January 2022 Contest Updates in China and Japan

Greater China

The Active Pharmaceutical Ingredients (API) industry has been at the center of China’s enforcement of its Anti-Monopoly Law (AML). On November 18, 2021, the Antimonopoly Committee of the State Council issued the Antimonopoly Guideline for Active Pharmaceutical Ingredients Industry (Guideline). This guideline is the third industry-specific antimonopoly guideline. following the release of the Anti-Monopoly Guideline for the Platform Economy Industry, released in February 2021, and the Anti-Monopoly Guideline for the Automotive Industry, released in September 2021. The guideline is l culmination of the Anti-Monopoly Bureau’s experience gained from more than a dozen execution cases over the past decade. Highlights of the guideline follow.

Definition of the relevant market.

While acknowledging that substitutability is the cornerstone of defining a relevant market, the guideline proclaims that, in principle, a specific API generally forms an independent product market. If necessary, the directive allows the product market for a specific API to be further divided into production and distribution. The geographic market for an API industry, as the guideline indicates, is typically country specific.

Monopoly agreements prohibited.

The AML prohibits both horizontal and vertical monopoly agreements. The guideline sheds light on some practical issues regarding such prohibited agreements or actions in the API industry. The following acts are specified in the guideline as constituting, in principle, a prohibited horizontal monopoly agreement or action:

(a) API manufacturers enter into joint production, supply, sales and tendering agreements with competitors regarding production volumes, sales volumes, sales prices, customers and sales regions;

(b) API manufacturers’ reporting and coordination of competitively sensitive information, including selling price, production capacity and volume, production plan and sales through third parties (for example, resellers, downstream drug manufacturing companies), trade shows or industry associations;

c) API manufacturers entering into offsetting agreements with competitors in exchange for the competitor not producing or selling certain products;

d) The communication and coordination by API distributors of competitively sensitive information with other distributors on supply volume, suppliers, selling price, sales volume and customers.

Generally, the following agreements or actions are treated as prohibited vertical agreements under the Guideline:

a) Fixing the resale price (including the lowest resale price) through contracts, verbal agreements, written correspondence, e-mails, price adjustment notifications.

(b) Disguised resale price fixing, including the fixing of margins, price discounts and distributor rebates, usually aggravated by the offer of incentives such as additional discounts and the imposition of penalties such as discontinuance of supply.

c) Imposing geographic or customer restrictions on downstream distributors. The guideline further clarifies that geographical and customer restrictions can lead to market segregation, price discrimination, harm to competition in the API market and possible reduction of resellers’ and manufacturers’ access to APIs.

Some rules adopted in the Guideline are different from the guidelines applicable to other industries. For example, in the Antimonopoly Guideline for the Automotive Industry, co-production and joint supply agreements are generally deemed to promote market competition and increase market efficiency and consumer welfare. Conversely, these collaborative agreements are treated as generally prohibited horizontal agreements.

Abuse of dominant market position.

The guideline provides for the consideration of a number of factors to determine market dominance in the API industry including market share, competitive landscape, production capacity and volume, market control , the financial and technical conditions and the dependence of downstream companies. Since proprietary or exclusive distribution is prevalent in the API industry, the guideline further adds that the sales volume of a manufacturer controlled by a distributor should be considered when evaluating the share of distributor market. The guideline also identifies some common types of abusive behavior, including: (1) excessive pricing, including excessive price increases without justifiable reasons; (2) unfairly reject or prohibit transactions, including prohibiting distributors from purchasing from other vendors; (3) tying, including requiring the purchase of excipients or packaging materials with the API, (4) imposing unfair terms on transactions, including splitting the counterparty’s margin or requiring the counterparty to paying an excessive deposit for the transaction, and (5) discriminatory behavior, including discriminatory pricing.

Japan

JFTC closes Rakuten investigation.

On December 6, the Japan Fair Trade Commission (JFTC) announced that it had closed its investigation into Japanese computer giant Rakuten.

In 2019, Rakuten notified store operators on its e-commerce site that it would uniformly introduce a “paid shipping line” from March 2020. In February 2020, the JFTC filed a petition with the District Court of Tokyo for an emergency cease-and-desist order under the Antimonopoly Law, requesting a temporary halt to Rakuten’s uniform introduction of the free shipping line. In response, Rakuten announced that it would take action to exclude store operators from applying the free shipping line at the operator’s discretion, and then established a procedure for operators to apply for an exemption. The JFTC withdrew the petition but continued to investigate whether there had been violations of the antimonopoly law. The JFTC reviewed the corrective actions implemented by Rakuten, concluded that they resolved the above suspicions, and terminated the investigation.

The JFTC is closing its investigation into an online funeral service provider.

On December 2, 2021, the JFTC closed its investigation into an online funeral service provider because the provider voluntarily abolished its unfair business practice that violated antimonopoly law.

The online funeral service provider receives funeral requests via its website from consumers; these requests are forwarded to funeral operators – who organize the funeral – under contracts with the service provider. In June 2018, the supplier introduced the “Special Member Contract Scheme”, under which funeral operators wishing to enter into a special contract with the supplier were required to approach the supplier stating that they would comply with the ban transactions with other online funeral operators. Under this system, funeral operators paid a lower fee to the provider.

©2022 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume XII, Number 15

Comments are closed.