NDRC penalises global LCD price cartel

Price Law versus Anti-monopoly Law

In an official press release, the NDRC noted that the penalties were imposed according to the 1997 PRC Price Law (中华人民共和国价格法) rather than the PRC Anti-monopoly Law (中华人民共和国反垄断法) (AML), which took effect in 2008.The NDRC has authority to enforce both laws, which contain overlapping rules. The older Price Law establishes a broad framework for the regulation of prices by the NDRC and it prohibits abnormal pricing practices, like collusion and price manipulation. The AML, drafted as a comprehensive competition statute largely modelled on foreign antitrust rules, prohibits cartels as anticompetitive monopoly agreements. The press release characterises the LCD manufacturers' conduct both as “price monopoly” (using the language of the AML) and as “colluding…to manipulate the market price” (using the language of the Price Law). However, the NDRC relied on the Price Law to impose penalties because the underlying conduct occurred in 2001 to 2006, before the AML took effect.

This may signal the NDRC's intention to rely more on the AML to address future cases. In other recent cases, the NDRC has frequently invoked the Price Law to address cartel activities occurring after the AML took effect. The NDRC's explanation in such a high profile case may signal an intention to rely more heavily on the penalty provisions of the AML in future cases. Indeed, the NDRC expressly warned that the penalties would have been much higher under the AML.

Behavioural remedies

The decision also raises questions about the role of corrective measures in cartel cases. Under the Price Law, administrative remedies for price-fixing include correction of misconduct, disgorgement of illegal profits or warnings in the event of no illegal profits, fines, suspension of business, cancellation of business licences and restitution. Similarly, under the AML, administrative remedies for price include cessation of illegal conduct, disgorgement and fines. Neither law appears to contemplate corrective measures beyond terminating the illegal conduct and restitution.

In the LCD panel case, however, the NDRC announced that the respondents had also proposed a series of prospective corrective measures, committing to;

• comply with PRC laws and safeguard order of market competition;
• use their best efforts to supply goods to Chinese colour television manufacturers in a fair manner; and
• extend the warranty period for the television panel sold by Chinese colour television manufacturers in the domestic market from 18 months to 36 months.

The NDRC statement noted that this extension would alone save Chinese colour TV manufacturers Rmb395 million in repair costs. The nexus between the underlying price-fixing and these specific corrective measures seems attenuated.

Indeed, these corrective measures resemble the kind of broad behavioural remedies designed to benefit Chinese consumers that have appeared in several MOFCOM merger decisions. While MOFCOM has adopted regulations governing the enforcement of remedial commitments in the merger context, the NDRC has not published similar measures.

The NDRC's decision in the LCD price-fixing case and its recently reported decision to penalise two prominent liquor distilleries for resale price maintenance reflect the NDRC's ascendance as an antitrust enforcer. The risks of cartel activity affecting China are neither hypothetical nor trivial. Multinational companies and Chinese companies should factor in the emergence of a meaningful threat of NDRC investigations into their commercial decision making, risk management strategies and compliance programmes.