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P.R.C. Ministry of Commerce Plans to Formulate 5 Guidelines Including Guideline on Anti-monopoly Against Abuse of IP Rights

Post Time:2018-01-18 Source:lexology Author:Tsai Lee Views:

The Ministry of Commerce of mainland China has formulated five related guidelines to adapt to its new normal status of economic development, implement the Belt and Road Initiative and maintain the order of market competition and protect the interests of consumers.

I. Rigid and fair enforcement of law to create a market environment with fair competition

In the recent years, with the increasing scale of global merge and acquisition, the total transactions amounted up to approximately RMB24,100 billion in 2016, wherein about RMB5,200 billion came from the acquisition and merge market in P.R.C., occupying about 22% of the global market. Wherein, the transactions of anti-monopoly cases related to concentration of undertakings which have been closed by the Ministry of Commerce, P.R.C. in 2016 amounted in total up to about RMB6,100 billion, accounting for about 25% of the global transaction amount of acquisition and merge. With the continuous increase of large scale merge and acquisition cases, market shares are the more concentrated, which is increasingly adverse to market competition.

Hence, the Ministry of Commerce, P.R.C. has been closely concerned with news and status of merge and acquisition in markets with higher concentration level and take prohibitive or additional restrictive measures for critical cases which have the effect of excluding or refraining competition. Since 2013 and by the end of August 2017, 1,483 notifications of concentration of undertakings have been received, wherein 1,390 of them have been filed and entered into proceedings, and 1,408 of them closed. Among the cases closed, one of them was prohibited, and fourteen of them were approved with conditions. This fair enforcement strictly pursuant to the law protects fair competition in the market. The following are some of the typical cases:

In June 2014, mainland China prohibited the setup of a network center by A.P. Møller - Maersk A/S, MSC Mediterranean Shipping Company S.A. and CMA CGM S.A. so as to avoid the effect of excluding or refraining competition which would be caused by the close joint operation among the three global top 3 marine freight magnates in the freight service market of Asia-European container liners; 

In April 2014, mainland China ratified, with conditions, Microsoft's acquisition of Nokia's cell phone business to protect fair competition in the mainland China smart cell phone market and the interests of the relevant consumers; 

In October 2015, mainland China approved, conditionally, Nokia's acquisition of stock shares of Alcatel Lucent to maintain fair competition in the market of licenses of patents essential to wireless communication standard; 

In July 2016, mainland China approved AB InBev's acquisition of South African SABMiller Plc on condition of peeling off 49% shares of China Resources Snow Breweries held by AB InBev to protect fair competition in the mainland China beer market and the interests of the general consumers; 

In April 2017, mainland China approved the merge between Dow Chemical and DuPont on condition of stripping businesses such as paddy insecticides and selective paddy herbicide off DuPont so as to maintain fair competition in the market of paddy agrochemicals and protect the interests of downstream consumers such as the general farmers; 

In April 2017, the Ministry of Commerce, P.R.C. approved cases such as Broadcom Limited's acquisition of Brocade Communications Systems, Inc., Abbott Laboratories' acquisition of St. Jude Medical, NXP Semiconductor's acquisition of Freescale, CORUN's joint venture with Toyota (China) etc., Merck KGaA's acquisition of AZ Electronic Materials S.A., Thermo Fisher Scientific's acquisition of Lifei Technology Co., Ltd., Baxter International Inc.'s acquisition of Gambro AB, MTK's acquisition of MStar (Cayman), Marubeni Corporation's acquisition of Gavilon Holdings, LLC and Glencore International plc's acquisition of Xstrata plc on conditions, so as to eliminate the adverse influence of concentration against competition, maintain fair competition in markets such as semiconductors, pharmaceuticals and medical devices, information and communication, automobile accessories, staple agricultural and mineral products, etc. and protect the interests of relevant consumers. 

On the other hand, mainland China also actively investigated and prosecuted cases where such concentration was failed to be notified pursuant to the law, so as to reinforce deterrence of the Anti-Monopoly Law. The Ministry of Commerce has been continuously strengthened the strike on cases of illegal failure to notify concentration of undertakings, and made, in accordance with the law, punishment decisions for 17 cases such as Canon's acquisition of Toshiba Medical Systems, Meinian Onehealth Healthcare's acquisition of stock shares of Ciming Health Checkup, BesTV's joint venture with Microsoft, etc. These punishment decisions were announced on the website of this ministry to strengthen the determent of enforcement and maintain the authority of the Anti-Monopoly Law.

II. Reinforce Construction of System and Promote Normalization of Examination

As the legislative and systematic construction of anti-monopoly is essential to strengthen law enforcement, the Ministry of Commerce, P.R.C. highly values such construction of legislation and system and has formulated 7 departmental rules and regulations and 7 guidelines to set up complete legal and complementary systems for anti-monopoly examination on concentration of undertakings and improve transparency in law enforcement.

To improve efficiency in law enforcement, mainland China has promulgated and implemented the Interim Provisions on Standards for Application of Summary Procedure in Cases Concerning Concentration of Undertakings, and formulated complementary Guidance on Notification of Concentration of Undertakings via Summary Procedure to set up a system for simples cases with the aim of reducing the requirements for filing documents via summary procedure and the burdens on enterprises.

To regulate the determination, supervision and enforcement of conditional cases, mainland China also promulgated and implemented the Provisions on Additional Restrictive Conditions for Concentration of Undertakings (Trial) and the Trust Agreement for Supervision Trustee (Sample Text) to complete the conditional system. Additionally, it also promulgated and implemented the Guidance on Regulation of Names of Notification of Concentration of Undertakings and amended a number of directive documents such as Guidance on Notification of Concentration of Undertakings to further improve the system of rules for anti-monopoly examination.

In order to adapt to the new common economic status, mainland China government has ordered the related departments to carry out study on revision of the Anti-Monopoly Law and revise the Measures on Examination of Concentration of Undertakings, so as to further clarify standards for filing and examination of Concentration of Undertakings and normalize enforcement procedures to provide a more open, transparent, and foreseeable conduct criteria for undertakings.

III. Improve service quality of enforcement and promote strict, normalized, fair and civilized enforcement

In October 2015, mainland China carried out a "delayering" reform on case-handling mechanism by changing the original stagewise case-handling mechanism into a "one package" mechanism categorized by industry to reduce links of examination and enhance speciality of examination. During the review of intricate and important cases, multiple means such as legal and economic analyses, field investigation and workshops, etc. were utilized integratively, and specialized consulting agencies were hired to conduct economic analyses to provide scientific arguments for final conclusions.

Under the circumstance of rapidly growing number of cases, mainland China began to practice measures such as summary procedure system and full-process online case-handling to promote sustainable increase in the efficiency of review. In 2016, 324 cases were closed during their preliminary examination stage (30 days), occupying 82% of all cases. The Rate of Cases Closed in Preliminary Stage increased by 70% over that of 12% in 2013. During the first half of 2017, the average case-filing period was further shorten by 19% than the level of the whole last year, the average closing period was shorten by 11.6% than the level of the whole 2016, and 95% of summary procedure cases were closed during their preliminary examination stage (30 days).

In addition, mainland China also enhanced awareness of active service by actively providing pre-case-filing negotiation service after receiving consultation of enterprise about filing notification, and practiced electronic filing so that the party concerned will be informed at a single operation with all supplementary items within 5 days from the receipt of the filing documents, which expedites said party's notification. To enhance transparency of enforcement and continuously improve openness of information about cases, decisions of injunction cases, announcements for cases approved on conditions and punishment decisions for failure to notify which are made in accordance with the law will all be published to the public at the website of the Ministry of Commerce together with descriptions about their facts and legal grounds; Information about summary procedure cases will all be disclosed on the Internet and basic information about approved cases without conditions will be disclosed quarterly, resulting in the publication of 1,258 cases since 2013.

IV. Enhance International Exchange to Elevate Bargain Position (Power of Discourse) in the Field of International Competition

The P.R.C. Ministry of Commerce has established cooperation mechanisms with all major jurisdictions in the world. By now, it has signed memoranda with 10 foreign jurisdictions such as the European Union, the U.S., South Korea, Australia and Japan.

With the gradual increase of transnational merge and acquisition, many of them need to be reported to multiple jurisdictions. In the recent years, the Ministry of Commerce has carried out enforcement cooperation regarding tens of critical transnational merge and acquisition cases with competent competition authorities in various jurisdictions such as the U.S., the E.U., Germany and Canada to enhance certainty of merge and acquisition transactions and spread the international influence of mainland China in the examination of transnational merge and acquisition. Now mainland China has been deemed as one of the global Top 3 Anti-monopoly Jurisdictions together with the U.S. and the E.U.

Now mainland China has become the world's second biggest economic body, the biggest exporter of goods and the second largest importer of goods in the global trade. It has attracted the most foreign investments among all developing countries consecutively over 25 years, and has been ranked one of the Top 3 Outbound Foreign Investment countries in the world over 5 consecutive years. A free trade zone network has gradually formed on the basis of its peripheral nations with extensive bilateral/multilateral regional/subregional cooperation. Building a system of rules of competition becomes a key content of the bilateral/multilateral free trade agreements. Currently, competition sections or terms and provisions has been set forth in the 6 free trade agreements concluded by mainland China with South Korea, Australia, Georgia, etc. And international cooperation in the field of competition has also been strengthened while promoting the negotiation of 7 free trade and economic agreements (including the Regional Comprehensive Economic Partnership, RCEP) on the subject of competition to facilitate the healthy development of regional and bilateral economic and trade relationships.

Mainland China has actively participated in a number of multilateral exchanges, including multilateral international conferences of organizations such as the Asia-Pacific Economic Cooperation (APEC) organization, the Organization for Economic Co-operation and Development (OECD), the United Nations Conference on Trade and Development (UNCTAD) and the American Bar Association as well as the International Competition Network Conference (Germany) to learn about international practices in the aspects of anti-monopoly legislation and enforcement and promote exchange with other jurisdictions by leveraging such multilateral cooperation platforms.

V. Enhance centralized deployment and alignment arranged by the Office of Committee to form a combined force for efforts of anti-monopoly 

Mainland China launched an assessment on the current overall status of competition in the market, and now it has completed the assessment of competition in markets such as automobile and iron & steel; A database of concentration level of products in 41 major industries was created to maintain and improve the repository of key industries such as shipbuilding, pharmaceutics, electric power, networks, automobiles and iron & steel to prepare for law enforcement.

Mainland China has studied and formulated five guidelines including Anti-Monopoly Guide On Abuse of Intellectual Property Rights, Guide on Anti-Monopoly in Automotive Industry, Guide on Commitment of Undertakings in Anti-Monopoly Cases, Guide on Application of Leniency System in Cases involving Horizontal Monopoly Agreement and Guidelines on General Conditions and Procedures for Exemption Concerning Monopoly Agreements to enhance transparency in law enforcement and promote the normalization of law enforcement. In order to reinforce propaganda and guidance, 12 terms of training seminars for propagandizing the Anti-Monopoly Law have been held since 2013 to strengthen enterprises' awareness of laws and regulations governing Anti-Monopoly and their capabilities to respond to the legal risk of anti-monopoly.