A Fine Season for Antitrust Enforcement in China

by Dorsey & Whitney LLP
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The World Cup has ended and visiting fans have returned home from Brazil’s hot and humid climate. Now, some companies are feeling a different kind of heat, as Chinese antitrust regulators step up their enforcement activities. The regulatory actions include an investigation into the sale of World Cup tickets to Chinese football fans. The practice at issue was the bundling of high-end tickets with hotel, transportation, and tour services. Beijing Shankai Sports Development Company Limited ("Shankai"), the exclusive dealer for World Cup tickets within Greater China, failed to clarify whether customers were free to buy the high-end tickets separately. Some employees of Shankai told customers that they could not buy high-end tickets separately. The State Administration of Industry and Commerce ("SAIC") started its investigation soon after Shankai’s practice was exposed by State central television. Backed into a corner, Shankai had no option but to admit its guilt in the sordid tale and promised to rectify its misdemeanours, leading to the SAIC approving the target's application for a suspension to the investigation.

In other enforcement news, China’s second antitrust enforcement agency, the National Development and Reform Commission ("NDRC"), has escalated its own enforcement efforts. NDRC branches in each of China's northern (Beijing), central (Shanghai), and southern (Guangdong) coastal regions all had a part in what has turned into a 'fine' season for the optical industry in China. The practice in question involved 'disguised' recommended retail prices that, in reality, apparently amounted to resale price maintenance. Manufacturers of glasses and contact lenses adopted a carrot and stick approach: their distributors were punished for failing to sell the products at "recommended retail prices", and rewarded if they did. Hoya and Weicon reportedly turned on the rest of the culprits in the industry by reporting the monopolistic activities to the NDRC and providing important evidence; in return, Hoya and Weicon were provided an amnesty from prosecution. The targeted companies (Essilor, Nikon, Carl Zeiss, Bausch & Lomb, and Johnson & Johnson) were fined RMB 8.79 million, RMB 1.68 million, RMB 1.77 million, RMB 3.69 million, and RMB 3.64 million, respectively (for a total of about $3.2 million / €2.38 million).

Not to be left out of the action, China’s third and remaining antitrust enforcement organ, the Ministry of Commerce (“MOFCOM”), for only the second time in history, rejected a transaction: the attempted global joint alliance among Maersk, Mediterranean Shipping Company, and CMA CGM. MOFCOM determined that the tie-up would restrict or eliminate competition in the Asia-European shipping route, despite the deal’s having previously been approved by the US and European antitrust authorities.

In a MOFCOM-led multiple-ministry initiative to crack down on interregional trade barriers and industrial monopolies launched by 12 ministries at the end of 2013, MOFCOM sent questionnaires to companies in no fewer than 80 different industries to ascertain their level of compliance with antitrust legislation. This suggests that the enforcement net will soon be cast even wider. The automobile industry has already been snared, but that particular enforcement action may have resulted from a Ferrari distributor’s complaint to the industry association (when Ferrari suddenly terminated the distribution relationship) this past April.

Just before this briefing went to press, Microsoft China also started feeling the summer heat. On July 28, nearly 100 regulators from nine provincial branches of the SAIC converged on Microsoft in four different locations around the country. This seems to have arisen out of a preliminary investigation that commenced about a year ago, in response to complaints by other companies concerning alleged bundling and other issues related to Windows and Office. At the preliminary investigation stage, Microsoft personnel were interviewed and Microsoft submitted answers to a series of questions. The SAIC still could not rule out antitrust infringement, so it proceeded to file a case and initiate its dawn raid. During the raid, Microsoft staff attempted to head off the interviews by begging lack of availability of the relevant people. The regulators apparently have managed to interview already, or have required attendance to interview, a Vice President, other senior management, and marketing and financial staff. During the raid, they copied contracts and financial statements and acquired internal correspondence including emails, and seized two computers.

In short, it may be summertime, but antitrust enforcement in China has not taken a vacation.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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