Jurisdiction - China
Reports and Analysis
China – Mercedes-Benz’s Price Monopoly Case.

22 May, 2015

 

Findings And Penalty Decision

 

On April 23, 2015, the Jiangsu Price Bureau (“JPB”) issued the penalty decision on the Mercedes-Benz’s monopolistic conducts.

 

Findings

 

  • It has been found that Mercedes-Benz restricted the minimum resale prices of the E Class and S Class sedans in different regions of Jiangsu by telephone, oral notices and convening dealers’ meetings from January 2013 to July 2014. In order to implement the monopoly agreement successfully, Mercedes-Benz strengthened the evaluation of its dealers, gave the dealers warnings or provided less policy support. JPB held that the monopoly agreement reached by Mercedes-Benz with its dealers in Jiangsu concerning the restriction on the resale price of the company’s E Class and S Class sedans as well as some auto spare parts had infringed Article 14 of the Anti-monopoly Law (“AML”), eliminated and restricted the competition in the relevant market, and harmed the interests of the consumers.

 

  • The dealers in Suzhou (as from November 2010), the dealers in Nanjing and WuXi (as from February 2014) reached and implemented the monopoly agreements on fixing prices of spare parts in the regional meetings organized by Mercedes-Benz many times, which infringed Article 13 of AML.

 

Penalties

 

Based upon the findings above, Mercedes-Benz was imposed a fine of RMB 350m, amounting to 7% of the company’s turnover of the previous financial year in the relevant market. Some dealers in the cities of Nanjing, Wuxi and Suzhou were imposed fines of RMB 7.87m in aggregate, amounting to 1% of the turnover of the previous financial year in the relevant market. However, no or less fines were imposed on some of the dealers, who have actively reported the facts about the monopoly agreement to the anti-monopoly enforcement authority and presented the important evidences.

 

Overview Of Investigation

 

Case Clue

 

At the beginning of June 2014, in the course of a regular investigation for transparent pricing, JPB found the price control exercisedby Mercedes-Benz through calls or other oral forms. JPB then initiated the anti-monopoly investigation after being approved in accordance with the internal administrative procedures.

 

Dawn Raid

 

At the beginning of August 2014, JPB launched an anti-monopoly investigation into the Mercedes-Benz’s dealers in 5 cities, including Suzhou and Wuxi. On August 4, 2014, the Shanghai Development and Reform Commission and JPB raided the Mercedes-Benz’s Shanghai office without prior notice.

 

Mercedes-Benz’s Cooperation

 

The Mercedes-Benz in Beijing announced that it would adjust the prices for some of the spare parts from September 1, 2014.

 

Preliminary Allegation

 

On August 18, 2014, JPB stated that it had secured some related evidences preliminarily proving the price monopoly conducts of Mercedes-Benz.

 

Final Fines

 

On April 23, 2015, JPB published the penalty decision upon Mercedes-Benz.

 

Brief Comments

 

In this case, which is a typical anti-monopoly enforcement by the Chinese government in the automotive industry, Mercedes-Benz and its dealers reached and implemented the price monopoly agreement and therefore have been punished. We notice from this case that:

 

Price Monopoly Agreements In The Automotive Industry – Hard-Hits In Recent Chinese Antimonopoly Enforcement

 

The anti-monopoly investigations in the auto industry increase dramatically since 2012. Only in 2014, there were several other investigations and penalties for the price monopoly in the auto industry. Especially from the end of August to the beginning of September 2014, Chrysler and its dealers in Shanghai were investigated and fined for their price monopoly; FAW VW-Audi and its dealers in Hubei were investigated and fined for the same reason; the National Development and Reform Commission (“NDRC”) imposed the fines of 1,235 million on 12 Japanese companies for fixing the prices of the auto spare parts and the bearings.

 

The price monopoly is easy to be reported and can also be investigated as a result of whistle-blowing. Furthermore, given the limited enforcement resources, the anti-monopoly enforcement tends to focus on the key industries and sectors. Since China is a large market for automobiles, similar to that of housing, the prices of the autos and their spare parts have been a focus of the anti-monopoly enforcement authority, to which all companies in the auto industry should pay high attentions and make great efforts in establishing or improving their internal anti-monopoly compliance policies.

 

Downstream Dealers In A Mainly Vertical Type Of Monopoly Agreement An Fixing Resale Prices Also Be Fined

 

In this case, Mercedes-Benz was fined as a result of breaching Article 14 of AML on vertical monopoly agreements. The dealers were also fined as they infringed Article 13 of AML on horizontal monopoly agreements. Forvertical monopoly agreements, the upstream companies (mainly the producers) would normally be punished, like in the vertical monopoly cases of Baby Formula, Eye Glasses, and Maotai/Wuliangye Liquor case. However, in the similar vertical monopoly cases in the auto industry, not only were the car manufacturers (e.g. Mercedes-Benz) punished by the anti-monopoly enforcement authorities for fixing resale prices of the autos and the spare parts, but also the dealers for their alleged price-fixing cartel (organized by the car manufacturers though) on the spare parts.

 

Calculation Basis For Fines: Company’s Turnover vs. Turnover In The Relevant Market

 

Under Article 46 of AML, the fines for violation concerning monopoly agreements shall be ranged from 1% to 10% of the company’s turnover of the previous financial year. As opposed to the Qualcomm case, in which the fines were based on the turnover of Qualcomm in China, the fines here imposed on Mercedes-Benz referred to 7% of its turnover of the previous financial year in the relevant market. As of today, there are no consistent interpretations in the government penalty decisions on whether the fines shall be based upon the company’s total turnover (worldwide or in China) or the turnover only in the relevant market. We understand this issue will still be at great discretions of the anti-monopoly enforcement authorities in their future practice.

 

Leniency Program

 

In this case, JPB exempted the dealers, which have actively reported the facts about the monopoly agreement and provided the important evidence, from the punishment, or mitigated the punishment. Pursuant to Article 14 of the Regulation on Procedures for Administrative Enforcement of Anti-Price Monopoly set forth by NDRC, the first company to report the illegal cartel to the enforcement authority could be exempted from the punishment; the fine to be imposed on the second could be reduced by 50% or more, the fine to be imposed on others to report the illegal cartel could be reduced by no more than 50%, provided, however, that the evidences presented to the price authorities must be the key evidences in determining the price monopoly agreement in their investigation, including without limitation (based on our understanding) the original copies of monopoly agreement documents, the original copies of meeting documents, the meeting minutes or telephone conversation records, the letters and the emails, etc.

Jun He 4

 

For further information, please contact:
 
Xiaohua Chen, Jun He
chenxh@junhe.com
 
Wanli Zhou, Jun He
zhouwanli@junhe.com 

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