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Hong Kong Competition Exchange 2018 - Summary of Discussions

Panel 5: China's Anti-Monopoly Law at Ten

Moderator:

Prof LIN Ping, Director of Centre for Competition Policy and Regulation, Lingnan University

Panellists:

Mr ZHANG Guangyuan, Inspector of Anti-Monopoly Bureau, State Administration for Market Regulation, People’s Republic of China
Judge ZHU Li, Senior Judge, IP Division of Supreme People’s Court, People’s Republic of China
Prof HUANG Yong, Member of the Expert Advisory Committee of Anti-Monopoly Commission of the State Council, People's Republic of China
Prof William E. KOVACIC, Global Competition Professor of Law and Policy, George Washington University

Summary of discussions:

The panel discussed the development of antitrust framework in China, as 2018 marked the 10th anniversary of the implementation of the AntiMonopoly Law (“AML”). The moderator began by inviting representatives of the Mainland China’s competition agency, judiciary and academia to share their reflections on the role of competition policy, enforcement actions, civil anti-monopoly litigations as well as the challenges ahead. Panelists then exchanged opinions on the application of the key provisions of AML.

China’s anti-monopoly enforcement in the past decade and future priorities

Mr Zhang Guangyuan said that the role of competition policy had been promoted by robust antimonopoly enforcement and implementation of the Fair Competition Review System (FCRS). In a decade, China had established a rather complete competition law framework including AML, one administrative rule, 12 departmental regulations, 3 legal binding documents and 10 guiding 2 papers, which provided a solid basis for enforcement. The agency had concluded 163 cases on anti-competitive agreements, 54 cases on abuse of market dominance, over 2,400 merger review cases and 183 cases on abuse of administrative power to eliminate or restrict competition. They hosted numerous training programmes for government departments, trade associations and businesses, and organized 7 international conferences on competition topics. Moreover, to promote convergence of competition rules worldwide and to create a business-friendly global market, China had entered into 55 enforcement cooperation agreements with 28 countries and regions, communicated and worked with other agencies on dozens of cases and drafted dedicated chapters on competition policy and enforcement in 8 free trade agreements.

Going forward, the newly consolidated agency would focus its resources on the following areas. Firstly, SAMR would continue its efforts to build a unified, authoritative and efficient enforcement regime by enhancing local enforcement forces and reinforcing the function of the Anti-Monopoly Commission. Secondly, with respect to the review of AML and other regulation rules, SAMR would work diligently to form its opinions based on past experiences. Thirdly, enforcement action was expected to be more vigorous and effective to protect consumer interests as well as to provide a level playing field for market players. The implementation of FCRS would be a key area to realize the object of fair competition. Fourthly, communication and cooperation with overseas counterparts, particularly those in developing economies, would be stepped up to improve the effectiveness of the international competition regime. Lastly, China would endeavor to further enhance public awareness of fair competition and the level of compliance with anti-monopoly law, and the expert advisory mechanism and various think tanks would be encouraged to assume a greater role.

Retrospect and prospect of civil anti-monopoly litigations in China

Judge Zhu Li shared his views on the civil anti-monopoly litigations in China. China had a unique civil anti-monopoly litigation system with at least three features: firstly, plaintiffs were able to file a stand-alone litigation or bring follow-on litigation after the administrative agencies issued investigation decisions on illegal monopolistic conducts; secondly, differed from the United States and some other jurisdictions, both direct purchaser and indirect purchaser were eligible as a plaintiff; thirdly, the plaintiffs were entitled to a wide range of remedies, such as compensation for damages, injunctive relief and declaration of the invalidity of misconducts.

Judge Zhu said courts in China gained rich experiences by adjudicating a large number of antimonopoly cases - over 700 at first instance and 630 of them have been concluded, some of them were of great social impact such as the Johnson & Johnson case, Qihoo v. Tencent and Huawei v. IDC, etc. Reviewing past cases, Judge Zhu noted several problems that need to be resolved. Firstly, given the fact that the winning rate for plaintiffs was relatively low, largely due to the burden of proof, the judiciary would need to improve evidentiary rules and properly alleviate plaintiffs’ difficulty in proving their claims. Secondly, to tackle complicated competition issues brought by the rapid development of new economy and fast-changing innovation, the courts should put more emphasis on economic analysis and encourage parties to hire economic experts to deal with complex economic issues. Thirdly, research on the key provisions of AML should be advanced, such as the vertical anti-competitive agreements, the interaction between 3 competition and intellectual property rights (IPR) and the relationship between AML and AntiUnfair Competition Law.

Judge Zhu expressed his confidence in the future of China’s anti-monopoly civil litigations, in particular with the newly established IP court within the Supreme People’s Court which would be responsible for hearing appeals of anti-monopoly cases. This would be conducive to unifying judicial standards.

The role of competition policy and AML in China’s economy

Prof Huang pointed out that apart from the eye-catching figures on enforcement actions, another aspect that should not be neglected was the concept of competition policy, a term mentioned in article 9 of AML, which had been incorporated into the national agenda in the past few years, leading to reformative changes at the very top level. The establishment of the FCRS was a good example. It was noteworthy that anti-monopoly enforcement had become the norm in China: all types of cases, i.e. anti-competitive agreements cases, abuse of dominant market power cases, merger review cases and abuse of administrative power cases, had been investigated by enforcement agencies. With respect to the nature of the undertakings involved, state-owned enterprises, as well as private and foreign enterprises had all been targeted. Given that China was still a transformational economic entity, AML’s prohibition on abuse of administrative power was of great significance in breaking down local protectionism and maintaining an integrated domestic market. Prof Huang noted that relevant cases kept growing recently. There were robust enforcement actions and several judicial cases where the government lost.

Considering the risk of economic downturn, external pressures and the urgent need to deepen the reform and opening-up, Prof Huang pointed out that the role of competition policy and AML should be enhanced. Most important of all, the concept of competition policy, anti-monopoly along with the FCRS should be included in the guiding statements of the nation’s top-level authorities to highlight the spirit of fair competition and to provide guidance to the whole society. The FCRS, currently existing as a non-binding government statement, was expected to be written into law, either by issuing a dedicated regulation or by amending the AML to incorporate the system. Furthermore, one important principle in a modern market economy and competition regime - competition neutrality should be followed by anti-monopoly enforcers, as a response to the State Council’s Plan for Market Regulation in the 13^th Five-Year Plan.

Recent consolidation of China’s competition agencies and challenges ahead

Prof Kovacic, global competition professor of law and policy at George Washington University, agreed that China’s achievement on AML implementation in its first decade was remarkable with respect to enforcement, the establishment of the FCRS and the system of private rights of action. Notwithstanding, Prof Kovacic pointed out that the crucial task for China currently was to keep up its commitment on AML implementation despite the challenges ahead, particularly those associated with the reconstruction of enforcement agency.

Citing examples from Brazil, the Netherlands and the UK, Prof Kovacic said that the redesign and reorganization of an enforcement agency had never been an easy task. It took technics and 4 patience to have three separate organizations with separate views converged into one single dedicated institution. China needs to be aware of the mismatch between the expectation placed on administrative and judicial bodies and the limited resources allocated. There was a staggering difference between China and other jurisdictions on the number of case handlers on the Bayer/Monsanto deal and the Qualcomm case. In view of the emerging technical challenges and the new economy issues facing China’s enforcers and judges, Prof Kovacic emphasized the importance of continuous investment in personnel development in the enforcement agency and courts. It was also necessary to build and maintain a sustainable relationship with other stakeholders such as academics and international counterparts. For younger competition agencies, one of the illuminating lessons from China was to make use of international experiences to solve their own problems.

Divergence between enforcement agencies and judiciary bodies on approaches to Resale Price Maintenance

Different approaches to Resale Price Maintenance (RPM) by administrative and judicial bodies, with the former taking RPM as presumably illegal and the latter applying the effect analysis, had always been an issue of concern for business and practitioners. In response to that, Mr Zhang noted that the standard to apply should be whether the intent and purpose of the RPM restraint was to exclude or restrict competition, regardless of its anti-competitive effects, which was clearly stipulated in article 14 of AML. Such conducts would be permitted if the parties could demonstrate that they should be exempted according to article 15.

Judge Zhu responded that under the current legal framework, assessment of competitive effect was necessary to all kinds of anti-competitive agreements including RPM, and exemptions provided by article 15 could be applied to all of them when satisfied. Despite the two different approaches, Judge Zhu mentioned, enforcers and judges did not always come to different conclusions on the issue, given enforcers tended to target “big” companies, while market power was also an important consideration in evaluating the effect of RPM by courts.