Evolving Convergence: Antitrust/Competition Law and Policy/Procedure in the United States, European Union, and China

By Howard W. Fogt Jr., Alan Rutenberg, Max Lin, and Jo Xu, Foley & Lardner LLP

This article is part of our Winter 2009 edition of Legal News: China Quarterly Newsletter, Eye on China.

The goal of antitrust/competition policy and procedure — whether in the United States, the European Union (EU), or the People’s Republic of China (China) — is to promote and foster consumer welfare by regulating market conduct to assure that products and services are available at the lowest prices and best quality and to ensure that product and service innovation facilitates the development and market exploitation of new ideas.

U.S. and EU antitrust/competition laws have been operating for more than 100 years and have served as models for other laws, including the more recently enacted laws and regulations in China. China recently enacted a comprehensive set of anti-monopoly laws and procedures and reorganized its enforcement structure (http://english.people.com.cn/90001/90776/90785/6466798.html). As more and more countries move toward market-based economies and away from centrally planned economies, more competition laws are being enacted. In 1995, there were 40 countries with antitrust/competition laws; in 2009, there are more than 125 countries with these laws and regulations (http://www.internationalcompetitionnetwork.org/).

As this great expansion of antitrust/competition laws was occurring, U.S. and EU laws served as models for these new and evolving competition regimes. They were a source for policy issues and structures as well as benchmarks for resolving issues, articulating best practices, and measuring compliance. In particular, these mature, well-tested, and vigorously enforced laws have served as background context for China’s government as it moved forward in this area.

There are a number of basic kinds of conduct to which U.S., EU, and China antitrust laws are directed in their common goal to foster free and open markets. These laws prohibit generally concerted activities between or among horizontal competitors — price-fixing, bid-rigging, and market division. As well, they regulate certain vertical competitive relationships — distribution, franchising, and, whether explicitly or implicitly, IP licensing. Further, the laws of all three are concerned about and seek to control certain monopolistic unilateral conduct, including the abuse of dominant positions in a relevant market, whether the abusive unilateral conduct is exploitative or exclusionary. In addition, all three competition regimes control and regulate mergers and acquisitions, requiring parties in such transactions caught by the laws’ thresholds: 1) to notify the proposed transactions to the government regulators; 2) to provide information required to evaluate the acquisition; and 3) to postpone consummating the transaction until the time for its evaluation has transpired (http://www.justice.gov/atr/</a>; Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings (EC Merger Regulation) Official Journal L 24, 29.01.2004, p. 1-22; Provisions of the State Council on the Standard for Declaration of Concentration by Business Operators effective on August 1, 2008). Finally, all three legal systems have extraterritorial application. That is to say that international transactions, wherever taking place, can be the subject of scrutiny and control by U.S., EU, and China authorities if the underlying transaction has market-distorting effects in their respective areas (15 U.S.C. § 6A; http://ec.europa.eu/competition/cartels/overview</a>; Article 3, Provisions of the State Council on the Standard for Declaration of Concentration by Business Operators; http://www.gov.cn/zwgk/2008-08/04/content_1063769.htm).

As the antitrust/competition laws of the United States, EU, and China promote important political, economic, and social goals, they are increasingly characterized by strict enforcement. In United States and EU, these laws provide for significant civil and increasingly criminal penalties. In the United States, for example, individuals (including foreign persons) can be imprisoned for up to 10 years and fined up to USD $1 million; corporations can be and are regularly required to pay fines of many millions of dollars (http://www.justice.gov/atr/). In the EU, while the European-level competition regime is civil in character, penalties of more than euro 1 billion have been imposed on companies (www.ec.europa.eu/competition). Moreover, in most of the 27 member states of the European Union, their respective national competition laws contain criminal sanctions. Further, in the United States and increasingly in Europe, private actions are providing another important source of both deterrence and redress of damages suffered. Indeed, in the United States, persons injured by violations of the U.S. antitrust laws can recover triple the amount of actual damages suffered, plus attorneys fees (15 U.S.C. § 15). In China, antitrust laws stipulate administrative fines and civil liabilities. Business operators can have confiscated illegal gains and be subject to the imposition of a fine of 1 percent up to 10 percent of the sales revenue made in the previous year. For those business operators that fail to file compulsory declarations of concentration, they can be fined up to RMB 500,000 (approximately USD $73,000) and subject to other actions necessary to restore the market situation to that existing before the concentration. Different from U.S. practice, no criminal remedy is available in Chinese antitrust/competition laws yet (Chapter VII Legal Liabilities of the China Antitrust Law). Persons injured by violations of the Chinese antitrust laws can only recover their actual loss according to the relevant civil laws.

In the United States and the EU, core priorities of their respective antitrust/competition law regimes are the use and licensing of IP, which is recognized as an important bundle of rights that should permit the owner to exploit fully those rights just as is the case for other forms of property. While one important aspect of IP is the exclusive right to the property, such exclusivity is now widely seen as not conferring, per se, market power on the rights holder. The antitrust/competition law significance of IP rights must be judged in the context of a properly defined relevant market. The United States and the EU both regulate the licensing of IP rights and share similar concerns about certain licensing practices that are deemed illegal per se (U.S. Department of Justice and Federal Trade Commission, Antitrust Enforcement and Intellectual Property Rights (April 2007); Commission Regulation (EC) No. 772/2004 of 27 April 2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements Official Journal L 123, 27.04.2004, p. 11-17; Commission Notice — Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements Official Journal C 101, 27.04.2004, p. 2-42; Article 55 of the China Antitrust Law and Article 5, 8, 9, 10, 14 of China Anti-Unfair Competition Law). Issues of the enforcement of IP rights have risen to the top of the agendas of enforcement authorities in light of issues like reverse settlements alleged to keep generic drugs from the market, patent hold-ups in standard setting contexts that raise issues of unfair exploitive and exclusionary abuses, and discriminatory pricing of IP-based products. However, in China, IP rights are not specifically subject to special treatment under its antitrust law. Chinese IP laws and regulations protect the lawful exercise of the IP rights by right owners. These laws and regulations prohibit the abuse of IP rights when such abuse eliminates or restricts market competition or constitutes unfair competition.

While the antitrust/competition laws and related enforcement regimes in the United States, the EU, and China will always each have unique aspects reflecting their differing histories, cultures and, economies, there are, as discussed above, many similar policies and priorities are found in all three jurisdictions.