asiapacificantitrustcompetitionguidebook.pdf

Asia Pacific Antitrust & Competition Law GUIDEBOOK 2015

2015 Baker & McKenzie (last update: January 2015).

Baker & McKenzie International is a Swiss Verein, with other member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a partner means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an office means an office of any such law firm.

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Table of Contents

Introduction.............................................................................................................................................. 1

Overview of Antitrust & Competition Laws in Asia Pacific ...................................................................... 2

Australia .................................................................................................................................................. 5 Georgina Foster, Rowan McMonnies, Jo Daniels and Irena Apostopoulos

Peoples Republic of China ................................................................................................................... 13 David Fleming, Michelle Gon, Stephen Crosswell, Eva Crook-Santner and Donald Pan

Hong Kong ............................................................................................................................................ 25 David Fleming, Michelle Gon, Stephen Crosswell, Eva Crook-Santner and Donald Pan

India ....................................................................................................................................................... 34 Samir Gandhi, Hemangini Dadwal and Indrajeet Sircar

Indonesia ............................................................................................................................................... 45 Wimbanu Widyatmoko, Mochamad Fachri and Farid Nasution

Japan ..................................................................................................................................................... 54 Sinichiro Abe, Akira Inoue, Junya Ae and Michio Suzuki

Malaysia ................................................................................................................................................ 62 Andre Gan, Brian Chia, Lydia Kong, Serene Kan Ming Choi and Cindy Sek

New Zealand ......................................................................................................................................... 69 Robert McLean

Philippines ............................................................................................................................................. 74 Ma. Christina Macasaet-Acaban and Alain Charles Veloso

Singapore .............................................................................................................................................. 83 Ken Chia, Yi Lin Seng and Hazmi Hisyam

Taiwan ................................................................................................................................................... 95 Henry Chang and Sonya Hsu

Thailand............................................................................................................................................... 102 Pornapa Thaicharoen, Ampika Kumar, Narumol Chinawong and Sutattee Kanchanapisoot

Vietnam ............................................................................................................................................... 107 Frederick Burke, Yee Chung Seck, Hoang Kim Oanh Nguyen and Chi Anh Tran

About Baker & McKenzie .................................................................................................................... 111

Asia Pacific Antitrust & Competition Law Guidebook 2015 Contributors ........................................... 112

Asia Pacific Antitrust & Competition Law Guidebook 2015

Introduction Baker & McKenzies 2015 Asia Pacific Antitrust & Competition Law Guidebook brings together a summary of commentary on competition laws from 13 Asia Pacific jurisdictions.

For the 2015 edition of this guidebook, Baker & McKenzie has ensured that clients will be able to access it through different platforms pdf, online, mobile and Kindle format.

Since releasing the first guidebook in 2013, emerging and developed countries in Asia continue to amend their competition laws as local and global markets evolve. Mature competition law jurisdictions such as Australia and Japan have reviewed and added amendments, while other emerging Asia Pacific jurisdictions in terms of competition laws such as the Philippines, New Zealand and Thailand, among others, have submitted new policies and amendments to prohibit anti-competitive practices in their relevant markets. With all of these reforms, local and global businesses are more keen in following these developments and learning about new competition regulations in Asia Pacific. All of these developments are covered in this guidebook.

With more than 300 competition experts in more than 70 offices globally, Baker & McKenzies Global Antitrust & Competition Law Group continues to have a fluent global approach in Asia Pacific with clients in the region having access to the Firms leading practices. Our Asia Pacific-based competition lawyers have played a significant role in the development of laws in their home jurisdictions as leading lawyers, advisors to governments and regulators, and active participants in the law reform process.

We are thankful to our many contributing Baker & McKenzie authors and particularly grateful to the input from our contributing correspondent firms. We would also like to acknowledge the efforts of our content editors: Georgina Foster, Irena Apostopoulos and Sanil Khatri.

While we have done our very best to ensure currency and accuracy as at the date of publication, laws and regulations can often change on short notice. Our contacts, whose details are found in the guidebook, would be happy to assist with any particular inquiries.

We hope you would find this guidebook helpful.

Andre Gan Chair, Asia Pacific Antitrust & Competition Group Baker & McKenzie

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Overview of Antitrust & Competition Laws in Asia Pacific

Country Regulatory authority Key regulation Merger control Prohibition on abuse

Australia Australian Competition & Consumer Commission Competition and Consumer Act 2010

Yes Yes

China

Anti-Monopoly Enforcement Agency (an umbrella term for three separate agencies dealing with different aspects of the law)

Anti-Monopoly Law of the Peoples Republic of China

Yes Yes

Hong Kong

Competition Commission (appointed April 2013) and Competition Tribunal (to be established); Office of the Telecommunications Authority Broadcasting Authority

Competition Ordinance (to come into force in second half of 2015); Telecommunications Ordinance and Broadcasting Ordinance for sector-specific rules (the Competition Ordinance will repeal the competition related provisions)

Yes (not yet in force outside communications)


India Competition Commission of India

Competition Act 2002 Yes Yes

Indonesia Business Competition Supervisory Commission

Law No. 5 of 1999 on the Prohibition of Monopolistic Practices and Unfair Competition

Yes Yes

Japan Fair Trade Commission Antimonopoly and Fair Trade

Maintenance Act 1947 Yes Yes

Malaysia

Competition Commission Competition Act 2010 and the Competition Commission Act. Other relevant provisions contained in sector specific guidelines, including the Contracts Act 1950

No Yes

New Zealand Commerce Commission Commerce Act 1986 Yes Yes

Philippines

Office for Competition has certain investigative and enforcement powers

Relevant provisions in: Revised Penal Code; Civil Code of the Philippines, the Philippine Constitution and various industry specific laws. No comprehensive competition law

Yes Yes

Singapore The Competition Commission of Singapore Competition Act 1994; sector specific guidelines

Yes Yes

Taiwan Fair Trade Commission Fair Trade Law 2002 Yes Yes

(limited to monopolistic enterprises)

Thailand Trade Competition Commission

Trade Competition Act B.E. 2542 (1999)

Yes (not in force until thresholds issued)

Yes

Vietnam Vietnam Competition Authority and the Competition Council

Competition Law Yes Yes


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Regulation of arrangements between competitors

Regulation of dealings with suppliers, resellers and customers

Country Price fixing Market sharing or other cartel

conduct

Anti-competitive arrangements

Vertical restraints

(exclusivity/ tying)

Resale price maintenance

Australia Yes Yes Yes Yes Yes China Yes Yes Yes Yes Yes

Hong Kong Yes (not yet in force outside communications)




Yes (not yet in force)

India Yes Yes Yes Yes Yes Indonesia Yes Yes Yes Yes Yes Japan Yes Yes Yes Yes Yes Malaysia Yes Yes Yes Yes Yes New Zealand Yes Yes Yes Yes Yes Philippines Yes Yes Yes Yes Yes

Singapore

Yes Yes Yes No (unless amounts to abuse of dominant position)

No (unless amounts to abuse of dominant position)

Taiwan Yes Yes Yes Yes Yes

Thailand

Yes Yes Yes No (unless amounts to abuse of dominant position)

No (unless amounts to abuse of dominant position)

Vietnam

Yes Yes Yes No (except where parties enjoy market dominance or monopoly)

No (except where parties enjoy market dominance or monopoly)


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Australia

Both the Federal and the State and Territory governments have enacted legislation for the purpose of prohibiting anti-competitive conduct and to protect consumers from unfair commercial practices in their dealings with business.

1. Overview of competition laws The main statute dealing with competition laws in Australia is the Federal Competition and Consumer Act 2010 (Competition and Consumer Act)1. Part IV of the Competition and Consumer Act is aimed at preserving and promoting competition in the marketplace by prohibiting or regulating anti-competitive agreements and conduct.

Part IV of the Competition and Consumer Act consists of three divisions:

(a) Division 1, which contains criminal and civil prohibitions on cartel conduct;

(b) Division 1A, which contains prohibitions against anti-competitive price signalling and other information disclosures in certain prescribed markets; and

(c) Division 2, which contains prohibitions against a range of anti-competitive conduct, including misuse of market power, resale price maintenance, exclusive dealing, and anti-competitive mergers and acquisitions.

2. Enforcement and administration The Competition and Consumer Act is administered and enforced by the Australian Competition and Consumer Commission (ACCC). The ACCC has extensive powers to investigate anti-competitive conduct, including powers to require persons to furnish information, produce documents and attend for examination. The ACCC also has the power to obtain search warrants. In addition to its investigation and enforcement role, the ACCC has responsibilities in relation to merger clearances and the granting of authorisations and notifications, which provide an exemption from certain prohibitions.

If the ACCC believes there has been a contravention of Part IV of the Competition and Consumer Act, it can bring proceedings in the Federal Court of Australia seeking penalties and other remedies against the primary contravener and other persons involved in the contravention.

In February 2014, the ACCC issued its new Compliance and Enforcement Policy. Under the policy, the ACCCs key enforcement tools include educational campaigns, voluntary industry self-regulation codes and schemes, administrative resolutions where possible, infringement notices, Section 87B court enforceable undertakings, working with other agencies, and legal proceedings where appropriate.

The Compliance and Enforcement Policy also outlines the ACCCs key competition law priorities, which include cartel conduct and international cartels that involve entities carrying on business in Australia; anti-competitive agreements; misuse of market power; and other matters that will (or have the potential to) harm the competitive process or result in widespread consumer detriment.

1 The Trade Practices Act 1974 (Cth) was renamed the Competition and Consumer Act 2010 (Cth) with effect from 1 January 2011.

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3. Anti-competitive agreements and other conduct

3.1 Cartel conduct In July 2009, cartel conduct was criminalised in Australia. There are now parallel criminal and civil offences for making or giving effect to a contract, arrangement or understanding that contains a cartel provision. A cartel provision is a provision of a contract, arrangement or understanding between competitors that has:

(a) the purpose or effect, or likely effect, of fixing, controlling or maintaining prices;

(b) the purpose of restricting outputs in the production or supply chain;

(c) the purpose of allocating customers, suppliers or territories; and/or

(d) the purpose of rigging bids or tenders.

There are defences to the prohibitions on cartel provisions, including a defence for joint ventures.

The maximum penalties for a criminal offence, for individuals, are imprisonment for a term of 10 years and/or a fine of 2,000 penalty units (AUD340,000).

Civil proceedings for penalties, as well as private proceedings for damages and other remedies, can also be brought against persons who contravene the cartel offences. The maximum penalty for a civil offence for individuals is AUD500,000.

The maximum penalty for a corporation for each criminal cartel offence or civil contravention (whichever applies) is the greater of AUD10 million or three times the value of the benefit gained from the anti-competitive conduct (or, if that cannot be determined, 10 percent of the corporate groups annual turnover in Australia in the preceding 12 months). Other penalties include injunctions, orders disqualifying a person from managing corporations and community service orders.

Prosecution of criminal offences will be undertaken by the Commonwealth Director of Public Prosecutions (CDPP). The CDPP is required to prove the charge beyond reasonable doubt. A Memorandum of Understanding between the ACCC and the CDPP details the roles and responsibilities of each agency in relation to the investigation and prosecution of cartel offences.

3.2 Price signalling The Competition and Consumer Act includes two core provisions regarding the anti-competitive disclosure of pricing and other information:

(a) a per se prohibition against the private disclosure of pricing information between competitors which are not made in the ordinary course of business; and

(b) a prohibition against the disclosure of pricing or other information if the disclosure is made for the purpose of substantially lessening competition.

These prohibitions apply only to those classes of goods or services prescribed by regulation. As at January 2015, the prohibitions only apply to the banking sector.

3.3 Exclusionary provisions Exclusionary provisions (or collective boycotts) are contracts, arrangements or understandings between competitors which have the purpose of preventing, restricting or limiting the supply of goods or services to a particular person or group, or have the purpose of preventing, restricting or limiting the acquisition of goods or services from a particular person or group. It is sufficient that at least two of the parties to the arrangement are competitive with each other in relation to the goods or services the subject of the restriction. Further, it is not necessary that the party who has dealings with the target of


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the boycott be one of the competitors. Exclusionary provisions are prohibited outright by the Competition and Consumer Act, regardless of their impact on competition.

There are defences to the prohibition on exclusionary provisions for joint ventures.

3.4 Resale price maintenance Suppliers of goods or services in Australia are prohibited from specifying a minimum resale price, and may not withhold supply on the basis that the reseller has refused to comply with a specified minimum resale price.

Resale price maintenance is per se unlawful. It is, however, permissible for a supplier to specify a maximum price for resale, so long as this does not amount to a de facto actual price at which the reseller must sell. It is also permissible for a supplier to issue a recommended resale price provided that the price is a recommendation only and there is no obligation to comply.

3.5 Anti-competitive arrangements The Competition and Consumer Act prohibits a contract, arrangement or understanding that has the purpose, effect or likely effect of substantially lessening competition in a market. The expression arrangement or understanding is interpreted broadly by the courts. There is no requirement that an arrangement be in writing or enforceable at law. All that is required is a meeting of minds between the parties.

3.6 Third line forcing Third line forcing is one of a number of exclusive dealing prohibitions in the Competition and Consumer Act. It is the only type of exclusive dealing which is a per se breach of the Act. Third line forcing occurs when a corporation supplies goods or services, or offers a discount, rebate or credit on goods or services, on condition that the purchaser acquires other goods or services directly or indirectly from a third party. An exemption from the prohibition applies if the conduct involves related companies. It is possible to obtain statutory immunity for third line forcing conduct by notifying the ACCC of the conduct. The ACCC will allow the notification to stand so long as the public benefits of the conduct outweigh any anti-competitive detriments.

3.7 Exclusive dealing (other than third line forcing) Exclusive dealing occurs where a supplier agrees to supply goods or services, or supply goods or services to a reseller at a particular price or with a discount, credit or rebate, on condition that it accepts some restriction on its ability to deal with those goods or services or on its freedom to supply or acquire goods or services from third parties. Exclusive dealing also occurs where a corporation acquires goods or services on the condition that the supplier accepts some restriction on who it supplies. Examples of exclusive dealing include:

(a) a restriction on the reseller acquiring competing products;

(b) a restriction on the reseller supplying the goods or services to particular customers or in particular places; and

(c) a restriction on the supplier selling to other resellers.

Refusal to supply or acquire on the grounds that the other party has not agreed to accept such conditions also constitutes exclusive dealing.

Exclusive dealing (other than third line forcing) is prohibited only if it has the purpose or likely effect of substantially lessening competition in a relevant market.

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3.8 Secondary boycotts The Competition and Consumer Act prohibits two persons, acting in concert, from hindering or preventing a third person trading with a fourth person, where the purpose or likely effect of the conduct is to cause a substantial lessening of competition in any market in which the fourth person is involved. Trade unions engaging in boycotts are specifically addressed in Part IV of the Competition and Consumer Act.

4. Abuse of dominant position The Competition and Consumer Act prohibits corporations with a substantial degree of power in a market from taking advantage of that power in that or any other market for the purpose of eliminating or damaging a competitor, preventing market entry, or deterring or preventing a person from engaging in competitive conduct in that or any other market (prohibited purpose).

There is no specified market share threshold that establishes market power. The courts have defined market power as the ability to act free from the constraints of competition, in particular, in relation to price. However, when determining whether a corporation has a substantial degree of market power, a court shall have regard to the extent to which an entity is constrained by the conduct of:

(a) competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or

(b) persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.

A court may also have regard to the body corporates power in the market, resulting from:

(a) any contract, arrangement or understanding or proposed contract, arrangement or understanding, that the body corporate or bodies corporate has, or may have, with another party or other parties; or

(b) any covenants, or proposed covenants, that the body corporate or bodies corporate is or are, or would be, bound by or entitled to the benefit of.

The Competition and Consumer Act contains a non-exhaustive list of factors that a court may consider in determining whether a corporation has taken advantage of its market power.

Establishing a prohibited purpose is a fundamental element of determining whether or not a corporation has misused its market power. The prohibited purpose need not be the only motivating purpose to constitute a breach. It is sufficient if it is a substantial or operative purpose behind the conduct, despite the existence of other valid and lawful purposes or reasons. In the absence of subjective evidence, the courts may infer the corporations purpose from its conduct and from the surrounding circumstances.

4.1 Predatory pricing In addition to the general misuse of market power prohibition, there is also a specific prohibition on predatory pricing by corporations with a substantial share of a market. Under this prohibition, a corporation that has a substantial share of a market must not supply, or offer to supply, goods or services for a sustained period at a price that is less than the relevant cost of supplying the goods or services for the purpose of:

(a) eliminating or substantially damaging a competitor in a market;

(b) preventing the entry of a person into a market; or

(c) deterring or preventing a person from engaging in competitive conduct in a market.


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The predatory pricing prohibition does not require evidence of intended recoupment of losses for a contravention to be established. A corporation may contravene the prohibition even if it cannot, and may not ever be able to recoup losses incurred in supplying the goods or services.

5. Exceptions The Competition and Consumer Act provides a number of exceptions to certain (but not all) prohibitions in Part IV of the Competition and Consumer Act on cartel and other anti-competitive conduct. These include:

(a) a contract of employment insofar as the contract relates to the remuneration, conditions of employment, hours of work or working conditions of employees;

(b) restraint of trade clauses for employees or independent contractors;

(c) a provision in a contract for the sale of a business or shares that is solely for the protection of the purchaser in respect of the goodwill of the business; and

(d) certain aspects of intellectual property licences.

6. Mergers and acquisitions The Competition and Consumer Act prohibits the acquisition of shares or assets if that acquisition would have the effect or likely effect, of substantially lessening competition in any market for goods or services in Australia. There are no compulsory financial or market share notification thresholds under the Competition and Consumer Act. Notification is a voluntary process at the parties discretion. However, the ACCCs Merger Guidelines 2008 indicate that the ACCC will want to examine a merger where both of the following apply:

(a) the products of the merger parties are either substitutes or complements; and

(b) the merged firm will have a post-merger market share of greater than 20 percent in the relevant market/s.

The market share level of 20 percent is referred to as the ACCCs notification threshold. If an acquisition does not reach this threshold, the ACCC is generally unlikely to make further enquiries.

The Merger Guidelines 2008 also state that the ACCC will generally be less likely to identify competition concerns in situations where the Herfindahl-Hirschman Index (HHI), a measure of market concentration, is less than 2000. The HHI is calculated by adding the sum of the squares of the post-merger market shares of each competitor in the market.

There are three types of voluntary notification to the ACCC: informal clearance, formal clearance and authorisation.

6.1 Informal clearance Informal merger clearance is by far the most common option and encouraged by the ACCC. The ACCCs Merger Review Process Guidelines 2013 provide guidance on ACCC processes for informal merger reviews. They are supplementary to the Merger Guidelines 2008, which deal with the analytical framework.

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6.2 Formal clearance The formal merger clearance process introduced in 2007 has not yet been applied. As at January 2015, merger parties have elected to proceed by way of an informal clearance. The ACCCs Formal Merger Review Process Guidelines 2013 outline the process for applications for formal merger clearance. It provides that the ACCC must determine an application for formal clearance within 40 business days of receiving a valid application. This review period may be extended, either by agreement by a specified period, or unilaterally by the ACCC by a further 20 days in certain circumstances. If the ACCC refuses clearance, an applicant can apply to the Australian Competition Tribunal (Tribunal) for a review of this decision.

6.3 Authorisation Under the Competition and Consumer Act the Tribunal has power to authorise a potentially anti-competitive merger where it is satisfied that the merger would result in such a countervailing benefit to the public that it should be allowed to take place. The authorisation process is time consuming and public and not commonly used in practice. It only tends to be used where there are competition concerns with a proposed merger.

There are no penalties for failing to notify a transaction to the ACCC, since notification is voluntary. However, if a transaction is found to be in breach of the Competition and Consumer Act, financial penalties may be imposed (see the next section on penalties). The ACCC can also apply to the court for injunctions to prevent anti-competitive mergers from taking place and for divestiture orders if an anti-competitive merger has proceeded. Private parties cannot obtain injunctions to prevent an anti-competitive merger from taking place but can seek damages and other remedies for any loss or damage sustained as a result of the merger, as well as divestiture orders.

The Competition and Consumer Act also prohibits certain acquisitions occurring outside Australia which have anti-competitive effects within Australia.

7. Authorisations and notifications In certain cases, a corporation may apply to the ACCC for an authorisation in relation to proposed conduct which would otherwise breach Part IV of the Competition and Consumer Act. The ACCC may grant authorisation and thereby immunity for the conduct where the benefit to the public of the conduct outweighs the anti-competitive detriment.

In addition, immunity may be obtained through an ACCC notification process for exclusive dealing conduct, as well as certain forms of collective bargaining conduct.

8. Penalties and liabilities The Competition and Consumer Act is administered and enforced by the ACCC, although compliance with most sections can also be enforced by private action. The ACCC has become increasingly vigilant (and successful) in enforcing compliance with the Competition and Consumer Act. Serious cartel conduct will be referred by the ACCC to the CDPP for criminal prosecution.

For a corporation, a breach of the civil prohibitions in Part IV of the Competition and Consumer Act (other than in relation to the prohibition on secondary boycotts) may lead to the following penalties per breach: up to AUD10 million per breach, or three times the value of the benefit received from the anti-competitive conduct or, if the value of the benefit cannot be determined, 10 percent of annual group turnover in Australia. In the case of secondary boycotts, the maximum penalty is AUD750,000.

For an individual, the criminal penalties for criminal cartel offences are imprisonment for a term of up to 10 years and/or a fine of up to 2,000 penalty units (AUD340,000). The penalty for a civil offence is up to AUD500,000 per breach.

A corporation (including its related bodies corporate) is prohibited from indemnifying its directors, officers or employees against any liability to pay a pecuniary penalty and for any legal costs incurred in defending or resisting proceedings in which the individual is found liable to pay a pecuniary penalty.


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The ACCC can also seek a range of other remedial orders, including injunctions, declarations, compensatory orders and orders disqualifying a person who has contravened or has been involved in a contravention of Part IV of the Competition and Consumer Act from managing corporations.

Private actions (including class actions) may be brought against corporations and individuals who have contravened Part IV of the Competition and Consumer Act seeking damages, other compensation, injunctions and other remedial orders.

9. Leniency The ACCC has the Immunity Policy and Cooperation Policy for Cartel Conduct (Immunity Policy), which was updated in September 2014. Under this policy, immunity from ACCC prosecution is available to the first member of a cartel to apply for immunity, provided that at the time of application, the ACCC has not received written legal advice that it has sufficient evidence to commence proceedings. Immunity is also subject to compliance with certain other conditions, including that the applicant has not coerced others into participating in the cartel; provides full, frank and truthful disclosure; and provides full and expeditious ongoing cooperation to the ACCC.

For criminal contraventions, the Prosecution Policy of the Commonwealth includes a specific section covering immunity for cartel conduct. This is essentially in the same terms as the ACCCs Immunity Policy.

The ACCC is responsible for granting immunity from civil enforcement proceedings and the CDPP for granting immunity from criminal proceedings (although the ACCC recommends to the CDPP whether immunity should be granted). As a matter of practice, applicants will need to apply for both civil and criminal leniency at the same time.

The ACCC also has a Cooperation Policy for Enforcement Matters (Cooperation Policy), which sets out the ACCCs position in relation to immunity and leniency applications resulting from cooperation in ACCC enforcement matters more generally. The Cooperation Policy applies to all anti-competitive conduct in contravention of the Competition and Consumer Act.

The ACCCs Immunity Policy and Cooperation Policy do not provide any protection against private actions.

10. Extraterritorial application The provisions of Part IV of the Competition and Consumer Act apply to conduct engaged in outside Australia by a company incorporated or carrying on business in Australia, or by an Australian entity or person ordinarily resident within Australia. If the anti-competitive conduct involves exclusive dealing or resale price maintenance, a less strict territorial nexus applies: those prohibitions apply to any person outside Australia provided that the person supplies the goods or services to persons within Australia.

11. Reform The Australian Government established a review of Australian competition policy and law in 2014. The review panel, chaired by Professor Ian Harper, issued a draft report on 22 September 2014. The draft report included a wide range of recommendations, including proposed changes to the prohibitions against cartel conduct and misuse of market power. A final report is due to be presented to the Australian Government in March 2015.


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Peoples Republic of China

The Anti-Monopoly Law of the Peoples Republic of China (Anti-Monopoly Law) was adopted by the Standing Committee of the National Peoples Congress (NPC) on 30 August 2007 and came into effect on 1 August 2008. It applies throughout the PRC with the exception of the two Special Administrative Regions of Hong Kong and Macau.

1. Overview of competition laws The Anti-Monopoly Law is Chinas first comprehensive competition law and codifies the existing body of competition related laws and regulations. The Anti-Monopoly Law prohibits monopolistic conduct, which can be divided into the following broad headings:

anti-competitive agreements between undertakings;

abuse of a dominant position; and

mergers that may have the effect of eliminating or restricting competition.

In addition to the Anti-Monopoly Law itself, implementing rules and guidelines assist in the application and interpretation of the Anti-Monopoly Law (refer to the next section). Lastly, existing legislation such as, the Anti-Unfair Competition Law, Price Law, Bidding Law, Contract Law and Foreign Trade Law remain in force.

2. Enforcement and administration Under the Anti-Monopoly Law, the State Council established two regulatory bodies to regulate monopolistic activity: (i) the Anti-Monopoly Committee (AMC), which is responsible for developing competition legislation and policy, publishing guidelines and coordinating the administrative enforcement work and (ii) the Anti-Monopoly Enforcement Agency (AEA), which is responsible for enforcing the Anti-Monopoly Law. The enforcement powers of the AEA are divided between three agencies namely:

(a) the National Development & Reform Commission (NDRC) - responsible for price related offences;

(b) the State Administration for Industry & Commerce (SAIC) - responsible for enforcing monopoly agreements, abuses of dominant market position and abuses of administrative powers to eliminate and restrict competition (other than price related offences); and

(c) the Ministry of Commerce (MOFCOM) - responsible for merger control.

Other than merger control, administrative enforcement is conducted by the NDRC and SAIC both at national and provincial level, depending on the matter.

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2.1 Private action Under the Anti-Monopoly Law, individuals and companies are entitled to bring private actions against undertakings that have engaged in monopolistic conduct.2 Each major court has an existing intellectual property division which has been tasked with hearing Anti-Monopoly Law claims. In recent years, there has been a significant increase in the number of private competition actions. The majority of cases pertain to allegations of abuse of a dominant market position, though there has also been a number of claims alleging horizontal and vertical anti-competitive agreements. There have been private actions in a wide range of sectors, ranging from seafood wholesaling to electricity supply.

A large number of the early private actions commenced under the Anti-Monopoly Law were unsuccessful. However, several claims have recently been successful in winning damages (see further below).

In May 2012, the PRC Supreme Peoples Court published its Rules on Certain Issues relating to Application of Laws for Hearing Civil Disputes Caused by Monopolistic Conducts (SPC Rules). The SPC Rules address various issues related to the conduct of Antimonopoly cases, including the burden of proof for a plaintiff. Within this they appear to create a presumption of dominance for state owned companies and public utilities. Expert testimony may be presented in evidence in proceedings before the courts. The SPC Rules make it clear that a company or individual may bring a private action directly to the court or after a decision on the alleged monopolistic conduct by one of the Antimonopoly Law enforcement authorities (i.e. both stand-alone and follow-on actions are permitted). It is expected that the number of private enforcement actions will continue to increase in the future and to become an increasingly important avenue for parties seeking redress for competition complaints.

2 On its face, it appears that the AML allows private enforcement against not just anticompetitive agreements and abuse of dominance, but also against mergers and other concentrations falling within the scope of the merger control provisions in the AML. The position on this remains uncertain. There has been some very limited commentary supporting this view. However, it is notable that no reference is made to the prospect of private action against mergers and other concentrations in the Provisions of the Supreme Peoples Court on the Application of Laws in the Trial of Civil Disputes arising from Monopolistic Practices (SPC Provisions), which regulate private actions under the AML.


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Rules and regulations The Anti-Monopoly Law prohibits monopoly agreements. These are defined as agreements, decisions or other concerted practices between business operators that have the purpose or effect of eliminating or restricting competition.

Monopoly agreements are divided into two categories: horizontal monopoly agreements and vertical monopoly agreements.

The following monopoly agreements are presumed to be illegal:

(a) agreements to fix or change the price of goods;

(b) agreements to restrict the quantity of goods produced or sold;

(c) agreements to divide a sales market or a raw materials procurement market;

(d) agreements to restrict the purchase of new technology or new equipment, or to restrict the development of new technology or new products;

(e) concerted refusals to deal; and

(f) resale price maintenance (RPM).

This list is non-exhaustive and may be added to by the AEA at any time.

Exceptions The prohibitions on horizontal and vertical monopoly agreements do not apply to agreements entered into by business operators to safeguard legitimate interests in foreign trade and foreign economic cooperation. Other exceptions to the prohibitions may be specified by law or by the State Council.

In addition, an exemption from the prohibition on agreements is available if undertakings can show that:

(a) the agreements will not substantially restrict competition in the relevant market;

(b) consumers will receive a fair share of the resulting benefits; and

(c) the agreement had a qualifying purpose, such as, technological advancement and/or product development, improvement in product quality, increases in efficiency, and reduction in costs.

Under the Anti-Monopoly Law, these exceptions apply to all monopoly agreements and so strictly speaking there should be no per se prohibition of monopoly agreements. The parties must rely on self-assessment as there is no mechanism under the Anti-Monopoly Law to apply for an exemption.

Enforcement activities In recent years, the AEA has significantly increased investigations of both Chinese and foreign companies for alleged violations of competition law.

The NDRC has imposed significant fines on companies for breaches of competition law, in particular on participants found to have participated in hard-core cartel agreements (i.e. price-fixing agreements). For example:

In December 2012, the NDRC imposed a fine of RMB 353 million on six LCD manufacturers found to have held 53 meetings in a five-year period to exchange market information and discuss price fixing on LCD panels in the Chinese market.

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In August 2014, the NDRC imposed a fine of RMB 832 million on seven automotive spare parts manufacturers found to have fixed the prices of spare parts covering 13 product categories, including starters, alternators, throttle bodies and wire harnesses. The companies were found to have held meetings during the period from January 2000 to February 2010 to discuss product prices and implemented agreements over quoted prices for order in the Chinese market.

In August 2014, the NDRC imposed a fine of RMB 403 million on three automotive bearing manufacturers found to have participated in conferences during the period from 2000 to June 2011.

Since 2013, the NDRC has also prioritised investigations concerning RPM and large fines have been imposed. For example:

In August 2013, the NDRC imposed a fine of RMB 670 million on six baby milk formula manufacturers found to have had agreements in place with their distributors to restrict the resale prices of their products.

In September 2014, the NDRC imposed a fine of RMB 249 million on an automotive joint venture found to have organised several meetings with ten of its dealers to sign and implement an agreement which restricted the resale price for automotive sales and repair services.

In September 2014, the NDRC imposed a fine of RMB 33.8 million on an international car maker found to have entered into dealership agreements with its dealers containing RPM clauses and imposed punitive measures such as fines for dealers which did not adhere to the RPM clauses.

To date, the NDRC has largely focused its investigations on consumer-oriented sectors such as the automotive, electronics, eyecare, milk powder, pharmaceutical, premium liquor and insurance sectors. The NDRC reportedly imposed record total fines of RMB 1.58 billion in 2014.

The NDRC has delegated enforcement powers to local departments and to date the majority of enforcement activity has been at a local level. Previously, provincial level authorities have often prosecuted antitrust cases under pre Anti-Monopoly Law regulations and such decisions may not be reported. However, in recent years, antitrust enforcement actions have predominantly commenced under the Anti-Monopoly Law. Since 2014, the NDRC has also increased transparency by reporting and publishing selected decisions online.

Private actions In recent years, there have been increasing number of claims alleging vertical and horizontal anti-competitive agreements. For example:

In August 2013, in the first reported case involving a vertical agreement, the Shanghai Higher Peoples Court concluded that an international medical device manufacturer had infringed the Anti-Monopoly Law by imposing resale price maintenance conditions on its distributor. The company was ordered to pay damages of RMB 530,000 to the distributor. The distributor was able to provide sufficient and detailed evidence and analysis to establish to the courts satisfaction that the resale price maintenance conditions had an anti-competitive effect and caused a loss in its profit.

In April 2014, the Beijing Higher Peoples Court concluded that a seafood wholesale association had infringed the Anti-Monopoly Law by arranging seafood dealers to sell scallops at a fixed price and imposed fines for dealers which did not adhere to the price fixing agreement. The seafood wholesale association was ordered to cease the infringement.


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It is currently unclear whether RPM is illegal per se (automatically deemed illegal) in China. The NDRC appears to apply a per se test and has not been inclined to accept effects-based arguments that RPM does not have anti-competitive effects. In contrast, the Chinese courts appear to favour a rule of reason analysis where positive and negative effects of RPM are considered. Given the NDRCs stance, in terms of compliance with Chinese competition law, the cautious approach would be to regard RPM as per se prohibited in China.

4. Abuse of dominant position

Rules and regulations The Anti-Monopoly Law defines a dominant market position as the ability of one or several business operators to control the price, or volume or other trading terms in the relevant market or to otherwise affect conditions of a transaction so as to hinder or influence the ability of other business operators to enter into the market.

The dominance assessment is based on a number of factors including the relevant undertakings market shares, the ability of the undertaking to control the sale or input market, the financial and technical resources of the undertaking, competitiveness of the relevant market, the extent to which other undertakings rely on the relevant undertaking and barriers to market entry.

Dominant market position is presumed where a undertakings market share is 10% or greater and:

the undertakings market share exceeds 50%;

the combined market share of the undertaking and one other undertaking exceeds 66.6%; or

the combined market share of the undertaking and two other undertakings exceeds 75%.

Thus, two or more undertakings may be found to hold a dominant market position even if there is no coordination of their conduct. Presumptions of dominance can be rebutted by evidence to the contrary.

A dominant market position is not of itself unlawful, it is only the abuse of such a dominant market position that is prohibited. The Anti-Monopoly Law prohibits the following types of conduct as an abuse of dominant market position:

(a) selling goods at prices that are unfairly high or purchasing goods at prices that are unfairly low;

(b) without a legitimate reason, selling goods at below cost price;

(c) without a legitimate reason, refusing to deal with a business operator;

(d) without a legitimate reason, restricting a trading partner by requiring it to deal only with the dominant operator(s) or with other designated operators;

(e) without a legitimate reason, tying goods or attaching other unreasonable conditions to a transaction; and

(f) without a legitimate reason, treating equivalent trading partners in a discriminatory manner with respect to sale price or other trading conditions.

This is a non-exhaustive list and the AEA may add to it.

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Enforcement activities In recent years, the SAIC has actively investigated and fined business operators for abuses of dominance. Examples include:

investigating Tetra Pak for alleged abuse of its market dominant position by tying the sale of packaging materials to the purchase of packaging equipment and price discrimination in favour of large diary companies.

Microsoft has been under investigation by the SAIC in relation to the compatibility of its Windows operating system and Office software with some Chinese software.

In November 2014, the SAIC imposed a fine of RMB 1.7 million on a Chinese tobacco company based in Jiangsu. The company, being the only tobacco wholesaler licensed in Pizhou city, was found to have imposed discriminatory conditions on retailers by providing more frequent deliveries and a larger quantity of popular cigarettes to certain retailers only.

To date, the SAIC has investigated a wide range of sectors, including tobacco retail sales, software, product packaging, concrete, construction materials and energy. The SAIC reportedly imposed a record total of fines of RMB 14.5 million in 2014, almost triple the level of fines imposed in 2013.

Private actions To date, the majority of private actions have concerned allegations of abuse of a dominant market position. Such private actions have taken place in a variety of sectors, but have been particularly prominent in the technology sector.

Qihoo 360 v Tencent

In a case involving Qihoo 360 Technology Co. Ltd. (Qihoo 360), a leading Chinese antivirus software company, and Tencent Holdings Limited (Tencent), a major Chinese Internet and social media company, Qihoo 360 alleged that Tencent had abused its dominant market position in the instant-messaging and service market by bundling its antivirus software with its instant-messaging software QQ messenger. On 16 October 2014, the Supreme Peoples Court upheld the Guangdong High Peoples Court decision in 2013 by rejecting Qihoo 360s allegations.

This was the first judgement of the Supreme Peoples Court under the AML since it took effect in 2008 and is a landmark case in establishing the approach to market definition and assessment of what constitutes abuse of dominance under the AML. Market share was considered by the court to be only a rough and potentially misleading indicator when assessing the existence of a dominant market position. High market share does not, the court said, directly translate into the existence of a dominant market position. The court found that Tencent had limited power to control prices, quality, quantity or restrictions on trading terms. Although the restrictions it imposed might have inconvenienced consumers, the court said that this was a dynamic and highly competitive market and held that there was insufficient evidence to prove that Tencent held a dominant market position or that it had abused its position in the instant-messaging and service market.

Huawei v InterDigital

In another case, Huawei Technologies Co. Ltd. (Huawei), a leading Chinese telecommunications equipment manufacturer and service provider, alleged that InterDigital, Inc. (InterDigital), a leading US developer of fundamental mobile-phone technology, had abused its dominant market position in China and the United States in the market for the licensing of essential patents (i) through differentiated pricing, tying and refusal to deal; and (ii) refusal to license patents to Huawei on fair, reasonable and non-discriminatory (FRAND) terms. On 28 October 2013, the Guangdong Higher Peoples Court upheld the Shenzhen Intermediate Peoples Courts decision by ruling that InterDigital had violated the AML by licensing standard essential patents to Huawei on unfairly high royalty rates. InterDigital was ordered to cease the alleged excessive pricing, alleged improper bundling of patents and pay Huawei approximately RMB 20 million in damages.


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This was the first case under the AML involving patent transfer and the first time a court has determined a FRAND royalty rate in China. This case sets a potentially important precedent for other complaints relating to standard essential patents.

5. Mergers and acquisitions

Rules and regulations Under the Anti-Monopoly Law, notification is mandatory where the relevant thresholds are met in respect of concentrations i.e.:

a merger between business operators;

a business operators acquisition, by way of equity or asset acquisition, of control over another business operator; or

a business operators acquisition, by way of contract or other means, of control over, or the ability to exert a decisive influence on, another business operator.

Joint ventures are also subject to notification if the thresholds are met.

The Anti-Monopoly Law does not distinguish between foreign and domestic transactions. Foreign-to-foreign transactions are therefore subject to notification if there is a concentration and the thresholds are met. Merger filings are reviewed by the MOFCOM Anti-Monopoly Bureau. Where the relevant merger filing thresholds are met (refer to the next paragraph). The Anti-Monopoly Law expressly prohibits the consummation of a concentration prior to merger control clearance being obtained, and provides for penalties for non-compliance, including the ability for MOFCOM to reverse a transaction or have it declared void.

Notification is required if either:

(a) first threshold:

(i) the combined worldwide turnover in the most recent completed accounting year of all parties to the transaction exceeds RMB 10 billion (approximately USD1.6 billion); and

(ii) each of at least two of the parties to the transaction had turnover in the PRC in the most recent completed accounting year exceeding RMB 400 million (approximately USD65.3 million); or

(b) second threshold:

(i) the combined turnover in the PRC in the most recent completed accounting year of all parties to the transaction exceeds RMB 2 billion (approximately USD326.5 million); and

(ii) each of at least two parties to the transaction had turnover in the PRC in the most recent completed accounting year exceeding RMB 400 million (approximately USD65.3 million).

For financial institutions (which include banking, securities, futures, fund management and insurance companies), the thresholds are higher (ten times the thresholds set out above for non-financial institutions). Also, special rules govern what items are to be included when calculating the turnover of financial institutions - for example, the turnover for insurance companies includes insurance premiums but not investment gains, unlike the treatment for banks.

In addition, MOFCOMs Anti-Monopoly Bureau has the discretion to investigate a merger not exceeding the turnover thresholds, if it considers that a concentration has or may have an effect of restricting or eliminating competition, as demonstrated by supporting facts and evidence obtained in accordance with prescribed procedures. To date no statutory procedures have been issued.

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MOFCOM has a two-track review procedure, namely (i) standard procedure; and (ii) simplified procedure.

Under the standard procedure, upon accepting receipt of the notification, MOFCOM has 30 days in which to conduct an initial review (Phase I). However, it is important to note that Phase I will only commence when the filing is accepted. It is possible for MOFCOM to reject a filing as inadequate and request the addition of further information before it can be accepted. This pre-acceptance period can take 4 to 12 weeks. Merger control clearance is given when MOFCOM either decides not to conduct a further review, or it does not render a decision by the end of this period. If however, MOFCOM decides to conduct a further review, it will have an additional 90 days in which to conduct that review (Phase II), and, under the following circumstances, it can extend this additional period for another 60 days where (i) the parties agree to do so; (ii) the documents or information submitted is inaccurate and requires further verification; or (iii) a major change in the relevant circumstances occurs post-notification.

For qualified transactions, parties may apply for merger review under the simplified procedure. Subject to certain exceptions, the following transactions are qualified to be filed under the simplified procedure:

horizontal mergers when the parties combined market share in the overlap market is less than 15%;

vertical mergers when the parties market share in the relevant upstream and downstream market is less than 25%;

conglomerate mergers when the parties market share in their respective markets is less than 25%;

offshore joint ventures which do not engage in any economic activities in China;

the acquisition of equity or assets of an offshore target which does not engage in any economic activities in China; and

the reduction of the number of controlling shareholders in a joint venture which results in the joint venture being controlled by one or more of the remaining shareholders.

The parties need to self-assess whether a transaction satisfies the criteria for submission under the simplified procedure. It is possible to request a pre-notification consultation with MOFCOM to seek clarification. If the parties decide to apply for the simplified procedure, the notifying party must file a simplified notification form, a public notice and relevant documents with MOFCOM. The public notice should include information about the transaction including the purpose and an overview of the transaction, a brief introduction of the parties and the reason for applying for the simplified procedure.

Upon receipt of the application, MOFCOM will conduct a preliminary review and if the transaction satisfies the criteria for simple cases, MOFCOM will initiate the review of the transaction. Upon acceptance, MOFCOM will issue the public notice on its website for 10 days. During this period, any third party which thinks the transaction should not be considered as a simple case can submit comments and evidence to MOFCOM. Should MOFCOM conclude that the transaction does not meet the criteria of a simple case, MOFCOM can require the parties to re-notify the transaction under the standard procedure.

Traditionally, the merger review process in China has taken a significantly longer period compared to other jurisdictions. This is due to various factors, including MOFCOMs structural understaffing, several requests by MOFCOM for information and documents from the notifying parties, and the implementation of multiple third-party consultations involving industry associations, Chinese government authorities, competitors, customers and suppliers. MOFCOM officials have stated that the simplified procedure could see 60% of notified transactions cleared within 30 days. MOFCOM has indicated that it aims to clear transactions which qualify for the simplified procedure within Phase I. To date, all notified simplified transactions have been approved within Phase I.


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There is a separate system for national security review. MOFCOM has issued Guidelines for Implementation of Relevant Issues regarding National Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors. The Guidelines describe the process of the national security review and other relevant issues, such as, documents to be submitted and how review decisions are made.

Concentrations involving related parties are exempt from the notification requirement where:

one of the participating business operators holds more than 50% of the voting shares in or assets of each of the other business operators; or

more than 50% of the voting shares in or assets of each of the participating business operators is owned by the same non-participating business operator.

Enforcement activities Since 2008, MOFCOM has reviewed more than 800 transactions, comprising China-related transactions as well as global and regional foreign-to-foreign transactions.

To date, MOFCOM has prohibited two transactions ((i) Coca-Colas proposed acquisition of Chinese juice-maker, HuiYuan; and (ii) proposed establishment of the P3 Network Shipping Alliance by Maersk, MSC and CMA) and conditionally approved 24 transactions.

MOFCOM has issued guidance to govern how remedies should be negotiated, and the types of structural (including divestment of assets or business) and/or behavioural undertakings (including granting access to facilities, licensing critical intellectual property and terminating exclusive agreements) that can be considered to resolve competition concerns.

Remedies implemented have included, for example divestments of production capacity (Mitsubishi Rayon-Lucite; Pfizer-Wyeth; Penelope-Savio; Glencore-Xstrata); re-branding (Panasonic-Sanyo); discontinuing an existing brand (Novartis-Alcon); terminating an exclusive distribution agreement (Novartis-Alcon); non-discrimination in supply (General Motors-Delphi; Uralkali-Silvinit; GE China-Shenhua; Henkel-Tiande Chemical); crown jewel remedy (Mitsubishi Rayon-Lucite); undertakings affecting further acquisition or plant expansion (Anheuser Busch-Inbev; Mitsubishi Rayon-Lucite); maintaining current business practices (Google-Motorola); ensuring the independence of the target business (Seagate-Samsung; WD-HGST); and conditions imposed on seller to license standard essential patents under fair, reasonable and non-discriminatory terms (Microsoft-Nokia).

In December 2014, MOFCOM imposed a fine of RMB 300,000 on the state-controlled Tsinghua Unigroup for failure to report a notifiable transaction. MOFCOM found that the transaction had met the merger filing thresholds but was completed without obtaining clearance from MOFCOM. This was the first time MOFCOM has publicly named and fined a company for failure to report a notifiable transaction. This decision illustrates that MOFCOM is increasingly targeting unreported transactions.

Recent remedy decisions also show that MOFCOM is increasingly willing to enforce, as well as modify existing restrictive conditions. In December 2014, MOFCOM published a fining decision on a US multinational company for violation of a merger clearance condition. This is the first fining decision published by MOFCOM for such violation. In another recent decision, for the first time, MOFCOM agreed to a request to remove a restrictive condition imposed on a transaction. MOFCOMs decision was made on the basis that the affected party had sold the company acquired in the transaction in question.

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6. Other prohibitions

6.1 Government-related entities

Rules and regulations There was considerable debate in the early stages of enactment of the AML as to whether it would apply to State-Owned Enterprises (SOEs). Article 7 provides [w]ith respect to sectors that are the life-blood of the national economy or have a bearing on national security and in which the state-owned economy occupies a controlling position and sectors that are legally monopolized, the state protects the lawful business activities of the Business Operators active therein and adjusts and controls according to law the business activities of the said Business Operators and the prices of their goods and services, in order to safeguard the interests of consumers and promote technical progress. This suggests a degree of protection for SOEs from the AML. However, it goes on to say that business operators in those industries shall not harm the consumer interests by taking advantage of their controlling or exclusive dealing position. This seems to suggest that SOEs are subject to the AML and other PRC laws.

The ambiguity appears to have been resolved, to some degree at least, by recent cases which have been taken up against SOEs.

The AML also regulates abuses by administrative monopolies, an expression used in China to refer to abuses of administrative power by government agencies to eliminate or restrict competition. Although the SAIC is the agency with primary responsibility for addressing abuse of administrative power, both the NDRC and the SAIC have published rules addressing the administrative monopoly provisions in the AML.

The presumption of dominance for state owned companies and public utilities contained in the SPC Rules (see above) demonstrates that the courts are also willing to take cases in appropriate circumstances against SOEs and other businesses conferred by law to possess a dominant position.

Enforcement activities Since 2011, the NDRC has been investigating alleged price discrimination and abuse of dominance by China Telecom and China Unicom in the broadband access and inter-network settlement sector. This is the first antitrust investigation involving large SOEs and indicates that the NDRC is willing to actively prosecute monopolistic conduct by them. The NDRCs decision in this case is still pending. More recently in November 2014, the NDRC confirmed that it has launched an antitrust investigation into the state-owned China Railway Corporation for suspected anti-competitive behaviour.

Private actions There has been a gradual increase of private competition enforcement actions against SOEs and governmental agencies in recent years. For example, in January 2014, the Shanghai First Intermediate Court accepted a complaint filed by a consumer against the stated-owned China Telecom alleging abuse of a dominant market position in the prices it charged for broadband Internet and fixed-line telephone services. This case is currently on-going. In May 2014, the Guangzhou Intermediate Peoples Court accepted a complaint filed by a Chinese software company alleging the Guangdong Provincial Education Department was abusing its administrative power to restrict competition by handpicking another company as the exclusive software provider for a government-organised event.

These recent cases show that the Chinese courts are not unwilling to accept cases against SOEs and governmental agencies. However to date, there has been limited success on the part of the complainants.


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7. Penalties and liabilities The following penalties are available under the Anti-Monopoly Law:

(a) for concluding and implementing monopoly agreements, or abuses of dominant position - fines of up to 10% of the total turnover in the preceding year;

(b) confiscation of illegal income;

(c) fines of up to RMB500,000 for violations of merger control provisions; and

(d) the invalidation of agreements concluded in violation of the law, and cease and desist orders in respect of abuses of dominant position.

The Anti-Monopoly Law also allows private actions to be brought by parties who have suffered loss as a result of the contravention.

There are no criminal penalties for monopolistic conduct under the Anti-Monopoly Law.

8. Extraterritorial application The Anti-Monopoly Law aims to safeguard China against anti-competitive activity. As such, it applies to conduct both within China, and conduct outside China which has the effect of eliminating or restricting competition in the Chinese market.

9. Reform Further implementing regulations, guidelines and measures are under consideration by the Chinese legislative bodies and enforcement agencies. Amongst other topics these may provide additional guidance on treatment of intellectual property abuses and how the Anti-Monopoly Law will interface with intellectual property law (in particular refusal to license). The SAIC has been drafting rules on antitrust enforcement with regards to intellectual property rights since 2009. The latest 8th version of the draft rules was issued in June 2014 for public consultation. There has been numerous delays, though the rules are anticipated to be finalised in 2015.


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Hong Kong

In June 2012, Hong Kong enacted the Competition Ordinance (Cap. 619) (the Competition Ordinance), Hong Kongs first cross-sector competition law. The prohibitions in the Competition Ordinance are anticipated to come into force in the second half of 2015. Companies must comply with the prohibitions from the date they come into effect and any arrangements and conduct that continue from that point in time will be subject to the law and at risk (i.e. there are no grandfathering provisions).

1. Overview of competition laws

1.1 Concurrent jurisdiction: telecoms and broadcasting Until the Competition Ordinance enters into force, telecommunications and broadcasting are the only industries in Hong Kong subject to competition law. The Competition Ordinance will repeal the competition-related provisions in the Broadcasting Ordinance and Telecommunications Ordinance when the prohibitions in the Competition Ordinance come into force. From that point, broadcasting and telecommunications licensees will be subject to the Competition Ordinance.

The Competition Commission (the Commission) is the principal competition authority responsible for enforcing the Competition Ordinance (see Overview of the Competition Ordinance in section 1.2). Under the Competition Ordinance, the Communications Authority (CA) is conferred with concurrent jurisdiction with the Commission to enforce the Competition Ordinance in respect of the conduct of telecommunications and broadcasting licensees. The Commission and the CA are to agree and adopt a Memorandum of Understanding clarifying the responsibilities of each authority.

1.2 Overview of the Competition Ordinance The text of the Competition Ordinance draws influence from a number of sources, including European Union/United Kingdom, Australian, Singaporean and other competition laws. The prohibitions are general in nature and so further guidance will be essential in order for businesses to predict the scope and application of the law. At the time of writing (February 2015), draft guidelines3 were under public consultation. The fact that the guidelines remain to be finalised leads to some uncertainty as to how the law will be applied. However, the draft guidelines and various comments made by the Commission give some sense as to the likely approach.

The Competition Ordinance has three key prohibitions: (i) the First Conduct Rule, which prohibits anticompetitive agreements, arrangements and concerted practices (applying to both horizontal and vertical arrangements); (ii) the Second Conduct Rule, which prohibits abuse of a substantial degree of market power; and (iii) the Merger Rule, which prohibits mergers that substantially lessen competition (presently restricted to telecommunications carrier related mergers). The prohibitions apply to conduct whether engaged in within or outside Hong Kong, if it impacts on markets in Hong Kong.

There are substantial sanctions for breach, including penalties up to 10% of turnover obtained in Hong Kong for each financial year in which the infringement occurred, up to a maximum of three years and disqualification of directors for up to five years. Follow-on private actions are allowed and the Commission will be introducing a leniency regime to encourage self-reporting and whistle-blowing.

3 The draft guidelines were issued by the Commission for public comments on 31 October 2014. The Commission is expected to finalise the guidelines in the first half of 2015.

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2. Enforcement and administration The Competition Ordinance has a two-tier enforcement model: (i) a Commission; and (ii) a Competition Tribunal (Tribunal). The Commission has been established to investigate and bring proceedings in relation to alleged breaches of the Competition Ordinance. The Tribunal is a specialist division within the Hong Kong High Court, with primary responsibility to hear competition cases and issue decisions on breach, penalties and other relief. There are no stand alone rights of action. However, persons that have suffered loss or damage as a result of anticompetitive conduct may bring follow-on claims in the Tribunal to claim damages and other relief.

2.1 The Commission The Commission is responsible for investigation and bringing proceedings in relation to alleged breaches of the Competition Ordinance. The Commission is required to consist of at least five members appointed by the Chief Executive, and drawn from legal, economics and business backgrounds. On 1 May 2013, the Hong Kong government appointed the chair and 13 other members of the Commission. Members of the Commission are drawn from various sectors including law, economics, commerce, accounting, finance and consumer protection.

The Competition Ordinance requires the Commission to issue guidelines covering various aspects of substance and procedure, and to consult with the Legislative Council and the public on these. The guidelines cover the legality of many important commercial restrictions. At the time of writing (February 2015), the Commission had published six draft guidelines on:

complaints;

investigations;

exclusions and exemptions;

the First Conduct Rule;

the Second Conduct Rule; and

the Merger Rule.

The Commission has committed to publish further guidelines on:

rights and responsibilities of small and medium-sized enterprises;

leniency policy; and

enforcement policy.

The Commission is also actively issuing other publications such as leaflets and booklets to promote competition law compliance.

The Commission is empowered to investigate suspected infringements of the Conduct Rules, both on its own initiative and in response to complaints. The Commission has wide powers to obtain relevant documents and information in the course of an investigation, including the power to enter and search premises (if a search warrant has been obtained) and to seize documents. It is a criminal offence to obstruct the Commission in its investigations.


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If the Commission identifies a possible infringement, it may:

(a) decide that there is insufficient justification for action;

(b) accept a commitment which addresses the Commissions concerns (the commitment process may be initiated either by the Commission or the undertaking being investigated at any stage in an investigation or proceedings); or

(c) commence enforcement action.

The Commission must issue a Warning Notice before it can commence an action in the Tribunal in relation to a suspected contravention of the First Conduct Rule that does not involve Serious Anticompetitive Conduct (see succeeding paragraphs). The Warning Notice will provide parties under investigation with an opportunity to cease the conduct within a specified period.

Where the Commission has reasonable cause to believe that there has been a contravention of the First Conduct Rule involving Serious Anticompetitive Conduct and/or the Second Conduct Rule, the Commission may issue an Infringement Notice, although it is not required to do so. In the Infringement Notice, the Commission will offer not to bring proceedings on condition that the undertaking under investigation makes a Commitment to comply with the requirements of the notice within a specified compliance period.

At any stage, the Commission may refer a complaint to a Government agency. In addition, the Commission has the power to undertake market studies, which may be commenced whether or not an investigation has been commenced.

2.2 The Tribunal The Tribunal was established on 1 August 2013. It is a specialist court established within the High Court to hear competition cases. All judges of the High Court are members of the Tribunal as of right. The Judiciary, on 16 July 2013, announced the appointment of the Honourable Mr Justice Godfrey Lam Wan-ho as President of the Tribunal and the Honourable Madam Justice Queeny Au-Yeung Kwai-yue as Deputy President each for a term of three years with effect from August 1, 2013.

The Tribunal is empowered to hear competition cases and issue decisions on breach, penalties and other relief. The Tribunal is empowered to impose interim orders, pending a final decision of the Commission or Tribunal. The Tribunal will also hear appeals in relation to Commission exemption, exclusion and enforcement decisions.

Decisions of the Tribunal may be appealed to the Court of Appeal and, where appropriate, to the Court of Final Appeal.

There are no stand alone rights of action. However, persons that have suffered loss or damage as a result of anticompetitive conduct may bring follow-on claims in the Tribunal for damages and other relief.


Conduct rules The prohibitions in the Competition Ordinance apply to undertakings, defined as any legal entity or natural person engaged in an economic activity. The Competition Ordinance also applies to associations of undertakings. All industry sectors are covered unless expressly excluded. To date, the Commission has not issued any sector-specific exemption from the Competition Ordinance. There are, however, numerous statutory body exemptions proposed and the Hong Kong government has announced that it proposes to exempt Hong Kong Exchanges and Clearing, the operator of Hong Kongs stock market and futures market, and six of its subsidiaries from the Competition Ordinance.

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3.1 First Conduct Rule The First Conduct Rule prohibits any agreement, concerted practice or decision where the object or effect is to prevent, restrict or distort competition in Hong Kong. Within this, two types of conduct are identified:

Serious Anticompetitive Conduct (price-fixing, bid-rigging, market sharing and output restrictions); and

other anticompetitive conduct, which comprises any agreement, concerted practice or decision which is not Serious Anticompetitive Conduct, but which nevertheless has the object or effect of preventing, restricting or distorting competition in Hong Kong.

Where conduct falls within the category of Serious Anticompetitive Conduct, the Commission may take enforcement action against it without warning. Where conduct is not Serious Anticompetitive Conduct, a Warning Notice must first be issued before enforcement action can be taken. If the undertaking complies with the Warning Notice, it is protected from prosecution. If the undertaking does not comply with the Warning Notice within the specified time, the Commission may commence enforcement proceedings and the undertaking may be held liable if found to be in breach of the Competition Ordinance, but only for conduct that continued as from the date of the Warning Notice. The distinction between Serious Anticompetitive Conduct and other anticompetitive conduct under the First Conduct Rule therefore has important ramifications for businesses.

The draft guidelines state that the Commission will consider the following conduct to typically have the object of harming competition:

directly or indirectly fix prices or any other trading conditions;

limit or control production, markets, technical development or investment;

share markets or sources of supply;

big-rigging;

exchange of future price and quantity information;

group boycotts; and

resale price maintenance.

Where conduct falls into these categories, the Commission states that it will be regarded by its very nature to be so harmful to the proper functioning of normal competition in the market that there will be no need to examine its effects. In other words, such conduct will be presumed to be anticompetitive. It is important to note that the Commission reserves the right to supplement the above list.

Other conduct may be considered by the Commission to have the effect of harming competition. For such conduct, the Commission will apply a rule of reason analysis to assess whether, in the circumstances, such arrangements are anticompetitive. The draft guidelines give the following examples of conduct that might fall into this category (although this list is not exhaustive):

joint purchasing agreements;

exchange of information other than future price and quantity information;

standard terms and standardisation agreements;

membership and certification restrictions;

certain joint ventures;


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exclusive distribution or customer allocation agreements; and

recommended and maximum resale price restrictions.

Agreements can be exempted from the First Conduct Rule by the Commission on an individual basis or via a block exemption (see Exceptions in section 5). In a departure from the practice in a number of established competition law jurisdictions, the Commission is not proposing any safe harbours or block exemptions for companies with low market shares. Accordingly, undertakings generally need to self-assess the potential competition impact of agreements where they are concerned that they might have an anticompetitive effect and they can, in certain circumstances, seek decisions from the Commission to get some clarity.

The draft guidelines specifically provide that exclusive distribution or customer allocation agreements will generally be subject to an effect-based analysis by the Commission. In making the assessment, the Commission stated that it will consider factors including how intra-brand and inter-brand competition is affected, the extent of the territorial and/or customer sales limitations, and whether exclusive distributorships are common generally in the markets impacted by the agreements.

4. Abuse of dominant position

4.1 Second Conduct Rule The Second Conduct Rule prohibits the abuse of a substantial degree of market power where the object or effect of the conduct is to prevent, restrict or distort competition in Hong Kong.

The draft guidelines provide that in general an analysis of market share may be useful as an initial screening device for an assessment of whether an undertaking has a substantial degree of market power, and that undertakings are more likely to have a substantial degree of market power where they have high market shares. However, there has been no guidance from the Commission as to a specified market share safe-harbour or presumptive threshold over which a substantial degree of market power might be presumed.

The Competition Ordinance provides that the following matters (among other relevant matters) may be taken into consideration when making a determination:

(a) the market share of the undertaking;

(b) the undertakings power to make pricing and other decisions; and

(c) any barriers to entry to competitors into the relevant market.

The Competition Ordinance expressly refers to two examples of abuse, namely:

(a) behaviour to exclude competitors (such as predatory pricing, refusal to supply, exclusive dealing, margin squeeze conduct, or tying/bundling of products); and

(b) behaviour that harms consumers (such as, limiting production, markets or technical development).

The Commission has indicated in the draft guidelines that as a general matter, competition concerns will only arise in vertical agreements (other than resale price maintenance) where there is some degree of market power at either the level of the supplier, the buyer or at the level of both. Based on these comments, one would expect the Commission to take the view that vertical agreements between small and medium-sized enterprises would rarely be capable of harming competition. Based on the language of the draft guidelines, it is likely that non-price related vertical restraints will be subject to an effect-based analysis on a case by case basis to determine whether they have the effect of harming competition.

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5. Exceptions

5.1 Statutory bodies The Competition Ordinance does not apply to statutory bodies, except those specified in a separate list that are subject to approval by the Chief Executive in Council. Statutory bodies are persons, incorporated or unincorporated, established under an Ordinance, or constituted or appointed by an Ordinance, but do not include companies, trustees, societies, co-operatives and trade unions. The Hong Kong government reviewed 581 statutory bodies and recommended that six statutory bodies are subject to the Competition Ordinance, namely: the Federation of Hong Kong Industries, Federation of Hong Kong Industries General Committee, Helena May, Kadoorie Farm and Botanic Garden Corporation, Matilda and War Memorial Hospital and Ocean Park Corporation.

The Competition Ordinance includes a mechanism through which the Chief Executive may revoke the general exclusion for a particular statutory body and/or specific activities they undertake. It has been stated that this will only take place where the body in question competes with other undertakings in an area not directly linked to the provision of public services, is damaging economic efficiency, and there is no public policy reason to maintain the exclusion.

5.2 Other exclusions The Ordinance also contains:

(a) an exclusion from the First Conduct Rule for agreements enhancing overall economic efficiency, either by improving production or distribution, or by promoting technical or economic progress, provided that these agreements do not impose unnecessary restrictions and do not eliminate competition in respect of a substantial part of the market in question;

(b) an exclusion from the First Conduct Rule for agreements that are made for the purpose of complying with Hong Kong or Mainland Chinese legal requirements; and

(c) an exclusion from the First and Second Conduct Rules for undertakings entrusted with the operation of services of a general economic interest, or where the prohibition would obstruct it from carrying out its assigned tasks.

The Ordinance further provides that the Chief Executive in Council may by regulation not apply the Competition Ordinance to any person and/or specific activities they undertake. The Hong Kong government has proposed to introduce subsidiary legislation to exempt Hong Kong Exchanges and Clearing, the operator of Hong Kongs stock market and futures market, and six of its subsidiaries from the Competition Ordinance.

5.3 De minimis regime for SMEs4 Schedule 1 provides a de minimis framework, excluding from the First Conduct Rule all agreements between business operators with a combined annual turnover not exceeding HKD200 million in the preceding financial year. This exclusion does not apply to infringements involving Serious Anticompetitive Conduct. Undertakings with an annual turnover of less than HKD40 million are excluded from the Second Conduct Rule.

5.4 Exemptions The Commission may also grant (i) block exemptions for categories of agreement that enhance overall economic efficiency, and (ii) specific exemptions if there are exceptional and compelling public policy grounds to do so, or in order to avoid conflict with international obligations. Exemptions are limited in duration and scope. To date, the Commission has not issued any such exemption.

4 The Commission has committed to publish guidelines on rights and responsibilities of small and medium-sized enterprises, which is expected to provide guidance on the de minimis exemption. As of the date of writing (February 2015), these guidelines have not yet been published.

asiapacificantitrustcompetitionguidebook.pdf

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