Since the outbreak of the Novel Coronavirus (“COVID-19”), the State Administration for Market Regulation (“SAMR”) has published several price-related circulars and guidelines. SAMR is the body responsible for antitrust and it guides the implementation of the fair competition review system by issuing guidelines that have the purpose of protecting life, safety and health of the public, maintaining fair competition and prohibiting activities in violation of PRC law.
In accordance with these circulars and guidelines, the SAMRs and provincial level authorities (collectively, the “PRC Authorities”) have prioritized their law enforcement powers and imposed stricter penalties on companies that were in violation of the relevant price-related laws and regulations especially in connection with food, masks and pharmaceuticals which are essential to the daily life of the public during the COVID-19 crisis.
So far, the SAMR has not issued any competition law related guidelines directly in connection with COVID-19. However, if the legal conditions as set forth in the PRC Anti-Monopoly Law (“AML”) are met, it is likely that some of the cases which have been investigated and punished by the PRC Authorities according to price-related laws and regulations might also violate the AML. Below is on overview of the possible impact of COVID-19 on companies from the perspective of the AML.
- According to Article 13 of the AML, horizontal monopoly agreements (i.e. agreements between competing undertakings which contain clauses of price fixing, output restrictions, market divisions and customer allocation, restricting new technology as well as collective boycott) are illegal unless the concerned undertakings can prove that the exemption requirements (“Exemption Requirements”) as listed in Article 15 of the AML are met (see below).
- According to Article 14 of the AML, vertical monopoly agreements (i.e. agreements between an undertaking and its trading counterparties which contain clauses of resale price maintenance and minimum price fixing) are illegal unless the concerned undertakings can prove that the Exemption Requirements are met.
- According to Article 15 of the AML, an exemption situation exists when undertakings can prove that the monopoly agreements they entered into are for the purposes of:
- improving technology or research and development,
- enhancing product quality,
- reducing costs,
- improving product efficiency or unifying product specifications or standards,
- enhancing overall competitiveness of small and medium sized enterprises, or
- aiming at achieving public interests such as environmental protection or energy conservation.
Further, the concerned undertakings must also prove that the following two conditions are met; (i) the agreement in question will not substantially restrict competition in the relevant market; and (ii) it can enable the consumers to share the benefits arising out of the agreement in question.
- There are no block exemptions in China yet. Further, it is not possible for an undertaking to obtain an individual exemption for a monopoly agreement under the AML. Therefore, the undertakings in question must rely on their self-assessment of whether the Exemption Requirements in Article 15 of the AML are met. Based on the publicly available decisions of the PRC Authorities, so far there are no monopoly agreements as stated in Articles 13 and 14 of the AML which have been exempted according to Article 15 of the AML.
- It shall also remain to be seen whether the PRC competition authorities under the current situation will grant the exemption to an undertaking which enters into monopoly agreements (e.g. with regard to logistics) with its competitors as stated in Article 13 of the AML (or Article 14 of the AML).
- Therefore, it is suggested that an undertaking should not conduct activities that are set out in Article 13 of the AML, especially fixing prices of relevant products (e.g. masks), exchanging anti-competitive information or allocating markets or customers with its competitors under the current situation.
- It is also suggested that an undertaking should not enter into agreements with its trading counterparties containing clauses of resale price maintenance and minimum price fixing as stated in Article 14 of the AML.
- According to notices from some PRC Courts located in Beijing, Shanghai and Guangzhou, the way how cases are registered for hearing was also changed. The plaintiff should apply to register the case for hearing online or by post.
- The hearing procedures for pending antitrust-related cases will likely be delayed due to the impact of COVID-19.
3. Abuse of market power
- According to Article 17 of the AML, an undertaking with a dominant position on the relevant market shall be prohibited from abusing its dominance by carrying out activities such as imposing unfair purchase or selling prices, below-cost selling, refusing to deal with would-be customers, limiting relevant trading counterparties to conduct deals exclusively with it or its designated parties, imposing unfair trading conditions, or applying dissimilar conditions to equivalent transactions with other trading parties.
- Under the current situation, it is most likely that the undertakings, which sold relevant products at unfair high prices or conducted tie-in sales and were, therefore, investigated and punished by the PRC Authorities in accordance with price-related laws and regulations, might also be subject to investigations and penalties according to the AML if they have a dominant position on the relevant market.
- An undertaking will be considered to have a dominant position on the relevant market according to Article 18 of the AML, if it has a number of factors indicating “dominance”, including, market share of the concerned undertaking, the conditions of competition on the relevant market, the ability of an undertaking to control the sales market or the raw material purchasing market, the extensive financial wealth or resources and the technology level of an undertaking and barriers to expansion and entry to the relevant market with respect to other undertakings.
- It is also suggested that an undertaking should create, develop, improve and implement its compliance scheme and train its staff about antitrust law and price-related laws and regulations.
4. Merger control
- Currently the turnover thresholds and the notification review procedures on merger control filings remain the same.
- However, the process for submitting notification documents for merger control review has changed in accordance with a public notice issued by the Anti-Monopoly Bureau (“AMB”) of the SAMR on 5 February 2020. The application documents should be submitted online or by post by the notifying parties. Similarly, the AMB’s documents and decisions will be delivered by the AMB to the applicants either via email or by fax. In addition, the AMB has also posted its office telephone numbers publicly on its website in order for the public to make phone consultations.