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April 16, 2014

China’s Antitrust Authority Imposes Fines on Foreign Corporations for the First Time

Recently China’s National Development and Reform Commission (NDRC) imposed an RMB 353 million (USD 56.7 million) penalty against an international price-fixing cartel of LCD manufacturers, the largest the NDRC has ever imposed for antitrust infringement.  The penalty is China’s first enforcement action against an international cartel and sends a strong signal to multinational corporations operating in China that enforcement actions against cartels will not be limited to Chinese entities.

On 4 January 2013, China’s National Development and Reform Commission (NDRC) announced an RMB 353 million (USD 56.7 million) penalty against an international price-fixing cartel of LCD manufacturers.  The penalty is China’s first enforcement action against an international cartel and is also the largest fine the NDRC has ever imposed for antitrust infringement.  The landmark case sends a strong signal to multinational corporations operating in China that enforcement actions against cartels will not be limited to Chinese entities. 

China’s “crackdown” against cartels has now been in effect long enough to be called a “new enforcement reality”.  The NDRC and the State Administration of Industry and Commerce (SAIC) have overseen a rapid increase in enforcement actions in the last two years that have penalized cartels operating across China and in many different industries.  Price-fixing, market allocation and other cartel conduct has resulted in the confiscation of a significant amount of illegal gains as well as the imposition of large fines.  Until now, the largest penalty imposed was RMB 15 million (USD 2.4 million) on 12 cement producers in Liaoning Province that were found to have fixed prices, limited output and divided the market into allocated territories.

The enforcement action that was announced today targeted a group of LCD panel manufacturers that is made up of six prominent global electronics companies.  The LCD panels at the heart of the action are used in a variety of consumer products, most notably computers and televisions.  According to the NDRC’s press release, the manufacturers artificially inflated prices for LCD panels in China from 2001 to 2006 through a series of 53 meetings that took place during that period.  Because of the timeframe of the violations, the enforcement action was brought under the 1998 Price Law, instead of the newer 2008 Anti-Monopoly Law, which may have allowed for more serious penalties.

The record RMB 353 million penalty comprises the confiscation of illegal gains as well as fines imposed by the NDRC.  The total amount of the sanctions was based on the gains illegally obtained by the LCD cartel, which amounted to approximately RMB 208.49 million.  In addition to the return of the illegal gains, the cartel was ordered to pay approximately RMB 144 million in fines.  This considerable penalty by the NDRC is the latest in a series of global actions against the LCD cartel, which has included substantial penalties in the United States, Europe and South Korea.

One significant difference between China’s enforcement action and similar actions around the world was the fate of AU Optronics, one of the six LCD manufacturers.  The Taiwanese company had paid USD 500 million in an action brought by the US Department of Justice, paid part of a USD 571 million class-action settlement in US courts and paid USD 154 million in a related enforcement action in the European Union.  However, in China, after early and significant cooperation with the NDRC, AU Optronics’ fine was reduced to zero and it was only ordered to return the RMB 21.89 million (USD 3.51 million) that it had illegally obtained.

The increase in enforcement, which reached new heights with today’s announcement, sends a clear message to general counsels, compliance officers and operations managers that they can no longer count on the NDRC or SAIC taking a lenient attitude towards multinational corporations.  China’s enforcement bodies are serious about cartel and other anti-competitive activities.  As today’s announcement demonstrates, the NDRC and SAIC now have the resources and confidence to challenge large multinational corporations, and are looking for opportunities to demonstrate their enforcement powers.


Jared Nelson and Sean Pan contributed to this article.

© 2014 McDermott Will & Emery

About the Author

Partner

Frank Schoneveld is a partner in the Brussels office of the international law firm of McDermott Will & Emery and a senior consultant at MWE China Law in Shanghai.  He has advised clients for over 20 years on EU competition law, EU regulatory law, international trade law and more recently China's new Anti-Monopoly Law.

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About the Author

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Sandra DiVarco is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office. Sandy focuses her practice on the representation of hospitals and health systems. She has counseled health care facility and system clients regarding all aspects of health law transactions and health system restructurings. As a registered nurse, Sandy regularly advises clients on the legal aspects of clinical issues and policy/procedure matters. Sandy also has significant experience in assisting clients with regulatory, licensure and accreditation issues,...

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