2015 China Anti-Monopoly Annual Report

Transcription

1 2015 CHINA ANTI-MONOPOLY ANNUAL REPORT January /F, Tower D1, Liangmaqiao Diplomatic Office Building, No. 19 Dongfangdonglu, Chaoyang District, Beijing, China General Line: Fax: China Anti-Monopoly Annual Report Dr. Zhan Hao & Song Ying Wechat QR CODE

2 Contents I. Legislation... 1 A. Legislation Tendency Highlight... 1 B. Legislation of SAIC... 1 Rules on Prohibition of Abuse of Intellectual Property Rights for the Purpose of Eliminating or Restricting Competition... 2 Draft Guidelines on Prohibition of Abuse of Intellectual Property Rights for the Purpose of Eliminating or Restricting Competition... 2 C. Legislation of NDRC... 3 Auto Industry Antitrust Guidelines... 3 Draft Antitrust Guidelines on IPR Abuses... 4 D. Legislation of MOFCOM... 4 The Guidelines on Standardizing the Names of Notification Cases... 4 Auto Sales Management Measures... 4 II. Public Enforcement... 5 A. Merger Control... 5 Enforcement Tendency Highlight... 5 Significant Cases... 6 Google/Motorola: MOFCOM partially removed restrictions... 6 AB InBev's Investment in Guangzhou Zhujiang Brewery... 7 MOFCOM issued four administrative decisions to penalize six parties involved in four merger cases... 8 MOFCOM conditionally cleared Nokia s acquisition of Alcatel-Lucent Western Digital/HGST: MOFCOM partially removed hold-separate restrictions Seagate/Samsung:MOFCOM partially removed hold-separate restrictions Freescale/NXP obtained conditional approval from MOFCOM B. Monopolistic Agreements Enforcement Tendency Highlight Significant Cases Ocean Shipping Companies case investigated by the NDRC Analysis Mercedes-Benz case investigated by Jiangsu Provincial Price Bureau Telecom case investigated by Yunnan DRC DongFeng Nissan case investigated by Guangdong DRC Brick case investigated by Hunan AIC Animation Association case investigated by Guangdong AIC Insurance companies case investigated by Hubei AIC Concrete companies case investigated by Hunan AIC C. Abuse of Market Dominance Enforcement Tendency Highlight Significant Cases... 31

3 Hainan Dongfang Water Company Case Ningxia AIC suspends tie-in sales investigation of three state telecom firms Liaoning AIC s investigation against Tobacco Company Chongqing AIC s investigation against pharmacy firm D. Administrative Monopoly Enforcement Tendency Highlight Significant Cases Shandong Transportation Department case investigated by the NDRC Health and Family Planning Commission of Bengbu City case investigated by the NDRC III. Private Litigation A. Enforcement Tendency Highlight B. Significant Cases Shenzhen Sware Technology v. Guangdong Department of Education (Pending) Yunnan Yingding Bio-energy v. Sinopec (Pending) Rijing Electric v. Panasonic (Pending) Four Chinese Rare Earth Companies v Hitachi Metals (Pending) Carrefour and Abbott v. Tian Junwei Gu Fang v. China Southern Airlines IV. General Conclusion Contact... 52

4 2015 China Anti-Monopoly Annual Report I. Legislation A. Legislation Tendency Highlight Dr. Zhan Hao & Song Ying 1 In the year of 2015, China s antitrust enforcement agencies, namely the National Development and Reform Commission ( NDRC ), the State Administration for Industry and Commerce ( SAIC ) and the Ministry of Commerce ( MOFCOM ) made more efforts regarding legislation, especially when it comes to strengthening the role of soft law, compared to Intellectual property right ( IPR ) related antitrust issues are a hot topic. At this stage, three antitrust enforcement bodies and the State Intellectual Property Office are respectively drafting the IPR antitrust guidelines based on their respective enforcement areas and are going to submit their respective guidelines to the State Council s Anti-monopoly Commission ( AMC ). The AMC will eventually come up with the final and unified guidelines (the IPR Antitrust Guidelines ) based on the draft versions submitted by above-mentioned bodies. The auto industry has consistently attracted attention under the framework of AML. Apart from continuous enforcement activities against cartel, vertical monopolistic agreement and abusing dominance in the auto industry, the antitrust guidelines for the auto industries being drafted by NDRC (the Auto Industry Antitrust Guidelines ), are the only antitrust guidelines specialized for a particular industry. This suggests a deepening and detailing of legislative activities of China s antitrust enforcement authorities. In addition to the IPR Antitrust Guidelines and the Auto Industry Antitrust Guidelines, the NDRC has also drafted four other guidelines in 2015 in order to normalize and guide the enforcement activities. The four guidelines include Guidelines on Leniency Policy, Guidelines on Commitment of Undertakings, Guidelines on Calculating the Illegal Gains and Fines for Monopoly Conducts and Guidelines on Procedures of Monopolistic agreement Exemption. B. Legislation of SAIC 1 Dr. Zhan Hao is the managing partner of AnJie Law Firm and received his Doctoral degree, Master degree and Bachelor degree in law. Dr. Zhan also conducted Post-doctoral research on Microeconomics. address: zhanhao@anjielaw.com. Song Ying is a partner of AnJie Law Firm whose practice focuses on antitrust and litigation. Ms. Song can be reached at the following address: songying@anjielaw.com. The other team members of AnJie competition team, including Li Xiang, Wang Lingling, Zhang Wenyi, Zheng Shuangshi and Feng Siduo also make contribution to this report. Page 1 of 51

5 Rules on Prohibition of Abuse of Intellectual Property Rights for the Purpose of Eliminating or Restricting Competition 2 On April 7, 2015, SAIC issued the Rules on the Prohibition of Abuse of Intellectual Property Rights for the Purpose of Eliminating or Restricting Competition (the IPR Antitrust Rules ), which have taken effect on August 1, The IPR Antitrust Rules consist of six main parts, including: clarifying the purpose and basis of the legislation, and providing relevant legal concepts (e.g. Article 1); prohibiting undertakings from reaching any monopolistic agreements through exercising intellectual property rights and providing the principle of Safe Harbour and its details (e.g. Article 5); illustrating the rules for undertakings with dominant position exercising intellectual property rights, and especially proposing the essential facility doctrine (e.g. Article 10); laying out the rules for exercising IP rights related to the patent pool and standardization (e.g. Article 12 and 13); providing the analytical approaches and consideration factors for conducting the antitrust assessment (e.g. Article 15); and stipulating the possible punishments to be imposed in case of violation of this Rules (e.g. Article 17). Draft Guidelines on Prohibition of Abuse of Intellectual Property Rights for the Purpose of Eliminating or Restricting Competition The Anti-monopoly and Anti-unfair Competition Enforcement Bureau of SAIC released the sixth draft of Guidelines on Prohibition of Abuse of Intellectual Property Rights for the Purpose of Eliminating or Restricting Competition ( SAIC draft IPR Guidelines ) on January 6, The SAIC draft IPR Guidelines cover various IPR related antitrust issues - such as restrictions on technology R&D between competitors, exclusive grant-back clauses, market division among competitors, and safe harbour rules regarding monopolistic agreements involving IPRs, etc. The following areas are mainly illustrated: Chapter 1 clarifies general principles of the guidelines, the relationship between antitrust law and IPR protection, as well as the relationship between IPR abuse and monopolistic behaviour. It also covers nature and type of conduct eliminating 2 The original Chinese notice published by SAIC is available at Page 2 of 52

6 or restricting competition via IPR abuse, the relationship between IPR and market dominance position, the legal responsibilities and remedies, as well as the scope of application. Chapter 2 outlines the basic analysis framework, including its methodology, analytical steps, factors and competition effects. Chapter 3 relates to defining the relevant market, including the general principle and circumstances where relevant technology market and relevant innovation market should be defined. Chapter 4 refers to monopolistic agreements involving IPR, including factors that should be taken into account when analysing these agreements and related safe harbour regulations. Chapter 5 stipulates the circumstances regarding the abuse of market dominance in the exercise of IPRs, including refusal to license, tie-in sales and other unjustifiable transactions. Chapter 6 involves undertakings concentration when exercising IPRs. Chapter 7 analyses certain special behaviour-types related to the exercise of IPRs from the antitrust perspective, including standard-setting related activities, injunction for standard essential patents ( SEP ), patent pooling and behaviour of copyright management organizations. It is reported that the SAIC has finished soliciting opinions from the U.S. and EU chambers of commerce, some major Western companies and law firms. The SAIC s antitrust division will gather feedback on the sixth draft from relevant departments of the Chinese government, competition organizations and antitrust scholars. The draft will then be submitted to the AMC for review. C. Legislation of NDRC Auto Industry Antitrust Guidelines During the Annual Conference of China Automobile Dealers Association held in November 2015, one of the NDRC officials said that the first draft of Auto Industry Antitrust Guidelines ( Auto Antitrust Guidelines ) has been completed. According to the official, Auto Antitrust Guidelines consist of six sections, respectively preface, basic issues, monopolistic agreement, abuse of dominant position, concentration of undertakings and supplementary articles. Furthermore, the official stated that vertical price restrictions on sales of new energy auto might be exempted during the promotion period. Auto Antitrust Guidelines will likely be released in 2016 by the State Council instead of the NDRC, according to Wei Tongwei, general secretary of the spare part Page 3 of 52

7 working committee under the China Automotive Maintenance and Repair Trade Association. Draft Antitrust Guidelines on IPR Abuses 3 NDRC published a draft of the Antitrust Guidelines on IPR Abuses on December NDRC noted that the consultation period for the draft guidelines run from 1 until 20 January The draft guidelines constitute five parts: preamble, basic issues, IPR-related agreements that may eliminate or restrict competition, IPR-related abuse of dominant position; and concentration involving IPR. The draft guidelines cover antitrust issues related to joint R&D, patent pool, cross licensing, standardization, price restriction, exclusive grant-back, no-challenge clause, exemption of agreements, unfairly high royalty fees, refusal to license, tying sale, imposing unreasonable transaction conditions, discriminatory treatment and injunctive relief. The draft guidelines also include factors for determining whether the application of injunction orders by standard essential patent owners can lead to the elimination or restriction of competition, such as whether the parties involved expressed their true intentions during negotiations. D. Legislation of MOFCOM The Guidelines on Standardizing the Names of Notification Cases 4 MOFCOM issued the Guidelines on Standardizing the Names of Notification Cases on February 6, 2015, which took effect at the same time. Auto Sales Management Measures MOFCOM posted a draft of the Auto Sales Management Measures (the draft Measures ) on its website on 6 January 2016, and is soliciting for comments until 6 February, MOFCOM intends to implement this new rule to replace the current Auto Brand Sales Management Measures. According to the draft Measures, any vehicle sales and related services engaged in the territory of China shall be abided by this rule. The draft Measures consist of five parts, which are the general principles, code of conduct, supervision and management, penalty provision and bylaw. The Measures clearly provide that the departments of the commercial 3 The original Chinese notice published by NDRC is available at 4 The original notice published by MOFCOM is available at: Page 4 of 52

8 administration under the State Council will be in charge of nationwide auto sales management. In the second part, the draft Measures list the conducts in which a supplier shall not engage in. These conducts include restricting distributors from reselling their products, requesting distributors to share expenses for their own marketing activities, restricting distributors from selling parts of other brands or providing after-sales services for other brands and so on. Most of these conducts are deemed as vertical monopolistic agreements, which are likely to induce anti-competitive effects in EU and US practices. As reported, the Chinese government will make efforts to coordinate the Auto Antitrust Guidelines and the Measures-- two upcoming industry-specific regulations. II. Public Enforcement A. Merger Control Enforcement Tendency Highlight With the increase in the number of cases been filed and reviewed, it is recognized that MOFCOM has become one of the most important jurisdictions of merger control in the world. The simplified procedure has improved the efficiency of MOFCOM s merger review in a large degree. Most cases in simple procedure were concluded during the first phase. However, MOFCOM s review time lasts longer in a few cases. For instance, MOFCOM spent 162 days to clear Toyota Industries Corp's purchase of a 55% stake in Singaporean logistics company LT Wuliao Banyun Holdings, setting a new record for the length of a simple case review. MOFCOM used to focus on horizontal deals, but now also considers vertical and conglomerate mergers important. In 2015, only 35% of the cases being reviewed were horizontal mergers. The increased number of administrative punishment on cases that failed to notify in 2015 demonstrates that MOFCOM has further strengthened its enforcement on this respect. The supervision of remedy implementation has become routinized. All divisions of MOFCOM s antitrust bureau are responsible for case reviewing from the end of 2015, with the aim to improve the work efficiency. The international cooperation between antitrust enforcement authorities with respect to merger controls happens more frequently. On 15 October 2015, the competition department of EU Commission's ( Commission ) and MOFCOM Page 5 of 52

9 have signed best practices for cooperation on reviewing mergers in Beijing. As the Commission s officer says, the growing number of international transactions is the main reason for this cooperation. In addition, the Commission also signed a Memorandum of Understanding with the NDRC and SAIC in 2012, which creates a dedicated framework to strengthen cooperation and coordination. 5 Statistics From January of 2009 to the end of 2015, MOFCOM received 1,445 cases and accepted 1364 cases. Among the reviewed cases, MOFCOM has cleared 26 deals with remedies since the AML took effect in 2008, with an average review time of 199 days. In 2015 MOFCOM accepted 338 cases, out of which 332 were concluded, including 18 cases dealing with applicants withdrawing merger filings. The agency also imposed penalties on business operators in 9 cases that were related to failure to fulfil merger filing obligations. 246 cases out of 332 cases in 2015 obtained MOFCOM s approval in the first phase, accounting for 74% of all reviewed cases. Of the cases cleared by MOFCOM in 2015, 56% were related to manufacturing, such as automotive components and parts, vessels, machinery manufacturing and electrical equipment. Acquisitions and joint-venture agreements were the most common types of transactions, accounting for 87% of all deals. Meanwhile, joint ventures were still the most common channel for foreign investment in China. Significant Cases Google/Motorola: MOFCOM partially removed restrictions 6 This is the first case in which MOFCOM agreed to remove a remedy imposed on a merger. MOFCOM partially removed the restrictions on Google, based on the fact that Google had lost its control of Motorola Mobility. Facts Google applied to MOFCOM on December 1, 2014, to remove the condition that required Google to treat all original equipment manufacturers ( OEMs ) equally in android platform-related business after it bought Motorola. 5 The original notice published by EC is available at: 6 The original Chinese notice published by MOFCOM is available at: Page 6 of 52

10 The concerned remedy was imposed by MOFCOM according to its No. 25 Announcement in 2012, which concerned Google s acquisition of Motorola Mobility, together with three other remedies as the following: 1) Google will license the Android Platform on a free and open basis as it had done so far; 2) Google shall continue to observe the existed FRAND obligation of Motorola Mobility in respect of the latter s patents; and 3) Google shall delegate an independent supervisor to supervise its performance, according to the Provisional Regulations on the Disposal of the Undertaking s Assets or Business in the Concentration stipulated by MOFCOM in The No. 25 Announcement provided that the applied remedies would be valid for five years starting from its punishment, unless Google no longer controls Motorola Mobility. Google lodged the remedy removal application based on the fact that Lenovo concluded its acquisition of Motorola Mobility from Google, which had been approved by MOFCOM on October 16, 2014 and closed on October 30, 2014, and due to this acquisition, Google lost its control of Motorola Mobility. Decision After careful examination, MOFCOM noted that, upon completion of the Motorola/Lenovo deal, Google would not be engaged in any business of manufacturing smartphones, but would keep the telecommunications patent technologies of Motorola Mobility. Based on this fact, on January 6, 2015, MOFCOM issued a notice that it had decided to approve Google s application to remove one of the remedies, with the other remedies remaining in place. AB InBev's investment in Guangzhou Zhujiang Brewery 7 The transaction is related to a conditionally cleared merger case. The concentration parties notified the deal to MOFCOM following No. 95 Announcement in Considering the slight increase of AB InBev s shareholdings in Zhujiang Brewery, MOFCOM approved the proposed transaction. Facts 7 The original Chinese notice published by MOFCOM is available at: Page 7 of 52

11 On July 23, 2015, Interbrew Investment International, a fully owned subsidiary of AB InBev, Guangzhou State-owned Assets Development Holdings and Guangzhou Securities entered into an agreement with Zhujiang Brewery to subscribe the latter s new shares. According to this agreement, Interbrew Investment International would subscribe shares worth up to CNY 1.6 billion. Pursuant to a MOFCOM antitrust notice issued in 2008, if AB Inbev intended to further increase its stake in Zhujiang Brewery, a filing should be submitted to MOFCOM before any deal were to be concluded. On July 29, 2015, AB InBev submitted the filing for the deal to MOFCOM. Decision MOFCOM noted that, upon this subscription, Interbrew Investment International would increase its stake in Zhujiang Brewery from 25.62% to 29.99%. Since the stake increase is relatively small and will not result in material changes regarding the control of Zhujiang Brewery, MOFCOM decided to approve the deal on 20 August MOFCOM issued four administrative decisions to penalize six parties involved in four merger cases MOFCOM reached these decisions based on the undertakings failure to file notifications. None of these concentrations were determined as resulting in anti-competition effects. MOFCOM considered that a 35% shares acquisition could lead to the obtaining of control power over a company. Complaints from the third party are the main channel of triggering investigation on unnotified concentrations. The undertakings were fined up to RMB 200,000 which is less than the imposed penalty (RMB 300,000) in the last year and the maximum penalty (RMB 500,000) for violations of merger control rules. Facts On September 29, 2015, MOFCOM issued notices regarding the penalty on four concentration dealings because the concerning undertakings failed to notify these dealings to MOFCOM before closing them. Details of these notices are as follows: Shanghai Fosun Pharmaceutical (Group) Co Ltd has been imposed a fine of CNY 200,000 (USD 31,431) because of its failure to notify MOFCOM regarding its Page 8 of 52

12 acquisition of a 35% stake in Suzhou Erye Pharmaceutical Co Ltd (Suzhou Erye), and the target stake was transferred without MOFCOM s allowance. 8 Fujian Electronics & Information (Group) has been imposed a fine of CNY 150,000 (USD 23,568) for its failure to notify a 35% stake acquisition of Shenzhen CHINO-E Communication. MOFCOM made this decision based on the fact that Fujian Electronics signed a transfer agreement with CHINO-E shareholders and completed this transaction without filing. 9 Bestv New Media and Microsoft have been imposed CNY 200,000 (USD 31,420) fines by MOFCOM since they did not lodge a merger review filling regarding their joint venture, E-Home Entertainment Development, which was established on October 1, CSR Nanjing Puzhen and Bombardier Transportation Sweden have been fined CNY 150,000 (USD 23,562) respectively due to their failure to notify their proposed joint venture prior to setting it up. These companies made an agreement about the joint venture s establishment on November 3, 2014 and its business license was obtained on November 11, MOFCOM identified that the above dealings shall be notified according to the fact that all of these dealings constituted concentration and turnovers of these concentrating undertakings reached the statutory turnover thresholds. Article 20 of the AML stipulates three kinds of concentration, which are: (i) a merger of undertakings; (ii) an acquisition of control of other undertakings by acquisition of shares or assets with voting right of other undertakings to an adequate extent; (iii) an acquisition of control of other undertakings or the capability of imposing determinative effects on other undertakings by contracts or other means. Article 3 of the Provisions of the State Council on the Thresholds for Concentration Notification of Undertakings provides the filling s thresholds, which are as follows: (i) The collective worldwide turnovers of all undertakings involved in the last fiscal year exceed CNY 10 billion, and the turnovers within China of at least two undertakings each exceed CNY 400 million; or (ii) The collective turnovers of all undertakings involved in the last fiscal year exceed CNY 2 billion (approximately USD 294 million), and the China-wide turnovers of at least two undertakings each exceed CNY 400 million (approximately USD CNY58.8 million). These undertakings were penalized because of their violations of article 21 of the 8 The original Chinese notice published by MOFCOM is available at: 9 The original Chinese notice published by MOFCOM is available at: 10 The original Chinese notice published by MOFCOM is available at: 11 The original Chinese notice published by MOFCOM is available at: Page 9 of 52

13 AML, which provides that the concentration reaching the filling thresholds shall be notified to MOFCOM prior to its implementation, and without this notification it shall not be conducted. In addition, according to article 48 of the AML and article 13 of the Interim Measures for Investigating and Punishing of Concentration of Undertakings Failing to File Notification, an undertaking which is identified by MOFCOM for implementing a concentration without filling, would be imposed a fine and instructed to recover the situation by MOFCOM. The amount of this fine could be no more than CNY 500,000. There is no provision that specifically describes the behaviour of implementing a concentration. In practice, obtaining a business license, transferring the entity of assets, delivering the shares and assigning directors or managers are likely to be deemed as the implementation of concentration. According to Shang Ming, the former director general of MOFCOM s Anti-monopoly Bureau, so far MOFCOM has already penalized 15 companies for failing to notify MOFCOM regarding merger reviews. MOFCOM has noticed an increase in companies shirking merger-filing responsibilities and has therefore intensified enforcement. MOFCOM conditionally cleared Nokia s acquisition of Alcatel-Lucent 12 MOFCOM defines all of the information and communication technology SEPs as the relevant product market, rather than divides each of them into the individual market. In the process of competition analysis, MOFCOM evaluates various factors rather than comparing the market shares only, which is consistent with the complexity and flexibility of the high-technology industry. In the process of formulating remedies, MOFCOM pays more attention on protecting Chinese downstream companies and enhancing its supervision. Facts On April 15, 2015, Nokia Oyi ( Nokia ) signed a Memorandum of Understanding regarding the acquisition of Alcatel Lucent ( Alcatel ). According to this memorandum, Nokia intends to acquire 100% shares of Alcatel through a tender off. A notification about this deal was filed on April 21, 2015 and accepted by MOFCOM on June 15, After reviewing this case, MOFCOM moved it to Phases II and Phase III, as the agency was of the opinion that this acquisition could have anti-competitive effects on the relevant market. 12 The original Chinese notice published by MOFCOM is available at: Page 10 of 52

14 On October 19, 2015, MOFCOM cleared this deal with four behavioural remedies. Decision Relevant Market In the agency s view, there are four relevant product markets, which are the radio access network market, the core network systems market, the network infrastructure service market, and the information and communication technology SEP licensing market. Meanwhile, the relevant geographical market is primarily the Chinese market. Competition Analysis According to MOFCOM, this deal would have no anti-competitive effects on the first three relevant product markets in China, while it could constitute an obstacle or limit the competition in the information and communication technology SEP licensing market. The agency considered,after the deal, that Nokia would increase its holding in 2G, 3G and 4G SEPs and strengthen the degree of concentration in the information and communication technology SEP licensing market. If it refused to license, charged overly high royalty fees, or conducted any other anti-competitive behaviour, the competition of downstream market would be distorted, which would most likely impair customers interests in the end. Remedies Four behavioural remedies focusing on maintaining fair licensing of standard-essential patents ( SEPs ) were imposed on Nokia, which are: 1) On a reciprocal basis, Nokia commits to not use injunctions to prevent enforcements of FRAND (fair, reasonable and non-discriminatory) encumbered SEPs, unless the potential licensees are unwilling to sign FRAND licensing agreements and follow the terms. 2) If Nokia transfers its SEPs to a third party, it shall inform Chinese licensees, as well as Chinese companies that are actively engaging in licensing negotiation, about the transfer details. 3) Nokia will only transfer its SEPs to a new owner on the basis that the new owner accepts the existing FRAND commitments made by Nokia. 4) MOFCOM has the right to monitor the implementation of Nokia s commitments. Nokia shall report to MOFCOM about the implementation of the conditions within 45 days of the end of each calendar year. The reporting obligation will last five years until October18, Page 11 of 52

15 Western Digital/HGST: MOFCOM partially removed hold-separate restrictions 13 Western Digital had engaged in two conducts that violated the remedies provided in the No. 9 Announcement in 2012, issued by MOFCOM. Western Digital lodged an application to remove certain restrictions in March 2014, and the agency made the decision on October 19, MOFCOM considered the fact that the competition condition in the relevant product market has changed and decided to remove the hold-separate restrictions related to manufacture and R&D. Facts In 2012, Western Digital Corporation ( Western Digital ) intended to acquire 100% shares of Viviti Technologies Ltd., ( Viviti Technologies ) which was the holding company of Hitachi Global Storage Technologies Netherlands B.V. and Hitachi Global Storage Technologies Singapore Pte. Ltd, and engaged in the hard disk business. On April 2, 2011, Western Digital filed a notification for this acquisition. MOFCOM issued the No. 9 Announcement in March 2012 and cleared this acquisition with six remedies. According to this announcement, Western Digital could apply for the removal of the first and second remedy after this decision has been carried out for 24 months. The first remedy refers to maintaining the Viviti Technologies as an independent competitor, and the second remedy requires both Western Digital and Viviti Technologies to make a reasonable plan of their capacity and production and report these data to the trustee. Western Digital lodged an application to remove the first and second remedy in March MOFCOM found that Western Digital had engaged in two conducts that violated the first remedy, and the competitive situation in the hard disk market had changed. After talking with Western Digital, collecting opinions from the relevant entities and delegating the independent party to make an economic evaluation, MOFCOM decided to remove the hold-separate remedies partially. Western Digital s implementation of the duties imposed in the No. 9 Announcement. Based on the implementation reports submitted by Western Digital and the monitoring reports submitted by the trustee, MOFCOM found that Western 13 The original Chinese notice published by MOFCOM is available at: Page 12 of 52

16 Digital had engaged in two conducts that violated the first remedy. Those were: 1) On March 8, 2012, Western Digital consolidated Hitachi Global Storage Technology ( HGST ), which was Viviti s subsidiary in US. 2) In January 2013, Western Digital dissolved the development division of Viviti/HGST and transferred the relevant workforce to Western Digital. MOFCOM considered that these conducts impaired the independence of Viviti as a competitor, so that it imposed CNY 300,000 fines on each of these behaviours and requested Western Digital to rectify the situation. As per the entrusted supervisor s report, such behaviours have been rectified and the first remedy has been fulfilled. According to MOFCOM s announcement, the agency found that other remedies have been entirely implemented Competition Analysis With respect to the current situation of the competition in the hard disk market, MOFCOM made the following assessment: 1) In the areas of portable application and corporate-level application, solid-state drive has put constraint on the impact of the traditional hard disk as to strengthen the competition in the relevant market. 2) Overcapacity problems in the conventional hard disk drive market became obvious. 3) Western Digital and HGST are the major competitors in the hard disk drive market. Both the layout and the major market competitors in this market have remained unchanged since ) The hold-separate duties restricted the full competition between Western Digital and HGST. The implementation of such duties hindered them from integrating their products and providing the market with a full range of products and had an adverse impact on their clients product procurement. Based on the above analysis, MOFCOM deemed that: 1) Removal of the conditions that required the two companies to remain independent in production and R&D activities would enable Western Digital to save costs, to provide a full range of products to the market and to fully engage in market competition and benefit its clients. 2) To keep the two sales teams and their respective brands independent from each other and the independence of sales activities could reduce competition restraint impacts arising from a complete merger. Page 13 of 52

17 Remedies After negotiating with MOFCOM, the relevant entities agreed to undertake the following obligations: 1) Western Digital and HGST will remain independent in sales and brands. 2) Western Digital will not change its previous business modes, or force its clients to exclusively purchase hard disk drive products from Western Digital or do so in disguise. 3) Western Digital will continue its pace in investing in product innovation to provide more innovative products and solutions to clients. This announcement will be effective within two years from the date of issuance. If Western Digital can provide sufficient evidence to prove a substantial change in the market environment, the company can propose to MOFCOM to remove the relevant conditions within the two years. Seagate/Samsung:MOFCOM removed hold-separate restrictions 14 MOFCOM considered the fact that the competition condition in the relevant product market has changed and removed the hold-separate restrictions on Seagate and Samsung. Seagate shall remain its business model materially and continue to provide more innovative products and solutions to clients. Facts On December 12, 2011, MOFCOM made the No. 11 Announcement to clear Seagate Technology LLC. s ( Seagate ) acquisition with remedies. In this acquisition, Seagate intended to acquire hard disk drive business of Samsung Electronics Co., Ltd ( Samsung HDD ). As per this announcement, Seagate could apply for removing the first and second remedy after this decision has been carried out for 12 months. The first remedy is to preserve Samsung HDD as an independent competitor, and the second remedy asks to maintain and expand Samsung HDD s production capacity within six months of issuance of the No. 11 Announcement, and to set reasonable production volume targets based on market supply-demand conditions. Seagate lodged an application to remove the first and second remedy in May After making assessments on the relevant parties and the competition circumstance, MOFCOM partially removed hold-separate remedies. 14 The original Chinese notice published by MOFCOM is available at: Page 14 of 52

18 Competition Analysis With respect to the current situation of the competition in the hard disk drive market, MOFCOM made the following assessments: 1) In the areas of portable application and corporate-level application, solid-state drive has put constraint on the impact of the traditional hard disk, so that the competition in the relevant market has been strengthened. 2) Overcapacity problems in the conventional hard disk drive market became obvious. 3) Both the layout and the major market competitors in the hard disk drive market have remained unchanged since ) Seagate and Samsung HDD s market overlap in the hard disk market is quite small, and Samsung HDD s competition in the traditional hard disk is quite weak. Based on the above analysis, MOFCOM deemed that: 1) Removal of certain conditions is possible because in the portable application and corporate level application sectors, competition constraint of solid-state drive on traditional hard disk drives has strengthened; traditional hard disk drives are facing overcapacity, which has reduced the chance of a single or more competitors causing competition restraints. Seagate has limited overlap with Samsung in the hard disk business, and the latter has a relatively weaker market power in the hard drive disk business. 2) Removal of all imposed conditions may still restrain market competition because the traditional hard disk drive market competition conditions have not undergone a major change. Seagate is still the major player in all divisions of the market; and Seagate will strengthen its power after the acquisition of Samsung HDD. Remedies After negotiating with MOFCOM, Seagate agreed to undertake the following obligations: 1) Seagate shall not change its business model materially or force clients to purchase hard drive disks exclusively from it. 2) Seagate shall not force Tokyo Dengikagaku Kogyo China to supply magnetic heads exclusively to Seagate (or other Seagate-controlled companies) or limit the number of magnetic heads Tokyo Dengikagaku Kogyo China would supply to other hard drive disk manufacturers. Page 15 of 52

19 3) Seagate shall continue to provide more innovative products and solutions to clients. This announcement will be effective within two years from the date of issuance. If Seagate can provide sufficient evidence to prove substantial change in the market environment, the company can propose to MOFCOM to remove relevant conditions within the two years. Freescale/NXP obtained conditional approval from MOFCOM 15 MOFCOM deems that this acquisition would induce anti-competitive influence. NXP promises to dispose its radio frequency ( RF ) power transistor business. As the first case approved with structural remedies after the enactment of the Provisions on Imposing Restrictive Conditions, MOFCOM conducted a comprehensive evaluation of the viability, competitiveness and marketability of the divested business, as well as the suitability of potential buyers. Facts On April 3, 2015, NXP filed for its acquisition of Freescale. NXP Semiconductor ( NXP ) is a NASDAQ-listed company registered in the Netherlands, which engages in the design, manufacturing and sale of integration circuits and discrete components. Freescale Semiconductor ( Freescale ) is a New York-listed company registered in Bermuda and based in the US, which engages in the manufacturing and R&D of microcontroller and digital networking processors (embedded processors). According to the agreement between NXP and Freescale, after closing, Freescale will become the wholly owned subsidiary of NXP. On November 25, 2015, MOFCOM decided to clear this acquisition with remedies. Relevant Market As per the announcement, the relevant product markets are the general microcontroller, automotive power-use analog integrated circuit and RF transistor product markets, in which NXP and Freescale have horizontal overlap. The relevant geographical markets should be the global market. Competition Analysis After assessing this proposed deal, the agency concluded that: 1) The proposed deal would boost NXP s market control power in the RF 15 The original Chinese notice published by MOFCOM is available at: Page 16 of 52

20 transistor product market because the global and Chinese RF transistor product markets share a similar structure, both featuring few competitors and high concentration levels. Freescale and NXP, as the number one and number two players, are far ahead of their rivals in the market. Therefore, after closing the market control power of NXP in this market would be strengthened. 2) Since Freescale was the fiercest competitor of NXP, the proposed deal will remove competition between them. 3) The proposed deal would reduce the options for clients and increase procurement risks. In practice, the wireless infrastructure suppliers, as the main client of the RF transistor product, tend to procure products from both NXP and Freescale to prevent them from the risk arising from relying on one supplier. 4) The proposed deal may induce an adverse impact on the technology R&D and innovation. Remedies In accordance with MOFCOM s decision, NXP shall follow its written commitment submitted to MOFCOM and completely divest its RF power transistor business to Beijing Jianguang Asset Management. At the same time, NXP shall strictly fulfil its obligations during the transition period. It is worth noting that the NXP/Freescale deal shall only be implemented after the divestment deal has been concluded. In addition, MOFCOM requires NXP to perform relevant obligations during the transition period from the date of approval announcement until the divestment deal has been concluded. NXP shall endeavour: 1) not to engage in any unfair trade practices relating to the divested business; 2) not to implement any acts which may have a significant adverse impact on the value, management or competitiveness of the divested business, or any acts which may change the nature and scope, industry or business strategy or investment policy of the divested business, and to take reasonable measures to encourage core employees to stay in the divested business, as well as not to seek or transfer employees to NXP s non-divested business; 3) to ensure supply to the divested business in a fair, reasonable and non-discriminatory manner; and 4) to maintain the independence of the divested business, and not to exchange competitively sensitive information between the parties and the divested Page 17 of 52

21 business. B. Monopolistic Agreements Enforcement Tendency Highlight With respect to the enforcement activities of the NDRC, in light of the numbers of the published cases, it seems that the law enforcement frequency of the NDRC regarding monopolistic agreements in 2015 is lower in comparison with The reason behind might be that the outstanding issue of human resource deficit of the antitrust authority still exists. Besides, the fact that more enterprises gradually attach increasing importance to the antitrust compliance might be another reason for the decrease in the number of cases investigated by the authorities. As to the enforcement activities of the SAIC, 4 of 14 cases concluded by the SAIC and its local branches in 2015 are relevant to monopolistic agreements. Meanwhile, these four cases concern horizontal monopolistic agreements. It is noteworthy, however, that the Mercedes-Benz case and the Dongfeng Nissan case suggest that vertical agreements especially involving price-related restrictions on the downstream dealers is still the priority of antitrust enforcement. Companies shall be very cautious when imposing restrictions on the resale prices or the minimum resale prices of commodities in the distribution agreements. Automobile industry and related industries are observed to be under continuous attention of China s antitrust authorities. The industries relating to people s livelihoods remain to be the enforcement priority. Significant Cases Enforcement by the NDRC and its local branches Ocean Shipping Companies case investigated by the NDRC 16 The investigation was triggered by a leniency application. The first leniency applicant was exempted from punishment. Eight ocean shipping companies involved were imposed a collective fine of CNY million. NDRC spent approximately 12 months to investigate and conclude the case. 16 NDRC s press release of the case is available at: Page 18 of 52

22 Facts In December 2015, the NDRC published its official punishment decisions regarding the cartel case in connection with eight ocean shipping companies, namely Nippon Yusen Kabushiki Kaisha ( NYK ), Kawasaki Kisen Kaisha ( K Line ), Mitsui OSK Lines, EUKOR Car Carriers, Wallenius Wilhelmsen Logistics, Compañía Sud Americana de Vapores, Eastern Car Liner and Compañía Chilena de Navegación Interoceánica. According to the official press release of the NDRC, the investigation was triggered by a leniency application of NYK. The evidence showed that the eight companies reached consensus on non-intrusion of each other's existing business to maintain or increase shipping fees when shipping goods such as cars, trucks and engineering machinery in the routes between China and other countries and regions. They were also found to frequently conduct bilateral or multilateral communications on the shippers invitation for bids and/or price inquiries via phone, conferences, dinner parties, s, visiting, etc. In addition, they also conducted illegal behaviour such as sensitive information exchange, price negotiations, bidding intention discussion, dividing clients and shipping routes, reaching agreements on high price bids or non-bidding in order to help certain companies gain shipping orders. To avoid the regulation of the antitrust authority, the relevant shipping companies adopted various illicit measures that showed their apparent intention to violate the AML. The cartel lasted for at least four years and covered a broad range of shipping routes concerned with the import and export of products between China and other regions, such as North America, EU, South America and so on, involving multiple auto brands and engineering machinery brands. The NDRC held the opinion that the eight companies' conducts had restricted and eliminated competition in the relevant market, raising the international shipping fees, and impairing interests of shippers and end consumers. The eight companies breached the AML by reaching and implementing monopolistic agreements on fixing prices and dividing the market. All eight investigated companies put forward remedy measures including enhancing the antitrust compliance program, arranging more antitrust compliance trainings and developing antitrust compliance technologies. The NDRC imposed fines based on the nature, level and duration of their monopolistic volations, as well as their respective sales of international freight service sales relevant to the Chinese market. The companies involved were collectively fined CNY million. NYK as the first cartel member voluntarily reporting the illegal conducts to the Page 19 of 52

23 authority and providing significant evidence was entirely exempted from the punishment. K Line, as the second leniency applicant, was imposed a fine amounting to 4% of its 2014 annual sales of international freight services relevant to China s import and export market. The details of punishments imposed on the involved companies by the NDRC are as follow: Company Name Amount of Fines (RMB million) Percentage of the Relevant Turnovers Grounds Nippon Yusen Kabushiki Kaisha Kawasaki Kisen Kaisha - - First leniency applicant % Second leniency applicant Mitsui OSK Lines % Third leniency applicant EUKOR Car Carriers 284 9% Lasted over a long period; involved many brands and many violations; violations were severe Wallenius Wilhelmsen Logistics Compañía Sud Americana de Vapores % Lasted over a long period; involved many brands and many violations; violations were severe % Lasted over a long period; involved less brands, violations and shipping routes Eastern Car Liner % Lasted over a long period; involved less brands, violations and shipping routes Compañía Chilena de % Lasted over a long Page 20 of 52

24 Navegación Interoceánica period; involved less brands, violations and shipping routes Total Analysis In this case, the agency applied the AML instead of the Tenders and Bids Law to collusive bidding. Citing article 13 (3) of the AML, the NDRC identified that the collusive bidding constituted a division of the sales market. The leading three leniency applicants were granted exemption from fines to a varying degree. According to the official who handled this case, dawn raids performed by antitrust enforcement agencies in other jurisdictions drew the attention of the NDRC on the cartels of these shipping companies. However, there was limited effective evidence to prove that the companies had reached monopolistic agreements. Through pressuring the involved parties, three members of the shipping cartel actively confessed their illegal conduct. This case, once again, stresses the significance of international cooperation between antitrust enforcement agencies. Mercedes-Benz case investigated by Jiangsu Provincial Price Bureau 17 The distribution agreements between Mercedes-Benz and its dealers are determined as vertical monopolistic agreement, and Mercedes-Benz violated article 14 of the AML because it restricted the ability of its dealers to decide their own resale prices. Mercedes-Benz s dealers violated article of 13 of the AML due to concluding a horizontal monopolistic agreement. Mercedes-Benz and its dealers were jointly fined CNY million. Facts In April 2015, Jiangsu Provincial Price Bureau, which is the provincial branch of the NDRC, released the punishment on its website and announced that it had imposed a fine of CNY 350 million on Mercedes-Benz, along with the aggregated fine of CNY 7.87 million on its dealers. The fine came as a result of Mercedes-Benz reaching and implementing resale price maintenance ( RPM ) agreements with dealers to fix the minimum resale price of several car models, as well as certain auto parts. 17 The original Chinese notice published by Jiangsu Provincial Price Bureau is available at Page 21 of 52