Competition Law Developments

Transcription

1 Competition Law Developments PANEL DISCUSSION Moderator: John Huang, Senior Parter, Dacheng Panelists: Joseph Cho, General Counsel, Samsung Thales Co., Ltd. Anand Raj, Partner, Shearn Delamore & Co. Piyush Gupta, Partner, Kochhar & Co. Advocates & Legal Consultants Yong Seok Ahn, Partner, Lee & Ko

2 Introduction to Chinese Anti-Monopoly Law DACHENG(SHANGHAI) JOHN ZHENGDONG HUANG April xx,2013

3 CONTENTS 1. Introduction to Monopolistic Conduct; 2. The Enforcement Structure; 3. The Relevant Case Law : 1). LCD case 2). Kweichou Moutai (Moutai) and Yibin Wuliangye (Wuliangye) 4. The New Developments: 1)For the National Development & Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC) 2)For the Ministry of Commerce (MOFCOM)

4 ----In 2013, China s Anti-Monopoly Law (AML) entered its sixth year. The past years saw notable developments in relation to both the legislative framework and the enforcement of the AML, with particular not to the intensification of administrative and private enforcement. Monopolistic Conduct The AML prohibits monopolistic conduct, which can be divided into the following broad headings: 1. Anti-competitive ( monopoly ) agreements between undertakings; 2. Abuse of a dominant position; 3. Mergers that may have the effect of eliminating or restricting competition.

5 Anti-competitive ( monopoly ) agreements between undertakings 1. Prohibition: Art.13 and Art.14 AML 2. Exemption: Art.15 AML 3. Enforcement action:to date, most enforcement actions have been carried out at the local level, the SAIC and NDRC have delegated their enforcement powers to their local departments (the local AIC and the local price authority respectively) to carry out investigations of anti-competitive conduct. 4. Leniency: It is not entirely clear how this leniency provision is applied in practice. However, there are published cases that demonstrate the local price authorities are willing not to impose fines where the offences is minor.

6 Abuse of a Dominant Position 1.Definition of dominant position: Art 17.AML This refers to a market position held by undertaking(s) that enables it(them)to: 1) Control the price, volume, or other trading terms in the relevant market. Other trading terms refer to factors which can have a material impact on market purchases, including product grade, payment terms, method of delivery, etc ; or 2) Block or affect the ability of another undertaking to enter the relevant market 2. Market Share Presumption Art.18 AML indentifies several factors contributing to the assessment of dominance. Art.19 AML given the certain market share thresholds, which give rise to a presumption of dominance, the table on the next page will show the rules of Art.19 AML.

7 Number of undertakings Combined share of the relevant market to create a presumption of dominance 1 half 2 Two-thirds 3 Three-quarters 3. Abuse: Art.17 AML and the implementing rules, set out a non-exhaustive list of the types of behavior that, without justification, would be considered abusive and therefore prohibited. These can be split broadly into two categories: Exploitative abuse: the dominant company abuses its position by exploiting its customers i.e. selling at unfairly high prices. Exclusionary abuse: the dominant company abuses its position by excluding its competitors, for example, by selling below cost or refusing to trade.

8 Merger Control 1. Concentration: In accordance with Art. 20 AML: A concentration refers to the following situations: (i) the merger of undertakings; (ii) the acquisition by undertakings, whether by the purchase of securities or assets, or control of other undertakings; (iii) the acquisition by contact or any other means, control of other undertakings, or the possibility of exercising decisive influence on other undertakings.

9 2. Jurisdictional Thresholds The turnover thresholds are as follows: 1)Either the combined global turnover of all the undertakings concerned (e.g. the purchaser group and the target) exceeds RMB 10 billion (c. 1billion) or the combined turnover within the PRC of all the undertakings concerned exceeds RMB 2 billion (c. 200 million), in the preceding final year; and 2)The turnover within the PRC of at least two of the undertakings concerned, in the preceding financial year, exceeds RMB 400 million(c. 40 million)

10 3. Merger Notification Process: In accordance with Art.25AML, the initial merger review period is 30 days. After the initial review period, MOFCOM can extend its review by a further 90 days if a more detailed investigation is required (commonly referred to as Phase II ), which in turn can be further extended by up to 60 days if the merger parties agree ( Phase III ). 4. Substantive Assessment In accordance with Art.28 AML, in assessing mergers, MOFCOM considers whether the merger will or may eliminate or restrict market competition. Even if this test appears to be met, it remains open to the parties to prove that the advantages of the merger outweigh the disadvantages or that it is in line with the public s interest.

11 Enforcement structure The AML-Monopoly introduced two new regulatory agencies: The Anti-Monopoly Committee under the State Council, which is responsible for developing competition policy, conducting market investigations, publishing guidelines, and coordinating the competition administrative enforcement work; The Anti-Monopoly Enforcement Authority designated by the State Council ( AMEA ), is responsible for the enforcement of the AML. The Enforcement Agencies of AML are as below: Anti-Monopoly Enforcement Agency (AMEA) NDRC: Enforces the price related rules of the AML (Including anticompetitive agreements and abuse of dominance) SAIC Enforces the non-price related rules of the AML and rules against the abuse of administrative powers to restrict competition MOFCOM Enforces the merger control Regime

12 LCD case: Significant Cases Fact: In January 2013, China s first enforcement action against a cartel that operated internationally, involved six international manufacturers of the LCD flat panel display. The six enterprises were Samsung, LG Display, AU Optronics Corp., Chimei Innolux, Zhong Hua Ying Guan, and Hann Star. They conducted an monopoly agreement which resulted in losses to their customers. Penalty: The NDRC s penalty: a high penalty for China, at RMB 353 million (approx. USD 56.7 million). Other: This case suggests that the NDRC has become increasingly confident in joining other major antitrust agencies to investigate international cartels, it also demonstrates the China-specific risks to companies that have extensive business activities in China and who may be involved in international cartels in other jurisdictions.

13 Kweichou Moutai (Moutai) and Yibin Wuliangye(Wuliangye) case Fact: Two companies conduct restricted competition and harmed consumer interests in contravention of the AML. In regards to Kweichow Maotai, the Guizhou Price Bureau found that it had fixed a minimum resale price for 3 rd party distributors of its liquor products, and sought to punish distributors that did not implement the agreed minimum price. Wuliangye used its position of strength on the market to impose a minimum resale price on liquor sold by more than 3,200 independent distributors through the use of various punitive measures. Penalty: This was China s largest penalties under the AML, Wuliangye was fined RMB 202 million, Moutai was fined RMB 247 million. Other: These penalties constituted the largest penalties on individual companies to date under the AML and is the first case in which state-owned companies have been penalized for Resale Price Maintenance (RPM).

14 New Development For NDRC and SAIC: In August, the SAIC circulated the fifth draft of guidelines on how it proposes to enforce the behavioral provisions of the AML to the exercise of intellectual property rights. Public awareness and transparency Public awareness- In December 2012, the NDRC and SAIC announced that they had opened 49 and 17 investigations into anti-competitive conduct, respectively, where the NDRC imposed penalties in a total of 20 cases and the SAIC concluded 8. Improve their transparency-the agencies have taken a more aggressive approach to enforcement, with increased enforcement activity against anti-competitive agreements in particular. Anti-monopoly enforcement teams at the local level Since the end of 2011, the NDRC, which had previously maintained dedicated antimonopoly enforcement teams at the local level through its local Price Bureaus (i.e. in Guangdong, Henan, Hubei etc.), also established a new dedicated anti-monopoly team in Liaoning within the existing local Price Bureau.

15 For MOFCOM In November, MOFCOM published a list of every transaction that it had unconditionally cleared from the effective date of the AML up to September 30, On January 6, 2012, the agency provided the first quarterly update to this list, which included, as additional information, the dates upon which each decision was made. New legislation 1)the Provisional Measures on the Investigation and Handling of Concentrations between Business Operators Not Notified in Accordance with the Law, which govern the procedure for investigations into, and punishment of, concentrations that have not been notified, were promulgated on December 30, 2011 and came into force on February 1, )Two pieces of key future legislation, the Regulations on the Imposition of Restrictive Conditions in Concentrations between Business Operators, this will provide a comprehensive framework for the imposition of remedies, and the Provisional Measures on the use of a Simplified Review Procedure in Cases of Concentrations of Undertakings, which will simplify the notification process for some transactions, creating a fast-track procedure. Publication, On June 6, 2012, a new notification form was published, it imposes significant new documentary and information requirements on filing parties.

16 THANKS John Zhengdong Huang DACHENG (Shanghai)

17 谢 谢

18 COMPETITION LAW IN VARIOUS REGIONAL JURISDICTIONS A Brief Overview of the law in India WSG Asia Pacific Regional Meeting April 2013, Seoul, Korea

19 Competition Architecture in India India one of the first developing countries to have a competition law in the form of MRTP Act, 1969 To ensure that the operation of the economic system did not result in concentration of economic power; To provide for the control of monopolies; and To prohibit monopolistic and restrictive trade practices (later amendment brought unfair trade practices in its ambit) Liberalization in the 1990s MRTP becomes obsolete call for new laws in line with market-based economy 19

20 Advent Of Competition Law Regime 1999 Committee was formed to propose a modern law to address the growing competition in the economy Committee recommended replacing the MRTP Act with a modern competition law 2002 Competition Act was passed focusing on promoting competition 20

21 Fundamentals of Competition Act Provides a level playing field for all enterprises in the markets No exception for any enterprise Prohibits anti-competitive agreements, abuse of dominance and regulates combinations which cause or are likely to cause an appreciable adverse effect on competition within India In addition, the Act mandates competition advocacy 21

22 Institutional Framework Supreme Court Appeal against orders of the Tribunal Competition Appellate Tribunal Appeal against orders of the CCI Competition Commission of India (CCI) Information / Reference / Suo Motu 22

23 Fundamentals of CA

24 Basic provisions Section 3 Dealing with prohibition on anti-competitive agreements Section 4 Dealing with prohibition on abuse of dominant position Sections 5 & 6 Dealing with regulation of combinations 24

25 Section 3 Prohibition of anticompetitive agreements

26 s.3 Anti-competitive Agreements s.3 prohibition covers agreements between enterprises which are likely to cause or causes (object and/or effect test) of appreciably preventing, distorting or restricting competition in India. Agreement covers agreements between enterprises, decisions by trade associations, and concerted practices, and oral or written agreements An agreement made outside India or where a party to the agreement is outside India, will also be covered if it has the same object or effect in India Also covers agreements with Government departments, provided they are engaged in commercial activities 26

27 s.3 Exemptions The following are exempted from the ambit of the s.3 prohibition: Activities related to the sovereign functions of the government, including atomic energy, currency, defence and space IPRs an IPR holder is allowed to impose reasonable restraints, as may be necessary for protecting any of his rights which may have been conferred upon him under such IPRs Agreements relating to export of goods from India to the extent that the agreement(s) relate exclusively to the production, supply, distribution or control of goods or provision of services for such export 27

28 Section 4 Prohibition on abuse of dominant position

29 s.4 Abuse of Dominance Not dominance, but its "abuse" is prohibited Dominance means a position of strength, enjoyed by an enterprise in the relevant market in India, which enables it to: Operate independently of competitive forces prevailing in the relevant market; or Affect its competitors or consumers or the relevant market in its favour Dominance emanates from Market Power 29

30 s.4 Abuse of Dominance Dominance may be abused in the following manner: Predatory pricing; Imposing unfair or discriminatory conditions in purchase / sale of goods / services; Limiting production / provision of goods / services; Denial of market access in any manner; Compulsory tying arrangements; Using dominant position in one market to enter into, or protect the position in another market 30

31 Sections 5 & 6 Regulation of Combinations

32 Ss.5&6 Regulation of Combinations CCI has jurisdiction to review deals involving companies based in India, but also international transactions between firms based outside India Non-binding, pre-notification consultations possible A transaction would fall within the jurisdiction of CCI only if it qualifies as a combination Combination has been defined looking at: Type of transaction; as well as Jurisdictional thresholds 32

33 Ss.5&6 Combinations - Type of Transactions Act includes 2 main types of transactions: Acquisitions which comprise direct and indirect acquisitions of: Shares, voting rights or assets of any enterprise; and Control over management or control over assets of any enterprise Mergers / Amalgamations not expressly defined under the Act, but based on definitions in other statutes and court rulings 33

34 Ss.5&6 Combinations - Jurisdictional Thresholds Thresholds Referencing In India Alternative Entity Assets Turnover 1. Acquirer and Target INR 1,500 cr Or INR 4500 cr 2. Acquirer s Group and Target INR 6,000 cr Or INR 18,000 cr OR Thresholds With Worldwide Reference Alternative Entity Assets Turnover 1. Acquirer and Target USD 750 m Or USD 2,250 m of which, in India INR 750 cr Or INR 2,250 cr 2. Acquirer s Group and Target USD 3,000 m Or USD 9,000 m of which, in India INR 750 cr Or INR 2,250 cr AND Target has in India > INR 250 cr AND > INR 750 cr 34

35 s.5 Group - defined For the purposes of the Act, group has been given a definition that is different compared to how the term is used in other context. When assessing whether the group thresholds are satisfied, 2 or more enterprises must, directly or indirectly, be in a position to exercise, in respect of another enterprise, either: At least 50% of the voting rights Appoint more than half of the directors or Control the management or affairs 35

36 Ss.5&6 Exemptions Combinations for which proposals were approved by their respective boards, or for which, binding documents were executed before 1 June 2011 Acquisition of not more than 15% of voting rights, not leading to control Acquisition of shares where the acquirer already has 50% or more shares in the target Combinations within the same group Combinations taking place entirely outside India and which have insignificant local nexus and effects on markets in India Banking companies are exempt for 5 years (wef ) 36

37 Deterrents & Penalties

38 Deterrents CCI is empowered to pass the following orders against anti-competitive "practices": Pass temporary order(s) during the pendency of investigation; Pass cease and desist order(s) directing offending parties to discontinue and not repeat such practice(s); Pass order(s) requiring a modification of agreement(s) directing the offending parties to modify the agreements to the extent and in the manner specified in the order 38

39 Penalties For companies - a monetary penalty of up to 3 times of the company's profits for each year of continuance of an anti-competitive agreement or 10% of the company s turnover for each year of the continuance of such agreement whichever is higher!!! 39

40 Penalties regulation of combinations CCI has power to block a notified transaction outright, but it may also approve a transaction subject to the parties implementing certain structural or behavioral modifications to the deal as notified. A combination prohibited by the CCI is deemed to be void and thus, is unenforceable Failure to notify combinations 1% of the total turnover or the assets of the combined enterprise, whichever is higher 40

41 Recent Notable Decisions

42 Recent Decisions In Feb 2013, CCI imposed a penalty of INR crore on the Board of Control for Cricket in India (BCCI) for misusing its dominant position and passed cease and desist orders for practices denying market access to competitors In Aug 2012, CCI imposed a penalty of INR 630 crore on DLF, a major real estate player in India, for abusing its dominance, and proposed major modifications to the template buyers agreement In June 2012, CCI imposed a fine of over INR 6,000 crore on 11 cement companies for cartelization 42

43 Thank you! Kochhar & Co. Piyush Gupta (T): (E): 43

44 2013 Asia Pacific Regional Meeting Recent Developments in the Cartel Enforcement in Korea April 16, 2013 Yong Seok Ahn Lee & Ko 44 44

45 International Cartel Case Statistics Case Date of Decision Surcharge (Billion Won) Electrode Vitamin Paper Marinehose Air Cargo CDT TFT-LCD CRT

46 Recent Implementations Improvements in the Leniency Program Evidence permissibility, Internal investigation period, Repetitive violation Liquidated Damages Standard procurement contracts by KEPCO and KWRC Increase in Whistleblower Compensation Up to 2 Billion Won 26 Cases, 429 Million Won ( ) 46

47 Pending Developments Class Action for Cartel & RPM More Criminal Punishments Accusation by Administration of SME, National Procurement Administration and The Board of Audit and Inspection as well as KFTC Treble damages for Certain Violations Subcontract law violation Private Enforcement Injunction 47

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