Jurisdiction - China
China – A Busy Year For PRC Anti-Monopoly Law (AML) Antitrust Enforcement Agencies: A Round-Up Of 2013 PRC AML Antitrust Enforcement Activity.

16 January, 2014


Companies operating in the PRC have witnessed very active antitrust enforcement by the Anti-Monopoly Law (“AML”) enforcement agencies in 2013. Breaking away from the reputation of a merger-oriented competition regime, China is becoming increasingly active in antitrust investigations. Vertical arrangements such as resale price maintenance (“RPM”) have been in the spotlight but enforcement against cartels, especially those carried out through trade associations, and abuses of dominance are also becoming more common. This article summarises antitrust enforcement activities in the PRC in 2013 and draws out trends and guidance for businesses in China.

1. Vertical Arrangements


Anti-competitive vertical arrangements, especially RPM, were a key enforcement focus of the National Development and Reform Commission (“NDRC”) in 2013.


The year started off with the high profile investigation into the RPM policies of two well-known Chinese liquor producers, Maotai and Wuliangye. The total fine of RMB 449 million (approximately EUR 53m) imposed on the two producers is the first published penalty by the NDRC for RPM activities since the AML came into effect, and was the highest antitrust fine imposed by the NDRC at that time.


The fine imposed in the liquor case was quickly surpassed by the fine in another RPM case: six baby milk formula producers were fined RMB 668.73m (approximately EUR 81m) in August for RPM practices. The investigation encompassed not only Chinese and foreign formula producers such as Biostime, Mead Johnson, Wyeth, Abbott and Friso, but also upstream milk powder supplier Fonterra. The total fine imposed remains the highest fine imposed in a Chinese antitrust enforcement action so far.


Interestingly, many of the formula milk producers announced rectification measures during the course of the investigation, such as cutting prices in the Chinese market of up to 20%, or promises to review distribution agreements or not to raise prices next year in China. The NDRC said it had taken those measures into consideration when deciding on the penalties.


Apart from completed investigations, according to news reports, vertical arrangements are the subject of several on-going investigations, such as the investigation into exclusive distribution agreements by medical device manufacturers reported in November; alleged RPM and tie-in practices in the automobile industry; and vertical monopolistic behaviour by high-end eyeglass makers.


RPM was also the focus of the first successful private antitrust damages action involving vertical agreements in China, Rainbow v Johnson & Johnson.


2. Cartels And Abuse Of Dominance


The proliferation of antitrust enforcement in the PRC covers not only investigations into vertical agreements but all antitrust aspects of the AML.


Price-Related Cartels


Investigations this year against cartels represent an unprecedented reach of the NDRC. The NDRC’s first global cartel case imposed fines of RMB 353m (approximately EUR 42m) on six international liquid crystal display screen makers in January for price-fixing and illegal information exchange.


In August, price-fixing has also led to a fine of 1% of annual turnover of the cartel members in the gold retailer case involving the Shanghai Gold & Jewellery Trade Association that required Shanghai gold retailers to price their products within a narrow band.


In December, the Hunan Price Supervision and Anti-monopoly Bureau disclosed on 28 December 2013 that it had penalised insurers and an industry association in the city of Loudi for price-fixing.


Non-Price Related Cartels


Probing into activities of trade associations has proven fruitful also in non-price related enforcement. China’s State Administration for Industry & Commerce (“SAIC”) launched its antitrust case disclosure platform in July. It shows that 12 investigations that were completed from 2010 to 2013 and over half of them were attributed to collusion through industry associations. The industries investigated are diverse e.g. construction materials, construction engineering testing, used motor vehicle trading, insurance, liquefied petroleum gas supply, and tourism.


At the judicial level, seven employees in three electronic companies were imprisoned in September for bid-rigging and the three companies were fined.


Abuse Of Dominance


The authorities have also stepped up enforcement actions against abuse of dominance. The SAIC is reportedly building a case of abuse of dominance against a European Swiss food packaging manufacturer. State-owned telecoms companies China Telecom and China Unicom have been subject to scrutiny in this respect and have reportedly reduced charges and amended practices after an investigation by the NDRC. The NDRC has also opened an investigation against InterDigitial and its patent licensing practices, as part of a series of inquiries into allegedly anticompetitive business conduct though the scope and whether it is related to abuse is unclear.


3. Private Actions


2013 also saw several high profile cases of private antitrust damages claims. Parties to these actions include Microsoft, Johnson & Johnson and Baidu. Notably, an appeal in a case between two technology companies, Tencent and Qihoo, means that China’s highest court, the Supreme People’s Court, will hear an antitrust case for the first time. The recent Huawei v. InterDigital antitrust litigation is the first case to adopt the use of the fair, reasonable and non-discriminatory (FRAND) concept. As mentioned above, China heard its first antitrust action involving vertical agreements this year inRainbow v Johnson & Johnson.


Private actions are not limited to those between large companies – individuals are taking businesses to court for antitrust damages. The State Grid Shanxi Electric Power Company was taken to court by the local residents for abuse of dominance, while a seafood merchant has obtained judgment against the Beijing Seafood Wholesale Industry Association for scallop price-fixing provisions in the association’s membership handbook, with the court declaring the relevant provisions as void. The Seafood Case is the first time a Chinese court issued a ruling against an anti-competitive horizontal agreement under the AML, according to the Court’s statement. The lawsuit is also one of the first private litigations against an industry association on antitrust violations in China.


4. Trends And Guidance


2013 has been an active antitrust enforcement year for China. Indeed, there has probably been more antitrust enforcement by the Chinese authorities this year than in all of the previous years of the enforcement of the AML. A few trends distilled from these activities can be used as guidance for companies operating in China.


The NDRC and the SAIC are increasingly active and assertive in their enforcement of the AML’s non-merger provisions. This is seen not only in the trend of enforcements, but also in publications and announcements by the two agencies. For example, the NDRC has published detailed procedural provisions on administrative penalties for price-related violation of AML provisions, and the SAIC has released its own antitrust disclosure platform and is drafting industry-specific regulations for antitrust enforcement.


As enforcement has become more assertive, penalties have also become steeper: NDRC has been consecutively breaking its own record through three high profile cases (LCD, liquor and formula milk cases). Imprisonment has also been imposed for violations.


Enforcement has been carried out not only at national but also provincial levels. An example is the probe into the tourism industry, including shops, hotels and travel agencies, in several separate investigations by the NDRC and its provincial arms in Yunnan and Hainan.


The increasing willingness to act against international cartels and state-owned businesses shows that foreign and Chinese businesses, big and small, should all be familiar with the potential antitrust risks of their daily conduct of business.


herbert smith Freehills


For further information, please contact:


Mark Jephcott, Partner, Herbert Smith Freehills

[email protected]


Karen Ip, Partner, Herbert Smith Freehills

[email protected]


Peggy Leung, Partner, Herbert Smith Freehills

[email protected]

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