4. RPM

Comparing to 2018 where there was only 1 infringement decisions concerning resale price maintenance (RPM), 4 RPM cases were concluded in 2019. Changan Ford and Toyota Motor were  respectively fined for restricting resale prices in the distribution of Ford and Lexus brand cars. Lenovo received a commitment decision from the SAMR which suspends the investigation into its behaviour to control the minimum resale price of certain accessories and services charged by its authorised dealers. Haichang Contact Lens also received a commitment decision from Shanghai AMR terminating investigation into Haichang’s restriction  of minimum resale price of contact lens sold by online pharmacies. See Table 2 for a list of RPM cases concluded in China in 2019.

5. Abuse of Dominance

Like 2018, it has been relatively quiet in 2019 in terms of the concluded investigations toward abuse of dominance although a few high-profile investigations are still on-going.

Eastman

In April 2019, the Shanghai AMR issued an infringement decision against the chemical giant, Eastman, fining it 5% of its sales value in 2016, which equals RMB 24.38 million. Eastman was found to abused its dominant position in the relevant market of Texonol ester alcohol in China by way of exclusive dealing during 2013-2015. Shanghai AMR identified three problematic conducts, namely: (i) Eastman executed and implemented agreements which contain minimum order quantity that take up over 60% of certain customer’s annual demands; (ii) Eastman executed and implemented agreements which contain take-or-pay clauses on customers whether or not they actually purchased goods; and (iii) Eastman offered most-favored nation terms to customers who would purchase the majority of their demand from Eastman.

Tianjin Water Supply Group

This is yet another case where a state-owned enterprise was punished for AML violations. In July 2019, the Tianjin AMR fined Tianjin Water Supply Group, the only urban water supply firm in the south of Tianjin, 3% of its sales value, amounting to RMB 7.4 million. The firm apparently deprived of several real estate development companies from freely choosing smart electricity control cabinets and remote control substations. 

Zhengyuan Water Supply Co. of Suqian

In October 2019, the Jiangsu AMR fined Zhengyuan Water Supply Co. of Suqian city 4% of its sales value in 2016, amounting to RMB 878,000 and confiscated illicit gains in the amount of RMB 1.18 million. The firm is the only running water supplier in the Suyu area of Suqian City. The Jiangsu AMR found the firm to have designated construction teams in the installation of running water, depriving applicants for running water their freedom to choose their own installation teams.

Jinghua Pharma

In February 2019, the Jiangsu AMR issued a commitment decision suspending the investigation into the refusal to deal conduct of Jinghua Pharmaceuticals Group Co., Ltd. Purportedly, Jinghua Pharma refused to sell phenobarbital active pharmaceutical ingredients (API) directly to its downstream drug manufacturers and instead authorised several firms to distribute the API at significantly raised price. Under China’s commitment system, if the commitments were satisfactorily complied with by Jinghua Pharma, it will receive another decision to terminate the investigation in due course.

Yancheng ENN

Yancheng ENN is a gas supply firm in Jiangsu Province. The Jiangsu AMR investigated the firm’s purported imposition of unreasonable terms in its contracts with customers since 2008. Jiangsu AMR accepted the commitments by Yancheng ENN and suspended the investigation in February 2019.

6. Merger Review

In 2019, the SAMR unconditionally cleared 432 concentration of undertakings and conditionally cleared 5. There was no prohibition decision in 2019.

Conditional clearances

The conditionally-cleared cases are KLA-Tencor/Orbotech, Cargotec/TTS, II-IV/Finisar, Garden Bio-tech/Royal DSM, and Novelis/Aleris. The SAMR continued its preference for behavioural remedies and imposed pure behavioural remedies in 4 of the 5 cases including fair, reasonable and non-discriminatory (FRAND) supply terms, hold-separate obligations and prohibition of tying behaviours. The SAMR imposed structural remedies only in the Novelis/Aleris case which concerned horizontal overlap in aluminum sheets for cars with a post-transaction market share of 70%-80%. The SAMR ordered divestiture of Aleris’s aluminum auto body sheet business in the European Economic Area and imposed obligation on Novelis not to supply cold-rolled sheet to competitors in the aluminum auto body sheet market. 

Application of simplified procedure

The Novelis/Aleris case also tested the scrutiny of whether a notification is eligible for the simplified procedure. Novelis/Aleris was first notified as a case subject to the simplified procedure. When the SAMR discovered, through objection by third parties during the case’s public notification process, that it should not have been a simplified case, it then exercised its discretion to cancel the case and requested the parties to re-file as a standard procedure case.

Semicon mergers

2 of the 5 conditionally-cleared cases concerned the sensitive semicon sector. Notably, both transactions were unconditionally cleared in other jurisdictions. In KLA-Tencor/Orbotech, the SAMR considered that the proposed transaction will generate a vertically-integrated firm which would leverage its dominant position in the upstream process control equipment market to exercise foreclosure in the downstream deposition and itching equipment market. The SAMR thus applied conditions including the supply of upstream products on FRAND terms and prohibition of tying or unfair trading conditions for a period of 5 years. KLA-Tencor/Orbotech received unconditional clearance in the US, Germany, Japan, South Korea, Taiwan and Israel.

In II-IV/Finisar, the SAMR considered that the change of control from 3 to 2 competitors would result in a combined market share of 45%-50% in the global and China markets of wavelength selective switch (WSS). The SAMR therefore again imposed behavioral remedies ordering II-IV and Finisar to maintain separate status of their WSS business for a period of 3 years. II-IV/Finisar received unconditional clearance in the US, Germany, Mexico and Romania.

Intensified sanctioning of gun-jumping

Year 2019 saw the SAMR intervening in 19 concentration of undertakings that failed to comply with its notification obligation. This is an all-time high when compared to 14 gun-umping infringement decisions in 2018 and 6 in 2017. Notably, one of these case concerned a transaction which was indeed notified to the SAMR but was implemented by the parties (by completing business registration) before a clearance decision was issued.

It is believed that the actual number of transactions which have escaped antitrust merger scrutiny might have been greater. There have been criticism that this phenomenon was, to some degree, attributable to the low fine (currently only up to RMB 500,000) applicable to gun-jumping violations. It is worth noting that the AML Draft Revisions proposed to raise the cap of fine on gun-jumping violations to up to 10% of the relevant undertaking’s sales value in the previous year. It should be observed whether this can be adopted as proposed.