Key Revisions to China’s Amended Antimonopoly Law

Synopsis

Sweeping amendments to China’s Antimonopoly Law (the AML) took effect on August 1, 2022. 

Key revisions include:

• Dramatically increased corporate penalties;
• Individual fines for monopoly agreements;
• Burdens of proof for defending resale price maintenance;
• “Safe harbours” for vertical restraints;
• Investigations of mergers not subject to mandatory notification requirements;
• Tolling of pending merger review deadlines; and
• Damages claims brought directly by local regulators.

Proposed revisions to AML implementing measures would flesh out these amendments, raise the general merger notification thresholds, establish new thresholds to catch “killer-acquisitions,” and prioritize AML enforcement involving digital markets and IP licensing. 

Article

China is retooling its competition law regime under its Antimonopoly Law (the AML). The first amendments to the AML since its enactment in 2007 took effect on August 1, 2022, and the State Administration for Market Regulation (SAMR) has proposed sweeping revisions to the AML’s implementing measures.  Key changes suggest that the SAMR will continue targeting online markets, IP licensing, and global mergers.

Monopoly Agreements

The Amended AML prohibits “hub and spoke” cartels amongst competitors facilitated by third parties, such as common distributors or suppliers.  It codifies a Supreme People’s Court decision providing that defendants in resale price maintenance cases have the burden of demonstrating the absence of anticompetitive effects.  It also authorizes safe harbors for vertical restraints that are unlikely to harm competition, so the SAMR proposes a rebuttable presumption of lawfulness for vertical agreements among parties with market shares under 15%.

The SAMR has proposed revising implementing rules to address risks of monopoly agreements through participation in standard-setting, patent pools, and collective copyright maintenance organizations, as well as the risks of “algorithmic” collusion in digital markets.

Abuse of Dominance

The SAMR’s proposals chiefly target abuse of dominance involving digital markets or IP. Existing regulations would be refined to focus on dominant online platforms, including new rules against self-preferencing by online platforms to favor their own products over competitors.  Revised guidelines would extend current rules against anticompetitive licensing practices by dominant IP holders and target exclusionary and predatory practices in the licensing and enforcement of Standard Essential Patents (SEPs).

Merger Review

The SAMR proposes raising the mandatory filing thresholds for mergers. Notification would be required if:

• either (i) the parties’ combined global turnover from the preceding fiscal year exceeds RMB12 billion (up 20%) or (ii) the parties’ combined China turnover from the preceding fiscal year exceeds RMB4 billion (up 100%); and
• at least two of the parties’ China turnover from the preceding financial year exceeds RMB800 million (up 100%). 

To reach “killer acquisitions” by large firms of nascent rivals, the SAMR proposes to require notification whenever: (a) one party’s China turnover from the preceding fiscal year exceeds RMB100 billion (around USD15 billion); and (b) another party is valued at RMB800 million (around USD120 million) or more and realizes more than one third of its revenue from China.

The Amended AML now allows the SAMR to suspend the review periods and deadlines to await the production of requested materials, address changed circumstances, or negotiate remedies.

Penalties

The Amended AML dramatically increases penalties for failing to notify mergers and gun-jumping from an RMB500,000 to fines ranging from 1% to 10% of annual revenues - the same penalty range imposed for monopoly agreements and abuse of dominance. Moreover, it authorizes punitive penalties of two to five times the normal maximum in egregious cases, raising the actual maximum to 50% of annual revenues. The Amended AML also introduces personal liability for individuals responsible for monopoly agreements.

By tightening rules and increasing penalties, the Amended AML and the SAMR’s proposals substantially raise the stakes for antitrust compliance in China.