● Raise 大红鹰dhy0033官网 current turnover thresholds. 大红鹰dhy0033官网 current turnover thresholds have been in use for decades, in order to adapt to 大红鹰dhy0033官网 social and economic development of China in current stage, reduce 大红鹰dhy0033官网 number of declarations of small and medium-sized M&A transactions that do not have competition issues, and reduce 大红鹰dhy0033官网 institutional transaction costs and burdens of enterprises, 大红鹰dhy0033官网 Merger Review Thresholds Draft Regulations intends to raise 大红鹰dhy0033官网 current turnover thresholds. Specifically, a concentration of undertakings shall be notified in advance if it meets one of 大红鹰dhy0033官网 following conditions: (i) 大红鹰dhy0033官网 global turnover of all 大红鹰dhy0033官网 business undertakings participating in 大红鹰dhy0033官网 concentration exceeds RMB12 billion in 大红鹰dhy0033官网 previous financial year (大红鹰dhy0033官网 current threshold is RMB10 billion), and 大红鹰dhy0033官网 turnover in China of at least two business undertakings exceeds RMB800 million in 大红鹰dhy0033官网 past accounting year (大红鹰dhy0033官网 current threshold is RMB400 million); or (ii) 大红鹰dhy0033官网 turnover in China of all 大红鹰dhy0033官网 business undertakings participating in 大红鹰dhy0033官网 concentration exceeds RMB4 billion in 大红鹰dhy0033官网 previous financial year (大红鹰dhy0033官网 current threshold is RMB2 billion), and 大红鹰dhy0033官网 turnover in China of at least two business undertakings exceeds RMB800 million in 大红鹰dhy0033官网 past accounting year (大红鹰dhy0033官网 current threshold is RMB400 million). 

● Add new notification threholds for “Killer Acquisitions”. Specifically, a concentration of undertakings shall be notified in advance if it meets 大红鹰dhy0033官网 following conditions: (i) 大红鹰dhy0033官网 turnover in China of one of 大红鹰dhy0033官网 business undertakings (in this context, 大红鹰dhy0033官网 aforementioned business undertaking shall refer to one party to a merger or a party who acquires control of 大红鹰dhy0033官网 target company in other transactions) participating in 大红鹰dhy0033官网 concentration exceeds RMB100 billion in 大红鹰dhy0033官网 past accounting year; and (ii) 大红鹰dhy0033官网 market value (or valuation) of other parties to a merger as specified in Article 2(1) of 大红鹰dhy0033官网 Merger Review Thresholds Draft Regulations[1] (in this context, 大红鹰dhy0033官网 aforementioned business undertaking shall refer to 大红鹰dhy0033官网 other party to a merger) or other business undertakings as specified in Article 2(2) and (3) of 大红鹰dhy0033官网 Merger Review Thresholds Draft Regulations undertaking(in this context, 大红鹰dhy0033官网 aforementioned business undertaking shall refer to 大红鹰dhy0033官网 target company in investment or M&A transaction), is not less than RMB800 million, and 大红鹰dhy0033官网 turnover in China accounted for more than 1/3 of its global turnover in 大红鹰dhy0033官网 previous financial year.

Based on 大红鹰dhy0033官网 above multiple thresholds designed by 大红鹰dhy0033官网 rules, it is not difficult to interpret that 大红鹰dhy0033官网 Merger Review Thresholds Draft Regulations intends to expand 大红鹰dhy0033官网 antitrust enforcement agency’s jurisdiction to 大红鹰dhy0033官网 Killer Acquisitions, in which large enterprises acquire, through merger, acquisition, investment, etc., 大红鹰dhy0033官网 “Control” under 大红鹰dhy0033官网 Anti-Monopoly Law, of target companies with relatively high market value/valuations and no significant turnover (but at least 1/3 of which comes from China) yet. Most of target companies involved in such Killer Acquisitions may refer to high-tech, platform or start-up companies with high valuations but no insignificant turnover.

1.2 Clarifying 大红鹰dhy0033官网 notification and investigation procedures for concentration of undertakings that does not reach 大红鹰dhy0033官网 notification threshold but raise competition concerns

Article 26 of 大红鹰dhy0033官网 Amended AML stipulates that if a concentration of undertakings does not reach 大红鹰dhy0033官网 notification thresholds provided by 大红鹰dhy0033官网 State Council, but there is evidence showing that 大红鹰dhy0033官网 concentration of undertakings has or may have 大红鹰dhy0033官网 effect of excluding or restricting competition, 大红鹰dhy0033官网 antitrust enforcement authority of 大红鹰dhy0033官网 State Council may require 大红鹰dhy0033官网 business undertaking to notify. Where 大红鹰dhy0033官网 business undertaking fails to notify, 大红鹰dhy0033官网 antitrust enforcement authority shall conduct an investigation in accordance with 大红鹰dhy0033官网 law.

大红鹰dhy0033官网 Merger Control Review Draft Regulations further clarifies 大红鹰dhy0033官网 above notification and investigation procedures, specifically, for 大红鹰dhy0033官网 concentration of undertakings that does not reach 大红鹰dhy0033官网 notification thresholds but raise competition concerns:

1.3 Specifying 大红鹰dhy0033官网 definition of “implementing concentration”, and 大红鹰dhy0033官网 obligation of other parties in illegal concentration investigation

大红鹰dhy0033官网 definition of “implementing concentration” is an important prerequisite for 大红鹰dhy0033官网 assessment of failure to notify in accordance with 大红鹰dhy0033官网 law or “gun-jumping” in 大红鹰dhy0033官网 law enforcement practice. Currently, there is no specific provision under 大红鹰dhy0033官网 applicable rules. However, based on 大红鹰dhy0033官网 enforcement precedents of 大红鹰dhy0033官网 anti-trust enforcement agency, 大红鹰dhy0033官网 relatively clear indications may include 大红鹰dhy0033官网 completion of SAMR registration, appointment of senior management, or substantial decision on 大红鹰dhy0033官网 operation and management of 大红鹰dhy0033官网 target company.

大红鹰dhy0033官网 Merger Control Review Draft Regulations specifies that it shall mean 大红鹰dhy0033官网 behaviors of acquiring control over other business undertakings or exerting decisive influences thereon, including but not limited to, completion of 大红鹰dhy0033官网 SAMR registration of change in shareholders (or ROM), appointment of senior management, actual participation in decision-making and management of operation, exchange of sensitive information with other business undertakings, substantial integration of business, etc. Based on 大红鹰dhy0033官网 foregoing, we expect that, in investment and M&A transactions which may reach 大红鹰dhy0033官网 notification thresholds, more prudent and strict assessments shall be required as to how to reasonably specify 大红鹰dhy0033官网 matters of a target company that shall be subject to prior consent of 大红鹰dhy0033官网 investor/acquirer during 大红鹰dhy0033官网 transitional period under 大红鹰dhy0033官网 transaction documents, what reasonable measures 大红鹰dhy0033官网 investor/acquirer may take to supervise 大红鹰dhy0033官网 business operation of 大红鹰dhy0033官网 target company during 大红鹰dhy0033官网 transitional period to avoid any depreciation of its value, how to reasonably set up a “clean team” during due diligence to avoid exchange of competitively sensitive information and how to plan business integration in advance so as not to fall into 大红鹰dhy0033官网 scope of “gun-jumping”, etc.

In addition, during 大红鹰dhy0033官网 investigation of failure to notify, one of 大红鹰dhy0033官网 issues faced by 大红鹰dhy0033官网 undertaking who makes “supplementary” notification is that other undertakings participating in 大红鹰dhy0033官网 transaction fail to provide relevant information, data and materials, which affects 大红鹰dhy0033官网 quality and progress of 大红鹰dhy0033官网 investigation. In this regard, 大红鹰dhy0033官网 Merger Control Review Draft Regulations also sets forth third party’s obligation to cooperate with 大红鹰dhy0033官网 investigation. With respect to 大红鹰dhy0033官网 investigation of an illegal concentration of undertakings, in addition to 大红鹰dhy0033官网 business undertaking under investigation, other business undertakings or individuals participating in 大红鹰dhy0033官网 concentration shall cooperate with 大红鹰dhy0033官网 antitrust enforcement authority’s investigation and submit relevant documents and materials as required.

1.4 Codifying 大红鹰dhy0033官网 standards developed in law enforcement practice

2. Monopoly Agreement

2.1 Introducing “safe harbor” for vertical monopoly arrangements and providing compliance guidance for proper distribution system design

大红鹰dhy0033官网 Amended AML introduces a new “safe harbor” mechanism for vertical monopoly arrangements, e.g., fixing or maintaining resale prices, restricting sales regions or customers, exclusive supply/purchase, most-favored-nation treatment, etc.) between business undertaking and its counterparties, and it also adjusts 大红鹰dhy0033官网 principle for determining illegal resale price maintenance arrangements in 大红鹰dhy0033官网 current enforcement practice, where 大红鹰dhy0033官网 principle is changed from “prohibited in principle” to “rule of reason”, i.e., an arrangement for fixing/maintaining resale price is not a monopoly agreement if 大红鹰dhy0033官网 party can prove that it does not have 大红鹰dhy0033官网 effect of excluding or restricting competition. For 大红鹰dhy0033官网 implementation of 大红鹰dhy0033官网 burden of proof and 大红鹰dhy0033官网 content of proof, 大红鹰dhy0033官网 Monopoly Agreement Draft Regulations adds specific application standards and procedures for 大红鹰dhy0033官网 safe harbor mechanism in order to provide compliance guidance for business undertakings.

Specifically, in order to successfully apply 大红鹰dhy0033官网 safe harbor mechanism, a business undertaking shall prove that:

● 大红鹰dhy0033官网 market share in 大红鹰dhy0033官网 relevant market of 大红鹰dhy0033官网 undertaking and 大红鹰dhy0033官网 counterparty who agree on vertical monopoly arrangements is less than 15% or 大红鹰dhy0033官网 antitrust enforcement authority stipulates otherwise. Such market share shall include 大红鹰dhy0033官网 aggregate market share in 大红鹰dhy0033官网 relevant market of other entities that it controls or has decisive influence on. If there are multiple counterparties, 大红鹰dhy0033官网 market share in 大红鹰dhy0033官网 relevant market shall be calculated on an aggregate basis;

● There is no contrary evidence to prove that such agreement excludes or restricts competition;

● An undertaking may submit a written application to 大红鹰dhy0033官网 antitrust enforcement authority to prove 大红鹰dhy0033官网 above matters. 大红鹰dhy0033官网 application should include: (i) 大红鹰dhy0033官网 operating status and equity relationship between 大红鹰dhy0033官网 undertaking and 大红鹰dhy0033官网 counterparty in 大红鹰dhy0033官网 relevant market, (ii) 大红鹰dhy0033官网 market share of 大红鹰dhy0033官网 business undertaking and 大红鹰dhy0033官网 counterparty in 大红鹰dhy0033官网 relevant market and 大红鹰dhy0033官网 calculation basis, (iii) 大红鹰dhy0033官网 agreement will not exclude or restrict competition in 大红鹰dhy0033官网 relevant market, and other contents that need to be explained.

大红鹰dhy0033官网 antitrust enforcement authority will investigate and verify business undertakings’ applications, and in this process, in addition to 大红鹰dhy0033官网 opinions from 大红鹰dhy0033官网 other governmental authorities, industry associations, upstream and downstream enterprises, stakeholders, etc., 大红鹰dhy0033官网 Monopoly Agreement Draft Regulations also proposes to seek opinions from third parties and 大红鹰dhy0033官网 public.

2.2 Adding provisions on organizing or providing substantial assistance to reach a monopoly agreement.

With respect to 大红鹰dhy0033官网 hub-and-spoke arrangements under Article 19 of 大红鹰dhy0033官网 Amended AML, i.e., business undertakings may not organize other business undertakings to reach a monopoly agreement or provide substantial assistance for other business undertakings to reach a monopoly agreement, 大红鹰dhy0033官网 Monopoly Agreement Draft Regulations sets forth detailed identification criteria, illegal circumstances and legal liabilities, specifically, 

● 大红鹰dhy0033官网 term “organize” refers to 大红鹰dhy0033官网 following circumstances: (i) although 大红鹰dhy0033官网 undertaking is not a party to 大红鹰dhy0033官网 monopoly agreement, but in 大红鹰dhy0033官网 process of reaching or implementing 大红鹰dhy0033官网 monopoly agreement, it has a decisive or leading role in 大红鹰dhy0033官网 scope, main content and performance conditions of 大红鹰dhy0033官网 agreement; (ii) a business undertaking signs an agreement with multiple counterparties, and intentionally causes 大红鹰dhy0033官网 counterparties with a competitive relationship to communicate with each other or exchange information through such business undertaking, so as to reach 大红鹰dhy0033官网 monopoly agreement.

● 大红鹰dhy0033官网 term “substantial assistance” refers to 大红鹰dhy0033官网 behavior of 大红鹰dhy0033官网 business undertaking who has not engaged in organizing behaviors specified above, but provides support for 大红鹰dhy0033官网 conclusion or implementation of 大红鹰dhy0033官网 monopoly agreement, and has a causal relationship with 大红鹰dhy0033官网 exclusion or restriction of competition and has a significant effect.

● Business undertakings that organize and assist other business undertakings to enter into monopoly agreements shall have 大红鹰dhy0033官网 same legal liabilities as those reaching 大红鹰dhy0033官网 monopoly agreements.

2.3 Further regulating procedures for suspension of investigation, specifying application and determination procedures, and adding interview system

● Further regulating procedures for suspension of investigation: After 大红鹰dhy0033官网 anti-trust enforcement agency has investigated and verified 大红鹰dhy0033官网 suspected monopoly agreement, if it believes that it constitutes a monopoly agreement, 大红鹰dhy0033官网 previous provision “it will not accept applications for suspension of investigation made by undertakings” is revised as “大红鹰dhy0033官网 investigation shall not be suspended, and a decision shall be made pursuant to 大红鹰dhy0033官网 law”, which is also provided by 大红鹰dhy0033官网 Dominance Abuse Draft Regulations.

● Specifying application and determination procedures: Business undertakings participating in a monopoly agreement shall file an application with 大红鹰dhy0033官网 anti-trust enforcement agency before 大红鹰dhy0033官网 anti-trust enforcement agency files a case, initiates an investigation procedure, or issues an administrative penalty notice. Application materials should include 大红鹰dhy0033官网 following: a report on 大红鹰dhy0033官网 relevant situation of 大红鹰dhy0033官网 monopoly agreement, including but not limited to 大红鹰dhy0033官网 undertakings participating in 大红鹰dhy0033官网 monopoly agreement, 大红鹰dhy0033官网 scope of commodities involved, 大红鹰dhy0033官网 content and method of 大红鹰dhy0033官网 agreement, 大红鹰dhy0033官网 specific implementation of 大红鹰dhy0033官网 agreement, whether reported to other overseas law enforcement authorities, etc.; important evidence of reaching or implementing a monopoly agreement. Important evidence refers to 大红鹰dhy0033官网 evidence which is not available to 大红鹰dhy0033官网 anti-trust enforcement agency and can play a key role in initiating an investigation or determining a monopoly agreement.

● Adding interview system: If a business undertaking is suspected of violating these regulations, 大红鹰dhy0033官网 anti-trust enforcement agency may interview its legal representative or person in charge, and request it to propose improvement measures, which is also provided by 大红鹰dhy0033官网 Dominance Abuse Draft Regulations. 

2.4 Other highlights

● With respect to prohibiting “competitive business undertakings” from reaching horizontal monopoly agreements, it is further clarified that “potential competitors” who have plans and feasibility to enter 大红鹰dhy0033官网 relevant market competition within a certain period of time can also be “competitive business undertakings” under horizontal monopoly agreements.

● Monopoly agreement behaviors of digital economy are added, i.e., undertakings shall not use data and algorithms, technology, capital advantages, platform rules, etc. to engage in monopolistic behaviors prohibited by these regulations.

3. Abuse of Market Dominance

3.1 Focusing on 大红鹰dhy0033官网 platform economy and 大红鹰dhy0033官网 controversial “self-preferential treatment” proposed to be regulated as an abuse behavior

● An undertaking with a dominant market position shall not use data, algorithms, technologies, and platform rules, etc. to engage in abuse of market dominance behaviors;

● According to 大红鹰dhy0033官网 enforcement practice, two new factors “transaction amount”, “ability to control traffic” are added to be considered in identifying dominant market position in 大红鹰dhy0033官网 platform economy. Specifically, as a starting point of analyzing 大红鹰dhy0033官网 abuse of a dominant market position, in assessing whether 大红鹰dhy0033官网 undertaking in 大红鹰dhy0033官网 platform economy undertaking has a dominant position, 大红鹰dhy0033官网 following factors shall be considered: undertaking 大红鹰dhy0033官网 competition characteristics, business model, transaction amount, number of users, network effect, lock-in effect, technical characteristics, market innovation, ability to control traffic, ability to master and process relevant data, and market power of undertakings in related markets.

● A new prohibition that platform undertakings shall not implement “self-preferential treatment” is added. Specifically, platform undertakings with a dominant market position are prohibited from using data, algorithms, technologies, platform rules, etc., to give themselves 大红鹰dhy0033官网 following preferential treatment without justifiable reasons, when competing with undertakings on such platform: (i) giving priority to display or order its own products; (ii) using 大红鹰dhy0033官网 non-public data of undertakings on 大红鹰dhy0033官网 platform to develop their own products or assist their own decision-making. It should be noted that, as a long-standing and widespread business practice, whether or not it is appropriate to regulate “self-preferential treatment” as an abuse behavior is controversial from 大红鹰dhy0033官网 perspectives of both academic and practitioners. We are looking forward that this issue can be extensively discussed during 大红鹰dhy0033官网 opinion seeking process, and eventually a consensus approach could be formed.

4. Abuse of Intellectual Property Rights

4.1 Introducing 大红鹰dhy0033官网 “innovation (R&D) market” as a relevant market in abuse of intellectual property rights

In antitrust enforcement involving intellectual property rights licensing, 大红鹰dhy0033官网 relevant commodity market can be 大红鹰dhy0033官网 technology market, or 大红鹰dhy0033官网 product market with specific intellectual property rights. Besides, 大红鹰dhy0033官网 Abuse of IPR Draft Regulations introduces a concept of “大红鹰dhy0033官网 innovation (R&D) market”. Meanwhile, it also further clarifies 大红鹰dhy0033官网 definitions of relevant technology market and relevant innovation (R&D) market. 大红鹰dhy0033官网 related technology market refers to 大红鹰dhy0033官网 market composed of a group or a class of technologies with a relatively close substitution relationship, and 大红鹰dhy0033官网 relevant innovation (R&D) market refers to 大红鹰dhy0033官网 market formed by 大红鹰dhy0033官网 competition among undertakings for 大红鹰dhy0033官网 research and development of new technologies or new products in 大红鹰dhy0033官网 future.

4.2 Specifying behaviours of abuse of IP rights

● Behaviours of “tie-in sale” in abuse of IP rights are specified. Specifically, 大红鹰dhy0033官网 Abuse of IPR Draft Regulations proposes to stipulate that a business undertaking with a dominant market position shall not, in 大红鹰dhy0033官网 process of exercising intellectual property rights, without justifiable reasons, force 大红鹰dhy0033官网 licensee to purchase other unnecessary commodities when licensing 大红鹰dhy0033官网 intellectual property, or force 大红鹰dhy0033官网 licensee to accept a package license when licensing intellectual property rights.

● “Sole grant-back” as one of 大红鹰dhy0033官网 “unreasonable restrictive conditions” is added. Specifically, 大红鹰dhy0033官网 Abuse of IP Rights Draft Regulations proposes to stipulate that a business undertaking with a dominant market position shall not, without justifiable reasons require 大红鹰dhy0033官网 counterparty to give a sole grant-back or exclusive grant-back to its improved technology in 大红鹰dhy0033官网 process of exercising intellectual property rights.

4.3 Clarifying monopoly arrangements in 大红鹰dhy0033官网 formulation and implementation of standards and improving regulations on 大红鹰dhy0033官网 abuse of a dominant market position in SEP (Standard Essential Patents)

Clarifying monopoly arrangements in 大红鹰dhy0033官网 formulation and implementation of standards. Specifically, 大红鹰dhy0033官网 Abuse of IPR Draft Regulations proposes to stipulate that in 大红鹰dhy0033官网 process of exercising intellectual property rights, undertakings shall not use 大红鹰dhy0033官网 formulation and implementation of standards to engage in 大红鹰dhy0033官网 following acts to exclude or restrict competition: (i) without justifiable reasons, joining with a business undertaking with a competitive relationship to exclude a specific business undertaking from participating in 大红鹰dhy0033官网 formulation of standards, or excluding a specific business undertaking’s relevant standard technical solutions; (ii) without justifiable reasons, jointly excluding other specific business undertakings from implementing relevant standards with a business undertaking having a competitive relationship; or (iii) agreeing with business undertakings that have a competitive relationship not to implement other competitive standards.

● Improving regulations on 大红鹰dhy0033官网 abuse of a dominant market position in SEP. Specifically, 大红鹰dhy0033官网 Abuse of IPR Draft Regulations proposes to stipulate that a business undertaking with a dominant market position shall not engage in 大红鹰dhy0033官网 following acts in 大红鹰dhy0033官网 process of formulating and implementing standards to exclude or restrict competition: (i) in 大红鹰dhy0033官网 process of participating in standard formulation, deliberately not disclosing its rights information to 大红鹰dhy0033官网 standards development organization, or explicitly giving up its rights, but asserting patent rights against implementers of 大红鹰dhy0033官网 standard involving its patent; (ii) after its patent becomes a standard essential patent, violating 大红鹰dhy0033官网 promise of fair, reasonable and non-discriminatory licensing by licensing it at an unfairly high price, refusing to license without justifiable reasons, tie-in sale of products, implementing differential treatment or imposing other unreasonable restrictions condition; (iii) in 大红鹰dhy0033官网 process of licensing SEPs, breaching 大红鹰dhy0033官网 promise of fair, reasonable and non-discriminatory licensing, and without good faith negotiation procedures, improperly requesting 大红鹰dhy0033官网 court or relevant departments to make or issue judgments, rulings or decisions prohibiting 大红鹰dhy0033官网 use of relevant intellectual property rights, force 大红鹰dhy0033官网 licensee to accept its unfairly high price or other unreasonable restrictions. 大红鹰dhy0033官网 “patent ambush” and “patent hold-up” are explicitly stipulated above, which may help clarify 大红鹰dhy0033官网 boundary between IP rights law and anti-monopoly law. Where IP rights are overused or even abused, it is necessary that 大红鹰dhy0033官网 anti-monopoly law can intervene and regulate relevant abuse behaviours.

* 卢宇轩就本文亦有贡献

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1. Article 2 of 大红鹰dhy0033官网 Merger Review Thresholds Draft Regulations: Concentration of undertakings refers to 大红鹰dhy0033官网 following situations provided by 大红鹰dhy0033官网 AML: (1) Merger of business operators; (2) An operator obtains control over other operators by acquiring equity or assets; (3) An operator obtains control over other operators through contracts or other means or is able to exert decisive influence on other operators.