Prohibitions on Monopoly Agreements and Abuse of Dominant Market Position

Draft Provisions for Prohibiting Monopoly Agreements

In August 2007, the Standing Committee of China's National People's Congress enacted the long-awaited—and much-debated—PRC Anti-Monopoly Law (AML). More than a decade in the making, that law attempted for the first time to systematically define and regulate antitrust law and antitrust law enforcement throughout China. It became effective on August 1, 2008. (For a summary of that important law, see the October 2007 issue of China Law Update.)

Three government agencies share responsibility for enforcement of China's Anti-Monopoly Law: the Ministry of Commerce (MOFCOM), which is responsible for merger control; the National Development and Reform Commission (NDRC), which monitors price fixing; and the State Administration of Industry and Commerce (SAIC), which has responsibility related to monopoly agreements and the abuse by companies of a dominant market position.

Of the three agencies, MOFCOM plays the most active role in merger control, and has handled a number of such cases through its anti-monopoly bureau. China Law Update has previously summarized rules and regulations enacted by MOFCOM in order to implement the AML, such as the Regulations on Notification of a Concentration of Undertakings (September 2008), the Guiding Opinions on Merger Control Notification (February 2009) and the Guiding Opinions on Application Materials for Merger Control Notification (also in the February 2009 edition).

Now the SAIC has begun writing the rules and regulations necessary to undertake its responsibility for overseeing monopolistic agreements and the abuse of dominant market position. On April 27, 2009, the agency issued two sets of provisions in draft form: the Draft Provisions for Prohibiting Monopoly Agreements (Monopoly Agreements Draft) and the Draft Provisions for Prohibiting Abuse of Dominant Market Position (Dominant Market Position Draft). Both are open for public comment until May 31, 2009.

Monopoly Agreements Draft

For purposes of SAIC oversight and regulation, the Monopoly Agreements Draft defines a monopoly agreement as any agreement, decision or cooperative behavior between or by two or more undertakings that has the effect of eliminating or restricting competition. (Since the NDRC monitors price-fixing, the Monopoly Agreements Draft does not address that subject.) The draft covers not only written or oral agreements and decisions; the coordination of behavior may be deemed a monopoly agreement if it has the effect of eliminating or restricting competition.

The Monopoly Agreements Draft details what will be regarded as horizontal monopoly agreements, as stated in Article 13 of the AML. For example, a horizontal monopoly agreement that "restricts output or sales " includes agreements to restrict or suspend manufacturing, to demand over-stocking, or to restrict the output and sales of a certain commodity.

In addition to agreements that fix the resale price or set a minimum resale price—as set forth in Article 14 of the AML regarding vertical agreements—the Monopoly Agreements Draft adds new conditions, prohibiting businesses from reaching agreements that restrict resale regions or partners of downstream dealers without a legally valid reason, or that involve bid-rigging.

The Monopoly Agreements Draft authorizes the SAIC and its branches to impose fines on businesses that violate laws and regulations. Fines range from 1 to 10 percent of sales revenue for the previous year if the monopoly agreement has been carried out; or no more than RMB500,000 if the monopoly agreement has not been performed.

Abuse of Dominant Market Position

The Dominant Market Position Draft provides details regarding the abuse of dominant market position as defined in Article 17 of the Anti-Monopoly Law. For example, tie-in sales are defined as the binding of two or more separate items in a unit for sales, or making the purchase of any item in a single unit so expensive as to repel competitors from, or hinder competitors from entering into, the relevant market.

The Dominant Market Position Draft authorizes the SAIC and its counterparts to impose fines ranging from 1 to 10 percent of sales revenue for the previous year on an enterprise that violates the law.