A Preview of China's New Anti-Monopoly Law
By Ron Cai and Jim H. Young
The new Anti-Monopoly Law of the People’s Republic of China (the “AML” or the “Law”) adopted by China’s National People’s Congress on Aug. 30, 2007 will become effective on Aug. 1, 2008. Importantly, under the Law, any foreign or domestic company with more than one-tenth share of any given product market or territorial market, based on a number of “dominant market status” criteria, can be presumed to possess the dominant market status, with the burden of proving otherwise placed upon the company.
While it is not yet known exactly how the AML will be implemented and enforced, or even which governmental authority will enforce it, foreign companies that merge with or acquire companies in China should be aware of the AML’s potential implications, which may be substantial, since any merger and acquisition (M&A) transaction that increases the size of a company can be under scrutiny. Distribution arrangements will see increased scrutiny under the AML, and businesses must be more careful of pricing arrangements with distributors, since the Law introduces “monopoly agreement” and “abuse of dominance” language that can affect distribution agreements.
Companies with intellectual property interests should also stay abreast of the Law’s implication. Under the existing law, the interaction between intellectual-property protection and restriction of competition is not well depicted. In comparison, the AML has looked more closely at the issue that some entities may use their intellectual property rights to improperly enhance their market dominance.
The AML mainly deals with (1) monopoly agreements, (2) abusive market dominance, (3) concentration activities, and (4) abusive governmental or administrative conduct. The AML provides some quite detailed procedures that a new, yet to be designated, anti-monopoly law-enforcement agency under the State Council (the “Agency”) will be required to follow when conducting investigations of potential violations. Under the Law, businesses may both be liable for administrative penalties for violation of the AML and be subject to civil liabilities to third parties who suffer as a result of the monopolistic conduct at issue.
The following analysis of the AML summarizes the major provisions of the Law and their impacts on business activities in China. Continue reading...
