Brief Introduction to Anti-monopoly Law (2022 Amendment)
Anti-monopoly Law of the People's Republic of China (Draft Amendments) （hereinafter referred to as “Anti-monopoly Law”） was adopted by the Standing Committee of the National People's Congress on June 24, 2022; new Anti-monopoly Law was put into effect on August 1, 2022. This amendment is the first amendment for the past 14 years since it came into force on 1 August, 2008.
The scope of this amendment to the Anti-monopoly Law is broad, relating to amendments on seven chapters of “General Provisions”, “Monopoly Agreements”, “Abuse of a Dominant Market Position”, “Concentration of Operators”, “Abuse of Administrative Powers to Preclude or Restrict Competition”, “Investigation of Suspected Monopolistic Conduct” and “Legal Liability”, etc. The total number of the articles has been increased from 57 to 70, with 12 newly added articles and one article split into two. Hereinafter is the introduction of the 6 points from the amendment deserving attention.
1. Introduction of a "special article" on anti-monopoly for digital platforms
Newly added Article 9 of this amendment stipulates “Operators shall not use data and algorithms, technology, capital advantages and platform rules, etc., to engage in the monopolistic behavior prohibited by this Law”. And in Article 22 the provision of “Operators holding dominant market positions shall not engage in the actions of the abuse of dominant market positions by utilizing data or algorithms, technology and platform rules, etc.” is newly added.
This is the first time that monopolistic behaviors in the platform economy field have been regulated by law.
In 2021 China clamped down on Internet monopolistic behaviors. The State Administration for Market Regulation imposed administrative penalties on "Alibaba" and "Meituan" for their monopolistic behavior, for heavy fines of RMB 18.228 billion and RMB 3.442 billion, respectively, which refreshed the public knowledge on Internet anti-monopoly. The National Anti-Monopoly Bureau was inaugurated in November 2021, marking the formal formation of the structure of a unified administrative enforcement of anti-monopoly in China.
Internet platforms are important for people's livelihoods and are an important channel for providing services to consumers; at the same time, based on the direct and indirect effects of the platform and the monopoly of big data, the top companies have formed a huge barrier to entry in the platform economy, and there is a phenomenon of "winner takes all". Therefore, the new "special article" on anti-monopoly for digital platforms is one of the highlights of this amendment. Under the provisions of the above-mentioned articles, the relevant industries will be at risk of violating the Anti-monopoly Law by abusing data and algorithms, technology, capital advantages and platform rules, etc.
2. Introduction of “Safe Harbor” rules for vertical agreements
In Article 18 of the “Monopoly Agreements” chapter of the new Anti-monopoly Law, internationally accepted "Safe Harbor" rule was added, with regard to three prohibited situations for vertical monopoly agreements (i.e., those that fix the price of goods resold to a third party; those that limit the lowest price of goods resold to a third party; other monopoly agreements as determined by the State Council anti-monopoly law enforcement agency), which are “Where an operator can demonstrate that its market share in the relevant market is below the threshold prescribed by the State Council anti-monopoly law enforcement agency, and that it meets other conditions prescribed by the State Council anti-monopoly law enforcement agency, is not prohibited”.
This means that the "Safe Harbor" rule applies only to vertical monopolistic agreements and excludes horizontal price fixing agreements from the "Safe Harbor".
Previously, in Article 13 of the Anti-monopoly Guidelines in the Field of Intellectual Property issued by the State Council in 2019, the market share of operators in horizontal monopoly agreements and vertical monopoly agreements respectively stipulated that "the total market share of operators with competitive relationship in the relevant market shall not exceed 20%", and "the market share of operators and trading counterparties in any relevant market affected by the agreement involving intellectual property rights shall not exceed 30%". To complement the concrete implementation of the new Anti-monopoly Law, the Provisions on Prohibition of Monopoly Agreements (Draft for Public Comments) were made available for public consultation in June 2022. This means that the previously existing enforcement standards of the anti-monopoly law enforcement agency in the field of intellectual property rights are also facing adjustments, and companies in the relevant fields will face a greater compliance test.
The introduction of the "Safe Harbor" rule into the field of anti-monopoly law marks the further improvement of the legislation and enforcement system of the Anti-monopoly Law. The effective implementation of the "Safe Harbor" rule still needs the issuance of subsequent supporting rules and the publication of applicable standards for relevant cases.
3. Newly added Hub-and-Spoke Agreement
In Article 19 of new Anti-monopoly Law it stipulates “Operators are prohibited from organizing other operators to conclude monopoly agreements or providing substantive assistance to the conclusion of monopoly agreements by other operators”.
The monopoly agreements in Article 19 are the Hub-and-Spoke Agreements, also called “Hub-and-Spoke conspiracy”. Traditionally, monopoly agreements fall into two main categories, horizontal agreements that take place among competitors and vertical agreements that take place between upstream and downstream firms. In practice, the forms of monopoly agreements are no longer limited to the traditional horizontal and vertical ones, but are enriched by the continuous development of the economic sector. In order to better combat monopolistic behavior, hub-and-spoke agreements are complementary to horizontal and vertical monopolistic agreements. This amendment also regulates the hub-and-spoke monopoly agreement model.
With the implementation of the new Anti-monopoly Law, not only will the "spokes" directly involved in the conspiracy be punished, but the "hubs" who helped the conspiracy will also be held liable. Companies need to ensure not only that they are not directly involved in the monopoly agreement in question, but also that they do not aid or facilitate other companies in entering into monopoly agreements.
4. Improving the declaration system for Concentrations of Operators
The current amendments to the Anti-monopoly Law have added Article 32 and Article 37 on the concentration of operators, which introduces a Stop-the-Clock system for the concentration declaration and a classification and grading review system, respectively.
For the Stop-the-Clock system, under specific circumstance, the State Council anti-monopoly law enforcement agency may decide to suspend calculating the period for reviewing a concentration of operators (in general, the review period shall not exceed a maximum of 180 days from the date of filing), and notify the operators in writing. This is to reduce the probability of duplicate cases being filed. In practice, prior to the implementation of the new Anti-monopoly Law, the declaring party had to withdraw the application and resubmit it at the expiry of the deadline and even withdraw and submit it several times to refresh the time limit because the reviewing deadline had expired without obtaining approval. The introduction of the Stop-the-Clock system is to reduce the procedural crowding out of review time and to avoid unnecessary duplication of withdrawals and re-declarations, thereby improving the completeness and efficiency of declarers' submissions.
For the classification and grading review, the key points lie in: (i) classification: differentiating industries and setting the focus of the required review for the characteristics of different industries to enhance the efficiency and relevance of the review; (ii) grading: catching the large ones and relaxing the small ones, screening the key focus industries as well as the types of operator of concentrations within the same industry. The aim of the classification is to improve the quality and efficiency of the review.
Further, in Anti-monopoly Law, it is newly added in Article 26.2 the provision under which operators may be requested to make declarations, i.e., where a concentration of operators does not meet the declaration criteria prescribed by the State Council, but there is evidence showing that it has or may have the effect of eliminating or restricting competition, the State Council anti-monopoly law enforcement agency may request the operators to make a declaration. The cost of violating the law by concentration of operators is treated in the same way as monopoly agreements and abuses of dominant position, i.e. linked to sales volume in the previous year. In Article 58 of the Anti-monopoly Law it stipulates clearly “Where operators concentrate in violation of the provisions of this Law and have or may have the effect of eliminating or restricting competition, a fine of Less than 10 percent of their sales volume from the previous year will be imposed; where there is no effect of eliminating or restricting competition, a fine of Less than RMB 5,000,000 will to be imposed”.
With the implementation of the new Anti-monopoly Law and the improvement of the concentration of operators’ declaration system, the anti-monopoly enforcement agency may subsequently continue to increasing their enforcement efforts in the area of operators’ concentration declaration. The review of concentration of operators adopts an ex ante review model. Operators are required to make the declaration of concentration of operators in advance, submit the declaration documents in a timely manner, cooperate with the investigation of the anti-monopoly enforcement agency and avoid economic losses due to the delay of the declaration.
5. Clearly cracking down administrative monopoly
With respect to administrative monopoly, the new Anti-monopoly Law regulates the establishment of a fair competition review system (Articles 5 and 45); the extension of the scope of actors of administrative monopoly (Articles 10 and 39-45); the prohibitions of the abuse of administrative power to enter into cooperation agreements with operators to exclude or restrict competition (Article 40); both the "eliminations of the local protection" and "prevention of local discrimination" (Article 43); the addition of the procedures for interviews and investigations to strengthen deterrence (Articles 54 and 55) and the clarification on the sanctions of the responsible persons and the addition of the responsibility for report correction (Article 61).
The new Anti-monopoly Law elevates the fair competition review system to the height of law, realizes the whole process of regulation of administrative monopoly acts from intermediate and post-event regulation to ex-ante prevention, intermediate and post-event prohibition, from soft restraint up to rigid restraint.
6. Substantial increase in liability for violations
The new Anti-monopoly Law substantially increases the upper limit of penalties in terms of monopoly agreements, concentration of operators and refusal to cooperate with investigations. It also imposes a "double penalty system" for monopolistic behavior, i.e. penalizing not only the unit but also the person in charge. In terms of penalty amounts and standards, the new Anti-monopoly Law has also made corresponding amendments compared to the 2008 Anti-monopoly Law, as follows.
From the above comparison of the old and new Anti-monopoly Law, it can be seen that this amendment has consummated the penalty standards for monopoly violations, with increasing the personal liability of the person primarily responsible for entering into a monopoly agreement, increasing the amount of penalties for cases of concentration of operators and obstruction of investigations; and added a new system of "multiple penalty". In addition, the new Anti-monopoly Law introduces a new credit record system (Article 64) and criminal liability (Article 67). In other words, the new Anti-monopoly Law has greatly increased the cost of monopoly violations for enterprises and individuals.
The effective implementation of the new Anti-monopoly Law still depends on the introduction of subsequent supporting rules and further clarification of practice, thus to bring definite and clearer guidance to enterprises in their anti-monopoly compliance. Enterprises should also pay more attention to the development of relevant laws and regulations, and consider their own situation to make appropriate compliance strategies.