SAMR - New Rules on the Prohibition of Monopoly Agreements

The Provisions on the Prohibition of Monopoly Agreements (the "Provisions") are one of the four supporting regulations to the PRC Anti-Monopoly Law ("AML 2022") recently issued by the State Administration for Market Regulation ("SAMR") and became effective on 15 April 2023. They refine the specific rules on many of the topics raised in the AML 2022 and provide further certainty for companies to assess whether their business activities give rise to competition concerns. Below is an overview on the key items.

1. Potential competitors are also competitors

In order to assess whether a horizontal monopoly agreement has been concluded or implemented by undertakings, it is first necessary to determine whether the undertakings concerned are in competition with each other. The Provisions clarify that the term "competitors" under the PRC competition law regime includes both actual and potential competitors. This is consistent with the view of the Supreme People's Court ("SPC") in its draft judicial interpretation and decisions.

Before the issuance of the Provisions, the SPC already expressed its opinion in the draft Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Monopoly-related Civil Dispute Cases. Undertakings with a competitive relationship within the meaning of the competition law refer to two or more actual or potential undertakings that are at the same stage of production and operation of products, provide products that are closely substitutable to each other, and independently make business decisions as well as assume legal liabilities. In the cases Shanghai Huaming v. Wuhan Taipu (SPC ZhiMinZhong No. 1298) and AstraZeneca AB v. ASK Pharm (SPC ZhiMinZhong No. 388), the relevant decisions also show that the SPC considers potential competitors to be competitors.

Under the Provisions, a potential competitor is defined as an undertaking that has the possibilities to enter the relevant market to compete. Its draft defined a potential competitor as one that has both the possibilities and the plan to enter the relevant market. With the removal of the more subjective element "plan" in the enacted version of the Provisions, a potential competitor can be interpreted in a broader sense, as long as the relevant undertaking has the possibility to enter the market, regardless of whether it has a plan to do so or not.

2. The "safe harbour rule" remains to be clarified

The AML 2022 introduced a market share-based safe harbour for vertical agreements. I.e. if (1) undertakings can prove that their market shares in the relevant markets are below the thresholds set by the anti-monopoly enforcement authority under the State Council, and (2) other conditions set out by the same are met, such a vertical agreements will not be prohibited.

In June 2022, the SAMR released the draft provisions for public comments, under which a specific market share threshold of 15% and a specific procedure for undertakings to apply for the application of the safe harbour rule was proposed.

As there is still a great controversy in theory and practice regarding the specific percentage of market share for the application of the safe harbour rule and whether there should be industry differences, the final Provisions do not contain a market share threshold, nor do they provide for the interpretation of "other conditions" for the protection of the safe harbour rule under the AML 2022. This may indicate that it is still considered premature to set a uniform market share-based safe harbour rule in China.

3. The definitions of organizing and facilitating monopoly agreements are refined

Article 19 of the AML 2022 provides that an undertaking shall not organize other undertakings to enter into monopoly agreements or provide substantial assistance to other undertakings to enter into monopoly agreements. Article 18 of the Provisions further explains the meaning of "organizing" and "providing substantial assistance".

The circumstances of "organization" mainly include:

(1) where an undertaking has a decisive influence on the scope, content and conditions of a monopoly agreement, although it is not a party to such agreement;

(2) where an undertaking enters into agreements with multiple counterparties to transactions that allow these competing counterparties to communicate their intentions or exchange information through that undertaking, leading to the creation of a monopoly (i.e. hub and spoke agreements).

Compared to the draft, the Provisions deleted the word "intentionally" in item (2) above. This means the intention of the relevant undertaking is not a factor in determining whether it has violated Article 19 of the AML 2022 under such circumstance.

According to the Provisions, "substantial assistance" includes providing necessary support, creating important facilitating conditions or providing other significant assistance. Compared to the draft, the enacted Provisions remove the standard of "substantial assistance" being "causally and significantly related to the exclusion or restriction of competition". This increases the flexibility of enforcement.

4. Focus on digital economy sector continues to grow

Moving with the times, the Provisions also take into account business activities in the digital economy sector. The undertakings are not allowed to use data, algorithms, technology and platform rules to enter into horizontal and vertical monopoly agreements through any communication of intent, exchange of sensitive information, or concerted practice.

For example, competing undertakings shall not agree on adopting the same algorithms and platform rules to calculate prices and effectively achieve the outcome of implementing fixed prices, nor agree on allocation a sales market or procurement market in relation to data and technology.

5. Conclusion

In general, the Provisions provide clarity on the implementation of the AML 2022 in the area of monopoly agreements. Thus, they increase the predictability of antitrust enforcement. On the other hand, some issues still require further clarification, such as the market share threshold and the conditions for the application of the safe harbour rule. Given the increasing scrutiny on competition law issues by the SAMR, it is advisable for companies to assess from time to time their existing and future cooperation with business partners on the basis of the principles and rules set out in the Provisions and the AML 2022.