China’s SAMR Issues Interim Rules on Prohibition Against Monopoly Agreements and Abuse of Dominance By John Jiang, Scott Yu, Frank Jiang 2019-07-17

The State Administration for Market Regulation of the People’s Republic of China (“SAMR”) promulgated on June 26, 2019 and published on July 1 the Interim Rules on Prohibition Against Monopoly Agreements (the “MLA Rules”) and the Interim Rules on Prohibition against Abuse of Dominant Market Position (the “DMP Rules”).  Both the MLA Rules and the DMP Rules will become operative as of September 1, 2019.[1] 


Below are some highlights of the MLA Rules and DMP Rules.



1.Common Enforcement Features:Post-consolidation of the Three Antitrust Agencies



1.1 Equal Treatment


For the first time, the MLA Rules and the DMP Rules expressly call for equal treatment of all undertakings during Anti-Monopoly Law (AML) enforcement proceeding. How this feature may be invoked by subject undertakings in the investigation process remains to be seen.  [Art. 4 of the MLA Rules; Art. 4 of the DMP Rules]


1.2 General Authorization to Provincial AMR 


While SAMR has reserved for itself the authority to probe high-profile or complex cases nationwide, it has authorized the provincial counterparts to conduct enforcement activities within their own regional jurisdictions, allowing for more leveraged enforcement resources.  [Art. 2 of the MLA Rules; Art. 2 of the DMP Rules]


1.3 Amplified Reputational Implication of Sanctions


Where a firm is sanctioned for concluding monopoly agreements or abuse of market dominance, the decision will be made public through the National Enterprise Credit Information Publicity System, thereby amplifying the adverse reputational implications of violations for the sanctioned firms.  [Art. 30 of the MLA Rules; Art. 35 of the DMP Rules]



2. Highlights for MLA Rules



2.1 Spectrum of “Hard-core” Restrictions


The MLA Rules distinguish certain “hard-core” agreements that may be arguably deemed “per-se” illegal, and certain extremely “hard-core” ones that must be fully investigated.


· The “per-se” illegal agreements. For the monopoly agreements expressly enumerated in Articles 13 and 14 of the AML (incl. price fixing, production/sales volume restriction, market allocation, new technology restriction, boycott, and resale price maintenance), the MLA Rules do not appear to require a stand-alone competitive effect analysis in finding violation.  Therefore, for vertical restraint cases involving pricing conduct, there are unresolved tensions with the judicial practice of the Chinese court, which has adopted a rule of reason approach (the Supreme People’s Court attempted to harmonize such tension in its recent ruling on the Yutai RPM case).  [Art. 7-12, Art. 14]

· The extremely “hard-core” agreements.  There are three types of “hard-core” horizontal monopoly agreements – price fixing, production/sales volume restriction, market allocation –the MLA Rules expressly rule out the possibility of investigation suspension through application by the subject undertaking.  Relatedly, the recent Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters has also excluded such agreements from exceptional matters, meaning that the court judgement of another member country on such extremely “hard-core” agreements can be recognized and enforced in China, and vice versa.[2]  [Art. 22]


2.2 More Nuanced Considerations in Finding Monopoly Agreement


The MLA Rules provide more detailed guidance on the balancing factors in finding monopoly agreements (incl. those facilitated by trade associations), while keeping a catch-all provision for each of the enumerated hard-core monopoly agreements.  [Art. 7-14]


For the non-hard-core agreements, the MLA Rules expressly require competition effect analysis and set forth a number of factors to be considered, including the pertinent facts of concluding/implementing the agreement, the competitiveness of the relevant market, market share and market power of relevant undertakings, impact on product price, quantity, quality, impact on market entry, technology advancement, and impact on consumers and other undertakings.  [Art. 13]


2.3 Detailed Considerations for Exemption  


The MLA Rules provide specific factors to be considered in determining an enforcement exemption applicable to a monopoly agreement under Article 15 of the AML, including the specific form and effect, the causality, the necessity, etc.  [Art. 27]


2.4 No Explicit Safe Harbor


The exposure draft of the MLA Rules included a safe harbor rule for non-hard-core agreements, presuming no anti-competitive effect for those involving undertakings with a relatively low market share.  However, the MLA Rules omitted provision for lack of express provision under the AML, and whether a safe-harbor approach may be adopted in future enforcement practice remains to be seen.


2.5 Procedural Improvements 


Further unified and elaborated procedural rules:


· Suspension of investigation with commitments.  The MLA Rules provide clearer guidance on the suspension of investigation (applicable to all but the three extremely “hard-core” agreements) and subsequently the termination of investigation upon fulfillment of commitments.  [Art. 21-25]

· Leniency.  The MLA Rules shed more light on the leniency scheme by defining the term “important evidence” and providing more detailed considerations for leniency. Specifically, only the first three proactive self-reporters can benefit from a waived or lessened sanction: [Art. 33-34]

            —First by 80%-100%;

            —Second by 30%-50%; and

            —Third by 20%-30%.



3. Highlights for DMP Rules



3.1 Noteworthy Points for Internet Players


Recalibrated metrics for assessing dominance involving new economic business models such as that of internet-based models, bridging the gap with the E-Commerce Law (which took effect this year):


· Metrics for Finding Dominance. Factors to be examined include, but are not limited to: number of users, network effect, lock-in effect, the ability to obtain and process data, etc.  [Art. 11]

· Free Products.  For platform players offering free product(s), the associated non-free product will be scrutinized in assessing potential predatory pricing allegation against the free product in the context of evaluating “average variable cost” (a concept previously adopted in the Tetra Pak Decision).  [Art. 15]


3.2 Noteworthy Points for IPR Holders 


Re-balanced approach in assessing dominance and abusive conducts involving IPR:


· Innovation and technology factors.  While IPR holding and technical barrier are among the factors to be considered, the DMP Rules drop express reference to standardized technology and instead set out comprehensive factors such as innovation (newly added) and technology change, IPR’s substitutability, customer’s reliance on the products utilizing IPR at issue, and countervailing buyer power.  [Art. 6, 8, 10 and 12]

· Refusal to deal.  Denying access to a deemed essential facility creates heightened exposure to refusal to deal allegation, although the DMP Rules also call for comprehensive consideration, including feasibility of carrying out alternative investment in or construction of, or alternative development or building of such facility with reasonable investment, the extent of reliance on such facility for a trade counterparty to effectively carry out production and operation, the feasibility of provision of such facility by such undertaking, and the impact on the undertaking’s own production and operation.  [Art. 16]

· Restrictive arrangement.  IPR holders may invoke Article 17, stating the necessity to protect the IPR or transaction-specific investments to justify their restrictive arrangement.  [Art. 17]

· Tying/bundling.  IPR holders may invoke Article 18, outlining proper industry practice or trade customs, product safety or specific technology implementation requirements to justify their tying or bundling practice.  [Art. 18]


3.3 Noteworthy Points for Utility Operators 


A wide-ranging list of utility operators (such as water supply, power supply, gas supply, heat supply, telecommunications, cable television, postal service, transportation, etc.) are barred from activities constituting abuse of (presumed) dominance which harm consumer interests.  [Art. 22]


3.4 Noteworthy Points for Holders of Significant Market Share (<50%)


Additional assessment factors for determining joint dominance are also expressly introduced, including market structure, transparency of the relevant market, degree of homogeneity of the relevant products, consistency of the undertakings’ behavior.  For players with significant but not presumably dominant market share (<50%), the DMP Rules provide more practical guidance in assessing observed market activities involving major competitors where it is difficult to prove “joint intention/liaison of intention”.  [Art. 13]


3.5 Express Elements to be Satisfied Concurrently for Non-enumerated Instances of Abuse


The DMP Rules have clearly established the four-step approach in finding additional types of dominance other than those specified in AML and the DMP Rules: subject element (dominance), conduct element (restrictive or exclusive conduct), no-justifiable-cause element, and effect element (anti-competitive).  This also reinforces the general approach for finding all abusive conducts.  [Art. 21]


3.6 “Justifications” as Defense for Unfair Pricing Allegation


Justifiable cause used to be absent as a specific defense against unfair pricing allegations.  However, the DMP Rules appear to provide room for a dominant firm to defend against alleged “unfair” pricing by factoring in additional criteria, including legal requirements, the impact on public interests, economic efficiency and economic development, such firm’s business development, future investment and innovation, the necessity for such firm’s own normal business operations and realizing normal economic return, benefits to trade counterparties or consumers.  These factors can also serve as additional defensive tools in addition to the specifically enumerated justifiable causes in assessing other abusive conducts.  [Art. 20]


3.7 More Elaborated Defense Factors for Other Alleged Abuses


The DMP Rules provide more clarity on possible defense factors.  For example,


· Refusal to deal:  Force majeure, bad credit record of the trade counterparty impacting trade security, improper derogation of firm's own interests, etc.  [Art. 16]

· Exclusive dealing:  Product safety requirements, IPR or transaction-specific investment protection, etc.  [Art. 17]

· Tying or imposing other unreasonable trade terms:  Proper industry practices or trade customs, product safety requirements, specific technology performance, etc.  [Art. 18]

· Discriminatory treatment:  Trading customs or proper industry practices, or promotional activity for new users’ initial transactions within a reasonable period, etc.  [Art. 19]


3.8 Elaborated Procedures for Suspension of Investigation with Commitments


The DMP Rules provide clearer guidance (applicable to all abusive conducts) on the suspension of investigation and subsequently the termination of investigation upon fulfillment of commitments.  [Art. 29-33]


(This article has also been published by Lexology on its website at



[1] The MLA Rules will repeal the Procedural Rules for Administration for Industry and Commerce to Investigate and Dispose of Cases Involving Monopoly Agreement and Abuse of Dominant Market Position and the Rules of Administration for Industry and Commerce on Prohibition Against Monopoly Agreements promulgated by the former State Administration for Industry and Commerce (“SAIC”), and the DMP Rules will repeal the Rules of Administration for Industry and Commerce on Prohibition against Abuse of Dominant Market Position promulgated by the former SAIC.

[2] “This Convention shall not apply to the following matters ... anti-trust (competition) matters, except where the judgment is based on conduct that constitutes an anti-competitive agreement or concerted practice among actual or potential competitors to fix prices, make rigged bids, establish output restrictions or quotas, or divide markets by allocating customers, suppliers, territories or lines of commerce, and where such conduct and its effect both occurred in the State of origin”. (Article 2.1(p), Exclusion of Scope, Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters, signed on July 2, 2019.