The NDRC's antitrust ascendance

Emphasis on antitrust

This enforcement surge reflects China's renewed emphasis on market-oriented economic reforms under President Xi Jinping. The NDRC has strong institutional incentives to be seen pressing competition rules in sectors crucial to average Chinese citizens and long-term economic policy. The NDRC confirmed it is concentrating on the aviation, chemicals, automobile, telecommunications, pharmaceuticals and consumer appliance sectors.

Increased enforcement also reflects growing headcount in the Price Supervision and Antimonopoly Bureau. Moreover, in December 2013 an NDRC official advocated consolidating AML enforcement in a single agency. The NDRC's authority is now limited to price-related violations of the AML rules against monopoly agreements and abuse of dominance, while the State Administration of Industry and Commerce addresses non-price-related infractions and the Ministry of Commerce reviews mergers. Commentators have long derided the distinction between price and non-price elements of anticompetitive conduct and warned of inconsistent enforcement. If politically feasible, creating a single dedicated AML agency (independent of other policy mandates) could mitigate these risks, but it would also impact the overall approach to antitrust enforcement in China.

Concerns about the NDRC's approach have surfaced. In December 2013, the US Trade Representative reported growing concerns about the NDRC's “lack of predictability and transparency”, highlighting reports of pressure “to “cooperate” or “face steep fines” and to discourage engagement of outside legal counsel. Media similarly reported that NDRC officials admonished representatives of major international companies at a meeting in July 2013 to confess violations and forgo representation by counsel if investigated by the NDRC. In December 2013, InterDigital disclosed that it would not participate in a scheduled meeting with NDRC investigators because the NDRC was “unable to guarantee” the safety of the company representatives from arrest or detention. The circumstances are perplexing, and further details have not yet surfaced publicly. The NDRC itself lacks detention and arrest powers, and the AML does not establish criminal penalties (although obstruction of an NDRC investigation might constitute a crime). In any case, this episode echoes growing apprehension about NDRC procedures.

The need for transparency

As NDRC investigations reach novel questions of substantive antitrust law, the NDRC's published decisions provide increasingly vital guidance for AML compliance. Previous rulings, however, offered only sparse findings and analysis. Clear, detailed decisions are even more critical as the NDRC leaps from straightforward cartel and RPM charges to more nuanced theories of IP abuse. In late 2013, Qualcomm and InterDigital both disclosed pending NDRC probes. The NDRC has published no official complaints or notices of the underlying allegations, but one NDRC official described the collection of what he called “substantial” evidence against Qualcomm. Media reports suggest the Qualcomm investigation may aim to determine whether royalty rates for standard-essential patents (SEPs) are unreasonably high, while the InterDigital investigation may focus on the initiation of proceedings before the US International Trade Commission to exclude Chinese imports alleged to infringe its patents.

Policymakers worldwide are grappling with complex challenges at the intersection of IP and competition law, with the licensing and enforcement of standard-essential patents (SEPs) are at the core of many controversies. (Indeed, the US Congress is acting on new legislation curbing litigation by patent assertion entities.) The NDRC has tremendous latitude to tackle these challenges for the benefit of consumers – broad statutory powers, deferential judicial review and a domestic jurisdiction few firms can ignore.

However, controversies surrounding China's enforcement of foreign IP rights and industrial policies aimed at fostering indigenous innovation may cast doubt on the NDRC's objectives as a state planner-and-antitrust authority. Companies may fear that current investigations provide a roadmap for the NDRC to review the fairness of global licensing rates, and then neutralise exclusion orders and injunctions in foreign jurisdictions as a mechanism for circumventing “fair” royalties set in China.

Without more detailed public explanations of the specific factual findings and legal reasoning behind enforcement decisions, it is difficult to decipher the boundaries of lawful competition in China and to refute suspicions that politics or industrial policy might impact enforcement decisions. Recent measures to require online publication of most judicial opinions confirm that greater transparency is administrative processes is possible in China. In the long run, greater transparency would strengthen the NDRC's credibility and stature as a leading competition regulator.