McDermott Will & Emery has a strategic alliance with MWE China Law Offices, a separate law firm based in Shanghai. This China Law Alert was authored by MWE China Law Offices lawyers Henry L.T. Chen and Jacqueline Cai.
According to the Caijing magazine, the State Administration for Industry and Commerce of the People’s Republic of China (SAIC) has received more than 40 complaints about “monopolistic behavior” since the implementation of the Anti-Monopoly Law (AML) on August 1, 2008. However, the SAIC has only managed to commence preliminary investigations in a few cases. The lack of defined procedures is said to have been a barrier to progress on these cases. With the promulgation of the new regulations, the barrier will be gone (technically from July 1, 2009, when the regulations come into force).
On May 26, 2009, the SAIC issued the Regulations on Procedures of Administrative Authorities for Industry and Commerce for Investigating Cases Involving Monopoly Agreements and Abuses of Dominant Market Positions. The regulations are intended to implement the AML and shall become effective as of July 1, 2009. The following is a summary of the main provisions of the regulations.
Investigation and Delegation of Investigative Power
The SAIC may delegate its anti-monopoly enforcement authority to a subordinate and appropriate Provincial Administration for Industry and Commerce (PAIC) for anti-monopoly enforcement with respect to monopoly agreements and abuses of dominant market position.
Each PAIC shall be responsible for checking the content of reports in which the reported behavior occurs predominantly within the administrative region of its province, and the PAICs shall report their findings and their opinion concerning whether to place the case on file with the SAIC.
The SAIC shall decide to place the case on file for investigation according to its check of the content of the report. The SAIC may investigate further by itself or authorize the relevant PAIC to initiate investigation.
The SAIC may carry out investigation by itself on cases being placed on file for investigation, or it may empower relevant administrations for industry and commerce at provincial, sub-provincial and cities under separate state planning levels to carry out the investigative work.
The authorized PAIC shall make the decision to suspend or terminate the investigation or impose punishment according to law, however, it shall report to the SAIC before making such a decision. The PAIC shall, within 10 working days after making such a decision, submit related information, a relevant decision letter and a case investigation termination report to the SAIC for filing.
After reporting in writing to the chief officer in charge of the authority that has the right to investigate monopoly cases, and upon receiving the approval thereof, the administrative authority for industry and commerce may adopt the following measures to investigate suspected monopolistic behavior:
- Entering into the business premises or other related sites of the business operator under investigation to conduct inspections
- Inquiring of the business operator, interested parties, or other related units or individuals under investigation, and requiring them to explain related situations
- Reviewing and copying documents and materials such as certificates, agreements, accounting books, business communications, electronic data, etc., of the business operator, interested parties, or other related units or individuals under investigation
- Seizing and sequestering relevant evidence
- Reviewing the business operator’s bank accounts
When investigating a case, the number of law enforcement staff of an administrative authority for industry and commerce shall not be less than two people, and they shall show their law enforcement credentials.
Materials Submitted for Investigation
When investigating suspected monopolistic behavior, the administrative authority for industry and commerce may require the business operator, interested parties, or other related units or individuals under investigation to provide the following materials in writing within a specified time limit:
- General information of the party under investigation, including: its organizational structure, name, contact person and his/her contact information, Business License or Registration Certificate of Legal Person in Non-governmental Organization, and a copy of the Duplicate of Legal Person Organization Code Certificate. If the business operator is an individual, he/she shall provide his/her ID certificate copy and contact information.
- If the party under investigation is a business operator, it shall also provide its production and operation state, annual sales, tax state, business transactions, cooperation agreements with other parties, overseas investments, and similar materials from the past three years. Listed companies shall also provide stock earnings information.
- If the party under investigation is an industry association, it shall provide its industry association constitution, related industrial policy basis, production and operation plan for the industry and the implementation thereof, and conference activities and documents related to the suspected monopolistic behavior
- Explanation for relevant questions raised by the administrative authority for industry and commerce
Other written materials deemed as necessary to be provided by the administrative authority for industry and commerce
Suspension of Investigations
During the period when the business operator who is suspected of conducting monopolistic behavior is under investigation, such business operator may apply to suspend the investigation if he/she commits to taking specific measures to eliminate the effect of the behavior within the time limit approved by the administrative authority for industry and commerce.
Application for investigation suspension shall be in writing, and shall be signed and sealed by the legal representative or responsible person or individual. The following matters shall be specified in the application:
- Facts about the suspected violations of law and possible impacts they have caused
- Specific measures that will be taken to eliminate the effect of the behavior
Schedules committing to the implementation of these measures and a statement of guarantee
The administrative authority for industry and commerce may, according to the application of the business operator under investigation, decide to suspend the investigation after taking into account specific circumstances such as the nature, duration, consequences and social impact of the behavior, and issue an investigation suspension letter. The investigation suspension letter shall specify: the facts suspected in the business operator’s violation of the law; the specific measures to eliminate the effects of the operator’s actions; the specific commitment to take these measures, and the time limit for doing so; and the legal consequences of partly performing or failing to perform the commitment.
When a decision to suspend the investigation is made, the business operator shall submit a written report regarding the performance of the commitment to the administrative authority for industry and commerce within a specified time limit.
The administrative authority for industry and commerce shall supervise the business operator’s performance of its commitment. Where the administrative authority for industry and commerce confirms that the business operator has performed its commitment, it may decide to terminate the investigation and issue an investigation termination letter. The investigation termination letter shall specify: the facts suspected in the business operator’s violation of the law; the specific measures to eliminate the effects of the operator’s actions; the specific commitment to take these measures; and the specific approaches and time taken to perform the commitment.
Restarting of Investigation
The investigation shall be resumed if any of the following circumstances occur:
- The business operator fails to perform its commitment.
- The facts upon which the decision to suspend the investigation were based have undergone major changes.
The decision to suspend the investigation was made based on incomplete, untrue or misleading information provided by the business operator.
Exemption from and Reduction of Punishment
Where the business operator voluntarily reports information concerning the conclusion of the monopoly agreement and provides important evidence to the administrative authority for industry and commerce, the business operator may, at the discretion of the administrative authority for industry and commerce, be given a mitigated punishment or be exempted from punishment.
This mitigation of or exemption from punishment does not apply to the organizer of the monopoly agreement.
The term ”important evidence” refers to evidence that played a key role in initiating an investigation or determining that monopolistic agreement behavior exists.
Where the business operator can prove the agreement reached is in accordance with the provisions of Article 15 of the AML, the administrative authority for industry and commerce may give an exemption for the relevant behavior.
Please click here for an unofficial English translation of the regulations prepared by MWE China Law Offices.