Antitrust Alert : International Antitrust Attorneys: McDermott Will & Emery Law Firm

by Henry Chen, Frank Schoneveld and Alex An

China’s Ministry of Commerce recently issued two new draft regulations.  The first provides a wider range of potential remedies to obtain the clearance of a concentration (e.g., a merger, acquisition, joint venture, etc.); the other defines the standards for “simple” merger cases that are eligible for a “fast-track” clearance procedure.

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Contact: Frank Schoneveld, Kevin Qian, John Huang and Winston Zhao

McDermott Will & Emery is pleased to offer “Distribution in China – Legal Issues*,” a one-stop resource covering distribution in China, including:

• The business models and legal structures most commonly used for distribution in China
• Important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities
• Pre-contract matters of which negotiators of distribution agreements for China should be aware
• The main issues parties should take into account when drafting a distribution contract for use in China, including pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights

*This publication originally appeared as a four-part White Paper series.

To read the full article, click here. 

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by Frank Schoneveld

Corporations doing business in China, based on their intellectual property (IP) rights, need to be aware of the potentially serious impact of China’s Anti-Monopoly Law and other antitrust rules.  China’s Anti-Monopoly Law prohibits the holder of IP rights from abusing those rights when it has a dominant market position.  Such dominance can be achieved under Chinese law with a market share as low as 10 percent.  Two recent cases demonstrate the greater reliance of Chinese companies on the antitrust rules, particularly when bargaining for lower royalties and license fees.

Interdigital v. Huawei

The Shenzhen Intermediate Court recently decided that Interdigital abused its patent rights by requiring Huawei to pay “excessive” royalties for essential patents for mobile telephone technology.  The license terms proposed by Interdigital to Huawei reportedly complied with the European Telecommunications Standards Institute’s policy as Fair, Reasonable and Non-Discriminatory (FRAND) terms.  However, the court found that the terms of the proposed license were not a FRAND complaint, and even if the offered licenses were a FRAND compliant, the royalties to be paid by Huawei should not exceed 0.019 percent of the sale price of each Huawei product using the patents.  This was significantly less than what Interdigital was prepared to accept (and reportedly less than that agreed upon in Europe for the same license).  In effect, Interdigital must now give Huawei a compulsory license at the lower royalty rate as fixed by the Chinese Court.  Interdigital has indicated it will appeal the decision. 

While the judgment has not been published, it is reported that other findings of the Shenzhen Intermediate Court include that Interdigital had also abused its IP rights by:

• Tying the licensing of essential patents to the licensing of non-essential patents
• requiring that Huawei provide a grant-back of certain patent rights

Microsoft v. Guangzhou Kam Hing

Another recent IP abuse case involves Microsoft, who reported Guangzhou Kam Hing to the Chinese local authorities in 2010 for using pirated Microsoft software.  This resulted in Guangzhou Kam Hing being fined by the Chinese authorities.  Subsequently, Microsoft filed a complaint to a local (Nansha) court claiming damages of RMB 4.7 million and requiring that Guangzhou Kam Hing purchase a specified quantity of genuine Microsoft software at a certain price.  Guangzhou Kam Hing has now brought proceedings in the Guangzhou Intermediate Court accusing Microsoft of abusing its IP rights by allegedly:

• Applying quantity restrictions to reinforce its dominant position
• Charging excessive prices thereby gaining “monopoly” profits

There was also a claim of discrimination in its pricing of software licenses based on differential pricing in Hong Kong and Mainland China for the same product.  It is unclear whether the claim of discriminatory pricing is being pursued.  The decision in this case is still pending.

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Contact: Frank Schoneveld, Kevin Qian, John Huang and Winston Zhao

“Distribution in China – Legal Issues” is a four-part series.  Part I discussed the business models and legal structures most commonly used for distribution in China.  Part II looked at important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities.  Part III dealt with pre-contract matters of which negotiators of distribution agreements for China should be aware.  Part IV outlines the main issues parties should take into account when drafting a distribution contract for use in China.  These include pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights.

Read the full article here.

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Contact: Frank Schoneveld, Kevin Qian, John Huang and Winston Zhao

“Distribution in China – Legal Issues” is a four-part series.  Part I discussed the business models and legal structures most commonly used for distribution in China.  Part II looked at important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities.  Part III deals with pre-contract matters of which negotiators of distribution agreements for China should be aware.  Part IV will outline the main issues parties should take into account when drafting a distribution contract for use in China.  These include pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights.

To read the full article, click here.

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by Frank Schoneveld

Last week one of China’s antitrust regulators, the National Development and Reform Commission (NDRC), imposed fines of RMB419 million (+/- US$72 million) on two of the most famous producers of Chinese liquor, Moutai and WuLiangye.  The fines were imposed for restricting the minimum price at which their distributors could resell the liquor. This was found to be illegal resale price maintenance. The fines are unprecedented in China and signal major new antitrust enforcement activity in the distribution of goods and in the alcoholic beverages sector in particular.

The fines imposed are at the lower end of the possible range of fines between 1% and 10% of each company’s annual revenues.  It remains to be seen whether any of these companies’ customers or distributors will now start private actions in the Chinese courts to recover damages for breach of the antitrust rules.  So far there have been over 60 private cases in Chinese courts against both foreign and domestic corporations for alleged breach of the antitrust rules. 

Both the liquor companies are State Owned Enterprises (SOE) unlike the six Korean and Taiwanese companies who were fined by the NDRC in January the equivalent of some US $56 million for a price fixing cartel in the Liquid Crystal Display (LCD) market. 

In general, foreign companies have largely ignored China's antitrust rules as enforcement has been weak or non-existent and local subsidiaries of multinationals have down-played the risks.  Clearly however, antitrust law in China can no longer be ignored.  Many corporations with businesses in China are now scrambling to complete a China antitrust audit and put in place a robust compliance program to address questionable conduct.  Those who don’t do so face the now very real risk of significant fines by the Chinese antitrust authorities. 

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Contact: Frank Schoneveld, Kevin Qian, John Huang and Winston Zhao

“Distribution in China – Legal Issues” is a four-part series.  Part I discussed the business models and legal structures most commonly used for distribution in China.  Part II looks at important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities.  Part III will deal with pre-contract matters of which negotiators of distribution agreements for China should be aware.  Part IV will outline the main issues parties should take into account when drafting a distribution contract for use in China.  These include pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights.

To read the full article, click here.

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For more information, please contact Frank Schoneveld, Kevin Qian, John Huang or Winston Zhao.

“Distribution in China – Legal Issues” is a four-part series.  Part I discusses the business models and legal structures most commonly used for distribution in China.  Part II will look at important issues to consider in the design of a distribution system for China, such as taxation, foreign exchange, antitrust, and specific rules applicable to retail and wholesale distribution activities.  Part III will deal with pre-contract matters of which negotiators of distribution agreements for China should be aware.  Part IV will outline the main issues parties should take into account when drafting a distribution contract for use in China.  These include pricing and payments, exclusivity and territorial restrictions, product liability and intellectual property rights.

To read the full article, click here.

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by Henry L.T. Chen, Frank Schoneveld, Jared Nelson and Sean Pan

China’s Ministry of Commerce recently announced that it opened four investigations during 2012 into suspected non-compliance with China’s merger control notification procedures.  The outcomes of the investigations are still uncertain, but the actions clearly show increased efforts to ensure compliance through enforcement of the law.  Although the number of investigations was fairly low in 2012, the four cases are part of a new, larger trend of enforcement that began with a 2011 announcement to prioritize these investigations and was reinforced by new interim measures aimed at specifying compliance obligations and enforcement procedures.  Multinational companies with operations in China are encouraged to increase compliance efforts in this area in order to avoid becoming targets of this new enforcement priority.

To read the full article, click here.

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by Henry L.T. Chen, Frank Schoneveld, Jared Nelson and Sean Pan

Recently China’s National Development and Reform Commission (NDRC) imposed an RMB 353 million (USD 56.7 million) penalty against an international price-fixing cartel of LCD manufacturers, the largest the NDRC has ever imposed for antitrust infringement.  The penalty is China’s first enforcement action against an international cartel and sends a strong signal to multinational corporations operating in China that enforcement actions against cartels will not be limited to Chinese entities.

To read the full article, click here.

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by Frank Schoneveld

In the last six months, China's antitrust enforcement agencies have signed five Memorandums of Cooperation with antitrust authorities in the United States, European Union, South Korea, Australia and Brazil. During this same period, Chinese antitrust enforcement agencies have substantially increased their personnel resources.  So far, in 2012 more than 10 cartel investigations have been opened by China’s antitrust enforcement agencies, resulting in fines of millions of dollars in four cases in the last four months alone.  (In the previous three years there had been only three cartel cases with total reported fines of less than US$1 million).

Why all of this activity?  The implications seem clear, and it is not just a matter of reading the tea leaves (so to speak): the Chinese antitrust enforcement agencies are clearly gearing up to implement an even more aggressive enforcement agenda that will now include international cartels that affect China. As a Director of China's antitrust enforcement agency - the National Development and Reform Commission (NDRC) - stated in a speech on November 2, 2012: "We will increase our anti-price monopoly enforcement capability and strive to investigate and penalize a number of large cases that are influential domestically and internationally". Senior Chinese antitrust officials have privately confirmed that they were planning to execute on this agenda as soon as the new Politburo was in place.  Now that this has occurred, we can expect to see a significant uptick in the number of cartel investigations and prosecutions in China, which can subject offenders to fines of up to 10 percent of their annual revenues and confiscation of illegal gains. The "priority" industries reportedly targeted for scrutiny include energy, insurance, motor vehicles, travel and the internet.

The risks associated with the enforcement agencies more aggressive enforcement agenda are compounded by the fact that companies will now be subjected to heightened risk of follow-on private class actions in China.  In particular, the Court rules now make it easier for private plaintiffs to commence class actions in Chinese courts and the Supreme People's Court recently held that once a cartel agreement has been found to exist, the burden of proof shifts to the defendant to prove that the agreement did not result in any restriction of competition.

These developments demonstrate that corporations active in China need to ramp up their antitrust compliance efforts without delay to reduce the risk of being targeted for investigation and serious financial exposure. As a first step, conducting an antitrust compliance audit is advisable to assess potential risk areas and, where appropriate, to position the company to take advantage of the Chinese enforcement agencies' leniency application procedures.  

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by Henry L.T. Chen, Frank Schoneveld, Jared Nelson and Sean Pan

Several major actions taken against price-fixing cartels by China’s enforcement authorities in the last year have sent a clear message that this is not a temporary campaign.  It is a new reality.

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by Henry L.T. Chen, David Henry, Frank Schoneveld and Philipp Werner

On September 20 , 2012, European Commission officials concluded a Memorandum of Understanding (MoU) with Chinese officials in respect of antitrust law.  Signed by the Directorate General for Competition and two of China’s antitrust law enforcement authorities, the National Development and Reform Commission (NDRC) and the State Administration of Industry and Commerce (SAIC), the MoU strengthens the relationship between the two jurisdictions’ respective antitrust authorities.

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by Henry L.T. Chen, Frank Schoneveld and Alex An

A Shanghai court recently decided the first case involving vertical monopoly agreements (i.e., between supplier and distributor) since China’s Anti-Monopoly Law (AML) came into effect in 2008. Of note, the court found that resale price maintenance by itself does not constitute a monopoly agreement. However, given that other courts and AML enforcement authorities can impose fines for illegal resale price maintenance, market players should not assume the practice is legal in China.

To read the full article, click here.
 

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by Henry L.T. Chen, Frank Schonveld and Brian Fu

The Ministry of Commerce of China (MOFCOM) recently promulgated a new amended merger notification form along with instructions for completing the form.  In doing so, MOFCOM aims to further regulate the procedures regarding antitrust review of large mergers, acquisitions and joint ventures; to promote transparency in the notification procedure; and to improve the efficiency of antitrust review.

To read the full article, please visit: http://www.mwechinalaw.com/news/2012/chinalawalert061c.htm.

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by Henry L.T. Chen and Frank Schoneveld.   

Recently, the Supreme People’s Court of China issued final rules to build a working framework for civil anti-monopoly cases brought under the country’s Anti-Monopoly Law.  The rules will take effect on 1 June 2012.

To read the full article, please click here. 

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by Henry L.T. Chen and Frank Schoneveld

Recently, the High People’s Court of Guangdong held a public hearing for a high-profile lawsuit involving two software giants and alleged abuse of a dominant market position.  This is the first anti-monopoly case accepted by the court, and the claimed amount is RMB 150 million (approximately US$23.8 million).  With few judicial precedents in China, this case will be watched closely, and its outcome is expected to have far-reaching implications.

To read the full article, click here.

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by Henry L.T. Chen, Frank Schoneveld, Alex An, Brian Fu and Angel Wang

McDermott Will & Emery has released the latest China Law Alert: Focus on Competition, which provides insight on current issues surrounding cross-border antitrust and transactional issues. 

China’s New Merger Control Regime Makes Major Progress in Its First Three Years

It is now just more than three years since China’s Anti-Monopoly Law (AML) was introduced. Compared with the well-established practices of US antitrust and EU competition authorities, AML enforcement is still in its infancy. However, China’s AML regulators, especially the authority in charge of merger control, the Ministry of Commerce (MOFCOM), has moved quickly to make its mark on international business. Now, most large, cross-border mergers, acquisitions and joint ventures must also successfully pass the rigors of review by MOFCOM as well as the European Commission and the US Department of Justice (DOJ) and/or Federal Trade Commission (FTC).  Read the full article here.

NDRC and SAIC’s Actions in 2011 and Prospects in 2012

China’s National Development and Reform Commission (NDRC) and State Administration for Industry and Commerce (SAIC) are the two authorities in charge of investigation and supervision of “monopoly” agreements and abuses of dominant market position. NDRC focuses on price-related cases while SAIC takes care of non-price related violations of the law. Compared to MOFCOM, which is responsible for merger control, NDRC and SAIC have been relatively quite since China’s AML came into force on 1 August 2008.  Read the full article here.

Civil Litigation under China’s Anti-Monopoly Law

Since the introduction of the China AML in August 2008, Chinese courts have experimented with various methods of civil dispute adjudication based on breach of the AML. In general, China’s courts have very limited judicial experience with such cases. A number of civil cases have been brought before the courts, but very few, if any, have resulted in a successful judgment for breach of the AML.  Read the full article here.

Might the Ministry of Industry and Information Technology (MIIT) Become A New Enforcement Authority for China’s Competition Laws?

In addition to MOFCOM, SAIC and NDRC, the three major enforcement authorities for the anti-unfair competition and anti-monopoly laws, it seems the MIIT might also become a regulator of competition in the telecommunications sector. In addition to a Draft Regulation on Internet Information Services, published for consultation in January 2012, MIIT released an “Opinion on Regulating the Business Activities of Basic Telecommunications Carriers on Campuses” (the Opinion) on 30 June 2011.  Read the full article here.

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by Henry L.T. Chen, Frank Schoneveld and James Jiang

Recently China’s Ministry of Commerce (MOFCOM) approved Western Digital’s proposed acquisition of Hitachi’s hard disk drive business on a conditional basis.  Containing the most comprehensive clearance conditions ever imposed by MOFCOM, this decision mirrors previous guidance issued by the European Commission and illustrates that at least two authorities in two of the world’s major economies are working toward imposing similar clearance conditions in their respective jurisdictions.

Read more here.

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by Henry L.T. Chen, Frank Schoneveld and Brian Fu

China’s National Development and Reform Committee recently imposed the largest fine ever on a sodium hydrosulphite manufacturer for price fixing and other anticompetitive activities.

To read the full article, click here. 

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by Henry L.T. Chen, Frank Schoneveld and Alex An

Recently, ENN Energy Holdings Limited and China Petroleum & Chemical Corporation jointly announced the acquisition of all outstanding shares in China Gas Holdings Limited.  This acquisition triggers a requirement to notify and obtain clearance from China’s Ministry of Commerce (MOFCOM).  Therefore, MOFCOM’s approval will be one of the preconditions for ENN Energy and Sinopec to close the transaction.

To read the full article, please click here. 

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by Henry L.T. Chen, Frank Schoneveld and Brian Fu

On 27 December 2011, in its annual end-of-year press conference, the Anti-Monopoly Bureau of China’s Ministry of Commerce gave an overview of the country’s Anti-Monopoly Law enforcement efforts in 2011, as well as stated its clear intention to investigate and sanction parties who fail to submit proper notification of a concentration and have it cleared by the Ministry.

To read the full article, click here. 

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by Henry L. T. Chen, Frank Schoneveld and James Jiang

China’s Ministry of Commerce (MOFCOM), following six months of public comment on and consideration of Draft Regulations, has now formally promulgated new Regulations on the Investigation & Treatment of Failure to Report a Concentration of Undertakings.  The new regulations will take effect as of February 1, 2012, and arm MOFCOM with clear powers to investigate and collect evidence on concentrations.

To view the full article, click here.           

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by Henry L.T. Chen, Frank Schoneveld and Alex An

Recently,China’s National Development and Reform Commission (NDRC) imposed large fines on two pharmaceutical distributors.  This move indicates the enforcement agency, which supervises price-related monopolistic practices, is beginning to take a more active role in enforcing the country’s Anti-Monopoly Law.

To read the full article, click here. 

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by Carlo Carani and James Jiang

Before granting its approval of Alpha V’s acquisition of Savio, China’s Ministry of Commerce (MOFCOM) required the private equity fund to divest its 27.9 per cent stake in Savio’s rival Uster.  With this decision, MOFCOM has signalled its willingness to closely scrutinize the influence of minority shareholders when conducting merger reviews under China’s Anti-Monopoly Law.

To read the full article, click here.

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by Frank Schoneveld, Brian Fu and James Jiang

In giving approval to GE China’s joint venture with Shenhua Coal, China’s Ministry of Commerce (MOFCOM) has answered positively the recurring question of whether the formation of a joint venture falls within China’s merger control rules.  It is now clear that the formation of a joint venture can require clearance from MOFCOM under China’s Anti-Monopoly Law.

To read the full article, click here.

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by Frank Schoneveld, Henry L.T. Chen and Brian Fu

China’s antitrust authorities are investigating—and taking significant action for the first time against—state-owned enterprises, using the powers granted them under the 2008 Anti-Monopoly Law.

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by Henry L.T. Chen, Frank Schoneveld and Brian Fu

On 3 February 2011, the State Council promulgated the “Notice of the General Office of the State Council on Launching the Security Review Mechanism for Mergers and Acquisition of Domestic Enterprise by Foreign Investors,” which established the national security review system for merger and acquisition (M&A) transactions by foreign investors in China.  On 25 August 2011, after a trial implementation period of about six months of an interim regulation on the security review system, the Ministry of Commerce finalised and issued the “Regulation on Implementing of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors,” which came into effect 1 September 2011.  The national security review system as established and specified under the notice and the regulation may have a broad impact on prospective M&A transactions by foreign investors in China.

To read the full article, click here.

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by Henry L.T. Chen, Frank Schoneveld and Brian Fu

To evaluate the competitive impact of an anti-monopoly review on the mergers and acquisitions market (or concentration) and to guide business operators when notifying a concentration, the Ministry of Commerce of China introduced new measures for evaluating competitive influence.  The new rules have been in effect since 5 September 2011.

To read the full article, click here.

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by Frank Schoneveld and Joseph F. Winterscheid

On June 24, 2011, Assistant Attorney General Christine Varney announced that the U.S. antitrust enforcement agencies will be signing a cooperation agreement with their Chinese counterparts.  As a consequence, companies can now expect to see the Chinese authorities participating in coordinated “dawn raids” and related cooperative enforcement initiatives with the U.S. and EU antitrust enforcers in international cartel cases. 

To read the full article, click here.

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by Henry L.T. Chen and Frank Schoneveld

There is considerable speculation in China that many large transactions that should have been notified for clearance by China’s Ministry of Commerce (MOFCOM) have not been properly notified, and Chinese government is going to go after the concerned concentrating parties.  Recently, the speculation came into being and all public comments must be filed before 23 June 2011.  New Draft Regulations, “Preliminary Regulations on the Investigation & Treatment of Failure to Report Concentration of Undertakings (Opinion Solicitation Draft),” clarify and provide MOFCOM with the power to investigate, fine and order divestiture of mergers and acquisitions that should have been, but have failed to be, notified and cleared by MOFCOM.

To read the full article, please visit: http://www.mwechinalaw.com/news/2011/chinalawalert0611b.htm.

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by Henry L.T. Chen and Frank Schoneveld

To evaluate the competitive impact of an anti-monopoly review on the market of mergers and acquisitions (or concentration) and to guide business operators when filing notification of a concentration, the Ministry of Commerce of China has introduced Interim Measures on Evaluating Competitive Influence Caused by the Concentration of Business Operators (Draft for Comments) for public comment.  The deadline for submission of comments is June 13, 2011.

To view the full article, click here.

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by Henry L.T. Chen, Frank Schoneveld and Michael Xu

The China Automobile Dealers Association recently issued a formal complaint to Mercedes-Benz Beijing regarding its allegedly illegal “double limit” policy for car dealers—minimum prices and restrictions on sales into other dealers` territories—revealing tension between a widespread industry practice and China’s Anti-Monopoly Law. 

To read the full article, please visit: http://www.mwechinalaw.com/news/2011/chinalawalert0411a.htm.

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by Henry L.T. Chen and Frank Schoneveld

China’s State Administration for Industry and Commerce has imposed the first fines for violation of the country’s Anti-Monopoly Law on a concrete cartel.  The swift action indicates business operators should anticipate more widespread and vigorous investigations by the newly empowered Chinese competition regulatory authorities.

To read the full article, please visit:  http://www.mwechinalaw.com/news/2011/chinalawalert0211c.htm.
 

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McDermott Will & Emery's International News, Issue 2, 2010, covers a range of legal developments of interest to those operating internationally.  This issue focuses on Antitrust and Competition.

In this issue...

• Merger Control: Gun Jumping Goes Global
• International Cartel Enforcement: On the Rise and More Severe
• China's Anti-Monopoly Law: Experience and Lessons Learned After Two Years
• Antitrust Enforcement Under the Obama Administration: One Year Later
• Class Actions: An EU Update
• Information Sharing under EU Competition Law: Handle with Care

The full issue can be found at: http://www.mwe.com/info/news/int0210.htm.
 

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