In August 2020, a book titled Compilation of Antitrust Regulations and Guidelines 2019 ( 《2019 年反垄断规章和指南汇编》in Chinese) was published by the State Administration for Market Regulation, China's top competition enforcement authority. This publication reveals the four long-expected guidelines on antitrust enforcement regarding leniency, commitments, auto sector and intellectual property, which are effective as of 4 January 2019.
Among them, the Guidelines on the Undertakings' Commitments in Antitrust Cases (《垄断案件经营者承诺指南》in Chinese, "Commitments Guidelines") clarifies the principles and rules for the application of commitments under Article 45 of the Anti-Monopoly Law of China. Compared with the draft guidelines released in 2016, the effective version further provides practical guidance for enterprises to submit commitments in return for a suspension of investigation.
I. Key Highlights
A. Application of Commitments
As provided by the Commitments Guidelines, hardcore cartels among competitors are ruled out from the application of commitments, including price fixing, output restriction and market allocation. Generally, hardcore cartels will always incur harsh penalties, unless the immunity or reduction of which can be granted under the leniency mechanism.
Notably, in terms of complex cases which contain both hardcore cartels and other monopoly behaviors, undertakings could try to apply for commitments via proactive communication with the enforcement authorities.
B. Time Slots for Making Commitments
According to the Commitments Guidelines, undertakings are encouraged to make commitments at any time after the authority starts the investigation but before issues pre-notice of administrative penalty.
In particular, it is stipulated that the enforcement authority will not accept commitments when the authority has "investigated and verified" the suspected monopoly behavior. However, the time point for such investigation and verification remains unclear. As such, before the pre-notice, the authority may be less likely to reject the commitments due to a reason that the suspected monopoly behavior has been investigated and verified.
Besides, in case of reinstatement of investigation due to violation of commitments or defective commitments which are made based on incomplete or false information, the authority will no longer accept commitments, either.
C. How to Make Commitments
Before submitting commitments, the undertaking could communicate with the enforcement authority on the basic facts as well as the potential impacts of the suspected monopoly behaviors. Upon such communication, the undertaking can decide whether to submit commitments by itself.
The commitments shall be submitted in written form, generally containing:
(1). a description of the suspected monopoly behavior in investigation and its possible consequence;
(2). specific measures to address the consequence of the suspected monopoly behavior (specifically, such measures could be structural measures (such as divestitures), behavioral measures (such as adjustment of pricing strategy, cancellation and modification of sales restrictions, etc.), or combined measures, which are specific, feasible, and able to be implemented by the undertaking itself);
(3). an explanation of how the specific measures can address the consequence of the suspected monopoly behavior;
(4). the time arrangement and action plan to perform the commitments; and
(5). other contents necessary for the commitments.
In addition, the undertaking could communicate with the enforcement authority on the commitments, such as the factum, specific measures, competition concerns of the authority, etc. In practice, it is very normal to experience several rounds of communication with the authority before the finalization of the commitments.
D. Review of Commitments
The authority will review the commitments and decide whether to accept. Once the authority decides to accept the commitments, a decision to suspend the investigation shall be issued to the undertaking concerned. In general, the following factors will be considered in the review:
(1). the subjective attitude of the undertaking in implementing the suspected monopoly behavior;
(2). the characteristics, lasting period, result, and the influence on society of the suspected monopoly behavior; and
(3). the measures of the commitments and their expected effects.
E. Solicitation of Public Opinions on Commitments
In case the enforcement authority holds that the suspected monopoly behavior has impacted unspecified majority of other market players, the legitimate rights of consumers, or social welfare, a procedure to solicit public opinions on the commitments made by the undertaking could be commenced. The period of such solicitation will be at least 30 days.
If the authority thinks it is necessary to adopt certain public opinions, it could advise the undertaking to amend or re-submit the commitments. Where the undertaking refuses to adjust the commitments without reasonable justifications or feasible alternatives, the authority could terminate the review of commitments and then restart the investigation procedure.
However, it is less likely that some certain competitors or whistleblowers are able to make use of the public opinion solicitation procedure to hinder the application of commitments for the undertaking concerned. That is because the main consideration to enter into such procedure is the existing influence on unspecified market players rather than certain specified ones.
F. Consequences of Suspension and Termination of Investigation
According to Article 3 of the Commitments Guidelines, the decision to suspend or terminate the investigation is not a decision on whether the undertaking's behavior constitutes monopoly behavior, nor an evidence to prove so. It means that the statement or confession made by the undertaking in the commitments shall not be used to support the claim against the undertaking .
Such idea not only applies to public enforcement, but also to private litigation. That is, the plaintiff in private litigation may not use the decision of suspension or termination to prove the monopoly behavior of the defendant and the damage the plaintiff suffered. This clarification is consistent with the statement in the Commitments Guidelines that undertakings are encouraged to make commitments.
G. Post-Commitment Concerns
Upon the acceptance of commitments and suspension of investigation by the authority, the undertaking shall fulfil the commitments and make written report to the authority on the implementation of commitments.
During the performance of commitments, if there are material changes in the business operation of the undertaking or market competition, the undertaking could apply to change the commitments.
If the undertaking is of the view that it has fulfilled the commitments, or material changes in competition conditions have happened to make it unnecessary to implement the commitments, prior to the expiry of the duration of commitments, it may apply for an early termination. The authority could at its discretion to decide whether to terminate.
II. Looking Forward
As we can see, several provisions of the Commitments Guidelines have shown the attitude of China's antitrust enforcement authority to encourage undertakings to make commitments proactively, like the long period allowed to make commitments, the channels for enterprises to communicate with enforcement authorities, and the availability to adjust the commitments. Moreover, certain concerns of undertakings on potential risks are also well addressed, such as the evidentiary effect of the confession in the commitments, and the role of whistleblowers and competitors in the public opinion solicitation procedure. Therefore, it is expected that a significant increase can be witnessed in the application of the commitment mechanism in the following public enforcement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.