Antitrust Investigations in China

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A series of anti-trust investigations intensively initiated by the Price Supervision and Anti-Trust Bureau of National Development and Reform Commission (“NDRC Anti-Trust Bureau”) since last year, has brought a lot of attention to this Chinese anti-trust law enforcement authority. This article is aimed at introducing the NDRC Anti-Trust Bureau via a decided case.

Since there are several different government authorities at the state level having jurisdiction over anti-trust cases, it is necessary to first make a brief introduction on what those authorities are:

The Anti-Trust Commission

The Anti-Trust Law stipulates that the State Council shall establish the Anti-Trust Commission, which is in charge of organizing, coordinating, guiding
anti-trust works, performs responsibilities, such as studying and drafting related competition policies; enactment and issuance of anti-trust guidelines and coordinating antimonopoly execution works etc. However, the Anti-Trust Commission is not in charge of investigation specific anti-trust cases. Such investigations shall be undertaken by the Anti-Trust Law Enforcement Authorities which includes three government authorities and each one of them is in charge of different aspects of the anti-trust matters as follows:

 Price Supervision and Anti-Trust Bureau of National Development and Reform Commission

It is mainly in charge of price supervision, investigation and penalty of price-fixing in accordance with laws. Many high-profile anti-trust cases investigated in the past year, such as cases against enterprises involved in LCD screen production and sales, milk powder and Chinese spirits industries.

 Anti-Trust Bureau of Ministry of Commerce of the People’s Republic of China

The main responsibility thereof is to conduct anti-trust review of business operator concentrations in accordance with laws, and to guide Chinese enterprises to cope with overseas anti-trust lawsuits. Well-known cases handled by this Bureau include cases of Coca Cola & Huiyuan merger (2008), Google & Motorola merger (2011) and many others. In fact, by the end of 2013 this authority has reviewed and closed 740 cases since 2008.

 Anti-Trust and Anti-Unfair Competition Enforcement Bureau of State Administration of Industry and Commerce
It is responsible for anti-trust enforcement cases involving monopoly agreement (excluding price-fixing), abuse of dominant market position, and abuse of administrative power to eliminate or restrict competition. An example of one case that it has handled is that involving an oral monopoly agreement in the LPG industry in Jiangxi Province, between Tai He County Hua Wei LPG Storage and Distribution Station and other six operators.

Responsibilities of the NDRC Anti-Trust Bureau

Compared with other two anti-trust authorities, the NDRC Anti-Trust Bureau is mainly responsible for anti-trust cases involving price-fixing and other price matters. More specifically, it deals with:

 To undertake anti price-fixing enforcement, investigate, ascertain and deal with serious price-fixing conduct and cases;
 To organize supervision work on market prices, investigate, ascertain and deal with serious unfair price conduct and cases; to be responsible for supervising emergency abnormal fluctuations in market prices;
 To draft regulations and decrees on price supervision, define various price violations and price fixing conduct;
 To accept reconsideration and appeal cases made by price departments at provincial level.

Anti-Trust Investigation by the NDRC Anti-Trust Bureau

Taking the anti-trust investigation of the milk powder industry in 2013 as an example, an anti-trust investigation initiated by the NDRC Anti-Trust Bureau can be divided into following stages in accordance with relevant laws and regulations,:

• Case initiation

In March 2013, the NDRC Anti-Trust Bureau received a report clue claiming that milk powder enterprises, including eight WFOEs/JVs such as Mead Johnson, Dumex, Wyeth, Biostime, Abbott, Fonterra, Friso and Meiji, and one Chinese enterprise Beingmate, were suspected of restricting the lowest resale prices.

In accordance with Article 38 of the Anti-Trust Law, and Article 3 of the Provisions against Price Fixing, the NDRC Anti-Trust Bureau can initiate an investigation to any suspected monopolistic conduct in accordance with laws or due to a report made by any units or individuals on the condition that such case involves price-fixing, for instance, price-fixing agreement reached by business operators, or, using prices to eliminate or restrict competition by operator who take a dominant position in a market place. In practice, many investigations, including the one abovementioned as well as the latest Qualcomm investigation, were initiated due to reports to the NDRC Anti-Trust Bureau. In order to encourage reporting of price violations, the informant may get a reward as high as RMB 10,000 Yuan.

• Case investigation

Starting from May 2013, the NDRC Anti-Trust Bureau, upon preparation, dispatched 26 investigation teams with more than 300 staff members to the involved milk powder enterprises to conduct formal investigations. It is reported that, during the investigations, some of the investigated enterprises did not cooperate with and tried to hide information from the investigation teams. In order to continue the investigation, the investigation teams often had to verify useful information from distributors and supermarkets after reviewing thousands of contracts and documents. Some crucial evidence was even found and retrieved from deleted emails after seizing the enterprise’s computer in accordance with laws. In addition, the NDRC Anti-Trust Bureau also met with persons in charge of those enterprises respectively in Beijing at various times.

According to the information disclosed by media above, it can be inferred that, during this investigation, the NDRC Anti-Trust Bureau almost took all the measurements stipulated in accordance with Article 6 of the Provisions on the Administrative Procedures for Law Enforcement against Price Fixing as follows:

a) Entering the business location or other related locations of the investigated operator to conduct investigation;
b) Inquiring the investigated operator, the party concerned and other related work unit or individual and requiring them to state relevant situations;
c) Reviewing and copying relevant documentations and materials of the investigated party, such as documents, agreement, accounting books, business correspondences, electronic data etc.;
d) Sealing and seizing relevant evidence;
e) Checking bank account of the operator.

• Case examination & review

According to the NDRC Anti-Trust Bureau, the collected evidence proved that the involved enterprises all maintained resale prices to their downstream distributors in various forms.

After the closure of an investigation, the NDRC Anti-Trust Bureau examines the case and provides its processing opinions on the basis of the investigation report of the case. Such examination is focused on both factual and legal issues of the case, especially those are closely related to the decisive matters in accordance with Article 10 of the Provisions on the Administrative Procedures for Law Enforcement against Price Fixing, such as:

 Whether the basic information of the investigated party concerned is clear;
 Whether the fact of the case is clear and the evidence is sufficient;
 Whether the determination on the nature of the case is correct.

It needs to be pointed out that, in accordance with Article 29 – 37 of the Provisions on the Procedures for Price-related Administrative Penalties (2013 Amended), after examination of the case and prior to making any administrative penalty decision, the NDRC Anti-Trust Bureau shall notify the investigated party of proposed decision as well as the facts, reasons and basis of the said decision in a written form. Under such circumstance, the investigated party is entitled to the right to make a statement or defend himself. If it meets the requirements to hold a hearing, the investigated party is also entitled to require a hearing. Such right requirements shall be raised within three days after receipt of the said written notice, otherwise, it will be deemed as renounce such rights.

Based on the investigation as well as the statement or defense made by the investigated party, the NDRC Anti-Trust Bureau shall give its processing opinion on how to deal with the case. Then, the head of the Bureau shall review the relevant materials of the case, such as the investigation report, the said opinion etc., and make the decision of the case in accordance with Article 11, 13 – 15 of the Administrative Procedures for Law Enforcement against Price Fixing.

• Case decision

In August 2013, the NDRC Anti-Trust Bureau expressed that six out of nine enterprises were fined RMB 670 million Yuan in total which is the biggest anti-trust fine paid in history by far. Among those fined enterprises, Biotime was fined RMB 163 million Yuan amount to 6% of its sales in 2012 due to serious violation of the laws and failure to rectify forwardly; Mead Johnson was fined RMB 204 million Yuan amount to 4% of its sales in 2012 due to failure of cooperation with investigation but rectification forwardly. There were four other enterprises were fined 3% of the sales in 2012 respectively, varying from RMB 4 ~ 172 million Yuan due to cooperation with the investigation and rectification forwardly. As to the rest three investigated enterprises, Wyeth, Beingmate and Meiji, were exempted from fining due to cooperation with the investigation positively. The NDRC Anti-Trust Bureau also ordered each entity to take rectification measurements, such as ceasing its illegal price-fixing activities, taking actions to eliminate illegal consequences.

In case the NDRC Anti-Trust Bureau considers that there is a price-fixing violation upon investigation and verification, it shall have the discretion to impose a fine of not less than one percent but not more than 10 percent of its sales achieved in the previous year in accordance with Article 46 of the Anti-trust Law. Based on the differentiated punishment in this case, it is obvious that the degree of the punishment imposed by the NDRC Anti-Trust Bureau is mainly depending on how much damage caused to market competition by the monopoly of the enterprise combining with those enterprises’ attitude towards the investigation. Therefore, when being investigated in an anti-trust case like this, it would be wise to take certain measurements, such as cooperation with the investigation, commitment to rectification, to mitigate the damage for the purpose of a lenient punishment.

Remedy to the NDRC Anti-Trust Bureau’s Decision

On August 25, 2014, the NDRC Anti-Trust Bureau disclosed that the said six enterprises had all paid the fine amount to RMB 670 million Yuan to the bank account designated by the Ministry of Finance, and such fine would all be turned over to the state treasury. Furthermore, according to the NDRC Anti-Trust Bureau, all six involved enterprises express that they would not apply for administrative reconsideration or bring up administrative lawsuit. Thus, the milk powder price-fixing case involving the biggest fine paid in history was closed.

In the said case, all the investigated enterprises did not raise any opposition to the decision made by the NDRC Anti-Trust Bureau. However, under the current Chinese legal framework, there are remedies, either applying to the NDRC for administrative reconsideration, or bringing an administrative lawsuit to the people’s court, provided for those who dissatisfies with the NDRC Anti-Trust Bureau’s decision.

In accordance with Article 21 of the Provisions on the Administrative Procedures for Law Enforcement against Price Fixing, and Article 5, 6, 24, 27 of the Measures of the National Development and Reform Commission for the Implementation of Administrative Reconsideration System, if an investigated party decides to apply for reconsideration, it shall apply to the NDRC for within 60 days after receipt of the written decision of administrative penalty. The NDRC shall make the reconsideration decision within 60 days after acceptance of the application. An extension of no more than 30 days is allowed upon approval if the case is complicated. It needs to be pointed out that, during the process of the reconsideration, the execution of the decision made by the NDRC Anti-Trust Bureau will not be suspended unless it is considered necessary to be suspended or it is specified by laws otherwise. As to the administrative lawsuit, the investigated party shall file the lawsuit in accordance with the Administrative Procedure Law.

Fei Dang is an Associate in the MMLC Group.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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