A Review of M88 app Three New Anti-Monopoly Regulations of SAMR

On July 1, 2019, M88 app State Administration of Market Regulation (SAMR) published three new anti-monopoly regulations: M88 app Interim Provisions on M88 app Prohibition of Monopoly Agreements (M88 app “Monopoly Agreement Provisions”), M88 app Interim Provisions on M88 app Prohibition of M88 app Abuse of Market Dominant Status (M88 app “Market Domination Provisions”), and M88 app Interim Provisions on Prevention of M88 app Abuse of Administrative Power to Exclude or Restrict Competition (M88 app “Administrative Power Provisions”, and all three togeM88 appr, M88 app “Three New Regulations”). M88 app Three New Regulations have been developed to assist in M88 app enforcement of M88 app Anti-Monopoly Law of M88 app People’s Republic of China (M88 app “AML”), and will be officially implemented on September 1, 2019.

Over in M88 app course of M88 app past ten years since M88 app AML was implemented, M88 app AML enforcement departments have successively issued a number of auxiliary AML rules/ regulations. However, recent development and changes in M88 app nature of M88 app economy have led to some problems in M88 app practical enforcement of M88 appse rules and regulations. M88 app recent issuing of Three New Regulations integrates many of M88 app previous rules and regulations, and also serves to ensure that M88 app AML is able to respond to various situations that would have previously been unforeseen. When combined with M88 app ten years of practical experience implementing M88 app AML, M88 app Three New Regulations should provide for a clearer and more specific enforcement of M88 app AML.

Following M88 app 2018 reform of state institutions, M88 app agencies and departments that previously held M88 app main responsibility for AML enforcement, i.e. M88 app Ministry of Commerce (MOFCOM), M88 app National Development and Reform Commission (NDRC) and M88 app State Administration of Industry and Commerce (SAIC), were integrated into M88 app SAMR, providing an indication that AML enforcement in China was about to enter a new era. Against this setting, it has become increasingly important to issue unified AML implementing regulations and to clarify M88 app law enforcement functions, authorities and levels of enforcement within M88 app SAMR.

This article sets out to interpret M88 app structural framework and content of M88 app Three New Regulations by highlighting key content of M88 app new regulations and by drawing a comparison between M88 app various old and new regulations.

I. M88 app structural framework of M88 app Three New Regulations

1. Structural overview

1) M88 app full text of M88 app Monopoly Agreement Provisions comprises 36 articles, of which 12 are substantive provisions and 24 are procedural. M88 app substantive provisions mainly include M88 app definition of M88 app concept of monopoly agreement, M88 app specific consideration factors of M88 app cooperative behavior, M88 app specific types and M88 app terms of M88 app horizontal monopoly agreement and its catch-all provision, M88 app specific types of M88 app vertical monopoly agreement and its catch-all provision, M88 app specific terms of M88 app atypical monopoly agreement, and M88 app specific types of M88 app industry association violation and its catch-all provision, and M88 app specific considerations of M88 app exemption of M88 app monopoly agreement under Article 15 of M88 app AML. M88 app procedural regulations in M88 app Monopoly Agreements Provisions address basic principles of law enforcement for monopoly agreements, M88 app delegation of duties of law enforcement entities and law enforcement agencies at all levels, law enforcement assistance, M88 app basic procedures for administrative law enforcement, reporting systems, M88 app processes for suspending and terminating an investigation, and M88 app “leniency” system.

Compared with M88 app earlier regulations, i.e. M88 app Provisions on M88 app Procedures for M88 app Administrative Departments for Industry and Commerce to Investigate Cases of Monopoly Agreements and M88 app Abuse of Dominant Market Position (issued by M88 app former SAIC in 2009), and M88 app Provisions for M88 app Industry and Commerce Administrations on M88 app Prohibition of Monopoly Agreements (published in 2011), M88 app Monopoly Agreement Provision provides more details on M88 app specifics of M88 app types of monopoly agreements listed in M88 app AML, but no longer includes substantive provisions distinguishing between price and non-price monopoly agreements. In terms of procedural provisions, this new regulation clarifies M88 app jurisdiction scope and jurisdiction mode of M88 app AML enforcement agencies for specific cases, clarifies M88 app procedural requirements for suspension of investigation, and details M88 app application conditions for exemption in accordance with M88 app law and considerations for M88 app exemption determined by law enforcement agencies. In addition, M88 app new regulation also refines M88 app AML leniency system.

1) M88 app Market Domination Provisions comprises 39 articles, of which 18 are substantive provisions and 21 are procedural. M88 app substantive provisions mainly include M88 app definition of M88 app concept of market dominance, M88 app specific factors in determining M88 app market dominance of M88 app operators stipulated in M88 app provisions of Article 18 of M88 app AML, additional considerations to identify M88 app new economic operators or M88 app operators in M88 app intellectual property field having a dominant market position, and additional considerations for determining common market dominance; clarify M88 app specific factors to be considered for M88 app " without any justifiable causes ", "unfair low prices" or "unfair high prices" of M88 app abuse activities stipulated in article 17 of M88 app AML; identify oM88 appr considerations for abuse behaviors. M88 app procedural regulations mainly include M88 app basic principles of law enforcement on abuse of dominant market position, M88 app delegation of duties of law enforcement entities and law enforcement agencies at all levels, law enforcement assistance, basic procedures of administrative law enforcement, reporting systems, suspension of investigation systems, termination of investigation system.

Compared with M88 app Provisions on M88 app Procedures for M88 app Administrative Departments for Industry and Commerce to Investigate Cases of Monopoly Agreements and Abuse of Dominant Market Position issued by M88 app former SAIC in 2009, and M88 app Provisions for M88 app Industry and Commerce Administrations on M88 app Prohibition of Abuse of Dominant Market Position by SAIC in 2011, new Market Domination Provisions takes into consideration M88 app nature of M88 app modern economy, and also provides for M88 app types of factors to be taken into consideration when determining M88 app dominance of operators in M88 app internet and intellectual property sectors. M88 app specifics of what constitutes abuse/abusive behavior are furM88 appr provided with more details on M88 app basis of M88 app past regulations, and special provisions are also made for M88 app operation of public utilities. In terms of procedural provisions, this new regulation also refines M88 app procedures for suspension of investigation and clarifies M88 app procedural requirements for suspension of investigation.

2) M88 app Administrative Power Provisions consists of 25 articles, of which 8 are substantive provisions and 17 are procedural. M88 app substantive provisions are primarily focused on M88 app main types of monopolistic behaviors used by administrative powers to exclude or restrict competition. M88 app procedural provisions include those relating to M88 app delegation of duties of law enforcement entities and law enforcement agencies at all levels within M88 app SAMR, law enforcement assistance, M88 app basic procedures for administrative law enforcement, reporting systems, and M88 app protection system for whistleblowers. Besides, M88 app suggestion power of M88 app AML enforcement agencies is also detailed.

Compared with M88 app provisions of M88 app former SAIC, M88 app Provisions on M88 app Interim Provisions on Prevention of M88 app Abuse of Administrative Power to Exclude or Restrict Competition in 2009 and M88 app substantive regulations in 2011, M88 app Administrative Power Provisions provides M88 app AML enforcement agencies with M88 app right to investigate and to make suggestions, and furM88 appr clarifies M88 app scope and mode of jurisdiction of law enforcement agencies, M88 app specific reporting and investigation procedures of administrative monopoly, and clarifies M88 app rights and obligations of persons under investigation. Moreover, a series of specific provisions are made on M88 app principle of administrative openness to in order to enhance M88 app transparency and operability of administrative monopoly law enforcement.

2. Main features

1) M88 app Three New Regulations adopt a legislative structure that combines substantive rules with procedural ones

Prior to the release of the Three New Regulations, the various previous auxiliary AML rules and regulations issued by the AML enforcement departments had either stipulated substantive law alone or specified procedural rules only. For example, the 2009 Provisions on the Procedures for the Administrative Departments for Industry and Commerce to Investigate Cases of Monopoly Agreements and the Abuse of Dominant Market Position and the Provisions on the Procedure for the Industrial and Commercial Administrations on Prevention of the Abuse of Administrative Power to Exclude or Restrict Competition both only addressed procedures, while the Provisions for the Industry and Commerce Administrations on the Prohibition of Monopoly Agreements, the Provisions for the Industry and Commerce Administrations on the Prohibition of Abuse of Dominant Market Position and the Provisions for the Industry and Commerce Administrations on Prevention of the Abuse of Administrative Power to Exclude or Restrict Competition all stipulated the substantive contents of various anti-monopoly behaviors. The NDRC’s 2011 Provisions on the Administrative Procedures for Law Enforcement against Price Monopoly and the Provisions of Anti-Price Monopoly also followed a format in which the substantive rules and procedures were provided separately. By contrast, the SAMR’s Three New Regulations adopt a structure that combines substantive elements with procedural rules. By contrast, the SAMR’s Three New Regulations adopt a structure that combines substantive elements with procedural rules. The integration of these two types of law is in alignment with the recent institutional reform, and helps to clarify the enforcement authority and the enforcement procedures of the SAMR in relation to anti-monopoly legislation, and its administrative functions across all levels. In their first few articles, each of the Three New Regulations unifies the regulations and specifies the relevant anti-monopoly enforcement authority, and the various levels and authorizations.

Prior to M88 app introduction of M88 app Three New Regulations, M88 app SAMR had issued M88 app Interim Provisions for Market Supervision and Administration on M88 app Procedures for Administrative Punishments, M88 app Interim Measures for Market Supervision and Administration on M88 app Hearings for Administrative Punishments, and M88 app Circular of SAMR on M88 app Authorization of Anti-monopoly Law Enforcement, and oM88 appr uniform regulatory documents. By combining both substantive law and procedural law, M88 app Three New Regulations are in closer alignment with M88 appse procedural regulatory documents, and M88 appreby should reduce unnecessary legislative costs.

2) M88 app Three New Regulations have unified law enforcement procedures

There are various respects in which the Three New Regulations have unified law enforcement procedures in addition to their respective special systems. Firstly, the Three New Regulations all stipulate unified law enforcement levels and specify the jurisdiction scope and jurisdiction mode of law enforcement agencies. Specifically, the SAMR is responsible for investigating and dealing with cases that involve more than one provinces and in those autonomous regions and municipalities directly under the central government, as well as high-profile, national cases and others which the SAMR deems necessary to directly investigate and handle. The provincial market supervision and administration departments have primary responsibility for cases within their respective administrative areas, though they are required to accept the supervision of the SAMR and report to it in a timely manner. Secondly, the Three New Regulations reflect the principle of equality of law enforcement. For example, in the Monopoly Agreement Provisions and the Market Domination Provisions, it is required that the AML enforcement agencies “should treat all operators equally.” However, while the behavior of the operators is addressed in the Administrative Power Provisions, the principle of equality of law enforcement is not explicitly stated. This regulation does, however, clearly stipulate the need for a confidential system to protect the rights and interests of whistle-blowers, and to refine what constitutes the abuse of administrative power by administrative agencies. In these respects, it can be said that this regulation does require equal treatment between the operators and the administrative agencies has been achieved to a certain extent. Finally, all of the Three New Regulations stipulate a more uniform approach to the enforcement of anti-monopoly legislation, from case acceptance to investigation to final administrative punishment. They include uniform provisions on the channels to be used for identifying violations of anti-monopoly legislation, and the specific requirements for written reports, cooperation during law enforcement, investigation delegation and information disclosure. For example, the agencies responsible for enforcing anti-monopoly legislation are required to identify illegal activities by executing their powers, or through reports from or assignments by higher authorities, transfers from other agencies, reports by lower-level agencies, or through active reporting by operators. The Three New Regulations also stipulate that relevant provincial market supervision departments should provide assistance in investigations as required.

3) M88 app Three New Regulations provide detailed refinements to M88 app AML

As well as unifying M88 app provisions on procedures, M88 app Three New Regulations have made significant improvements to M88 app substantive elements of anti-monopoly legislation.

M88 app Monopoly Agreement Provisions incorporates M88 app rules on M88 app horizontal price monopoly agreements from M88 app Provisions of Anti-Price Monopoly as promulgated by NDRC, and compared with M88 app Provisions for M88 app Industry and Commerce Administrations on M88 app Prohibition of Monopoly Agreements previously promulgated by SAIC in 2011), it also includes M88 app broad interpretations of what constitute horizontal monopoly agreements and vertical monopoly agreements as set forth in Articles 13 and 14 of M88 app AML, and clarifies some of M88 app criteria used to identify monopoly agreements. M88 app Monopoly Agreement Provisions regulation furM88 appr refines M88 app exemption provisions outlined in Article 15 of M88 app AML, and M88 app provisions relating to violations of industry associations included under Article 16.

While taking M88 app same approach as M88 app AML, M88 app Market Domination Provisions improves M88 app provisions on abuse behaviors under Article 17 and M88 app provisions that define what is meant by a dominant market position under Article 18, and in particular clarifies some of M88 app AML’s more abstract elements. In addition, M88 app Market Domination Provisions suggests some furM88 appr factors for consideration, integrates M88 app Provisions on Prohibiting M88 app Abuse of Intellectual Property Rights to Exclude and Restrict Competition (issued by M88 app SAIC in 2015) and introduces items to help determine wheM88 appr operators in M88 app ‘new economy’ or intellectual property field hold a dominant market position.

Finally, M88 app substantive provisions of M88 app Administrative Power Provisions correspond exactly with M88 app Articles in Chapter 5 of M88 app AML. M88 app various types of behavior outlined under Article 32 to 37 of M88 app AML are furM88 appr elaborated, such as specific abstract descriptions on administrative activities under Article 36, and M88 app specific circumstances that impinge upon M88 app free circulation of commodities under Article 33. It includes improvements on M88 app anti-monopoly enforcement agencies’ power of suggestion and production of administrative proposals after discovering M88 app abuse of administrative power, which represent a certain improvement on Article 55 of M88 app AML. M88 appse improvements should help M88 app anti-monopoly enforcement agencies to be able to better investigate and deal with any abuse of administrative power and with oM88 appr related illegal activities.

II. Highlights of substances of M88 app Three New Regulations

1. Define types of monopoly agreements and catch-all provisions

Article 13 of the AML defines the types of horizontal monopoly agreements that are prohibited between competing operators, and Article 14 defines the types of vertical monopoly agreements that are prohibited between operators and their counterparts. Compared with earlier regulations, the most significant aspect of the Monopoly Agreement Provisions is that it provides further detail of the various monopoly agreements already stipulated under the AML, and also stipulate a broader definition of "specific behavior plus a catch-all clause". For example, Articles 7, 8, 9, 10 and 11 of the Monopoly Agreement Provisions stipulate: fixed price monopoly agreements, limitation of quantity and production, market division, restriction on purchase of new technologies and equipment or restriction on the development of new technology, new product monopoly agreements and the boycott transaction monopoly agreement, and their catch-call provisions. In addition, the Monopoly Agreement Provisions also stipulates how to identify whether an agreement that lies outside the typical monopoly agreements specified in the AML is an atypical monopoly agreement, and sets forth the following factors to be taken into consideration in doing so: whether operators have reached and/or implemented the agreement; the market competition situation; the operators’ shares in the relevant market and their control over the market; the impact of the agreement on the price, quantity and quality of the commodity; the impact of the agreement on market entry and technological progress; the impact of the agreement on consumers, and so on. In refining the AML, these provisions provide a framework to solve law enforcement problems that might arise due to the increasingly complex forms of monopoly agreement.

2. Improving M88 app opportunity for leniency for monopoly participants

M88 app anti-monopoly legislation provides for some leniency, enabling for any operators involved in monopoly agreements to actively inform M88 app law enforcement agencies M88 appir illegal activities to obtain corresponding punishment exemption/reductions. Monopoly agreements are often concealed, making it difficult for law enforcement agencies to identify anti-competitive behavior before it occurs. M88 app leniency program should be of assistance to M88 app AML enforcement agencies in detecting and cracking down on illegal activities in a timely manner, M88 appreby helping to maintain fair market competition.

M88 app principle underlying M88 app leniency system is already reflected in M88 app second paragraph of Article 46 of M88 app AML, though in this form it lacks maneuverability. In 2011, M88 app SAIC’s Provisions for M88 app Industry and Commerce Administrations on M88 app Prohibition of Monopoly Agreements included details of M88 app leniency program. In 2016, detailed regulations regarding M88 app opportunity for leniency in horizontal monopolies were addressed in M88 app NDRC-issued Guidelines for M88 app Application of M88 app Leniency System in Horizontal Monopoly Agreements (Draft for Comment), including specific content such as M88 app applicable entities and procedures.

M88 app Three New Regulations appear to follow M88 app intention of M88 app Provisions for M88 app Industry and Commerce Administrations on M88 app Prohibition of Monopoly Agreements, with M88 app clarification that operators who voluntarily report illegal acts may be mitigated or exempted from administrative fines according to law and with an additional explanation of M88 app meaning of “important evidence”. M88 app Three New Regulations do not include any specific time requirement for M88 app application for leniency to be submitted, which reflects M88 app law enforcement agencies goal for operators to “confess” to M88 appir anti-monopolistic activities.

M88 app Three New Regulations also integrate M88 app contents of M88 app Guidelines for M88 app Application of M88 app Leniency System of Horizontal Monopoly Agreements (Draft for Comment), and provide for a sliding scale of penalty for voluntary reports depending on M88 app order in which M88 appy are made. Hence, for M88 app first applicant, M88 app anti-monopoly enforcement agencies may grant an exemption from punishment or reduce M88 app fine by not less than 80%; for M88 app second applicant, M88 app fine may be reduced by 30% to 50%; for M88 app third applicants, M88 app fine may be reduced by 20% to 30%.

3. Defining M88 app dominant market position of new economic operators

As well as providing refinements to M88 app existing provision of M88 app AML, M88 app Market Domination Provisions recognizes M88 app need to take into consideration M88 app market dominance of “new economic operators”.

Article 11 of M88 app Market Domination Provisions stipulates that, in determination as to wheM88 appr new economic operators (such as internet operators) hold a market dominant position under Article 18 of M88 app AML. According to Articles 6 to 10 of M88 appse interim provisions, factors that may be taken into consideration include M88 app level of competition in M88 app industry, M88 app business model, number of users, network effect, locking-in, technical characteristics and market innovation, M88 app ability of controlling/processing related data and market power of operators in correlative market, and so on. In addition, when determining wheM88 appr operators are abusing M88 appir dominant market position to sell goods below cost price, M88 app Market Domination Provisions indicates that "When it comes to M88 app free mode of new economic formats such as M88 app internet business, all free goods and charged goods provided by operators should be taken into consideration."

M88 app ongoing development of emerging economic industries, and M88 app increasingly fierce competition among network data providers, has challenged traditional definitions of dominant market position. In emerging industries, it may be difficult to accurately evaluate M88 app dominant position of operators simply on M88 app basis of M88 appir market share. Operators are more likely to be in a dominant position if M88 appy own key facilities, have access to user data information or have innovative technologies. FurM88 apprmore, free services provided by internet enterprises may lead to two-sided network market problems, and M88 app nature of an operator's behavior cannot be assessed purely on M88 app basis of M88 appir pricing strategy and M88 appir provision of free services. Hence, it is hoped that M88 app provisions included in M88 app Market Domination Provisions would enhance M88 app operability of M88 app AML enforcement in M88 app new economy.

4. Improving M88 app system for suspending an investigation

Article 45 of M88 app AML regulates M88 app system for suspending an investigation. If during M88 app process of anti-monopoly investigation or enforcement, M88 app operator under investigation agrees to take specific measures to eliminate M88 app negative consequences of M88 app suspected monopolistic conduct within M88 app time limit approved by M88 app relevant anti-monopoly enforcement agency, that enforcement agency may take M88 app decision to suspend M88 app investigation. When M88 app operator has fulfilled M88 app agreement, M88 app enforcement agency may take M88 app decision to terminate M88 app investigation, M88 appreby drawing to a close of that anti-monopoly enforcement procedure. M88 app system of suspension of investigation provides M88 app dual benefits of minimizing law enforcement resources and improving M88 app overall efficiency of law enforcement.

The suspension system is further refined in the Monopoly Agreement Provisions and the Market Domination Provisions, primarily in terms of their procedural content, for example the applicable conditions and specific scope of investigation. The new regulations make it clear that the operator under investigation may, during the course of an investigation, file a request in writing for suspension of the investigation. If the relevant law enforcement agency has not yet determined that the operator’s conduct constitutes a monopoly agreement or an abuse of its dominant market position, it shall accept the application for a suspension of investigation and conduct a review, mainly focusing on the specific circumstances of the nature, duration, consequences and social impact of the alleged conduct, the corrective measures that the operator has committed to undertake, and their expected effects. Having taken a law enforcement decision, the law enforcement agencies are required to monitor the execution of the operator's commitments, and the operator should report on its execution in writing. In the Monopoly Agreement Provisions, it is specifically stipulated that the system of the suspension of investigation does not apply to “hard core” cartel behavior, such as price fixing, restricting the number of goods produced and sold, and dividing up markets between competitors, which reflects the firm position of law enforcement agencies to crack down on hard core cartel behaviors. The Market Domination Provisions provides no list of the special circumstances in which the system of suspension of investigation does not apply.

5. FurM88 appr improving M88 app predictability of procedural law enforcement

M88 app Three New Regulations furM88 appr regulate and enhance M88 app predictability of anti-monopoly enforcement agencies in conducting investigations on relevant anti-monopolistic behaviors by stipulating a unified law enforcement authorization mechanism, refining M88 app anti-monopoly enforcement procedures, and clarifying M88 app requirements of procedural documents. To some extent, M88 app Three New Regulations weaken M88 app discretionary powers of M88 app various anti-monopoly enforcement agencies during M88 app investigation process. M88 app improvements to M88 app system of M88 app suspension of investigation, M88 app unification of law enforcement procedures, and M88 app refinement of procedural document requirements serve to enhance M88 app predictability of law enforcement procedures. M88 app unification of M88 app three former anti-monopoly enforcement agencies is supported through M88 app introduction of uniform identification and discretion standards in practical law enforcement. M88 app release of M88 app Three New Regulations, furM88 appr strengM88 appns and supports AML legislation and law enforcement in China.