Antitrust Guidelines for the Automobile Industry (Solicitation for Opinions) (Mainland China)

James Cheng
On March 23, 2016, the Anti-Monopoly Commission of the State Council promulgated the Solicitation for Opinions on the Anti-monopoly Guidelines for Abuse of Intellectual Property Rights (hereinafter, the “Guidelines”), in which opinions were solicited from the public from February 23, 2016 through April 12, 2016. The automobile industry has been a vital pillar in the national economy, thus the primary objective of the antitrust bodies in promulgating the Guidelines is to protect the benign competition of the automobile industry and promoting its development. The Guidelines are hereby summarized below:

I. General Provisions

The General Provisions first define the terminology before subsequently describing and defining the relevant markets. According to the Guidelines, the relevant market should be defined in accordance with the general principles and methods under the Anti-monopoly Law and the Guidelines of the Anti-monopoly Commission of the State Council on the Definition of Relevant Markets. In addition, the unique features of the automobile industry and the specific circumstances of individual cases should be considered. For example, in defining the after-sale market of automobiles, the brand is an important defining factor.

II. Monopoly Agreement

With respect to monopoly agreements, the basic principle of “prohibited unless in exceptional cases” under the Anti-monopoly Law is followed. The analysis of a horizontal agreement in the automobile industry is basically no different from that in any another industry. Therefore, the regulatory focus of the Guidelines is on vertical agreements.
A party to a vertical agreement whose market share is less than 30% in the relevant market may be determined as having no apparent market power and is thus presumed to be eligible for exemption. However, if there is sufficient evidence to support that its behavior does not meet Article 15 of the Anti-monopoly Law, the antitrust authority may still apply Article 14 of the Anti-monopoly Law to the relevant behavior.

The exemptions in individual cases depend on the following factors for imposing restrictions under a monopoly agreement.

(1) Price restrictions

Article 14 of the Anti-monopoly Law specifically prohibits the restrictions on resale prices and minimum resale prices, which has clear anticompetitive effects. However, the Guidelines put even greater emphasis on the analysis of individual cases. If an operator can substantiate that its price restriction will not seriously restrict competition in the relevant market and can, instead, allow consumers to share the benefits so created, Article 15 of the Anti-monopoly Law will still apply even to a vertical agreement that restricts prices. Common examples include: (1) fixed resale prices and restricted minimum resale prices during a promotional period for automobiles running on new energy; (2) restriction on resale prices for middlemen dealers; (3) resale price restriction in government procurement; and (4) resale price restriction on e- commerce sale of automobile suppliers.

(2) Territorial and price restrictions

If an operator does not have apparent market power, the following four types of acts may be presumed to be exempt: (1) any agreement in which the dealer only conduct their distribution activities on its own business premises, save for passive sales by the dealer; (2) restriction on a dealer engaged in active sales in in an exclusive region or to exclusive customers reserved for another dealer; (3) restriction on a wholesaler’s direct sales to end customers; and (4) restriction on distributors for selling spare parts to certain customers to prevent the possibility of those customers manufacturing equivalent parts manufactured by the automobile maker. In addition, the Guidelines also enumerate the following types which cannot be directly presumed to be eligible for exemption because they usually carry serious anti-competitive effects: (1) restriction on the passive sales of a dealer; (2) restriction on the cross-supply of goods among dealers; (3) restriction on the dealers and maintenance service providers for selling to end customers parts required for maintenance; and (4) agreements other than outsourcing agreements concluded between car makers and equipment suppliers.

(3) After-sale restrictions

These restrictions primarily concern automobile suppliers attempting to edge out independent maintenance/repair shops and requiring customers to go through designated channels for maintenance/repair work. This is primarily embodied by the following types: (1) the automobile supplier conditioning the performance of warranty services by requiring customers to do all out-of-warranty repairs at authorized maintenance and repair networked locations; (2) the automobile supplier conditioning the performance of warranty services by requiring customers to replace all aftermarket parts that fall outside of the scope of warranty with factory parts; (3) forcing distributors to bear advertisement or promotional expenses; (4) limiting distributors and repair shops to only use certain paid services or brands with respect to design, construction, common parts, information management systems as and office facilities; and (5) refusal to supply goods or prematurely terminate a dealership agreement without proper cause.

III. Abuse of dominant market position

Because of the lock-in effect and compatibility considerations, in the automobile industry, it is more common to find abuse of a dominant market position in the aftersales market rather than the new automobile sales market. A car supplier that has no dominant position in the new automobile sales market may still enjoy a dominant market position in the after-sale market.

If a car maker with dominant market position engages in any of the following acts, it is likely to be found to have abused its dominant market position: (1) unjustified requirement for car accessory manufacturers to produce “double branding parts” for parts that initially go into new automobiles; (2) restriction on the dealers or maintenance/repair service providers in sourcing aftermarket parts externally; and (3) restriction on the accessory providers, dealers and maintenance and repair service providers in exporting aftermarket accessories.

The Guidelines also regulate concentration of operators and the abuse of administrative authority to exclude or restrict competition in order to address the issue of car suppliers using “outsourcing agreements” to exclude and restrict competition. The Guidelines specifically defines an “outsourcing agreement” to provide a clear standard for future enforcement by the anti-monopoly authority.