InterDigital Inc (IDCC)

[dndodd]

Tuesday, September 9, 2014
US Chamber of Commerce releases report on (actually, indictment of) Chinese competition law enforcement
By Donald Clarke Share
I just finished reading the U.S. Chamber of Commerce’s indictment of Chinese antitrust enforcement that was made public yesterday. [Text | NY Times story] It’s very well done – quite detailed and terrifically sourced. My congratulations to the anonymous authors for great research.

The main complaint is twofold: First, that what I have called “enforcement” isn’t really enforcement of law as such; it’s more in the nature of case-by-case extortion having very little to do with whether laws were actually violated. After all, if that were the concern, why is the National Development and Reform Commission (which seems to be the main culprit here) warning targets that they had better just do what they’re told and not call in their lawyers? Second, that “enforcement” is biased against foreigners. The report points out that in MOFCOM’s review of mergers, only 7.6% of the transactions reviewed were domestic-to-domestic; a huge number of domestic transactions that should have been reported were not, and MOFCOM was not doing anything to punish the companies that didn’t report. Moreover, all the cases in which MOFCOM had blocked a transaction or imposed conditions on its proceeding involved at least one foreign company. (Hats off to my friends Lester Ross and Kenneth Zhou of WilmerHale’s Beijing office, whose research is responsible for this information.)

The report makes a good case in showing that something more than just inexperience by the regulators or whining by sore-loser foreign companies is going on here. It does that by showing that China is an outlier in three ways. First, many of its practices are unique and not reflected in international practice. Second, the practices that the report complains about are not observed in other countries that also have new antitrust regimes administered by inexperienced officials. Third, China’s regulators have not joined the International Competition Network, the international club of antimonopoly regulators, even though it has joined similar bodies in the areas of banking, insurance, and securities.

I have to say that in a few places the report seems to be reaching a bit in its arguments. For example, the presence in Article 1 of the Antimonopoly Law of language talking about the “healthy development of the socialist market economy” is taken as sinister evidence of the improper integration of industrial policy into competition policy. This kind of language is compatible with just about any economic policy or lack of policy and to my mind is basically just meaningless fluff.

Second, the report suggests that China’s antitrust policy (as actually implemented) violates its WTO obligations. With the caveat that I’m not really a WTO expert, I think this argument is extremely weak. The report simply gets its facts wrong when it says (p. 6) that China made a WTO commitment via the section of the Working Party Report that says, “The representative of China noted that the Government of China encouraged fair competition and was against unfair competition of all kinds.” Not only is that language way too weak and general to support a concrete commitment—it’s not even phrased as a commitment—but it appears in Para. 65 of the Working Party Report, which is not one of the paragraphs incorporated by reference as a commitment in the final Protocol of Accession. It’s the Protocol of Accession as well as all the WTO agreements, and not the Working Party Report, that tells you what China’s commitments are.

The report also notes (in a footnote) the existence of Para. 203 of the Working Party Report, which was incorporated by reference into the Protocol of Accession. That paragraph says, inter alia, “Permission to invest, import licences, quotas and tariff rate quotas would be granted without regard to the existence of competing Chinese domestic suppliers.” To the extent that antitrust policy blocks investment by foreign companies in order to protect Chinese domestic suppliers, then it’s a violation of this commitment. Since this is a stronger argument, it might have been better to highlight it in the text and relegate the much weaker argument about Para. 65 to the footnote.

Finally, the report injects a nice bit of comedy into the subject by showing what happened to the supposedly confidential submissions of InterDigital to the NDRC during the latter’s investigation of the former: they ended up on Chinese television! If you look in the upper right hand corner of the document shown at 0:20 in the clip and in the screen shot below, you can see the characters ???? (confidential document). I don’t think any lawyer working with foreign clients dealing with Chinese regulators believes confidential submissions will really stay confidential and not get leaked to competitors, but we never had this kind of smoking gun before to validate the belief conclusively. Actually, this is not just a smoking gun; we are watching the gun actually being fired. Hats off to the intrepid researcher who found this broadcast and noticed this outrageous and irresponsible leak.

http://lawprofessors.typepad.com/china_law_prof_blog/