A Digest of National Development and Reform Commission Antitrust Cases To Date

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This article provides a useful digest of many of the NDRC antitrust cases announced/decided to 14 August 2014.

National Development and Reform Commission (“NDRC”), regard as one of the three agencies to enforce Anti-monopoly Law (“AML”), unlike the Ministry of Commerce (“MOFCOM”), which is in charge of the merger control; and the State Administration for Industry and Commerce (“SAIC”), which is in charge of non-price-related anti-competitive practices, NDRC is responsible for regulating price-related
anti-competitive practices. AML has took effect in 1 August 2008, However, until 2010 NDRC published some decisions for their investigations in succession.

The following is the summary of anti-trust cases announced by NDRC from 2010 to 2014.

The Anti-Monopoly Investigation to Milk Powder Companies by NDRC

NDRC announced the punishments for six milk powder manufacturing companies that were charged with price monopoly practices on 6 August 2014, after only five months of investigation. The six companies are: France based company - Biostime International Holdings Ltd. (“Biostime”), US based company - Mead Johnson & Company (“Mead Johnson”), Malaysia based company - Malaysia Danone Dumex (Malaysia) Sdn Bhd (“Dumex”), US based company - Abbott Laboratories (“Abbott”), the Dutch company - Royal FrieslandCampina N.V. (“FrieslandCampina”) and the New Zealand company - Fonterra Co-operative Group Ltd. (“Fonterra”). Other three companies - Wyeth L.L.C (“Wyeth”), Beingmate Baby & Child Food Co., Ltd. (“Beingmate”), and Meiji Seika Kaisha, Ltd. (“Meiji”) were exempted from punishment because they cooperated with the investigation authorities and actively rectified the issues once they came to light.

On March 2013, NDRC began a price monopoly investigation on these companies. Through the investigation, these companies were proven to have conducted resale price maintenance actions against retailers in various forms, including fixing resale prices and prescribing minimum product resale prices. If the retailers did not resell these companies’ products in accordance with the prices they listed, then the companies would punish them through methods such as levying fines, decreasing profit allocation, or limiting the supply of milk powder products. NDRC further confirmed that these companies were found guilty of creating a price monopoly on milk powder products throughout China, which is a breach of Article 14 of China’s Anti-Trust Law (“ATL”) and also unfairly maintains high milk powder prices throughout the country. Each one of the accused companies has admitted that their conduct did violate Chinese law and that they do not qualify for the exemption conditions as prescribed in Article 15 of the ATL.

The NDRC’s punishments came in the form of fines, with BIOSTIME being fined RMB163 million (good for 6 percent of its 2012 sales), Mead Johnson being fined RMB204 million (good for 4 percent of its 2012 sales) and Dumex, Abbott, FrieslandCampina and Fonterra each being fined RMB172 million, RMB77 million, RMB48 million and RMB4.5 million, respectively.

Besides, involved six companies were also required to modify their sales agreements and relevant policies, and also take active measures to fix whatever damages their actions have created. For example, Meiji has pledged to supply the Chinese market with milk powder products at a preferential price over the next two years, while Wyeth has marked down the prices of its major products by an average of 11 percent starting July 2013.

The Anti-Monopoly Investigation to Audi AG (“Audi”) and Chrysler Group L.L.C (“Chrysler”) by NDRC

National Development and Reform Commission (“NDRC”) confirmed on 6 August 2014 that an ongoing investigation into the two companies - Audi AG (“Audi”), a Germany automaker and the a US based company, Chrysler Group L.L.C (“Chrysler”) showed they had conducted anti-competitive behaviors, both of them will be punished for monopoly practices, potentially paving the way for the automakers to be fined up to 10 percent of their domestic annual sales revenue in China. NDRC would normally set a percentage of annual sales in relevant markets as fines based on how cooperative the companies are.

Besides, NDRC also launched a probe into Mercedes-Benz which owned by Daimler AG, also a Germany company. Nine officials visited the Mercedes-Benz office in Shanghai on 4 August 2014. Currently, the investigation is being processed, Mercedes-Benz was cooperating with NDRC over an investigation into unspecified matters

Moreover, NDRC had finished investigating a dozen Japanese spare-part manufacturers on similar anti-trust charges, and will mete out punishment to those found to be breaking the anti-monopoly law. The regulator did not publish the name of these Japanese companies for the moment.

The Anti-Monopoly Investigation to Qualcomm Inc. (“Qualcomm”) by NDRC

On 23 July 2014, NDRC confirmed that Qualcomm Inc. (“Qualcomm”), one of the world’s largest mobile US based chipmakers has a monopoly.

NDRC launched an anti-monopoly investigation against Qualcommon November 2013 at the company’s Beijing and Shanghai offices. Qualcomm was allegedly found to charge excessive license fees even though its share of royalties had declined and abusing its market position in wireless communication standards. Currently, the investigation is still being processed, Qualcomm said it is cooperating with the investigation.

NDRC was probing Qualcomm’s local sales data. Generally, the process of confirming sales data is common in the late stage of an anti-trust investigation, and that the NDRC is likely calculating the extent of fines. Under Anti-monopoly Law, the NDRC can impose fines of between 1 and 10 percent of a company’s revenues for the previous year. Qualcomm earned US$12.3 billion in China for its fiscal year ended 29 September 2013. So finally, Qualcomm may be imposed at least US$ 12.3 million.

The Anti-Monopoly Investigation to InterDigital Inc. (“IDC”) by NDRC

NDRC opened an investigation against InterDigital Inc. (“IDC”) in May 2013 based on the complaint made by a Chinese company.

IDC is an American company holding numerous essential standard patents in wireless telecommunication sector, and most telecom device manufacturers should seek IDC’s license before production or sales. In China, IDC was complained for and suspected of alleged abuse of market dominant position through the work of its patents pertaining to wireless telecommunication standards, specifically:

● charging unfairly high prices to Chinese telecommunication producers, such as Huawei Technologies Co. Ltd. (“Huawei”) and ZTC Communications L.L.C (“ZTC”) and so on (the “Chinese Licensees”);
● requiring the Chinese Licensees to grant-back their patents freely; and
● forcing the Chinese Licensees to take essential standard patent technology plus non-essential standard patent technology.

On 3 March 2014, IDC submitted to NDRC, pursuant to a procedure set out in China’s Anti-Monopoly Law (“AML”), a formal application for suspension of the investigation that included proposed commitments by the Company, specifically:

● to terminate all discriminative treatment towards telecommunication terminals manufacturers in China and not to collect the royalty charged to Chinese manufacturers that is tens of times higher than those applicable to handset producers such as Apple, Samsung and Nokia and so on;
● not to commit a bundled license of essential standard patent technology and non-essential standard patent technology;
● not to require Chinese companies to grant back their patents freely; and
● not force Chinese companies to accept unreasonable licensing conditions by way of litigation.

On 22 May 2014, considering the commitments made by IDC would lead to an effect to eliminate the anti-competitive effects of IDC’s monopolistic practice and restore the market competition order, NDRC made an announcement that it has decided to suspend the current price-related antitrust investigation against IDC and an on-going oversight on the performance of commitments by IDC will be conducted. Where IDC cannot fully honor these commitments or in case of the existence of any circumstances as prescribed by the PRC law, the anti-trust investigation will be assumed.

The Anti-Monopoly Investigation to Chinese Commercial Banks by NDRC

The NDRC organized a team of nearly 1,000 staff to inspect banks, including China’s “Big Five” state-owned banks, other commercial banks and urban/rural credit cooperatives, since September 2013. NDRC has ordered 64 branches of different banks to return arbitrary charges they had imposed in the amount of RMB 409 million, and imposed fines of RMB 416 million on those banks on 19 February 2014. The investigation on 150 bank branches is still ongoing, and NDRC will formulate measures to regulate bank charges in the future.

The Anti-Monopoly Investigation to five Shanghai-based gold retailers and the Shanghai Gold & Jewelry Trade Association (“SGJTA”) by NDRC

NDRC announced on 13 August 2013 that five Shanghai-based retailers, including but not limited to Shanghai Lao Feng Xiang, Yuyuan Tourist Mart Company and the Shanghai Gold & Jewelry Trade Association (“SGJTA”) have been fined a total of RMB10.59 million for fixing the price of gold and platinum products in breach of Articles 13 and 16 of the AML respectively. NDRC imposed 1 percent of the retailers’ 2012 revenues as the fine, while the association received the highest possible fine for a trade association (RMB 500,000). Members of the trade association, including those fined by the regulator had implemented a pricing guideline which agreed on the calculation method, formulas and permitted variations in the pricing of gold and platinum jewelry.

Besides, the fined entities have agreed to a number of corrective measures, including abolishing the pricing guidelines and promising not to facilitate or participate in any further pricing-related discussions with each other.

The Anti-Monopoly Investigation to Microsoft Corp. (“Microsoft”) by NDRC

On 31 July 2013, Lawyer Dong Zhengwei issued a number of formal “request to protect civil rights and property advice application” to NDRC carry out the recommendations of the Microsoft antitrust investigation of the application. On 13 August 2013, NDRC formally accept the application to apply antitrust investigation against Microsoft Corp. (“Microsoft”) proposed by Dong Zhengwei. It means that antitrust investigation against Microsoft has entered into the normal administrative enforcement proceedings. Currently, there is no further news for the investigation.

China’s State Administration for Industry and Commerce (“SAIC”) raided Microsoft offices in Beijing, Liaoning, Hubei, and Fujian, the organization confirmed on 6 August 2014. As part of the antitrust investigation, SAIC raided Microsoft offices in China on July. The SAIC claims Microsoft may be violating China’s antitrust laws with its Windows and Office software. The antitrust regulator is concerned that Microsoft’s products fail to fall in line with the country’s rules on compatibility and document authentication, effectively forcing Chinese consumers to use more Microsoft products than they might otherwise.

Currently, SAIC haven’t disclose when will deliver a final evaluation of Microsoft’s practices or if more raids are coming.

The Anti-Monopoly Investigation to Kweichow Maotai Co. Ltd. (“Moutai”) and Wuliangye Yibin Group Co., Ltd. (“Wuliangye”) by NDRC

On 22 February 2013, NDRC released the decision to impose penalties on Kweichow Maotai Co. Ltd. (“Moutai”) and Wuliangye Yibin Group Co., Ltd. (“Wuliangye”), for administering resale price maintenance (“RPM”) of RMB 247 million and RMB 202 million respectively.

Maotai and Wuliangye are both famous Chinese premium liquor brands and the price of their products is relatively high in tradition. In January 2013, the companies issued notices respectively announcing punishments on the distributors who sold their products at a price below the lowest resale price set by the companies. Maotai also punished the distributors who made cross-regional sales. The chairman of Maotai even stated in a distributor meeting that the retail price of Feitian Maotai cannot be less than RMB 1,519 and the price of group-purchase cannot be less than RMB 1,400, and that Moutai would sternly punish those who breach the price “fortress”.

NDRC pointed out that the two companies fixed the minimum resale price to third-party distributors and punished those selling the products at a lower price. The conduct constituted a vertical monopoly agreement in violation of Article 14 of the AML, eliminated and restricted competition in the market and harmed consumer interests. Both Maotai and Wuliangye made corrections on their behaviors suspicious of AML violation after being inspected by the NDRC.

The Anti-Monopoly Investigation to six liquid crystal display (“LCD”) panel producers by NDRC

On 4 January 2013, NDRC imposed a heavy penalty of total RMB 353 million against six companies for the monopolistic behavior of price-fixing on liquid crystal display (“LCD”) panel in China. The six companies include two Korean companies - Samsung Electronics Co., Ltd. (“Samsung”) and LG Corp. (“LG”), as well as four firms from Taiwa - Chi Mei Optoelectronics Corp. (“CMO”), AU Optronics Corp. (“AUO”), Chunghwa Picture Tubes Co., Ltd. (“Chunghwa”) and HannStar Display Corp. (“HannStar”).

NDRC has received multiple complains on the price-related monopolistic behavior of above companies from domestic enterprises since December 2006. As found by NDRC through the investigation, Samsung, LG and other four Taiwanese companies had manipulated prices for LCD panels from 2001 to 2006, to the detriment of TV makers and end consumers.

NDRC imposed heavy sanctions on each of the six participants in the cartel, Samsung paid RMB 101 million, LG paid RMB 118 million, CMO paid RMB 94,410,000, AUO paid RMB 21,890,000, Chunghwa paid RMB 16,200,000 and HannStar paid RMB 240,000. Besides the penalty, the six involved companies also made three commitments to NDRC as follows:
● Commit to abide by the law of China strictly, maintain the competing orderliness of market consciously and protect the lawful rights and interests of other undertakings and customers;
● Commit to supply the products to domestic television manufacturers fairly, to provide the same opportunity of purchasing high-end and new technologies products to all customers;
● Commit to extend the free warranty period of their LCD panels for television manufacturers in Chinese mainland from 18 months to 36 months.

The Anti-Monopoly Investigation to China Telecom and China Unicom by NDRC

NDRC commenced investigations into telecom giants China Telecom and China Unicom in 2011 for abuse of dominant market position. The investigations focused on two issues - refusal to deal and price discrimination.

On 2 December 2011, the two companies submitted applications for suspension of investigation and undertook rectifications, including increasing internet speeds and decreasing internet fees. Besides, the two companies each submitted an update of their rectification efforts to the NDRC on February 2012. China Unicom also further clarified its commitment as popularizing the 4 MB and above rate bandwidth for at least 50% public users by the end of 2012. Based on the latest rectifying reports submitted by the two telecom giants, NDRC indicated two companies have so far completed a 100G bandwidth expansion and committed to further reduce the internet access service charges. NDRC will conduct further studies and evaluations to decide if the two companies have fully delivered on their commitments and make a final decision.

The Anti-Monopoly Investigation to Shandong Weifang Shuntong Pharmaceutical Co. Ltd. (“Shuntong”) and Weifang Huaxin Medicine Trading Co. Ltd. (“Huaxin”). by NDRC

On 14 November 2011, NDRC announced its decision to sanction the anti-competitive conduct of Shandong Weifang Shuntong Pharmaceutical Co. Ltd. (“Shuntong”) and Weifang Huaxin Medicine Trading Co. Ltd. (“Huaxin”). The fines imposed on the two companies are the highest for antitrust violations under the AML so far. This case is also NDRC’s first antitrust action in the pharmaceutical sector under the AML.

Shuntong and Huaxin were found to have unlawfully controlled the supply of promethazine hydrochloride, the raw material of the compound reserpine used for high blood pressure treatments, and to have driven up prices. Reserpine is used by more than 10 million patients throughout China, and is on China’s essential drug list. According to NDRC’s announcement, Shuntong and Huaxin gained control over the supply of promethazine.

NDRC ordered Shuntong and Huaxin to cease the illegal conduct and to terminate their exclusive distribution agreements with the producers. It also imposed fines of close to RMB 7 million (approximately US$ 1.1 million) on Shuntong and around RMB 150,000 (approximately US$ 24,000) on Huaxin.

The Anti-Monopoly Investigation to Zhejiang Fuyang Paper Making Industry Association (“the Association”) by NDRC

On 4 January 2011, NDRC fined the Zhejiang Fuyang Paper Making Industry Association (“the Association”) for facilitating its members in relation to engaging in monopoly acts, in breach of both the Anti-Monopoly Law (AML) and the Price Law (PL). This is the first enforcement action (in respect of price-related breaches of the Anti-Monopoly Law) by the NDRC in 2011.

According to the NDRC, at least 5 meetings were held between the Association’s members (facilitated by the Association) with the objective of coordinating prices in respect of a product called “Class A white paperboard”. Twenty directors from the Association’s member companies attended the meetings organized by the Association.

The AML prohibits industry associations from facilitating monopoly acts conducted by business operators. The PL prohibits industry associations from breaching other price laws and regulations; and regulations accompanying the PL prohibits industry associations from facilitating business operators from “coordinating and manipulating market prices”.

The NDRC found that the Association was in breach of both the AML as well as the PL; and fined the Association a total of RMB 500,000. This is the maximum fine for industry associations pursuant to both the AML as well as the PL.

The Anti-Monopoly Investigation to Xianyige Food Company (“Xianyige”) and other relevant enterprises by NDRC

On January 2010, NDRC held that Xianyige Food Company and other relevant enterprises had breached the Price Law and the AML and made the decisions as follows:
● each of the three organizers, including Xianyige Food Company, Xiongdi Company and Yongcai Company, was fined RMB100,000;
● 18 participants were fined from RMB30,000 to RMB80,000 according to their specific illegal activity;
● 12 whistleblowers were granted immunity from fines with only “warning orders” because they had “cooperated with the investigation, provided important evidence and taken corrective measures on their own initiatives”; and
● several rice noodle manufacturers and sellers who were “followers” to the price increase but were not the participants, received caution letters requiring them to “enhance self-discipline” on pricing.

At the beginning of 2010, Xianyige organized a number of rice noodle manufacturers in Nanning and Liuzhou to meet and agreed to raise the selling prices of rice noodles. 33 manufacturers participated in the meetings and price-raising. Some other rice noodle manufacturers followed suit. The selling prices of rice noodles were raised by RMB 0.2 per 500g afterwards. The price increase resulted in the increase of the retail price of rice noodles ( RMB 0.5 per bowl) in Nanning and Liuzhou.

Sarah Xuan 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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