Tentative Provisions for the Prohibition of Abuses of Dominant Market Position

 

(Promulgated by the State Administration for Market Regulation on June 26, 2019 and effective as of September 1, 2019.)

 

Order of SAMR No.11

 

Article 1:     These Provisions have been formulated pursuant to the PRC Anti-Monopoly Law in order to prevent and halt the abuse of dominant market position.

Article 2:     The State Administration for Market Regulation (SAMR) is in charge of the anti-monopoly law enforcement work relating to the abuse of dominant market position.

SAMR, in accordance with the second paragraph of Article 10 of the Anti-Monopoly Law, authorizes the administrations for market regulation of the provinces, autonomous regions and municipalities directly under the central government (Provincial-Level AMRs) to be in charge of the anti-monopoly law enforcement work relating to the abuse of dominant market position in their jurisdictions.

For the purposes of these Measures, the term "anti-monopoly law enforcement authority" includes SAMR and Provincial-Level AMRs.

Article 3:     SAMR shall be responsible for investigating and handling the following abuses of dominant market position:

(1)   those that involve more than one province, autonomous region and/or municipality directly under the central government;

(2)   those the facts of which are relatively complex or that have a major impact nationwide; and

(3)   those that SAMR deems require investigation and handling by it directly.

SAMR may designate a Provincial-Level AMR to investigate and handle any of the abuses of dominant market position set forth in the preceding paragraph.

If a Provincial-Level AMR, when investigating and handling an abuse of dominant market position upon authorization, discovers that the same does not fall within its scope of investigation and handling, or that despite the same falling within its scope of investigation and handling, it is necessary for SAMR to investigate and handle the same, it shall report the same to SAMR in a timely manner.

Article 4:     When an anti-monopoly law enforcement authority investigates and handles an abuse of dominant market position, it shall treat all business operators equally.

Article 5:     The term "dominant market position" means a market position wherein a business operator has the capacity to control the price, quantity or other trading conditions of a good or service (hereinafter collectively referred to as "Goods") in the relevant market or has the capacity to hamper or influence the entry into the relevant market by other business operators.

For the purposes of this Article, the term "other trading condition" means a factor, other than the price or quantity of a Good, that has a substantive impact on market trading, including the type of Good, the quality of the Good, payment conditions, payment method, after-sales services, trading choice and technical constraints.

For the purposes of this Article, the phrase "hamper or influence the entry into the relevant market by other business operators", includes circumstances such as precluding other business operators from entering the relevant market, or delaying the entry, in a reasonable period of time, into the relevant market by other business operators, or, despite being able to enter the relevant market, causing the costs for other business operators to enter to increase substantially, making it impossible for them to effectively compete with the existing business operator(s).

Article 6:     Pursuant to Item (1) of Article 18 of the Anti-Monopoly Law, when determining the market share of a business operator in the relevant market, consideration may be given to the ratio for which the business operator's sales turnover, sales volume or other indicator of or for a specific Good, accounts in the relevant market within a specified period of time.

When analyzing the state of competition in the relevant market, consideration may be given to factors such as the state of development of the relevant market, the number of existing competitors and their market shares, the degree to which Goods vary, innovation and technical change, sales and procurement models, and details of potential competitors.

Article 7:     Pursuant to Item (2) of Article 18 of the Anti-Monopoly Law, when determining the capacity of a business operator to control the sales market or raw material procurement market, consideration may be given to factors such as the capacity of the business operator to control the upstream and downstream markets in the industry chain, its capacity to control sales channels or procurement channels, its capacity to influence or decide prices, quantities, the term of contracts or other trading terms, as well as its capacity to take precedence in obtaining raw materials, semi-finished products, parts and components, relevant equipment and other necessary resources required for its production and operations.

Article 8:     Pursuant to Item (3) of Article 18 of the Anti-Monopoly Law, when determining the financial strength and technical conditions of a business operator, consideration may be given to factors such as the scale of the business operator's assets, profitability, financing capabilities, research and development capabilities, technical equipment, technical innovation and application capabilities, and the intellectual property it owns, as well as the means by which and the extent to which its financial strength and technical conditions promote the expansion or consolidation of its business and maintenance of its market position.

Article 9:     Pursuant to Item (4) of Article 18 of the Anti-Monopoly Law, when determining the extent to which other business operators are reliant on the business operator in question in terms of trading, consideration may be given to factors such as the trading relationship, trading volume and the length of time that the other business operators have been trading with the business operator in question, and the degree of difficulty involved in turning to other trading counterparties within a reasonable period of time.

Article 10:     Pursuant to Item (5) of Article 18 of the Anti-Monopoly Law, when determining the degree of difficulty involved in other business operators entering the relevant market, consideration may be given to factors such as the difficulty in accessing the market and securing the necessary resources, the control of the procurement and sales channels, the amount of funds that need to be committed, technical barriers, brand reliance, user switching costs and consumption habits.

Article 11:     When determining whether an internet or other such new economy business operator has a dominant market position pursuant to Article 18 of the Anti-Monopoly Law and Articles 6 to 10 hereof, consideration may be given to factors such as the characteristics of competition in the relevant industry, the business model, the number of users, the network effect, the lock-in effect, technical characteristics, market innovation, the capacity to master and process relevant data, and the business operator's market power in the relevant market.

Article 12:     When determining whether a business operator in the intellectual property field has a dominant market position pursuant to Article 18 of the Anti-Monopoly Law and Articles 6 to 10 hereof, consideration may be given to factors such as the substitutability of the intellectual property, the degree of reliance of the downstream market on the intellectual property to provide the Goods and the capacity of trading counterparties to constrain the business operator.

Article 13:     When determining whether two or more business operators have a dominant market position, consideration shall, in addition to the factors set forth in Articles 6 to 12 hereof, be given to factors such as the market structure, the transparency of the relevant market, the extent to which the relevant Goods are of the same quality and the extent to which the business operators' acts are aligned.

Article 14:     Business operators that have a dominant market position are prohibited from selling Goods at an unfair high price or purchasing Goods at an unfair low price.

When determining an "unfair high price" or "unfair low price", consideration may be given to the following factors:

(1)   whether the sales price or purchase price is markedly higher or markedly lower than the price at which other business operators sell or purchase the same type of Goods or comparable Goods under identical or similar market conditions;

(2)   whether the sales price or purchase price is markedly higher or markedly lower than the price at which the same business operator sells or purchases the Goods in other regions with identical or similar market conditions;

(3)   where costs are essentially stable, whether the sales price is raised or the purchase price is reduced by more than the normal margin;

(4)   whether the margin by which the sales price of the Goods is increased is markedly greater than the extent to which the costs have increased, or whether the margin by which the purchase price of the Goods is reduced is markedly greater than the extent to which the costs of the trading counterparties have decreased; and

(5)   other relevant factors that need to be taken into consideration.

When determining whether market conditions are identical/similar, consideration shall be given to factors such as the sales channels, sales models, the supply and demand situation, the regulatory environment, trading stages, cost structure and trading situation.

Article 15:     Business operators with a dominant market position are prohibited from selling Goods at less than cost price without a legitimate reason.

When determining whether Goods are sold at less than cost price, particular attention shall be paid to whether the price is less than the average variable cost.  The term "average variable cost" means the per unit cost that varies with the changes in the quantity of Goods produced.  Where the freemium model is involved on the internet or other such new economic forms, comprehensive consideration shall be given to the freemium Goods, as well as the relevant premium Goods provided by the business operator and other such matters.

For the purposes of this Article, the term "legitimate reason" includes:

(1)   a price reduction to dispose of fresh/live Goods, seasonal Goods, Goods the shelf life of which is about to expire and overstocked Goods;

(2)   a price reduction to sell Goods for the purpose of repaying debts, changing the line of production or winding up;

(3)   carrying out sales promotion in order to promote a new Good for a reasonable period of time; and

(4)   another reason that can demonstrate the legitimacy of the act.

Article 16:     Business operators with a dominant market position are prohibited from refusing to trade with a trading counterparty by the means set forth below without a legitimate reason:

(1)   substantively cutting down the existing trading volume with the trading counterparty;

(2)   delaying or interrupting existing transactions with the trading counterparty;

(3)   refusing to enter into new transactions with the trading counterparty;

(4)   setting restrictive conditions that make it difficult for the trading counterparty to trade with it; or

(5)   refusing to allow the trading counterparty to use, in its production and operating activities, the business operator's necessary facilities under reasonable conditions.

When determining that a business operator is abusing its dominant market position pursuant to Item (5) of the preceding paragraph, comprehensive consideration shall be given to factors such as the feasibility of using a reasonable outlay to separately invest in and construct or separately develop and construct the facilities in question, the extent to which the trading counterparty is reliant on the facilities in question to effectively conduct its production and operation activities, and the feasibility of the business operator in question providing the facilities in question and the impact that the same would have on its own production and operation activities.

For the purposes of this Article, the term "legitimate reason" includes:

(1)   an inability to trade due to force majeure or other such objective reason;

(2)   the trading counterparty having a poor credit record or its business position having deteriorated, affecting the safety of the transaction;

(3)   trading with the trading counterparty would unduly impair the business operator's interests; or

(4)   another reason that can demonstrate the legitimacy of the act.

Article 17:     Business operators with a dominant market position are prohibited from performing the following restrictive trading acts without a legitimate reason:

(1)   restricting the trading counterparty to trading solely with it;

(2)   restricting the trading counterparty to trading solely with the business operator(s) designated by it; or

(3)   restricting the trading counterparty from trading with specific business operators.

Performance of the foregoing restrictive trading acts may be done directly or, alternatively, in a disguised form by means such as setting the trading conditions.

For the purposes of this Article, the term "legitimate reason" includes:

(1)   it being necessary to satisfy product safety requirements;

(2)   it being necessary to protect intellectual property;

(3)   it being necessary to protect a specific investment made for trading; or

(4)   another reason that can demonstrate the legitimacy of the act.

Article 18:     Business operators with a dominant market position are prohibited from tying the sale of Goods or attaching other unreasonable trading conditions to trading without a legitimate reason:

(1)   bundling or combining different Goods for sale in contravention of trading practice, consumption habits or without regard for their functions;

(2)   attaching unreasonable restrictions on the term of contracts, payment method, means of transport and delivery of the Goods or the means of providing the service;

(3)   attaching unreasonable restrictions to the sales territory for the Goods, the persons to whom the sales are targeted or the after-sales services, etc.;

(4)   when conducting a transaction, attaching unreasonable charges in addition to the price; or

(5)   attaching trading conditions that have no connection to the subject matter of the transaction.

For the purposes of this Article, the term "legitimate reason" includes:

(1)   compliance with legitimate industry practice and trade usage;

(2)   it being necessary to satisfy product safety requirements;

(3)   it being necessary to realize a specific technology; or

(4)   another reason that can demonstrate the legitimacy of the act.

Article 19:     Business operators with a dominant market position are prohibited from subjecting comparable trading counterparties to discriminatory treatment in terms of the trading conditions set forth below without a legitimate reason:

(1)   implementing varying transaction prices, quantities, product types, quality grades;

(2)   implementing varying concessional conditions, such as varying quantity discounts;

(3)   implementing varying payment conditions or delivery methods; or

(4)   implementing varying after-sales service conditions, such as varying guarantee terms and period, maintenance terms and timing, parts and components supply or technical guidance.

The term "comparable" means that there is no distinction between trading counterparties that would substantively affect a transaction in terms of transaction safety, transaction cost, size and capacity, credit status, the transaction stage at which they are found or the length of time during which they have been trading.

For the purposes of this Article, the term "legitimate reason" includes:

(1)   implementing varying trading conditions based on the actual demand of the trading counterparties and in compliance with legitimate trade usage and industry practice;

(2)   concessional activities conducted for a reasonable period of time in respect of the first transaction with a new user; or

(3)   another reason that can demonstrate the legitimacy of the act.

Article 20:     When an anti-monopoly law enforcement authority is determining "unfair" for the purposes of Article 14 or "legitimate reason" for the purposes of Articles 15 to 19 hereof, it shall additionally take into consideration the following factors:

(1)   whether the relevant act is specified in laws or regulations;

(2)   the impact of the relevant act on the public interest;

(3)   the impact of the relevant act on economic operation efficiency and economic development;

(4)   whether the relevant act is necessary for the business operator's normal operations or for it to realize normal returns;

(5)   the impact of the relevant act on the business operator's business development, future investments and innovation; and

(6)   whether the relevant act can enable trading counterparties or consumers to benefit.

Article 21:     When SAMR determines another abuse of dominant market position, the following conditions shall additionally be satisfied:

(1)   the business operator has a dominant market position;

(2)   the business operator has performed an act that eliminates or restricts competition;

(3)   the business operator lacks a legitimate reason for performing the relevant act; and

(4)   the relevant act by the business operator has the effect of eliminating or restricting market competition.

Article 22:     Business operators in the utilities sector, such as water supply, power supply, gas supply, heat supply, telecommunications, cable television, postal services and transport, shall operate in accordance with the law and may not abuse their dominant market position to prejudice the interests of consumers.

Article 23:     An anti-monopoly law enforcement authority shall discover suspected abuses of dominant market position either ex officio or through means such as a tip-off, delegation of a matter by the higher-level authority, transfer by another authority, report by a lower-level authority or voluntary reporting by the business operator.

Article 24:     If a tip-off is made in writing and provides the relevant facts and evidence, the anti-monopoly law enforcement authority shall conduct the necessary investigation.  A written tip-off shall, in general, contain the following information:

(1)   the basic particulars of the person providing the tip;

(2)   the basic particulars of the person that is the subject of the tip;

(3)   relevant facts about, and evidence of, the alleged abuse of dominant market position; and

(4)   whether a tip has been submitted to another administrative authority or a legal action instituted in a people's court in respect of the same facts.

As required for its work, the anti-monopoly law enforcement authority may demand that the person providing the tip supplement the tip materials.

Article 25:     Having conducted the necessary investigation of the alleged abuse of dominant market position, the anti-monopoly law enforcement authority shall decide whether or not to open a case.

A Provincial-Level AMR shall, within seven working days from the date of opening a case, report the same to SAMR for the record.

Article 26:     When SAMR is investigating and handling an abuse of dominant market position, it may entrust the conduct of the investigation to the Provincial-Level AMR.

When a Provincial-Level AMR is investigating and handling an abuse of dominant market position, it may entrust the conduct of the investigation to a lower-level administration for market regulation.

The entrusted AMR shall conduct the investigation within the scope of entrustment in the name of the entrusting AMR and may not further entrust the conduct of the investigation to another administrative authority, organization or individual.

Article 27:     When investigating and handling an alleged abuse of dominant market position, the Provincial-Level AMR may, as required, request that the relevant Provincial-Level AMR assist it in its investigation, and the relevant Provincial-Level AMR shall offer its assistance.

Article 28:     Where an anti-monopoly law enforcement authority is to assess administrative penalties for an abuse of dominant market position, it shall prepare a written administrative penalty decision in accordance with the law.

The information on an administrative penalty decision shall include:

(1)   basic particulars such as the business operator's name and address;

(2)   the provenance of the case and the investigation process;

(3)   the facts of the violation and relevant evidence;

(4)   whether the business operator's statements and defense were accepted and the reasons therefor;

(5)   the administrative penalties and the basis thereof;

(6)   the method of, and time limit for, performance of the administrative penalties;

(7)   in the event of dissatisfaction with the administrative penalty decision, the means and time limits for applying for administrative reconsideration or instituting an administrative procedure; and

(8)   the name of the anti-monopoly law enforcement authority that rendered the administrative penalty decision and the date on which such decision was rendered.

Article 29:     A business operator that is suspected of abusing its dominant market position may, during the investigation, submit an application for suspension of the same and undertake to take specific measures to eliminate the impact of its act within the time limit approved by the anti-monopoly law enforcement authority.

An application for suspension of an investigation shall be submitted in writing and signed and stamped by the person in charge of the business operator.  The application shall state the following matters:

(1)   the facts relating to the alleged abuse of dominant market position;

(2)   the specific measures that the business operator undertakes to take to eliminate the consequences of its act;

(3)   the time limit for performance of the undertaking; and

(4)   other matters that need to be undertaken.

Where the anti-monopoly law enforcement authority, after investigation and verification of the alleged abuse of dominant market position, holds the same to constitute an alleged act of abuse of dominant market position, it shall render a handling decision in accordance with the law and will no longer accept an application from the business operator for suspension of the investigation.

Article 30:     Based on the application for suspension of the investigation from the business operator being investigated, the anti-monopoly law enforcement authority shall, after taking into consideration specific details such as the nature, duration, consequences and social impact of the act, the measures the business operator has undertaken to take and the anticipated effect thereof, decide whether or not to suspend the investigation.

Article 31:     If the anti-monopoly law enforcement authority decides to suspend the investigation, it shall prepare a written decision to suspend the investigation.

The written decision to suspend the investigation shall state the facts of the alleged abuse of dominant market position by the business operator being investigated, the specific details of the undertaking, the specific measures for eliminating the impact, the time limit for performance of the undertaking, the legal consequences for failure to perform or to completely perform the undertaking, etc.

Article 32:     Where it has decided to suspend the investigation, the anti-monopoly law enforcement authority shall monitor the business operator's performance of its undertaking.

The business operator shall report on the performance of its undertaking in writing to the anti-monopoly law enforcement authority by the specified deadline.

Article 33:     If the anti-monopoly law enforcement authority determines that the business operator has performed its undertaking, it may decide to terminate the investigation and shall prepare a written decision to terminate the investigation.

The written decision to terminate the investigation shall state the facts of the alleged abuse of dominant market position by the business operator being investigated, the specific details of the undertaking, details of the performance of the undertaking, details of the monitoring of the performance, etc.

The anti-monopoly law enforcement authority shall resume the investigation if:

(1)   the business operator fails to perform or fails to completely perform its undertaking;

(2)   a material change in the facts relied upon to render the decision to suspend the investigation occurs; or

(3)   the decision to suspend the investigation is rendered on the basis of incomplete or false information provided by the business operator.

Article 34:     Before a Provincial-Level AMR renders a decision to suspend an investigation, a decision to terminate an investigation or an administrative penalty notice, it shall report the same to SAMR.

After it has served the written decision to suspend the investigation, the written decision to terminate the investigation or the written administrative penalty decision on the business operator being investigated, the Provincial-Level AMR shall report the same to SAMR for the record within seven working days.

Article 35:     Once an anti-monopoly law enforcement authority renders an administrative handling decision, it shall publish the same to the public in accordance with the law.  In the case of an administrative penalty decision, the administrative penalty information shall be announced to the public through the national enterprise integrity information publication system in accordance with the law.

Article 36:     SAMR shall strengthen its guidance and supervision of the investigation and handling by Provincial-Level AMRs of abuses of dominant market position and unify law enforcement standards.

Provincial-Level AMRs shall investigate and handle abuses of dominant market position in strict accordance with relevant SAMR provisions.

Article 37:     Where a business operator abuses its dominant market position, the anti-monopoly law enforcement authority shall order it to cease the illegal act, forfeit the illegal income and impose a fine of not less than 1% and not more than 10% of the previous year's sales turnover.

When determining the specific amount of a fine, the anti-monopoly law enforcement authority shall take into consideration factors such as the nature, seriousness, extent and duration of the illegal act.

Where a business operator abuses its dominant market position because an administrative authority or an organization with public affairs management functions authorized by laws and regulations abuses its administrative power, matters shall be handled in accordance with the preceding paragraph.  If the business operator is able to show that the abuse of dominant market position perpetrated by it occurred due to passive compliance with an administrative order, it may be assessed a light or lighter penalty.

Article 38:     Where these Provisions are silent on the procedure for investigating or penalizing abuses of dominant market position, matters shall be handled in accordance with the Tentative Provisions for Market Regulation Related Administrative Penalty Procedures, with the exception of the provisions on time limits, opening of cases and case jurisdiction.

Where an anti-monopoly law enforcement authority organizes an administrative penalty hearing, matters shall be handled in accordance with the Tentative Measures for Market Regulation Related Administrative Penalty Hearings.

Article 39:     These Provisions shall be effective as of September 1, 2019.  The Provisions for the Prohibition by Administrations for Industry and Commerce of Acts of Abuse of Dominant Market Position promulgated with Order No.54 of the former State Administration for Industry and Commerce on December 31, 2010 shall be repealed simultaneously.