table of contents
1. Main types of monopoly agreements
2. Exemption from monopoly agreements
(1) Exemption from horizontal monopoly agreements
(2) Exemption from vertical monopoly agreements
3. The key to activating the anti-monopoly exemption clause
(1) Clarify the requirements for the application of exemption clauses
(2) Further improve the mechanism for exemption from liability
Article 20 of the Anti-Monopoly Law establishes an exemption system for monopoly agreements, and as an important part of the Anti-Monopoly Law, this provision has a far-reaching impact on the realization of the legislative purpose of the Anti-Monopoly Law. It not only helps to stabilize the reasonable expectations of business operators and clarify the legitimacy of business behaviors, but also further promotes the optimization of the business environment. The antitrust exemption allows conduct in specific fields or situations to exclude the illegality and liability of the antitrust law, and its core is to evaluate the competitive effect of monopolistic behavior. Exemptions may be granted if the positive effects significantly outweigh the negative impacts, and there is evidence that the undertaking entered into an agreement that does not materially restrict competition in the relevant market and can share the competitive benefits of the act with consumers. However, in practice, due to the overly principled provisions of this exemption clause, there are still deficiencies such as unclear identification criteria, unclear application conditions, and vague application procedures, which make this provision fail to be well implemented in practice and weaken its due value.
1. Main types of monopoly agreements
Monopoly agreements are one of the monopolistic behaviors expressly prohibited by the anti-monopoly laws of various countries, and the legal regulation of monopoly agreements is one of the three pillars of the substantive system of anti-monopoly laws. A monopoly agreement, also known as an exclusive agreement or an exclusive agreement, refers to a monopolistic act that is jointly implemented by multiple independent business operators through agreements, decisions or concerted acts to eliminate or restrict competition.
According to the current Anti-Monopoly Law of the People's Republic of China, there are mainly the following types of monopoly agreements: horizontal monopoly agreements, vertical monopoly agreements, and acts of "organizing or helping" other business operators to enter into monopoly agreements.
The first is horizontal monopoly agreement, also known as cartel behavior, which involves an agreement, decision or concerted act reached by a business operator with a competitive relationship in the same industry to restrict or eliminate healthy market competition through express or implicit acts, such as actively promoting, directly expressing intent, and conforming to market trading rules and customs. Its market effect is mainly through the formation of market intervention forces through means such as fixing prices, limiting quantities, and segmenting the market.
The second type is vertical monopoly agreement, also known as vertical agreement or vertical restriction agreement, which refers to two or more business operators in the same industry who are in different links of the upstream and downstream of the industry and have a buying and selling relationship, and the purpose is to eliminate and restrict competition by agreement, agreement or other means to obtain certain benefits. Among them, the "upstream operator" is the operator of the previous business stage, and the "downstream operator" is the transaction counterparty of the later stage.
The third is to organize or help "other business operators to reach a monopoly agreement, which is theoretically called a hub-and-spoke agreement." It has the characteristics of both horizontal and vertical monopoly agreements. Article 19 of the Anti-Monopoly Law, as amended in 2022, explicitly includes the act of "organizing or assisting" other business operators to enter into monopoly agreements within the scope of anti-monopoly regulations, and such agreements are often referred to as "hub-and-spoke agreements" in theory. However, the concept of hub-and-spoke agreement has not yet been uniformly defined, nor is it explicitly stipulated in mainland law, and is only described in some cases and academic literature.
Generally speaking, hub-and-spoke agreements usually occur between competing horizontal operators and upstream (downstream) suppliers. In such an agreement, the "axis" represents the upstream or downstream enterprise that occupies the core position, while the "spoke" represents the competitor in the horizontal conspiracy. The axe operator and the upstream or downstream multiple rim operators respectively reach a parallel vertical agreement, and the rim operators reach a horizontal collusion through the organization and coordination of the central axis operator, so as to achieve the purpose of eliminating or restricting competition under the joint action of the axe operator and the rim operator. There is both a vertical relationship, i.e., an "explicit" arrangement between the pivot operator and the rim operator, and a horizontal relationship, i.e., a "dark" collusion between the rim operators, but the hub-and-spoke agreement is still essentially a horizontal monopoly agreement between the rim operators, and the basic conditions for a horizontal monopoly agreement can be applied to the identification and exemption of illegality.
In practice, although the anti-monopoly law enforcement agencies and the courts have different standards for determining the illegality of monopoly agreements, there are two points of consensus. First, a monopoly agreement prohibited by the Anti-Monopoly Law must have the effect of eliminating or restricting competition, otherwise there is no need to prohibit it. If the agreement does not actually have the effect of eliminating or restricting competition under the Anti-Monopoly Law, it is not within the scope of the Anti-Monopoly Law. Second, the harmful effect of a monopoly agreement includes both actual and potential damage, as long as an agreement has the "possibility of restricting competition", it meets the effect standard, and it is not necessary to wait for the actual damage to occur before taking prohibitive measures.
2. Exemption from monopoly agreements
Of course, for all types of monopoly agreements mentioned above, including those presumed to be prohibited, parties are allowed to raise exemption defenses under Article 20 of the Anti-Monopoly Law.
➤ (1) Exemption from horizontal monopoly agreements
In assessing the positive effects of an agreement, courts and parties may sometimes choose not to apply the waiver clause, which limits the effectiveness of the waiver clause. Directly assessing the effects of an agreement without considering the exemption clause may be problematic in the application of the law. When applying the exemption clause, with regard to the allocation of the burden of proof, once the formal requirements of a horizontal monopoly agreement are reached, it will generally have the actual or potential effect of eliminating or restricting competition, and it can be presumed that it has the effect of eliminating or restricting competition. Therefore, the defendant bears the burden of proof to prove that the agreement does not have the effect of eliminating or restricting competition.
If a business operator wishes to claim an exemption under the exemption provisions of the Anti-Monopoly Law, it must prove the following three key facts: first, the relevant agreement meets one of the statutory circumstances stipulated in Article 20 of the Anti-Monopoly Law; second, the agreement is necessary to achieve one of the statutory circumstances and will not seriously restrict competition in the relevant market; Thirdly, the agreement enables consumers to share in the benefits arising therefrom. With respect to the above three important facts, the undertaking shall provide sufficient evidence to prove that the relevant agreement has a positive competitive effect or economic and social effect as referred to in one of the statutory circumstances, and the effect is concrete and realistic, and is not based on general speculation or abstract presumption.
➤ (ii) Exemption from vertical monopoly agreements
Since the parties to vertical agreements are generally non-competitive business operators with each other, and their respective interests and demands are different, such agreements often only inhibit intra-brand competition, but do not have a direct impact on the competition between brands, that is, they cannot eliminate or restrict the competitive behavior of other business operators in the relevant market, so the anti-competitive effect on the competition in the relevant market is significantly weaker than that of the horizontal agreement that directly acts on the competition between brands, and it is not easy to have the effect of restricting or eliminating competition in the market, and it is not easy to constitute the Anti-Monopoly Law A monopoly agreement that restricts or excludes competition, as defined.
In view of the fact that the anti-competitive effect of vertical agreements is generally lighter than that of horizontal agreements, the Anti-Monopoly Law requires that vertical monopoly agreements have the actual effect of eliminating or restricting competition. In terms of the burden of proof, the party asserting that the accused agreement constitutes a monopoly agreement needs to prove that the agreement has the effect of eliminating or restricting competition, while the burden of proof to prove that the monopoly agreement has a positive effect should be borne by the party who entered into the agreement.
3. The key to activating the anti-monopoly exemption clause
➤ (1) Clarify the requirements for the application of exemption clauses
There is ambiguity in the identification and handling of monopoly agreements in China. In the European and American anti-monopoly laws, the determination of a monopoly agreement is mainly based on the trade-off between the effect of restricting competition and the effect of promoting competition. Generally speaking, only monopoly agreements with negative net effects are considered illegal, and only a very small number of hardcore cartels directly apply the principle of inherently illegality. However, in mainland judicial practice, the criteria for judging the positive effects of monopoly agreements are not clear, and there is a lack of specific provisions and guidance, resulting in certain difficulties and challenges for courts and anti-monopoly law enforcement agencies in handling cases.
In examining whether a monopoly agreement can be exempted under both US and EU law, it is necessary to prove whether the agreement is "a restriction necessary to achieve its objectives". Article 20 of the Anti-Monopoly Law of the People's Republic of China provides for exemptions from monopoly agreements, which poses challenges to practical application.
In addition, the lack of clear application procedures and review standards is one of the important reasons why it is difficult to implement the exemption from monopoly agreements. In practice, an enterprise or organization needs to submit an application for exemption from a monopoly agreement to the relevant authorities, but there is currently no unified and clear application process for reference. At the same time, the review standards are not specific and clear enough, which makes the review results uncertain and not conducive to the operators to make accurate judgments and decisions.
➤ (2) Further improve the mechanism for exemption from liability
Strengthening the connection between anti-monopoly administrative law enforcement and the judiciary is crucial to creating a fair, stable, transparent and predictable business environment. Anti-monopoly law enforcement agencies and courts at all levels should establish a linkage mechanism to enhance data and information sharing, study the establishment of a linkage mechanism for the notification of case leads and investigation and evidence collection, carry out exchanges on typical cases, provide professional technical support to each other, and jointly promote the formation of a synergy between anti-monopoly administrative law enforcement and civil justice, so as to improve the quality and efficiency of anti-monopoly work.
Establish a review and exemption mechanism for agreement acts, and encourage business operators to consult on agreement acts, so as to avoid potential monopoly agreements that exclude and restrict competition from adversely affecting the market and consumers. Before reaching an agreement, the business operator or industry association may consult with the anti-monopoly law enforcement agency on whether a particular issue is eligible for exemption. After the anti-monopoly law enforcement agency investigates and before making a decision, the undertaking shall be allowed to submit an application for exemption. In the review stage, the anti-monopoly law enforcement agency makes a decision on the basis of the application materials and the national economic policy in accordance with the provisions of the Anti-Monopoly Law.
In addition, enterprises should also establish an internal anti-monopoly compliance department to apply the anti-monopoly exemption system properly, reasonably and efficiently. On April 26, 2024, the Anti-Monopoly and Anti-Unfair Competition Commission of the State Council revised the Anti-Monopoly Compliance Guidelines for Business Operators, which provides a reference for enhancing business operators' awareness of fair competition and improving the level of anti-monopoly compliance management. In order to improve the liability mechanism for the application of the exemption system in practice, enterprises should cooperate with the investigation and review of the anti-monopoly law enforcement agencies, link the internal anti-monopoly compliance management with the exemption application system, and establish an internal anti-monopoly risk assessment system for the whole process before, during and after the event, so as to give full play to the role of the exemption system of the anti-monopoly law.
➤ (3) Refine the evaluation criteria for positive effects
Judicial and law enforcement agencies should be cautious when assessing the positive effects of a monopoly agreement, first of all, the party entering into a monopoly agreement needs to prove that it has substantial economic and commercial benefits for the operation of the relevant market, the efficiency of competition, and the interests and needs of consumers.
Second, it must be ensured that consumers are able to benefit directly or indirectly from the agreement, and that such benefits should be visible or foreseeable, while those that are difficult to foresee or exist only theoretically should not be counted. And it has to be a benefit that consumers are interested in and are willing to pay for it.
Finally, the act of entering into a monopoly agreement must not be replaced by an act that does not have any suspicion of violating the law and does not have the effect of excluding or restricting competition. If an undertaking can achieve all or part of its business objectives through the legal means of non-monopoly agreement, it does not need to achieve its business objectives in a way that is suspected of violating the law. In summary, it is to construct the identification standards and methods of the principle of minimization and substitutability of monopoly agreements.
Author: Chen Bing
编辑：Eleven