Competition law developments in East Asia - January 2016

This month’s editors: Maxime Vanhollebeke, Shan Hu, Pearl Yeung, Serena Gingell, Michael Kim, Sophie Chen, Yui Ota, Lydia Fung and Arthur So.

Below is an excerpt from our monthly Competition Report. More detailed commentary on these issues and other recent competition law developments in the Asian region is to be found in this month’s edition of our report available on a free subscription basis (see further below).

Competition authorities in the region have long applied a high degree of scrutiny over M&A transactions and licensing practices in the technology and life sciences sectors. Intellectual property rights often play a significant role in the competitive process in these sectors.

In the last year, competition authorities closely reviewed licensing practices in several major merger transactions, including NXP’s acquisition of Freescale, Nokia’s acquisition of Alcatel-Lucent, the acquisition of Dupont’s chloroprene rubber business by Denka and Mitsui, and Zimmer’s takeover of Biomet. In some of these transactions authorities required the divestment of assets including intellectual property as a condition of their clearance. In other cases competition authorities required commitments from the parties that they license their patents to third parties on fair, reasonable and non-discriminatory terms. Korea’s Fair Trade Commission required a similar commitment from Microsoft to close its year-long investigation of the acquisition of Nokia’s devices and services businesses.

Several authorities have also investigated the licensing practices of holders of patents that are essential to a technological standard. One of the most acute questions in this respect is whether such a patent holder has market power, and if so, whether it is an abuse of market power to seek injunctions against parties that are alleged to have breached patent rights. In the last months, authorities in China, Japan and Korea have refined their guidance in this respect. All consider that the seeking of injunctive relief can be a form of abuse of market power where the right relates to a standard-essential patent and where the defendant is willing to negotiate licensing terms. While guidelines and implementing rules reflecting this approach have yet to be finalised, these tend to follow the approach adopted by the European Court of Justice in its Huawei/ZTE judgment of July 2015.

On 11 January, MOFCOM’s Antimonopoly Bureau released its quarterly statistics which identified 80 unconditional merger clearances for the last quarter of 2015.  This brings the total number of unconditionally approved transactions to 1,273 cases since the Antimonopoly Law took effect in August 2008.

Although this methodology has no scientific pretence, a review of the names of the participating entities in each case shows that transactions involving foreign firms continue to account for the majority of notified transactions.  By comparison, to a peak of almost 40 per cent during the last quarter, purely domestic mergers fell to 27 per cent for this quarter.  These levels remain much higher than in previous years.  In 2015, purely domestic transactions accounted for one in four merger procedures, compared to an average of around 15 per cent since 2008.

During the quarter, Europe, Japan and US-headquartered businesses continued to make up the majority of foreign companies involved in MOFCOM merger procedures.  The same trend could be observed during the full year, as shown below.  Compared to prior years, the proportion of transactions involving Japanese firms is decreasing slightly.

Transactions approved under the simple cases procedure reached the highest ever proportion of MOFCOM unconditional clearances for the quarter, since the procedure was introduced in 2014:  more than 80 per cent of all unconditional clearances were made under the procedure.

With the knowledge of when public notices are published for each simple case as well as the date of approval available through MOFCOM’s unconditional clearances list, it is possible to establish the duration of the review procedure for these cases.  As with the third quarter of 2015, MOFCOM took an average of 27 days to conclude its review of simple cases (against an average of 30-day duration since the introduction of the procedure in 2014).