- China’s releases Antitrust Guidelines on the automotive sector and IP rights
- China issued Antitrust Guidelines in the Intellectual Property Rights Area
- Integrated circuit and software industries set as enforcement priorities
- Integrated circuit and software industries set as priorities of China’s antitrust enforcement
New Auto Guidelines represent the first attempt to provide guidance on regulating non-price vertical restraints in China. The IPR Guidelines put forward market share-based safe harbors for the IPR field. The newly released leniency and commitment guidelines provide procedural options for an investigation to end with no or less penalties. China’s State Council calls for strengthened antitrust enforcement to protect fair competition in the integrated circuit and software industries.
This update was published on 16 October 2020 as part of our quarterly newsletter, Asia Pacific Competition Highlights. Click here to access the full report, which covers the most notable antitrust developments across 11 Asia Pacific jurisdictions.
China releases antitrust guidelines on the automotive sector and IP rights
On 6 August 2020, a new book authored by the State Administration for Market Regulation (SAMR) published a compilation of antitrust rules. It contained the long-awaited Antitrust Guidelines on the Automotive Sector (the Auto Guidelines) which provides a substantive set of additional rules that may prompt the OEMs to re-evaluate their distribution models in China. Key highlights include:
- RPM: consistent with SAMR’s enforcement practice, the Auto Guidelines take the view that resale price maintenance (RPM) should be largely prohibited. However, the Auto Guidelines set out new grounds for exemptions of RPM. It sketches out an exemption for RPM imposed on distributors, which “only play an intermediary role”, in the distribution process – i.e., where the pricing has been negotiated between OEMs and specific end customers already and distributors’ role is limited to the delivery of vehicles, receipt of payment or invoice issuance.
- territorial/customer restrictions: the Auto Guidelines distinguish “active” and “passive” sales: restricting active sales, i.e., a restriction on the distributor from actively targeting customers outside of its allocated territory will be generally lawful, if the OEM does not have market power; however, restricting passive sales will be unlawful, The Auto Guidelines also highlight that OEMs should neither restrict cross-selling between distributors, nor impose restriction on supplying spare parts to end customers.
These rules are so far, confined to the auto sector. This is in line with a broader policy in China to encourage independent auto dealers and increase intra-brand competition in the auto sector.
China issued antitrust guidelines in the Intellectual Property Rights area
The compilation of antitrust rules also includes the Antitrust Guidelines for the Use of Intellectual Property Rights (the IPR Guidelines).
Similar to the Auto Guidelines the IPR Guidelines set out at 30% market share safe harbor for vertical agreements. At the same time, the IPR Guidelines also put forward a 20% market share safe harbor for horizontal agreements. It should, however, be noted, that both safe harbors only apply to conduct not specifically prohibited by the PRC Anti-monopoly Law, hence cartel-types of agreements and RPM cannot benefit from t these safe harbors.
Overall, the IPR Guidelines are less prescriptive compared to the Auto Guidelines. Rather than determining that specific types of conduct can be illegal, the IPR Guidelines put forward the analysis framework and identify factors that should be considered in the analysis (often recognizing that conduct can be pro- or anti-competitive, depending on the underlying circumstances).
Integrated circuit and software industries set as enforcement priorities
Along with the Auto Guidelines and IPR Guidelines, SAMR also published the Guidelines to the Application of the Leniency Regime for Horizontal Monopoly Agreements (the “Leniency Guidelines”) and Guidelines to Commitments from Undertakings in Monopoly Cases (the “Commitments Guidelines”). Both the leniency programs and the commitment process set out procedural options for an antitrust investigation to end with no or less penalties, but there are significant differences for the application of the two regimes:
- Application scope: where the leniency program is available only to cartel conducts, the application of the commitment process is limited to conducts other than cartel and has been seen most seen in abuse of dominance cases.
- What the parties need to offer: in return for leniency, the leniency applicant needs to provide sufficient important evidence allowing SAMR to open an investigation or otherwise adding substantial value to SAMR’s investigation. On the contrast, the commitment applicant needs to eliminate the perceived anti-competitive impacts of the behavior under investigation in exchange for a termination of the investigation.
- Types of benefits: a successful leniency applicant will be granted full or partial deduction in fines (the first-in applicant may receive full immunity or at least 80% reduction in fines; the second applicant may receive a 30-50% reduction; the third applicant may receive a 20-30% reduction). If SAMR is satisfied with a commitment proposal and the company’s compliance with the proposal, it will grant the decision to terminate the investigation without issuing any penalties.
Integrated circuit and software industries set as priorities of China’s antitrust enforcement
In August, as part of a broader initiative for the integrated circuit (“IC”) and software industries, China’s State Council makes it clear that measures will be taken to strengthen antitrust enforcement for building up a fair competition environment in these sectors.
Whilst no penalties have been imposed in these sectors in the past, they will come under scrutiny and become the enforcement priorities by SAMR from now on. Companies operating in these industries in China should stay vigilant on any competitors’ contacts, and review any contracting or pricing strategies that could be perceived as exclusionary or unfair.
On the merger control side, SAMR may take a more prudent approach to transactions involving IC and software products. It is possible that merging parties in these sectors will face a longer review period and more substantial information that needs to be submitted if their transaction is notified in China.