Overview on the Guidelines for the Application of Leniency Program in Horizontal Monopoly Agreement Cases

In early August 2020, the Anti-Monopoly Bureau (“AMB”) of the State Administration for Market Regulation (“SAMR”), in the form of a book (“Book”) titled “A Collection of Antitrust Regulations and Guidelines in 2019”, published the Guidelines for the Application of Leniency Program in Horizontal Monopoly Agreement Cases, together with three other guidelines, i.e. the Antitrust Guidelines for the Automobile Industry, the Guidelines on Undertakings’ Commitments in Antitrust Cases, and the Antitrust Guidelines on the Abuse of Intellectual Property Rights (collectively, the “Four Guidelines”). According to the explanations stated in the Book, the Four Guidelines were approved by the Anti-Monopoly Commission under the State Council and took effect on 4 January 2019, however, in fact they were only disclosed to the public in August 2020.

Before the Guidelines for the Application of Leniency Program in Horizontal Monopoly Agreement Cases (“Leniency Program Guideline”) took effect, the National Development and Reform Commission (one of the former competition authorities) published the Guidelines for the Application of the Leniency Program to Cases Involving Horizontal Monopoly Agreements (“Draft Guideline”) for public comments on 2 February 2016. According to the explanations stated in the Book, the Office of the Anti-Monopoly Commission made further amendments to the Draft Guideline according to expert opinions and comments of the public.

Below is an overview on the key aspects of the Leniency Program Guideline.

1. Scope of Application for the Leniency Program

According to the PRC Anti-Monopoly Law (“AML”), where a company as a party to a monopoly agreement voluntarily reports the relevant circumstances of the conclusion of such monopoly agreement and provides important evidence thereof, the PRC competition authorities may at their discretion grant exemption from penalties or mitigation of penalties. In other words, the PRC competition authorities may be lenient towards such company.

a) Horizontal monopoly agreement cases

According to the Leniency Program Guideline and the explanations stated in the Book, the Leniency Program shall be applicable only to horizontal monopoly agreements (“Monopoly Agreement” for this Newsletter purposes only). In other words, the Leniency Program will not be applicable to vertical monopoly agreements.

However, both the AML and the Interim Provisions on the Prohibition of Monopoly Agreements, as to the Leniency Program refer to “monopoly agreements” in general, which include both horizontal monopoly agreement cases and vertical monopoly agreement cases. Therefore, it remains to be seen whether the Leniency Program will despite the wording of the Leniency Program Guideline nevertheless also be applicable to vertical monopoly agreement cases in practice in the future.

b) According to the Leniency Program Guideline, for companies which organize or coerce other companies to conclude and/or implement Monopoly Agreements or prevent other companies from stopping illegal practices, the PRC competition authorities shall not grant exemptions from penalties but may impose mitigated penalties on such companies.

2. Time of Application for the Leniency Program

A company which applies for the Leniency Program may make such application at any of the following time points, i.e. (i) before an investigation is launched by the PRC competition authorities; (ii) before a case is filed for investigation purposes; (iii) after a case was filed for investigation purposes; or (iv) before the Advance Notice of Administrative Penalty issued by the PRC competition authorities is served.

However, the legal consequences for the applicant will be different depending at which time point the application is made. Please see Item 3 below for more details.

3. The detailed consequences of the Leniency Program include (i) exemption from penalties; and (ii) mitigation of penalties.

a) Requirements for exemption from penalties

(1) For the first company which applies for the exemption from penalties, the PRC competition authorities shall issue a written receipt to such company, provided that such company has submitted both (i) a report on the Monopoly Agreement (“Report”); and (ii) the important evidence (“Important Evidence”).

(a) The Report shall contain the following information, including, among others:

• participants of the Monopoly Agreement and their basic information (including, but not limited to names, addresses, contact information and representatives);
• situations of the Monopoly Agreement (including, but not limited to time, place and content of communications and participants);
• contents of the Monopoly Agreement (including, but not limited to products or services, price and quantity) as well as the details of the conclusion and/or implementation thereof;
• scale of regions and markets that may be affected;
• duration of implementing the Monopoly Agreement;
• explanations of the evidence; and
• whether an application under a Leniency Program was also made to overseas authorities.

b) The term “Important Evidence” refers to:

• evidence that is sufficient to enable the PRC competition authorities to launch an investigation procedure, if the PRC competition authorities have not yet obtained information on a case or evidence for the case; or
• evidence which has not been acquired by the PRC competition authorities, but it will enable the PRC competition authorities to determine that the documents constitute the monopoly agreements set forth in Article 13 of the AML, either after the PRC competition authorities have filed the case for investigation purposes or after the PRC competition authorities have launched investigation procedures according to the AML.

(2) The registration system

For the first company which applies for exemption from penalties, if such company submits the Report only, but fails to submit the Importance Evidence (or the submitted evidence is not sufficient), according to the registration system (i.e. the “marker” system) stated in the Leniency Program Guideline, the PRC competition authorities may still register the application of such company and will issue a written receipt as mentioned in Item 3 a) (1) above to such company. In the meanwhile, the PRC competition authorities shall request such company to submit all the required outstanding Important Evidence within a period of up to 30 days (which might be extended up to 60 days in specific circumstances) (“Time Frame”).

(a) In case such company submits the outstanding Important Evidence in the Time Frame, the PRC competition authorities shall regard the time that they first received the Report as the application time for the exemption from penalties.

(b) If such company fails to submit the Important Evidence in the Time Frame, the PRC competition authorities will disqualify such company to constitute the first company which has applied for the exemption from penalties.

Under this circumstance, the first company which has applied for mitigated penalties as mentioned in Item 3 b) below will automatically be upgraded to be deemed as the first company which applies for exemption of penalties.

(3) Other requirements

According to the Leniency Program Guideline, in order to qualify for the Leniency Program, company must also meet other requirements (“Other Requirements”), including, but without limitation:

• stop the illegal practices immediately;
• comprehensively cooperate with the PRC competition authorities in their investigation;
• properly keep and provide evidence and information;
• not disclose any information about the application for the Leniency Program prior to the approval of the PRC competition authorities; and
• not conduct any other activities which may affect the antitrust enforcement investigation.

b) Requirements for mitigation of penalties

Any company whose application time for the Leniency Program is later than that of the company mentioned in Item 3 a) (1) above may apply for mitigation of penalties. Such company shall submit qualified report and important evidence.

(1) The qualified report shall contain the following information, including, but not limited to:

• participants of the Monopoly Agreement;
• products or services in question; and
• time of the conclusion and/or implementation and the region of the Monopoly Agreement.

(2) The important evidence shall be information which has not yet been acquired by the PRC competition authorities. Further, such information shall constitute very convincing evidence, and it will enable the PRC competition authorities to finally determine the existence of the monopolistic conduct.

(3) In addition, such company must also meet Other Requirements stated in Item 3 a) (3) above.

c) Range of penalties

According to the Leniency Program Guideline, generally, the PRC competition authorities will only grant leniency to three qualified applicants for the Leniency Program (“Qualified Applicant”) at most:

(1) For the first Qualified Applicant, the PRC competition authorities may either (i) grant exemption from all penalties; or (ii) impose mitigated penalties of no less than 80% of all penalty amount;

(2) For the second Qualified Applicant, the PRC competition authorities may impose mitigated penalties of between 30% and 50% of all penalty amount;

(3) For the third Qualified Applicant, the PRC competition authorities may impose mitigated penalties of between 20% and 30% of all penalty amount.

For all the other Qualified Applicants, the PRC competition authorities may at their discretion impose mitigated penalties of no higher than 20% of all penalty amount.

According to the Leniency Program Guideline, the term “penalty” refers to the amount of fines to be imposed by the PRC competition authorities on the companies in violation of the AML.

d) Range of confiscation of illegal income

In case of illegal income derived from Monopoly Agreements, the PRC competition authorities may handle it by referring to the stipulations on penalties stated in the Leniency Program Guideline.

4. Conclusions

According to the explanations stated in the Book, during the period between the effectiveness date of the AML in 2008 and November 2019, total antitrust fines for both horizontal and vertical monopoly agreements imposed by the PRC competition authorities amounted to approximately RMB 4.382 billion. However, in the past the application of the Leniency Program has not been very commonly seen in practice, because the stipulations on the Leniency Program in the AML just set out the principles and lack express and operational guidance for the companies.

Therefore, through a more detailed and implementable Leniency Program, the Leniency Program Guideline will build a more transparent and predictable law enforcement environment for companies. Further, it will create a more standardized and efficient enforcement methodology for the PRC competition authorities. Thus, it will help to lower the enforcement costs of the PRC competition authorities and improve fair competition environment for the companies.

This article was authored by Aiping Bao who has now left CMS.