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Compliance Checklist For China’s New Anti-Monopoly Law – Antitrust, EU Competition


Category

Action(s)

Department(s) Concerned



1. Terminologies



N/A



(1) prices (incl. actual prices, price list or indicative
prices);

(2) discounts and discount policies;

(3) bidding plan or strategy;

(4) customers (incl. actual or potential customers and their
identities and classification);

(5) market areas (areas where actual or planned sales/non-sales
of goods occur, or where services are provided or not
provided);

(6) suppliers (incl. actual or potential suppliers and their
classification);

(7) terms or conditions of sales;

(8) policies or strategies for negotiation with customers;

(9) earnings, profits, or profit margins;

(10) market share;

(11) strategies or costs of sales, marketing, advertisement, or
promotion;

(12) market, supply and demand, price trends and other data or
opinions (e.g. whether the current market prices are too low, what
is an appropriate level of prices, and how to reach a higher or
more stable level of prices);

(13) business expansion/contraction plan;

(14) R&D projects, strategies, or costs;

(15) production capacity, output, or costs;

(16) salaries and benefits of employees;

(17) any information that can be exploited to reduce workable
competition, such as data of production, sales, and inventory.


  • Dominant market position/dominance: a market position held by
    undertakings that enables them to control the prices or quantities
    of goods or other trading conditions, or to hinder or affect the
    ability of other undertakings to enter the relevant market.

  • Concentration of undertakings: any of the following
    circumstances:

  • (1) merger of undertakings;

    (2) acquiring control over another undertaking by virtue of
    acquiring it shares or assets;

    (3) establishment of joint ventures; or

    (4) acquiring control over another undertaking or the ability to
    exert a decisive influence on another undertaking by virtue of
    contract or any other means.


  • Dawn Raid: On-site investigation carried out by the competition
    authorities to collect evidence from the undertakings and relevant
    employees, normally without a prior notice to the
    undertakings.

All:


  • Legal/Compliance Department

  • Sales & Marketing Department

  • Procurement Department

  • HR Department

  • M&A Department

  • R&D Department

  • IP Department

  • E-commerce Department

  • PR/GA

  • Corporate Governance



2. Legal / Compliance



General issues

  • Formulate/update a whole set of competition compliance policies
    on the basis of the NEW AML and revisit them annually or as the
    case may require (e.g. new legislative developments or enforcement
    changes in high-profile cases).

  • Carry out regular trainings in relation to competition
    compliance for employees, in particular the senior management,
    sales department, HR department, etc., to ensure the policies are
    effectively implemented.

  • Ensure that important sales contracts/policies, biddings,
    purchasing contracts/policies, transaction documents in M&A,
    etc., in particular those with your competitors, have been
    carefully reviewed from competition law perspective, incl. existing
    projects and new projects; and solicit professional opinion from
    external antitrust lawyers where necessary.

  • Understand the markets in which the products of your company
    are located, assess preliminarily the definition of relevant
    market, the approximate market share of your products, who are the
    competitors, who are the upstream or downstream partners; and
    solicit professional opinion from external antitrust lawyers where
    necessary.

  • Ensure that the company has mechanisms on whistle-blowing and
    response to dawn raid.

  • Legal/Compliance Department



Whistle-blowing

  • Provide employees with an email address or a telephone number
    for reporting suspected violations.

  • Take the report seriously when you receive a report and inform
    the whistle-blower that:

  • (1) do not destroy or conceal information or documents and keep
    the documents in a safe place;

    (2) take appropriate measures immediately under the guidance of
    the Legal/Compliance Department, OR do not take any further actions
    if Legal/Compliance Department considers this is more
    appropriate;

    (3) do not disclose the matter to anyone, incl. colleagues,
    leaders, supervisors, partners, competitors, or news media.


  • Report the matter to the compliance leader, the appropriate
    business leader and/or the appropriate senior management.

  • Solicit professional opinion from external antitrust lawyers to
    evaluate the suspected violation.

  • Take rectification and other approved measures if necessary
    (e.g. further internal investigation, shift or removal of the
    relevant employee, self-report to the competition authority).

  • Legal/Compliance Department

  • HR Department



Dawn raid response

  • Ensure that the response to dawn raid is included in the
    regular trainings.

  • Consider conducting dawn raid drills with the assistance of
    external antitrust lawyers.

  • Establish an emergency team and select a team leader who would
    be responsible for direct contact with investigators.

  • Where there is an antitrust dawn raid, please keep in mind
    that:


(1) the rule of thumb is that do not hinder/obstruct the
investigation, be cooperative and courteous to investigators at all
times, but reasonably restrict the investigation scope (e.g. do not
voluntarily submit documents or provide replies not related to the
investigation);

(2) contacting your external antitrust lawyers immediately;

(3) checking the investigators’ law enforcement
credentials and law enforcement documents issued by the authority
and requesting a copy;

(4) copying and recording any documents before submitting them
to government investigators;

(5) never disclosing the investigation to anyone outside the
company or to unrelated persons within the company unless clearly
authorized;

(6) developing a plan on next steps with the emergency team and
your external antitrust lawyers.

  • Legal/Compliance Department

  • PR/GR



3. HR Management



Recruitment and human resource management

  • Do not conclude with your competitors any forms of agreements
    on:


(1) salary, salary level or benefit level;

(2) scope, area, region of your respective recruitment;

(3) rejection of any specific personnel;

(4) “no poaching” agreement: each will not solicit
or hire people from others.


  • Do not exchange with your competitors CSI in relation to human
    resources.

  • Ensure that antitrust compliance programs are included in the
    onboard training for new employees, including clearly informing new
    recruits where to find your company’s antitrust compliance
    materials and online training courses.

  • Include clauses into the contract with new employees or
    termination letter for leaving employees of relevant positions,
    specifying that he/she shall not exchange CSI of your company
    he/she obtained when performing his/her capacity in your company
    with the competitors of your company.

  • HR Department

  • Legal/Compliance Department



4. Merger &
Acquisition



Merger control filing obligation

  • Make an assessment on whether the merger control filing
    obligation is triggered as soon as practicable after the launch of
    each transaction project, including:


(1) whether the transaction constitutes a “concentration
of undertakings” under the NEW AML;

(2) if yes, whether the transaction meets the turnover
threshold;

if the threshold is not met, whether the transaction is
likely to be required a filing by the competition authority due to
its potential impact on the competition of the relevant market:
e.g. the party’s market share is very high, the party has
significant power of data, the party is a powerful
platform.


  • When assessing whether the obligation is triggered, please keep
    in mind that:


(1) “control” in the NEW AML is different from it in
the corporate laws/M&A rules;

(2) minority shareholding may also trigger merger control filing
obligation;

(3) merger control filing obligation is irrelevant to the market
share of the products concerned; the market share may be relevant
to the competition analysis during the filing procedure;

(4) whether the transaction involves cooperation with
competitors or upstream suppliers / downstream customers is
irrelevant to the merger control filing obligation; this may be
relevant to the competition analysis during the filing
procedure.


  • Do not implement the transaction
    without a greenlight from the competition authority if the
    transaction should be filed with the authority, the violation of
    which will lead to a huge fine (i.e. a fine of up to RMB 5 million
    or, where anti-competitive effects are likely, up to 10% of the
    turnover in the previous year).


“Implementation” includes: completion of the
registration of change in shareholders or rights, obtaining the
business license of the JV, appointment of senior managements,
actual participation in business decision-making and management,
exchange of CSI with other parties, substantial integration of
businesses, etc.


  • If your company encounters a hostile takeover, assess whether
    the transaction triggers the filing obligation and whether it will
    have competition concerns, and consider antitrust review as an
    alternative defense strategy.

  • M&A Department

  • Legal/Compliance Department



Do’s and Don’ts throughout the M&A

  • Take merger control into consideration at each stage of the
    M&A process, e.g. when setting out the long-stop date,
    condition precedents, break-up fee, limitation on divestment scope,
    etc.


  • Do not disclose CSI to the other side throughout the whole
    process of the transaction beyond what is strictly necessary for
    proceeding with the transaction, until the antitrust clearance is
    granted; for JVs set up by competitors, do not exchange CSI of the
    parents even after the closing of the transaction.


  • Set up a clean team where feasible.


  • Do not participate in the day-to-day operations of the target
    company in order to avoid de facto changes in control,
    until the antitrust clearance is granted.



  • Legal/Compliance Department



5. Sales & Procurement



Monopoly agreement

  • Do not conclude the following agreements with competitors
    (horizontal monopoly agreement):


(1) price-fixing, either directly or indirectly, e.g. fixing the
prices, discounts, margins, timing of price changes, formula to
calculate price, etc.;

(2) bid-rigging, e.g. collusion on the bid-winner, abandoning a
bid, withdrawing from a bid, submitting a high-price;

(3) restriction on the volume of supply or production
capacity;

(4) boycotting: not to deal with particular clients or
suppliers;

(5) allocation of sales market, customers or the market of
procuring raw materials;

(6) restriction on the purchase of new technologies or
equipment, or the development of new technologies or products.


  • Do not conclude the following agreements with upstream
    suppliers or downstream customers (vertical monopoly
    agreement):


(1) resale price maintenance (RPM);

(2) minimum resale price maintenance (mRPM): fix the lowest
prices for products resold to a third party;

For RPM/mRPM, although the company is provided with an
opportunity to prove that such agreements do not have the effects
of eliminating or restricting competition, the risks of reaching
such agreements may still be high in particular for companies with
higher market share as it is difficult to prove in
practice.


  • Solicit professional opinion from external antitrust lawyers
    when concluding agreements with upstream suppliers or downstream
    customers on non-price vertical restrictions (vertical monopoly
    agreement), e.g. restricting that a distributor/reseller can only
    resell the products in/to a specific area/region or customers.


  • Pay attention to the exchange of CSI:


(1) you must not exchange CSI with your competitors;

(2) you should not collect CSI of your competitors from your
upstream suppliers or downstream customers as hub-and-spoke cartels
are prohibited as well;

(3) you should not share CSI of your upstream suppliers or
downstream customers with their respective competitors as
organizing or providing substantive assistance to others in
reaching a monopoly agreement is prohibited by the NEW AML as
well.

Collecting information from public sources is
allowed.

  • Sales & Marketing Department




  • Legal/Compliance Department



Abuse of dominance

  • If you have a strong market power or even a dominant market
    position (50% of market shares will be presumed as having the
    dominance), solicit professional opinion from external antitrust
    lawyers when you intend to take the following actions with your
    upstream suppliers or downstream customers:


(1) unfairly overpricing sales or unfairly underpricing
procurement;

(2) selling at a price lower than cost;

(3) refusal to deal with certain suppliers or customers;

(4) restricting them to deal with certain parties (exclusively)
or not to deal with certain parties;

(5) tie-in sales or attaching unreasonable conditions to the
trading (incl. types and quality of commodities, payment
conditions, delivery methods, after-sale services, transaction
options, technical constraints);

(6) discrimination in terms of prices or other contractual terms
and conditions.

If you are a platform or other digital business with a
dominant market position, please do not use data, algorithms,
technologies or platform rules to abuse your dominance. For
two-sided market businesses, the market power in both sides will be
considered together, e.g. Alibaba case and Meituan case.

  • Sales & Marketing Department




  • Legal/Compliance Department



Participating trade associations

The code of practice in this section applies not only to formal
meetings organized by trade associations, but also to all social
and informal gatherings associated with trade associations or among
competitors, such as meeting meals, coffee breaks, bar gatherings,
golf games, small talk and other informal occasions.


  • Stick to the dos and don’ts as below:


(1) strictly prohibit from discussing any CSI of any members or
non-members, in particular current CSI or future CSI; past CSI
within 6 months is also very sensitive and shall not be discussed
or circulated;

(2) immediate renounce and withdraw from the discussion if any
sensitive topic has been brought up;

(3) keep records of your renunciation and withdrawal from
discussing any sensitive topic, and inform your Legal/Compliance
Department of such records;

(4) object and do not implement any rules, regulations or
resolutions which are suspected of violation.

  • Sales & Marketing Department




  • Legal/Compliance Department



6. R&D and IP



Monopoly agreement

  • Do not enter into agreements that restrict the purchase of new
    technologies or equipment or the development of new technologies or
    products.


For example, BMW, Daimler and Volkswagen, Audi and
Porsche under the Volkswagen Group have discussed the technical
development of vehicle exhaust emissions in a joint meeting, and
part of the meeting was suspected of private collusion to restrict
the research
, use and development of clean
emission technologies.


  • Be alert of a reverse payment agreement (or any patent
    settlement with such appearance) and solicit professional opinion
    from external antitrust lawyers where necessary.


Reverse Payment
Agreement
is a commitment by the drug
patent
right holder to give direct or indirect
benefit compensation to the generic drug applicant, and the generic
drug applicant promises not to challenge the validity of the
drug-related patent rights or delay entry into the patented
drug-related market agreement.

Although it is not illegal per se in China, it has the
potential risk of being examined. For example, on December 27,
2021, for the first time, China’s Supreme Court proactively
examined reverse payment agreement or any settlement with such
appearance in terms of its impact on competition.





  • Sales & Marketing Department


  • Legal/Compliance Department



Abuse of dominance

  • If you may have dominant market position in the relevant
    market, solicit professional opinion from external antitrust
    lawyers when you intend to take the following actions:


(1) requiring the counterparty to grant back the technologies
improved by the counterparty exclusively or solely;

(2) prohibiting the counterparty from questioning the
effectiveness of the patent;

(3) restricting the counterparty from utilizing competing
products or technologies upon the expiration of the license
agreement, provided that no IP right is infringed upon;

(4) continuing to exercise the rights of the IP whose protection
period has expired, or which has been determined invalid;

(5) prohibiting the counterparty from trading with any third
party;

(6) giving discriminatory treatment to the counterparties with
the same conditions.





  • Sales & Marketing Department


  • Legal/Compliance Department



SEP (standard essential patent)

  • SEP holder usually is presumed as having the dominant market
    position in each SEP market. Therefore, the licensing of a SEP must
    be based on fair, reasonable and non-discriminatory (FRAND) terms.
    In practice, a typical negotiation process between the SEP holder
    and SEP implementer on a FRAND basis includes the following
    steps:


(1) step 1: the SEP holder provides a licensing offer to an
implementor;

(2) step 2: the implementer needs to express the willingness to
accept the FRAND license;

(3) step 3: the SEP holder to provide specific licensing terms
(incl. license fees) on FRAND terms;

(4) step 4: if the implementer is unwilling to accept the
licensing terms, the implementer should provide a counter-offer
(incl. license fees) for the SEP holder;

(5) if no agreement can be reached after 4 steps, repeat step 3
and step 4 or bring a proceeding before a court or arbitration
organization to rule the FRAND terms.




(1) do not, in violation of the FRAND commitment, license at an
unfairly high price, or conduct the behaviors of refusal to
license, tying, discriminatory treatment, or attaching other
unreasonable restrictions without any justifiable reasons;

(2) do not, in violation of the FRAND commitment, force the SEP
implementor to accept overpricing or other unreasonable restrictive
conditions by asking the court or competent authority to issue an
injunction before negotiation in good faith.


  • If you are a SEP implementer, consider bringing an action
    before a court or filing a complaint with the competition authority
    when a SEP holder doesn’t license on FRAND terms.





  • Sales & Marketing Department


  • Legal/Compliance Department



7. E-commerce / Platform /
Digitalization



Merger control filing obligation

  • Keep in mind the following when making an assessment of merger
    control filing obligation in the e-commerce sector / platform
    economy:


(1) concentrations involving VIE structure falls within the
scope of merger control filing review;

(2) for platforms, the turnover includes the income generated
from the sale of goods and provision of services (e.g.
commissions).


  • Be alert of “killer acquisition”, or where the
    undertaking concerned has a high market share due to its low or
    free price in an oligopolistic market, as the competition authority
    may require to file such transactions with them.


  • If your market share is relatively high, consider the following
    remedial measures in order to obtain an antitrust clearance:


(1) divestiture of tangible assets, IP, technologies, data, or
other rights; and/or

(2) opening up networks, data, platforms or other
infrastructure, licensing key technologies, terminating exclusive
agreements, amending platform rules or algorithms, and making a
commitment to compatibility or not reducing the level of
interoperability, etc.





  • Legal/Compliance Department



Monopoly agreement

  • In addition to serving as a platform, if the platform itself
    also carry out businesses (self-operated businesses) that compete
    with other operators on the platform, the platform is both an
    upstream operator and a competitor of the operators on the
    platform. In this case, the following behaviors are highly risky
    and should be avoided:


(1) using the platform to collect and exchange CSI with/among
operators on the platform;

(2) using technical means, data, algorithms, platform rules,
etc., to achieve coordination and consistency on price, cost,
output, customer sharing, etc.;

(3) using technical means, data, algorithms, platform rules,
etc., to set/restrict resale price automatically;

(4) requiring the operators on the platform to provide it with
equivalent or more preferential trading conditions compared with
other platforms.

Platforms must be very cautious not to act as an organizer
of a monopoly agreement or provide others with substantive
assistance in reaching a monopoly agreement. This is explicitly
prohibited by the NEW AML.

  • Sales & Marketing Department




  • Legal/Compliance Department



Abuse of dominance

  • Consider digital market’s specific factors in determining
    whether a platform has dominant market position, e.g., market share
    can be measured through transaction value, transaction volume,
    sales, number of active users, number of clicks, usage length,
    etc.


  • Keep in mind that “choose one from two” (requiring
    merchants to shut stores on competing platforms) in the digital
    market has become the focus of the competition authority, which may
    constitute restriction of dealing with specific parties without
    justifiable reason.


  • If you are a platform with market dominance, solicit
    professional opinion from external antitrust lawyers when using
    data and algorithms, technologies and platform rules etc. to give
    yourselves preferential treatment (incl. self-preference on
    display, ranking, or using non-disclosed data for the purpose of
    self-product developing) to compete with operators on the
    platform.

  • Sales & Marketing Department






  • Legal/Compliance Department



8. PR, GR and Senior
Management



General statement

  • While posting/making statement on your website/before the
    public (e.g., press release), please make sure the contents have
    been reviewed by Legal/Compliance Department or your external
    antitrust lawyers. The statement should not contain any market
    share information and other CSI.



  • Legal/Compliance Department



Response to dawn-raid or penalty decision

  • If your company experiences a dawn-raid or receive a penalty
    decision, it is suggested:


(1) to consult the opinions of the PR, GR, Legal/Compliance
Department and your external antitrust lawyers before publishing a
media statement;

(2) that employees of your company are not allowed to discuss
the matter unless explicitly authorized.



  • Legal/Compliance Department





Senior management

  • To ensure the competition compliance policies and mechanisms
    have been effectively implemented, resolution from the senior
    management must be showed:


(1) senior management should allocate necessary resources (e.g.
financial support for trainings, dawn-raid drills, personnel
support such as a compliance manager) to AML compliance;

(2) senior management should bear in mind that AML violation may
incur huge fine and reputation damage for themselves as individuals
(a fine of up to RMB 1 million).

  • Legal/Compliance Department






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