On 15 January 2010, the Anti-Monopoly Bureau of the Ministry of Commerce of China (MOFCOM) issued its interpretations (the Interpretations) regarding two rules that MOFCOM promulgated on 27 November 2009 regarding antitrust notifications (the Notification and Examination Measures). These rules are the Measures for Notification of Concentration of Business Operators (Notification Measures) and the Measures for Examination of Concentration of Business Operators (Examination Measures), about which MWE China Law Offices issued a newsletter on 18 December 2009. Click here for the newsletter.
In the Interpretations, MOFCOM sheds light on certain issues, including the meaning and calculation of “turnover”, the connection between the Notification and Examination Measures and other regulations, and whether or not a representative office of a non-Chinese law firm may submit to MOFCOM an antitrust report as an agent of the concerned filing party. The following provides specific details of the Interpretations.
Legislative Basis and Enforcement Agency of the Notification and Examination Measures
According to the Interpretations, the Notification and Examination Measures are departmental rules issued by MOFCOM, and their legislative basis includes the Anti-Monopoly Law (AML) and the Provisions of the State Council on the Threshold of Notification of Concentration of Business Operators. MOFCOM is the enforcement agency of the Notification and Examination Measures.
Turnover: Meaning and Calculation Method
Significantly, turnover is the basis for judging whether or not a concentration of business operators is subject to notification. The Notification Measures make reference to relevant provisions of other countries’ anti-monopoly laws and, in Article 4, specify the scope of turnover and the “turnover obtained within the territory of China”. Turnover includes the revenue for the previous fiscal year that the concerned business operators obtain from the sale of products and the supply of services minus various taxes and surcharges. “Within the territory of China” means that the location of the purchaser of the products or services provided by a business operator is within the territory of China.
Article 5 of the Notification Measures specifies the range for calculating the turnover of each business operator participating in the concentration, and expressly prescribes that the turnover arising between the controlling business operator and the controlled shall be excluded. In addition, if any business operators participating in the concentration jointly control another business operator (or operators), or if a business operator participating in the concentration and a business operator that does not participate in the concentration jointly control another business operator, the turnover of such business operator participating in the concentration shall include the turnover between the controlled business operator and the turnover of the third-party business operator, which shall be calculated only once.
Article 6 of the Notification Measures is an exception provision pertaining to the aggregate turnover of all business operators participating in the concentration. More specifically, if any business operators participating in the concentration jointly control another business operator (or operators), the aggregate turnover of all business operators participating in the concentration shall exclude the turnover arising between the business operator(s) being jointly controlled and any business operator(s) as the controlling business operator(s) who participates in the concentration; or, shall exclude the turnover arising between the business operator(s) being jointly controlled and any other business operator that has (or any other business operators that have) a controlling relationship with the aforementioned controlling business operator(s).
Article 7 of the Notification Measures specifies the conditions for the acquisition of one operator or part of several business operators. First, in calculating the turnover of the seller, only the turnover related to the concentration shall be calculated. Second, to prevent a business operator from circumventing its notification obligation through multiple transactions, consecutive concentrations between the same business operators conducted within two years—each of which does not reach the notification threshold—shall be deemed as one concentration transaction, and the relevant turnover shall be accumulated based on the aggregated turnover of the several transactions.
Notification Party and Notification Agency
According to the Notification Measures, when a notification applicant has acquired control or is able to exert a decisive influence, other business operators shall cooperate in the notification. The Interpretations provide an example to illustrate this provision: in a hostile acquisition in which the notification applicant may not have information that is required for notification but is held by certain other business operators, such business operators are required to provide cooperation and submit the necessary information to MOFCOM.
If the applicant fails to submit the notification, other participating business operators may do so. The Interpretations explain that this is to prevent the concentration transaction from becoming illegal due to failure of notification, thereby allowing a business operator (or operators) other than the notification applicant to voluntarily submit the notification to MOFCOM.
With respect to the notification agency, the Interpretations emphasize that the representative office of a foreign law firm must abide by regulations governing such offices. According to these regulations, a representative office of a non-Chinese law firm may not engage in Chinese legal affairs, including handling applications and other procedures related to applications submitted to various bodies of the Chinese government. As a notification to MOFCOM falls into the category of an application to the Chinese government and is thus a “Chinese legal affair”, the Interpretations, in essence, exclude a representative office of a foreign law firm from being a qualified notification agency.
Documents, Materials and Requirements for Notification
Article 8 of the Notification Measures provides information regarding pre-notification consultations. Since business operators participating in a concentration may have questions regarding whether or not notification is necessary and the specific details of the notification process, Article 8 prescribes that such business operators may apply for consultation with MOFCOM on issues regarding the notification of concentration and that such application for consultation shall be submitted in written form.
With respect to the requirements for the notification documents and materials, the Notification Measures distinguishes between necessary documents and materials and documents and materials that may be submitted voluntarily. Article 10 of the Notification Measures specifies the required documents and materials, and Article 11 specifies documents and materials that may be submitted voluntarily. The applicant will be deemed as having fulfilled its notification obligation if it has provided the documents and materials prescribed in Article 10.
Requirements for the notification documents and materials are also specified in the Guiding Opinions on Documents and Materials in Notifications of Concentrations of Business Operators previously issued by MOFCOM. Therefore, the Interpretations do not explain this issue in a comprehensive manner. However, it should be noted that the public version submitted by the applicant shall include necessary documents and information so as to enable a third party to make a reasonable judgment on the influence on competition brought by the concentration of business operators.
Verification of Notification Documents and Materials
After receiving the notification materials submitted by the applicant, MOFCOM shall verify the completeness of the notification materials in accordance with Article 10, Article 12 and Article 13 of the Notification Measures. With respect to the time limit for the supplementation of documents and materials, MOFCOM may determine a reasonable period according to the facts of each case.
With respect to acceptance of a notification of the concentration of business operators, the date the case is accepted is deemed as the commencement of the preliminary examination, which is legally binding on, and of great significance to, both MOFCOM and the applicant. If MOFCOM, through its examination, considers that the submitted documents and materials meet the relevant requirements, it shall accept the case and notify the applicant in writing of such acceptance. If the applicant intentionally conceals important circumstances or provides false information, MOFCOM is entitled to refuse to accept the notification.
Voluntary Notification of a Concentration Not Reaching a Threshold
Article 16 of the Notification Measures allows for voluntary notification; that is, the participating business operators may voluntarily file a notification with MOFCOM for a concentration transaction that does not reach the notification threshold. After receiving the voluntary notification, MOFCOM shall firstly determine whether or not it is necessary to establish a case for examination. If it is necessary to do so, MOFCOM shall accept the case for examination according to law.
Since the AML does not provide any requirements regarding the suspension of the implementation of a concentration transaction in a voluntary notification, Article 16 of the Notification Measures prescribes that the participating business operators that file a voluntary notification may, at their sole discretion, decide whether or not to suspend the implementation of the concentration transaction, and that they shall be liable for the corresponding consequences.
Withdrawal of Notification
After MOFCOM accepts a case for the notification of a concentration of business operators, the applicant may require the withdrawal of the notification due to various circumstances. Such circumstances can be summarized into two types: the party obliged to submit notification foregoes the notified concentration transaction and decides not to implement such concentration of business operators; or the concentration transaction will still be implemented, but the notification thereof is withdrawn. Under the first circumstance, the consent of MOFCOM is generally not required as long as a written application is submitted and the reasons are stated; under the second circumstance, which might involve a significant change to the plan of the concentration, making such concentration fall below the notification threshold, the withdrawal of notification is subject to the examination and consent of MOFCOM. As such, Article 3 of the Examination Measures provides that after MOFCOM accepts a case and before it makes a decision on examination, if the applicant requires the withdrawal of the notification of concentration of business operators, it shall submit a written application and state the reasons for the withdrawal. Unless the applicant forgoes the concentration transaction altogether, the withdrawal of notification shall be subject to the consent of MOFCOM.
The consent of MOFCOM to the withdrawal of notification shall not be deemed as an approval to the concentration. The approval of MOFCOM must be obtained prior to the implementation of any concentration of business operators that reaches the notification threshold.
Right of Defense, Opinion Solicitation and Hearings
The right of defense of a business operator participating in concentration is crucial to the objectivity and fairness of the concentration examination procedure. The Examination Measures expressly prescribe the channel, means and procedure through which a business operator participating in a concentration may state its opinion and defend itself. Article 5 of the Examination Measures provides that, during the examination, the business operator(s) participating in the concentration may submit its (their) written statements to MOFCOM by letter, fax or other means in order to defend itself (themselves), and MOFCOM shall listen to the statement and defending arguments of the parties concerned. It is also important for the examination authority to solicit opinions from relevant entities and individuals on the concentration of business operators. As such, Article 6 of the Examination Measures further provides that, during the examination, MOFCOM may, where necessary, solicit opinions from other governmental authorities, industry associations, business operators, consumers, and other entities or individuals.
A hearing is important for protecting the rights of each party. The Examination Measures expressly specify the organization and implementation procedure of a hearing, the parties attending the hearing, separate hearings and other relevant issues. Parties attending the hearing may vary and may include the business operators participating in the concentration and their competitors, upstream and downstream enterprises and other related enterprises, relevant experts, representatives of industry associations, relevant government authorities and consumer representatives. However, not every hearing may involve all the above-listed parties. MOFCOM may require only representatives of certain relevant parties to attend the hearing, based on the specific case. In accordance with Article 8 of the Examination Measures, the hearing does not have argument procedures.
Objections and Restrictive Conditions
During further examination, the examination authority may raise objections to the concentration of business operators which may result or has resulted in eliminating or restricting competition, which is a common practice in the United States and Europe. Simultaneously, business operators participating in the concentration may propose restrictive conditions that may eliminate or reduce the adverse impact of the concentration on competition, thereby making the concentration transaction pass the examination of the examination authority. The Examination Measures describes the raising of objections, types of restrictive conditions, requirements on restrictive conditions, and the proposal and modification of restrictive conditions respectively. The reasonable period within which business operators may defend themselves as prescribed in Paragraph 1, Article 10 of the Examination Measures is subject to the specific circumstances of each case. However, the proposal of restrictive conditions by business operators is not conditional upon the objection raised by MOFCOM. Article 11 of the Examination Measures provides that, during the examination of MOFCOM, all participating business operators may propose restrictive conditions to adjust the proposal of the concentration transaction.
Further Examination Decisions and Their Supervision and Implementation
There are three types of further examination decisions: the decision to prohibit a concentration, the decision not to prohibit a concentration, and the decision to approve a concentration with restrictive conditions. With respect to the decision to approve a concentration with restrictive conditions, many foreign countries have established a comprehensive supervision and implementation system. In accordance with relevant provisions of the AML of China and through learning from the experience of other countries, the Examination Measures specifies the types of further examination decisions, the making, notification and announcement of examination decisions, and the implementation and supervision of examination decisions with restrictive conditions. With respect to Paragraph 2, Article 15 of the Examination Measures, restrictive conditions are the obligations that a business operator participating in a concentration shall perform. Participating business operators that fail to perform such obligations are in violation of the AML, and are subject to sanctions in accordance with relevant provisions of the AML.
Confidentiality
Confidentiality is a paramount issue in the notification of a concentration of business operators which is in connection with the material business interests of a business operator participating in the concentration. The confidential information may even involve national secrets and other national interests. As such, both of the Notification and Examination Measures specify the confidentiality obligation, requiring all parties concerned to keep in confidence the confidential information they obtain.
Conflicts Between The Notification and Examination Measures And Other Regulations
The Notification and Examination Measures are the departmental rules issued by MOFCOM, while the Flowchart of Anti-Monopoly Notification of the Concentration of Business Operators, the Guiding Opinions on Notification of the Concentration of Business Operators, and the Guiding Opinions on Documents and Materials in Notification of the Concentration of Business Operators are all guiding opinions. In the event that the Notification and Examination Measures are in conflict with the foregoing guiding opinions, the Notification and Examination Measures shall prevail.
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