accounts, correspondence, computer data, and other documents belonging to the undertaking, interested parties, and other relevant entities and individuals;
4. seizing or detaining relevant evidence; or
5. checking the undertaking's bank account.
The AML does not confer any additional power on SAMR or PMRD.
2.5 Who will carry out searches of business and/or residential premises and will they wait for legal advisors to arrive?
Inspections of business and/or residential premises will be conducted by SAMR officers and/or PMRD officials. In certain cases, other assisting third parties may also join the searches. All the names of the team members shall appear on the Notice of Antitrust Investigation.
Since SAMR and PMRD do not have the power to force entry, they may ask the public security departments to assist them in the antitrust investigation. In such case, the officers of public security departments may obtain a search warrant in advance.
No laws and regulations mandate that officials of SAMR or PMRD must wait for legal advisors of the undertaking to arrive before the inspection.
2.6 Is in-house legal advice protected by the rules of privilege?
The concept of "attorney-client privilege" does not exist under the law of China. In other words, confidential communications between an attorney and a client are not privileged.
Article 33 of the Lawyer's Law provides that attorneys must protect the confidentiality of their clients' private information, and if they are aware of any of their clients' trade secrets, they must also protect them. However, this article does not exempt attorneys from being forced to disclose this information in a judicial action. According to Article 70 of the Civil Procedure Law, a court can order an attorney to testify about a client's private information or trade secrets in a judicial proceeding.
In addition, the law of China does not protect any legal document or correspondence that is marked "confidential and privileged" from the inspection of SAMR or PMRD. This fact shows that attorneys and their clients are not exempt from disclosing information that would otherwise be protected by attorney-client privilege outside China.
2.7 Please list other material limitations of the investigatory powers to safeguard the rights of defence of companies and/or individuals under investigation.
1. Internal pre-approval
According to the AML, where one of the investigatory measures (inspection, interrogation, reviewing and copying documents, seizing or detaining evidence, checking a bank account) is to be taken, a report must be filed with the person in charge of the anti-monopoly law enforcement authorities, and approval must be granted.
According to the Interim Provisions on Administrative Penalty Procedures for Market Regulatory Departments (the "SAMR Penalty Procedure Rule"), SAMR or PMRD may take or lift administrative coercive measures such as seizure and detention with the approval of the person in charge of SAMR or PMRD. If the situation is urgent and the administrative coercive measures need to be taken on the spot, the case handler shall report the same to the person in charge of SAMR or PMRD within 24 hours and supplement the approval procedures. If the person in charge of SAMR or PMRD believes that administrative coercive measures should not have been taken, such measures shall be lifted immediately.
2. Withdrawal system
According to the SAMR Penalty Procedure Rule, "where the relevant persons participating in the handling of a case are related to the party concerned due to direct interests, he/she shall withdraw". The undertaking under investigation has the right to apply for the withdrawal.
3. Show valid law enforcement credentials
No less than two law enforcement personnel shall be dispatched in an antitrust investigation, and they shall show valid law enforcement credentials before the inspection, interrogation, etc.
4. Keep commercial secrets and personal information confidential
The case handlers shall keep commercial secrets and personal information learned during the process of investigation confidential.
5. The seizure or detention shall not exceed 30 days
According to Article 35 of the SAMR Penalty Procedure Rule, the time limit for seizure or detention shall not exceed 30 days. If the situation is complicated, it may be extended upon approval by the person in charge of SAMR or PMRD, but the extended period shall not exceed 30 days, unless otherwise stipulated by laws and administrative regulations.
2.8 Are there sanctions for the obstruction of investigations? If so, have these ever been used? Has the authorities' approach to this changed, e.g. become stricter, recently?
1. Administrative fines imposed on entities and individuals for the obstruction of investigations
As a general rule of the Administrative Penalty Law, individuals or entities shall cooperate in an investigation and shall not obstruct the investigation or inspection. If the undertaking under investigation obstructs the antitrust investigation by refusing to provide information or materials, submitting fraudulent information or materials, or concealing, destroying, or diverting relevant evidence, SAMR or PMRD may order rectification, and impose a fine of:
- no more than RMB 20,000 on individuals, or RMB 20,000 to RMB 100,000 if the case is serious; and
- no more than RMB 200,000 on entities, or RMB 200,000 to RMB 1 million if the case is serious.
In June 2019, SAMR issued decisions to penalise two calcium gluconate API distributors, Shandong Kanghui Medicine ("Kanghui") and Weifang Puyunhui Pharmaceutical ("Puyunhui"), and 14 individuals for obstructing antitrust investigations by refusing to provide materials or information, and concealing, destroying and relocating evidence during the antitrust investigation.
During the inspection of Kanghui, the SAMR officials uncovered a large amount of evidential materials at Kanghui's document storage room, including the relevant purchase and sales contracts, financial bills, shipment record slips. Kanghui's general manager organised and directed more than 30 individuals including company employees and some non-staff persons to seize the materials. Ignoring the objection of the officials, these people forcibly concealed and removed the materials. Some officials were injured and the investigation was hindered. Moreover, according to the decision, Kanghui also summoned a group of about 20 unidentified persons to block the officials at a meeting room. These people also protested outside the building, making threats to the officials.
During the inspection of Puyunhui, an employee from the company's business department asked his colleague via WeChat to remove and hide a U-disk. The officials printed out some WeChat chat records between the relevant persons of the company and intended to use them as evidence for the company's suspected monopolistic conduct. In response, the general manager publicly tore up the copies of printed records and other evidential documents. The conduct of destroying evidence continued even after a warning by the officials.
SAMR held that the parties violated Article 42 of the AML, and imposed fines of RMB 2.53 million in accordance with Article 52 of the AML. Kanghui and Puyunhui were each fined RMB 1 million, and the general managers of the two companies were each fined RMB 100,000.
These maximum fines show that SAMR became stricter regarding the obstruction of investigations.
2. Criminal liability for the obstruction of investigations
The obstruction of antitrust investigations could be caught under the Criminal Law. According to Article 277 of the Criminal Law, whoever, by means of violence or threat, obstructs a functionary of a State organ from carrying out its functions according to the law shall be sentenced to fixed-term imprisonment of not more than three years, criminal detention, or public surveillance, or be fined.
3. Administrative detention for the obstruction of investigations
The obstruction of antitrust investigations may also be penalised by administrative detention. Article 50 of the Law on Penalties for the Violation of Public Security Administration provides that a person, who obstructs a staff member of a government department from performing his duties in accordance with the law, shall be given a warning or be fined not more than RMB 200; and if the circumstances are serious, he shall be detained for not less than five days but not more than 10 days, and may, in addition, be fined not more than RMB 500.
4. Fine rate increased by 1–2% for the obstruction of investigations
The fine against cartels under the AML is 1% to 10% of the sales amount of the preceding year. In practice, if there are no separate fines against entities or individuals for the obstruction of the antitrust investigation, the refusal to provide information or materials, the submission of fraudulent information or materials, or the concealment, destruction, or diverting of relevant evidence may lead to the fine rate being increased by 1–2%.
3 Sanctions on Companies and Individuals
3.1 What are the sanctions for companies?
According to Article 46 of the AML, where an undertaking has violated the provisions of the AML by entering into and implementing a monopoly agreement, SAMR or PMRD shall order the undertaking:
1. to stop the illegal act;
2. to confiscate the illegal earnings; and
3. to pay a fine of 1% up to 10% of the sales volume of the preceding year.
Where a monopoly agreement has been entered into but has not been implemented, a fine of not more than RMB 500,000 may be imposed.
Where an industry association has violated the provisions of the AML in organising the undertakings in the industry to enter into a monopoly agreement, SAMR or PMRD may impose a fine of not more than RMB 500,000; where the case is serious, the registration and administrative authorities for social organisations may de-register the industry association pursuant to the law.
3.2 What are the sanctions for individuals (e.g. criminal sanctions, director disqualification)?
SAMR or PMRD has no authority to sanction an individual in an antitrust investigation unless: (1) he himself is an undertaking; or (2) he obstructs the investigation as indicated in question 2.8.
There is no criminal liability against monopoly conduct in China. An individual cannot be sentenced to imprisonment for his cartel acts.
3.3 Can fines be reduced on the basis of 'financial hardship' or 'inability to pay' grounds? If so, by how much?
With regards to the penalty against cartels, SAMR and PMRD have broad discretion in determining the fines by taking into account the nature, the degree, and the duration of the violation.
Financial hardship or the inability to pay is not an explicit factor under the AML for SAMR or PMRD to consider when determining the fine. In practice, SAMR or PMRD may reduce the overall fine level for all cartel participants in an antitrust investigation, if fines may remove several undertakings from the market, and cause an increase of the unemployment rate and instability in the local community.
SAMR and PMRD have the authority to check the bank account and review the books, and can make a judgment on whether the undertaking under investigation may go to bankruptcy or its economic viability will be jeopardised if a huge fine were imposed. The mere fact that the imposition of a fine might increase the risk of insolvency of an undertaking is insufficient to prevent or reduce the fine.
In China, many cartel arrangements are not aimed at obtaining monopoly profit, but at surviving in the competitive market by preventing selling below the cost. Some undertakings will go to bankruptcy without a cartel agreement, as bankruptcy is a natural result of price competition. In such situation, SAMR and PMRD may impose fines against such undertakings without considering their financial hardship or inability to pay, because the financial hardship is inevitable with or without the penalty.
3.4 What are the applicable limitation periods?
According to the Administrative Penalty Law, where an illegal act is not "discovered" within two years of its commission, an administrative penalty shall no longer be imposed, except as otherwise prescribed by law. The statute of limitation shall be counted from the date when the illegal act is committed. If the act is of a continual or continuous status, it shall be counted from the date when the act is terminated.
1. The date of the discovery of an illegal act
In practice, if the public security departments, the People's Procuratorates, or the People's Courts initiate an investigation, initiate an evidence collection proceeding, or file a case, these can be considered as a "discovery" of an illegal act. In addition, if a whistle-blower files a report and the content is found to be true, the time of the report can be considered as a "discovery" of an illegal act.
2. Continual or continuous status of an illegal act
For a cartel, even if the negotiation and conclusion of the cartel agreement have been stopped, if the agreement is still in the process of implementation, the cartel will be considered to have a continual or continuous status, and it is difficult for the undertaking implementing the cartel agreement to allege that the statute of limitation expired and to avoid administrative penalties on that basis.
3.5 Can a company pay the legal costs and/or financial penalties imposed on a former or current employee?
There are no administrative or criminal penalties imposed on employees under the AML, unless they obstruct the investigation. If it is the latter, the company could pay the legal costs and/or financial penalties imposed on that employee, whether former or current, as no rules or regulations prevent the company from doing so.
In practice, the company will not pay the fines to the authority directly on behalf of its employees. The employees will pay the fines from his/her personal account and the company will indemnify such losses by paying the employees for the same amount.
3.6 Can an implicated employee be held liable by his/her employer for the legal costs and/or financial penalties imposed on the employer?
According to the Labour Law and Labour Contract Law, in three situations the employees shall bear the liability for compensation to the employer, if an employee: (1) rescinds a labour contract in violation of the law; (2) has violated the provisions of a labour contract on the confidentiality obligation; or (3) has violated the non-competition restrictive covenant, thus causing the employer to incur economic losses. There is no other legal basis for the employer to seek compensation from an employee for the loss as a result of an AML violation which is attributable to such employee.
However, if the employee signed a commitment to the company, which (1) lists the prohibited cartel arrangements, (2) identifies the possible fines imposed against the company, and (3) states that he/she would be held liable for any loss caused by his/her cartel activities, the company may have a chance to hold the undersigned employee liable for the loss which he/she caused to the company in the follow-up civil lawsuit.
3.7 Can a parent company be held liable for cartel conduct of a subsidiary even if it is not itself involved in the cartel?
The undertaking conducting the cartel shall be subject to the penalty. If the parent company is not involved in the cartel, the parent company will not be fined. A parent company cannot be held liable simply because it holds the majority of the shares of, or is capable of exerting a decisive influence on, the subsidiary.
4 Leniency for Companies
4.1 Is there a leniency programme for companies? If so, please provide brief details.
Article 46 of the AML provides the legal basis for a leniency regime, which gives SAMR or PMRD discretion to mitigate the penalty or grant immunity for undertakings participating in a cartel if they: (1) voluntarily report the relevant facts; and (2) provide material evidence.
The Leniency Guidelines published in June 2020 provides more detailed rules to regulate the leniency programme. The leniency application shall be accompanied with two groups of documents: (1) the report; and (2) material evidence.
The report
The report shall include the following:
1. basic information of the participants of the cartel agreement (including but not limited to name, address, contact information and participating representatives, etc.);
2. the background of the cartel agreement (including but not limited to the time, place, content, and specific participants of the agreement);
3. the main content of the cartel agreement (including but not limited to the products or services involved, price, quantity, etc.) and the undertakings' conclusion and implementation of the cartel agreement;
4. the geographic area and market scale affected by the cartel agreement;
5. the duration of the implementation of the cartel agreement;
6. explanation of the material evidence;
7. whether the undertaking has applied for leniency from other overseas law enforcement agencies; and
8. other relevant documents and materials.
Material evidence
Material evidence refers to evidence which plays a critical role in the launch of an antitrust investigation or the determination of a monopoly agreement by SAMR or PMRD, including:
1. evidence that has greater proving power or supplementary proving value in terms of the conclusion and implementation of the cartel agreement;
2. evidence that has supplementary proving value to prove: (1) the content of the cartel agreement; (2) the time of the conclusion and implementation of the cartel agreement; (3) the scope of the products or services involved; and (4) the participating members, etc.; and
3. other evidence that can prove the cartel agreement, or fix the probative power of the evidence that proves the cartel agreement.
Factors to be considered
SAMR or PMRD shall decide whether to give a mitigated penalty or immunity to the undertaking by considering:
1. the chronological order of the voluntary report by the undertaking;
2. the extent and significance of the material evidence provided;
3. the suspected cartel arrangements must be stopped immediately after the application for leniency, unless SAMR or PMRD requires the undertaking to continue to carry out the above-mentioned cartel acts in order to ensure the smooth progress of the investigation. If the undertaking has applied for leniency from an overseas law enforcement agency and is required to continue to perform the above-mentioned cartel acts, it shall report to SAMR or PMRD;
4. the undertaking must cooperate promptly, continuously, comprehensively and sincerely with the investigation of SAMR or PMRD;
5. the undertaking must properly preserve and provide evidence and information, and must not conceal, destroy or transfer evidence or provide false materials and information;
6. the application for leniency from SAMR or PMRD must not be disclosed without the consent of SAMR or PMRD; and
7. no other behaviours of the undertaking must affect the antitrust investigation.
Where an undertaking organises or coerces other undertakings to participate in the conclusion or implementation of a monopoly agreement, or prevents other undertakings from stopping the illegal act, SAMR or PMRD will not grant immunity, but may grant it with corresponding mitigation.
The chronological order of the voluntary report by the undertaking
SAMR or PMRD ranks the sequence of the undertakings according to the chronological order in which they apply for leniency.
Undertakings participating in a cartel agreement can apply for leniency before SAMR or PMRD initiates the antitrust investigation. They can also apply for leniency after the initiation of the antitrust investigation but before the advanced notification of the administrative penalty.
If the undertaking fails to perform obligations 3 to 7 of the "factors to be considered" listed in the subsection above, the chronological order of such undertaking may be cancelled by SAMR or PMRD. In general, the subsequent undertaking in the chronological order can be supplemented in turn.
Immunity and mitigated rate
1. For the first applicant, SAMR or PMRD may grant immunity to such undertaking or mitigate the fine amount by not less than 80%;
2. for the second applicant, the fine amount may be mitigated by 30% to 50%;
3. for the third applicant, the fine amount may be mitigated by 20% to 30%; and
4. for subsequent applicants, the fine amount can be mitigated by not more than 20%.
When determining the confiscation of illegal earnings, SAMR or PMRD may apply the same immunity and mitigated rate to deal with the illegal earnings.
4.2 Is there a 'marker' system and, if so, what is required to obtain a marker?
The "marker" system is detailed in the Leniency Guidelines.
1. A written receipt issued by SAMR or PMRD to the first-in
For the first applicant that applies for leniency by submitting the report on the cartel agreement and material evidence, SAMR or PMRD shall issue a written receipt to the applicant specifying the time of receipt and a list of materials. This written receipt is an official document to prove the chronological order of the leniency application.
The written receipt will not be issued to the first applicant if the report submitted does not meet the requirements of the Leniency Guidelines.
2. Marker of the first-in
If the first applicant submits a report that meets the requirements of the Leniency Guidelines, but temporarily cannot provide complete material evidence when it applies for leniency, SAMR or PMRD may register the date of the report and will issue a written receipt if the undertaking submits all necessary supplemental materials within the period specified by the authority. This registration is the "marker" and the written receipt issued by SAMR or PMRD will show the date on which it received the report.
If the undertaking fails to supplement the material evidence within the specified period (generally no longer than 30 days, and this can be extended to 60 days under special circumstances), SAMR or PMRD will cancel its registration qualifications, and the first-in will lost its "marker".
After the first-in is disqualified from registration, it can still supplement the material evidence and apply for immunity if there are no follow-up leniency applicants. If other undertakings have already applied for leniency, the first-in whose registration qualification has been disqualified may apply for mitigation.
3. A written receipt issued by SAMR or PMRD to undertakings after the first-in
An undertaking which applies for leniency by submitting the report on the cartel agreement and material evidence after the first-in may apply to SAMR or PMRD for mitigation. SAMR or PMRD issues a written receipt to the undertaking specifying the time of receipt and a list of materials.
There is no "marker" system for undertakings after the first-in.
4.3 Can applications be made orally (to minimise any subsequent disclosure risks in the context of civil damages follow-on litigation)?
1. Oral communication with SAMR or PMRD before the leniency application
Before applying for leniency, the undertaking may communicate with SAMR or PMRD anonymously or using its real name, either orally or in writing.
2. Oral submission
In practice, SAMR or PMRD permits an undertaking to orally submit the leniency application if there are disclosure risks in the context of civil litigation. The oral submission will be conducted at the office of SAMR or PMRD. SAMR or PMRD officials will make written records of the oral submission, which shall be verified and signed by the representatives of the undertaking.
4.4 To what extent will a leniency application be treated confidentially and for how long? To what extent will documents provided by leniency applicants be disclosed to private litigants?
1. The identity of the leniency applicants will be treated as confidential until the issuance of the penalty decision
Article 56 of the Interim Provisions on Administrative Penalty Procedures for Market Regulatory Departments provides: "the relevant information of the administrative penalty decision made by the market regulatory department shall be made public in accordance with the relevant provisions."
According to the Leniency Guidelines, if SAMR or PMRD grants immunity or mitigation to an undertaking under investigation, it should mention the leniency applicant in the public announcement of the final decision, and state the result and reason for granting such immunity or mitigation in the decision.
2. Documents or materials provided by leniency applicants will not be disclosed to any third party
As indicated in question 2.7 above, the law enforcement personnel shall keep commercial secrets and personal information confidential.
According to the Leniency Guidelines, the report, documents and other materials submitted by the undertaking in applying for leniency shall not be disclosed to the public without the consent of the undertaking, and no entity or individual has the right to access such information.
In practice, in order to attract more leniency applications, SAMR or PMRD will not disclose the documents or materials provided by the leniency applicants to any third party.
4.5 At what point does the 'continuous cooperation' requirement cease to apply?
The leniency applicant shall cooperate fully on a continuous basis with SAMR or PMRD during the antitrust investigation, until the final determination has been issued.
According to the Leniency Guidelines, if the undertaking fails to cooperate promptly, continuously, comprehensively and sincerely with the investigation of SAMR or PMRD, the applicant's chronological order may be cancelled by SAMR or PMRD.
4.6 Is there a 'leniency plus' or 'penalty plus' policy?
There is no "leniency plus" policy under the AML. In practice, if an undertaking in one antitrust investigation reports information about another antitrust violation occurring in a separate industry, it may not get additional benefits from SAMR or PMRD because the authority may not have enough enforcement resources to investigate the reported conduct in the other industry and cannot prove the truthfulness of such reports. However, if another antitrust investigation is initiated based on such report, the reporter will benefit from the leniency application in the separate antitrust investigation, and may be eligible for benefits in the current antitrust investigation.
There is no "penalty plus" policy under the AML. However, if SAMR or PMRD discovers that the undertaking has failed to disclose information regarding the separate antitrust activity also investigated by the authority, it may seek greater penalties against such undertaking.
5 Whistle-blowing Procedures for Individuals
5.1 Are there procedures for individuals to report cartel conduct independently of their employer? If so, please specify.
Since individuals do not bear liability under the AML, there is no leniency programme for individuals. If the employer already filed a leniency application to SAMR or PMRD, there is no need for individuals to report cartel conduct independently of their employer. If the employer does not make any leniency application, individuals cannot file a leniency application on behalf of their employer, unless authorisation is granted by the employer.
An individual/reporter can report cartel agreement in writing to SAMR or PMRD. A written report shall generally include:
1. the basic situation of the reporter;
2. the basic situation of the undertaking being reported against;
3. the relevant facts and evidence of the suspected cartel agreements; and
4. whether a report has been made to other administrative agencies or a lawsuit has been filed with the People's Court with respect to the same fact.
6 Plea Bargaining Arrangements
6.1 Are there any early resolution, settlement or plea bargaining procedures (other than leniency)? Has the competition authorities' approach to settlements changed in recent years?
Plea bargain
Since there is no criminal liability for monopolistic conduct in China, there are no plea bargaining procedures in China for cartels.
Settlement negotiation
AMC issued the Guidelines on the Undertakings' Commitments in Antitrust Cases (the "Commitments Guidelines") in 2019 (published in June 2020), which provides the detailed rules for settlement negotiation.
During the process of investigation, SAMR or PMRD may accept commitments from undertakings in which the undertakings undertake or commit to eliminate the anti-competitive effect of the infringing conduct within a period approved by the authority.
1. The process of settlement negotiation:
The commitment is, in general, a unilateral conduct made by the undertaking under investigation. However, since the content of the commitments should be evaluated and discussed with SAMR or PMRD before the decision of the suspension of the investigation, a settlement negotiation could be conducted. The process of the settlement negotiation is as follows:
1) timely filing of the application to suspend the investigation, together with the initial commitments to establish the foundation of the settlement negotiation between the undertaking and SAMR or PMRD;
2) the undertaking may negotiate with SAMR or PMRD regarding the content of the commitments and address all concerns of the authority; and
3) if SAMR or PMRD, after considering the subjective attitude of the undertaking towards the cartel, the nature of the cartel, its duration, its consequences, its social impact, the measures committed by the undertaking and their expected effects, holds that (1) the facts are clear, and (2) the committed measures are sufficient to eliminate the effects caused by the cartel arrangements, SAMR or PMRD may decide to suspend the investigation based on the commitments.
2. The antitrust investigations that cannot be settled:
Not all antitrust investigations can be settled with commitments. Price-fixing, restricting production or sales volume, and dividing the market cannot be settled by commitments.
In addition, if SAMR or PMRD has identified and verified the cartel agreement after the investigation, it will no longer accept applications for the suspension of the investigation proposed by the undertaking.
3. Public comments to the commitment measures:
If the cartel arrangements have affected the legitimate rights and interests of another unspecified majority of undertakings, consumers, or the public interest, SAMR or PMRD may solicit public opinions on the commitment measures proposed by the undertaking under investigation. The time for soliciting opinions is generally no less than 30 days.
4. Resume the investigation:
A settlement based on commitments is not the end of the investigation. The antitrust investigation can be terminated if the undertaking performs its commitments within a time limit designated by SAMR or PMRD. However, the antitrust investigation can be resumed, if: (1) the undertaking has failed to perform its commitments; (2) a major change has occurred which is relevant to the grounds for the settlement; or (3) the settlement was based on incomplete or inaccurate information provided by the undertaking.
7 Appeal Process
7.1 What is the appeal process?
If an undertaking under investigation is dissatisfied with the decision made by SAMR or PMRD about the cartel agreements, it may apply for an administrative review or file an administrative lawsuit against such decision.
Challenging decisions made by PMRD
1. File an administrative lawsuit:
The undertaking can bring an administrative lawsuit directly to the Basic People's Court (or Intermediate People's Court) where PMRD is located within six months from the date when it knows or should have known the decision issued by PMRD.
2. Appeal:
Where a litigant disagrees with a judgment of first instance of a People's Court, the litigant has the right to file an appeal with a higher-level People's Court within 15 days from the date of service of the judgment.
If the People's Court of First Instance is the Basic People's Court, the court of appeal is the Intermediate People's Court where PMRD is located. If the People's Court of First Instance is the Intermediate People's Court, the court of appeal is the Higher People's Court where PMRD is located.
Hainan Yutai Scientific Fish Feed Co. Ltd. ("Yutai") v. Hainan Provincial Price Bureau is a good example to demonstrate the whole process of appeal against a decision made by PMRD. In Yutai v. Hainan Provincial Price Bureau, Yutai was fined by the Hainan Provincial Price Bureau for violating Article 14 of the AML due to RPM between 2014 and 2015 (the "Relevant Agreements"):
- Yutai filed an administrative lawsuit against the decision of the Hainan Provincial Price Bureau with the Intermediate People's Court of Haikou Municipality. The Intermediate People's Court of Haikou Municipality overruled the decision of the Hainan Provincial Price Bureau.
- The Hainan Price Bureau then appealed to the Higher People's Court of Hainan Province, which revoked the judgment of the Intermediate People's Court of Haikou Municipality.
- Finally, Yutai applied to the Supreme People's Court of China (the "SPC") for a retrial of the case. The SPC affirmed the judgment of the Higher People's Court of Hainan Province and held that vertical monopoly agreements shall be prohibited according to Article 14 of the AML unless the concerned undertakings can prove that the relevant agreements are exempted according to Article 15 of the AML.
Challenging decisions made by SAMR
1. File an administrative lawsuit:
The undertaking can bring an administrative lawsuit directly to the First Intermediate People's Court of Beijing without going through the administrative review process.
According to the Provisions of the Beijing Higher People's Court on Relevant Issues Concerning the Jurisdiction Adjustment of the Intermediate People's Court of Beijing (Provisional), a first-instance administrative lawsuit involving the national ministry in Xicheng District is tried by the First Intermediate People's Court of Beijing. Since SAMR is located in Xicheng District, the First Intermediate People's Court of Beijing is the competent court to challenge decisions made by SAMR.
2. Appeal:
From 2019, the Intellectual Property Tribunal of the Supreme People's Court can bypass the Higher People's Courts and directly hear appeals against the rulings and judgments of first-instance civil and administrative monopoly cases made by the Intellectual Property Courts and the Intermediate People's Courts (the Provisions on Several Issues Relating to the Intellectual Property Tribunal). In practice, this rule is called the 'leapfrog' appeal.
Within 15 days of the first-instance judgment, any party who disagrees with the judgment regarding SAMR's decision may appeal to the SPC.
7.2 Does an appeal suspend a company's requirement to pay the fine?
If the party refuses to accept a decision on an administrative penalty and applies for administrative review or brings an administrative lawsuit, in general, the enforcement of the administrative penalty will not be suspended. However, the payment of the fine may be suspended under the following circumstances:
1. where suspension is deemed necessary by SAMR or PMRD; or
2. the execution of fines would cause irremediable losses, and the suspension of the execution would not harm the national interest and public interest.
7.3 Does the appeal process allow for the cross-examination of witnesses?
In an appeal, a bench of adjudicators will review the facts and the law of the case. A People's Court of Second Instance may allow witnesses to appear in court and testify and answer questions raised by judges and parties to an action.
8 Damages Actions
8.1 What are the procedures for civil damages actions for loss suffered as a result of cartel conduct? Is the position different (e.g. easier) for 'follow on' actions as opposed to 'stand alone' actions?
Antitrust civil lawsuit against cartel conduct
The general procedures for civil damages actions for loss suffered as a result of cartel conduct are as follows:
1. Initiation of a monopoly civil dispute case:
The proceedings of a monopoly civil dispute case are initiated after the complaint is accepted and filed by the People's Court. If the litigation criteria are not satisfied, the People's Court may issue a ruling on the non-acceptance of the lawsuit. If the plaintiff disagrees with the ruling, it may file an appeal.
2. Notice of complaint and defence:
The People's Court sends a copy of the complaint to the defendant. The defendant can submit the defence within 15 days from the date of receipt of the complaint. The failure of a defendant to submit a defence does not affect the trial of the lawsuit by the People's Court. Where a litigant objects to the jurisdiction, the objection will be raised during the time frame for the submission of the defence.
3. Discovery:
The period for the submission of evidence may be negotiated by the litigants and is subject to approval by the People's Court.
4. Hearing:
The People's Court will notify the litigants and the other participants in the proceedings three days before the hearing.
5. Issuing judgment:
Where a judgment is issued in court, the judgment will be served within 10 days; where a judgment is issued on a fixed date, the judgment will be served forthwith upon issuance of the judgment.
6. Appeal:
Where a litigant disagrees with a judgment of first instance of a People's Court, the litigant has the right to file an appeal with a higher-level People's Court within 15 days from the date of service of the judgment.
Upon receipt of the petition for appeal, the People's Court that originally heard the case will serve a copy of the petition for appeal to the counterparty litigant. The counterparty litigant can submit a defence within 15 days from the date of receipt of the petition. Non-submission of a defence by the counterparty litigant will not affect the trial of the petition by the People's Court.
Follow on actions v. stand alone actions
In theory, the decision of SAMR or PMRD regarding cartel conduct is helpful in follow-on litigation. In practice, however, the People's Court will conduct a de novo review, even if the decision of SAMR or PMRD has been given.
8.2 Do your procedural rules allow for class-action or representative claims?
In the case of a joint action where there are multiple persons (more than 10) comprising one party to the lawsuit, the litigants may elect a representative to participate in the proceedings. The litigation actions of the representative will be binding upon the litigants that he or she represents; for changes of representative, waivers of the claims of the action or confirmation of the claims of the counterparty litigants or settlement, consent by the litigants that he or she represents is required.
If the litigants cannot elect a representative, in a necessary joint action, they can participate by themselves, and in an ordinary joint action, they may file a separate lawsuit.
If multiple litigants cannot be confirmed at the time of the filing of the lawsuit, the relevant People's Court may issue a public announcement, stating the facts of the case and the claims, and notify the rights holders to register with the People's Court within a stipulated period.
8.3 What are the applicable limitation periods?
In general, the period of limitation of actions for claiming the damages arising from cartel conduct is three years, commencing from the date on which the plaintiff knows or should have known that its rights and interests were infringed.
If the plaintiff reports the alleged cartel conduct to SAMR or PMRD, the limitation period will be suspended from the date of the report. If SAMR or PMRD decides not to institute a case, to cancel the case or to terminate the investigation, the limitation period will recommence from the date on which the claimant knows or should have known of the non-filing or cancellation of the case or the termination of the investigation. Upon investigation, if SAMR or PMRD concludes that the conduct constitutes cartel conduct, the limitation period will recommence from the date on which the plaintiff knows or should have known that the decision of SAMR or PMRD became effective.
If cartel practice has been continuing for more than two years by the time the plaintiff files an action in court, and the defendant raises the limitation period in the defence, the damages will be calculated two years from the date on which the plaintiff files the lawsuit in the court.
8.4 Does the law recognise a "passing on" defence in civil damages claims?
Since, in an antitrust litigation, the plaintiff may only claim for the actual losses or damages, the defendant may argue that by passing on the overcharge to an indirect customer, the plaintiff suffers no losses or fewer losses.
8.5 What are the cost rules for civil damages follow-on claims in cartel cases?
Generally, the legal costs generated in a private antitrust litigation include a litigation fee and reasonable expenses to investigate the alleged conduct (e.g. attorneys' fees).
The litigation fee, which should be paid to the court, comprises the following three categories:
- case acceptance fee;
- application fee; and
- the travel expenses, accommodation expenses, living expenses and subsidy for missed work incurred by the witnesses, authenticators, interpreters and adjusters for appearing before the People's Court on the date designated by the court.
The amount of the litigation fee depends on the monetary value of the claim, the number of issues applied and the complexity of the case. The plaintiff pays a case acceptance fee in advance when instituting a civil proceeding. The losing party is ordered to undertake all the legal costs. However, where each party succeeds on some matters and fails on others, the court may order that the litigation fee be shared or that each party bear its own costs.
At the plaintiff's request, the People's Court may include the reasonable expenses incurred by the plaintiff for market research and curbing the monopolistic practice in the damages.
8.6 Have there been any successful follow-on or stand alone civil damages claims for cartel conduct? If there have not been many cases decided in court, have there been any substantial out of court settlements?
Follow-on civil damages lawsuit
In Junwei Tian v. Beijing Carrefour Shuangjing Store and Abbott Shanghai, the Beijing Higher People's Court found that the competition authority's decision alone was insufficient evidence that Abbott and Carrefour had allegedly concluded an anti-competitive agreement. It also concluded that the plaintiff had failed to adduce sufficient evidence to prove the existence of an illicit agreement by other means.
The decisions of the competition authority have so little effect on the People's Courts because of the following reasons:
- the decisions are not detailed enough to show the facts. In the Junwei Tian case, the competition authority's decision did not identify the distributors and retailers to whom the RPM clauses allegedly applied;
- the People's Courts cannot request the competition authority to release the evidence collected because of the confidentiality requirement under the AML; and
- the facts discovered in an antitrust litigation may not be the same as those identified by the competition authority. In the Junwei Tian case, the plaintiff purchased a tin of Abbott's infant formula in February 2013 at Carrefour, and the competition authority fined Abbott in August 2013. Both Abbott and Carrefour then produced a contract that was signed in November 2013 with effect from 1 January 2013. The contract only included non-binding price recommendations and no clauses that amounted to RPM. The Beijing Higher People's Court specifically noted that this approach did not breach the Contract Law.
Stand alone civil damages lawsuit
Lou Binglin v. Beijing Aquatic Products Wholesale Trade Association is a stand-alone civil damages lawsuit for cartel conduct.
Lou Binglin has an aquatic product shop selling scallops. It is a member of the Beijing Aquatic Products Wholesale Trade Association (the "Aquatic Association"). The Aquatic Association issued a handbook to its 31 members, requiring them to sell scallops strictly in accordance with the sales price stipulated by the association and imposed fines on members who sold scallops at a discounted price. Lou Binglin filed a lawsuit with the Second Intermediate People's Court of Beijing challenge the cartel agreement.
The court stated that the 31 members of the Aquatic Association are competitors. The Aquatic Association organised its members to enter into an agreement to fix prices, and imposed fines on members who sold scallops at a discounted sales price, which prevented internal competition between members of the association, affected the normal changing of prices, and increased sales profits, which had the effect of eliminating and restricting competition. Thus, the above-mentioned behaviour of the Aquatic Association consists of an association organising its members to enter into a monopoly agreement to fix the price of a commodity, which violates the AML.
The Second Intermediate People's Court of Beijing issued a judgment and order:
1. the relevant cartel provisions of the handbook of the Aquatic Association are invalid;
2. the Aquatic Association shall stop organising its members to enter into an agreement to fix the sales price of scallops; and
3. the other claims of Lou Binglin are dismissed.
The court did not support the damages claim because the expected benefits are difficult to be determined. The Aquatic Association appealed, and the Beijing Higher People's Court dismissed the appeal and upheld the judgment of first instance.
9 Miscellaneous
9.1 Please provide brief details of significant, recent or imminent statutory or other developments in the field of cartels, leniency and/or cartel damages claims.
SAMR launched a public consultation on a Draft of Amendments to the AML (the "Draft AML") in early January 2020. This is the first major change proposed to the AML since it came into force in 2008.
The Draft AML is still subject to consultation and further review by China's administrative and legislative bodies. While there is no fixed timetable for formal adoption, the Draft AML could be passed by the National People's Congress as early as 2021 if the remaining process runs smoothly.
1. The definition of "monopoly agreement" is set as a separate article instead of being part of the article on "horizontal agreements" under the AML
The definition of "monopoly agreement" is currently regulated in Article 13 of the AML, which is the provision on horizontal agreements. There are divergences about whether the definition of "monopoly agreement" also applies to vertical agreements. Specifically, should the authority or private parties, in an antitrust investigation or private litigation against a vertical agreement, prove that the vertical agreement has the effect of "excluding or restricting competition" as required in the definition of "monopoly agreement"?
The Draft AML shows that vertical agreements also need to have the effect of excluding or restricting competition to be subjected to the AML.
2. Adding a provision to forbid the conduct of organising or facilitating other undertakings to reach monopoly agreements
The current AML only applies to competing undertakings, and there are no relevant provisions regarding an undertaking which is not a competitor to the parties of a cartel agreement but still plays an important role in it. The Draft AML extended the scope of the investigations and penalties for monopoly agreements to include an undertaking which organises or facilitates other undertakings to reach cartel agreements.
What is more, it can also apply to "hub & spoke collusion", which is difficult to regulate under the current AML. In typical "hub & spoke collusion", competing undertakings act as "spokes" through a common third party (the "hub") to exchange sensitive information and reach a cartel agreement.
3. Increasing fines against cartel conduct and obstruction or interference with antitrust investigations
The following table shows the changes of fines imposed against cartel conduct and obstruction or interference with antitrust investigations in the current AML and the proposed Draft AML:
AML Violations | Current AML Fines | Draft AML Fines |
Companies which organise or facilitate others to reach monopoly agreements | None | Up to 10% of the company's revenues in the last year |
Trade associations which organise or facilitate others to reach monopoly agreements | Up to RMB 500,000 (approx. USD 70,400)
| Up to RMB 5 million (approx. USD 704,200) |
Monopoly agreements that are reached but yet to be implemented | Up to RMB 500,000 (approx. USD 70,400)
| Up to RMB 50 million (approx. USD 7.04 million) |
Monopoly agreements reached between undertakings with no revenues in the last year | None | Up to RMB 50 million (approx. USD 7.04 million) |
Companies which obstruct or interfere with antitrust investigations | Up to RMB 1 million (approx. USD 140,900)
| Up to 1% of the company's revenues in the last year; for those with no revenues or hard-to-calculate revenues, up to RMB 5 million (approx. USD 704,200) |
9.2 Please mention any other issues of particular interest in your jurisdiction not covered by the above.
Publication of the antitrust guidelines
In June 2020, a book titled the Collection of Antitrust Regulations and Guidelines 2019, authored by the Anti-monopoly Bureau of SAMR, was published by China Industry and Commerce Press. This book officially makes public the Auto Guidelines, the Leniency Guidelines, the Commitments Guidelines, and the Antitrust Guidelines for the Intellectual Property Rights ("IP Guidelines").
Although the four antitrust guidelines were internally issued by AMC on 4 January 2019, they have not been released to the public or invoked in any antitrust investigation cases. For the first time, these important antitrust guidelines were released via book publication rather than via official websites. There could be sufficient grounds to justify these unusual approaches. However, SAMR shall provide certain grace periods after publishing these substantive guidelines for undertakings to adjust their practices.
Algorithmic collusion
Although there are no actual cartel cases related to algorithmic collusion in China, this topic is still heavily discussed among scholars in China.
1. What is the algorithmic collusion?
Algorithmic collusion refers to competing undertakings' use of the same repricing software to indirectly collude with each other on pricing. The undertakings using the same repricing software may not know each other, but the repricing software could provide each of them with an aligned price or a price within a range, based on (1) the mass data in the market, and (2) the artificial intelligence ("AI") technology of pricing algorithms.
2. The advantage of pricing algorithms:
Pricing algorithms will help an undertaking to take an optimal pricing strategy and maximise the profit because:
1) A pricing algorithm is a technologically advanced tool that could improve the efficiency of the pricing process and the maximum profit. In the field of board games, we have witnessed AlphaGo's achievement and Master's 60 wins of the Go game in a row against all the top-ranking Go players in China and Korea. Similarly, we believe that an AI-based pricing algorithm could find the optimal prices for an undertaking more effectively than could the decisions of sales personnel.
2) Pricing algorithms can obtain, store and process more data than any sales personnel. The pricing determined by pricing algorithms would be better-supported by data, and therefore better able to maximise the profit of the undertaking.
3. The potential antitrust concern of pricing algorithms:
Pricing algorithms may facilitate price fixing among competitors by providing an aligned pricing range or fixed price, which may violate the AML.
Jack Ma, founder of Alibaba Group, stated in 2016: "over the past 100 years, we have come to believe that the market economy is the best system, but in my opinion, there will be a significant change in the next three decades, and the planned economy will become increasingly big. Why? Because with access to all kinds of data, we may be able to find the invisible hand of the market.
The planned economy I am talking about is not the same as the one used by the Soviet Union or at the beginning of the founding of the People's Republic of China. The biggest difference between the market economy and planned economy is that the former has the invisible hand of market forces. In the era of big data, the abilities of human beings in obtaining and processing data are greater than you can imagine.
With the help of artificial intelligence or multiple intelligence, our perception of the world will be elevated to a new level. As such, big data will make the market smarter and make it possible to plan and predict market forces so as to allow us to finally achieve a planned economy."
Algorithmic collusion is an emerging concept in China, and its technical and economic nature should be explored through real cases. In the internet era, it is likely that the Chinese government could be more cautious in regulating emerging industries and not curbing innovation. In the future, we will observe the development of big data and AI in China and whether algorithmic collusion could be an antitrust issue in China.
LAW FIRM & AUTHOR DETAILS
Please provide the following additional details:
DeHeng Law Offices is one of the leading law firms providing comprehensive legal services. It was founded in 1993 as China Law Office and was renamed in 1995 as DeHeng Law Offices, reflecting the firm's evolution from an institution of the Ministry of Justice to its rapid emergence as an independent, private law firm with 43 domestic and foreign branches and over 2,500 legal service professionals.
DeHeng is one of the few law firms in China to have an integrated antitrust/competition team consisting of experienced Chinese and Western practitioners, coordinating between the firm's Beijing and Brussels offices. The DeHeng antitrust team has been involved in some of the highest profile antitrust litigation, to date, in China. The team has wide cross-sectoral expertise, including chemicals, pharmaceuticals, telecommunications, retail, shipping, internet and automotive. Since the Antitrust Law entered into force in 2008, DeHeng has represented Chinese and foreign clients with regard to antitrust litigation, merger control filings, investigations and antitrust compliance programmes.
The firm's antitrust/competition accomplishments have been recognised by Chambers & Partners, Asian Legal Business, The Legal 500 and other legal media outlets.
