Jurisdiction - China
Reports and Analysis
China – Taking On Global Cartels: NDRC Imposes Sanctions On Members Of International LCD Panel Cartel.

16 January, 2012

 

On 4 January 2013, China’s National Development and Reform Commission (“NDRC“) announced that it had imposed fines and penalties totaling RMB 353 million (~USD 56 million) on six liquid crystal display (“LCD“) panel manufacturers for colluding to manipulate the price of LCD panels in China between 2001 and 2006.  The NDRC’s decision and Q&A have now been released on its website.  This is the first time NDRC has investigated an international cartel (where the behaviour involved took place primarily outside China) following investigations in the United States and Europe.  Although the financial sanctions imposed by NDRC are significantly lower than those imposed by the competition authorities in other jurisdictions, the case has set a record for antitrust penalties in China.  It is also notable that although Samsung received full immunity from fines in the EU under its leniency programme, this does not appear to be the case in China, as it received the second highest fine imposed.  This decision sends a strong signal that NDRC has joined the global effort to prosecute large international cartels.  Both domestic and multinational companies doing business in China need to ensure they have competition law compliance programmes in place, and will need to have a joined-up approach to leniency applications, since immunity in one jurisdiction does not guarantee protection in others, and include China as a “must consider” jurisdiction in any checklist of leniency regimes.

 

1. The Decision

 

NDRC’s official statements suggest its investigation was initiated after multiple complaints about collusion in the LCD panel industry in 2006.  According to NDRC’s press release, six LCD manufacturers, including Korean companies Samsung and LG, and Taiwanese companies AU Optronics, Chunghwa Picture Tubes, Chimei InnoLux and HannStar, met regularly in Taiwan and South Korea between 2001 and 2006 to exchange market information and fix prices for LCD panels.  NDRC states that the companies sold more than 5 million LCD panels in China during this period, making illegal gains of RMB 208 million (~USD 33 million) through overcharging buyers of LCD panels.

 

NDRC ordered the six companies to pay a total fine of RMB 144 million(~USD 23 million).  In addition, it confiscated RMB 37 million (~USD 6 million) of the illegal gains and ordered the companies to pay back RMB 172 million (~USD 28 million) to Chinese television makers for past overcharges.  The two Korean companies involved, LG and Samsung, received the highest fines of RMB 118 million (~USD 19 million) and RMB 101 million (~USD 16 million) respectively.  The LCD manufacturers have also offered a set of commitments, including to strictly comply with Chinese laws going forward, to use best efforts to supply Chinese TV manufacturers with new technologies in a non-discriminatory manner, and to extend the warranties for LCD panels sold in China from 18 to 36 months

 

2. The Price Law

 

Because the cartel infringements took place during the 2001-2006 period, the cartel was investigated and the penalties were imposed under the Price Law rather than the Anti-Monopoly Law (the “AML”), as the AML did not come into force until 2008.  Under the Price Law, NDRC has the discretion to impose fines up to five times the amount of illegal gains.  In the Q&A issued by NDRC it indicates that if the fines had been imposed under the AML the fines would have been significantly higher, as the cap for antitrust fines under the AML is 10% of the turnover of the infringing company in the previous fiscal year, similar to other antitrust regimes including the EU.

 

3. Leniency

 

Unlike the AML, the Price Law does not contain any provision for, or guidance on, leniency.  However, NDRC’s official statements indicate that all six LCD panel manufacturers had volunteered to cooperate with its investigation and that as a result it had granted lenient treatment  to each of them (in the form of reductions in fines) according to their degree of cooperation.  While some earlier reports in the Chinese media suggested that one of the companies involved received full immunity from fines, as it was the first to voluntarily disclose the existence of the cartel to NDRC, the final decision issued by NDRC suggests that this rumor may have been false, as NDRC imposed fines on all six companies cited in the decision.  Notably, although Samsung received full immunity from fines in the EU, as it was the first company to make a leniency application to the European Commission, this was not the case in China where it received the second highest fine imposed.  

 

4. Extraterritoriality

 

One particularly noteworthy aspect of this case is that this is the first time NDRC has applied competition law to behaviour which took place primarily outside of China.  Although the Price Law did not explicitly provide for extraterritorial application, the AML makes clear that the law applies to monopolistic conduct outside China that “eliminates or has a restrictive effect” on competition in the Chinese market.

 

5. Implications

 

The NDRC’s decision is a significant milestone in China’s antitrust enforcement against global cartels.  Given the recent cooperation arrangements entered into between the Chinese competition authorities and those in the US and the EU, it is likely that further investigations will follow.  It is particularly significant that NDRC had no qualms in imposing fines on Samsung in this case, despite Samsung receiving full immunity for disclosing the cartel to the European Commission.  The case acts as a timely reminder of the need for a global and fully joined up approach to leniency applications, since immunity in one jurisdiction does not guarantee such protection in other jurisdictions.  To the extent that it was not already the case, China must rank at or near the top of any “must consider” checklist of leniency regimes.

 

 

For further information, please contact:
 
Gareth Thomas, Partner, Herbert Smith Freehills
 
Karen Ip, Partner, Herbert Smith Freehills
 
James Quinney, Partner, Herbert Smith Freehills
 
 

 

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