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Chinese Authorities Fine LCD Cartel in First Case Concerning Conduct Outside China

February 12, 2013

On January 4, 2013, the National Development and Reform Commission (NDRC) imposed fines totaling 353 million yuan (US$56.8 million) on two South Korean and four Taiwanese manufacturers (together, the LCD Cartel) of liquid crystal display (LCD) screens, for price fixing. Though NDRC has brought actions against Chinese and foreign-invested companies for domestic price fixing in the past, this is the first such case against an international cartel. Because the price-fixing actions took place prior to the effective date of China's Antimonopoly Law, NDRC based the enforcement action on the 1998 Pricing Law. China's action follows similar actions against members of the LCD Cartel by authorities in the United States and the European Union.

On January 4, 2013, the National Development and Reform Commission (NDRC) reported on its Web site that it had fined six companies a total of 353 million yuan (US$56.8 million) for participating in a cartel to fix prices of liquid crystal display (LCD) screens sold into the Chinese market. NDRC, one of the three Chinese government departments charged with implementation of China's 2008 Antimonopoly Law, is responsible for handling violations of pricing regulations, as well as activities related to pricing that violate the Antimonopoly Law or related legislation such as the 2011 Anti-Price Monopoly Provisions. According to the NDRC report, during the period from 2001 to 2006, representatives of the six companies, LG and Samsung of South Korea and Chimei, AU Optronics, Chunghwa Picture Tubes, and Hannstar of Taiwan, met in Taiwan and South Korea a total of 53 times to exchange information on the worldwide LCD market and to set prices for LCD screens. According to an NDRC spokesman's January 4 comments, during this period, the cost of LCD screens accounted for approximately 80 percent of the total cost of manufacturing color televisions, though this has now decreased to 70 percent.

According to the NDRC spokesman, NDRC brought the action against the LCD Cartel under the 1998 Pricing Law rather than the Antimonopoly Law, because the Antimonopoly Law did not come into effect until 2008, after the activities in question had occurred. The LCD Cartel violated Article 14(1) of the Pricing Law, which covers collusion to manipulate market prices, thereby harming the rights of consumers. The NDRC ordered cartel members to pay penalties totaling nearly 353 million yuan, including (i) 172 million yuan as refunds to Chinese color television manufacturers for the amounts they overpaid because of the cartel's actions, (ii) 36.75 million yuan for cartel members' illegal income, and (iii) a fine of 144 million yuan, all in accordance with Articles 40 and 41 of the Pricing Law. NDRC's spokesman noted that the penalty would have been greater if NDRC had brought the case under the Antimonopoly Law.

As NDRC's spokesman observed, the Chinese action follows earlier actions in the United States, the European Union, and Korea against companies involved in fixing prices of LCD screens, including members of the LCD Cartel. According to a January 4 Associated Press article, U.S. and European regulators imposed penalties of over $3 billion against LCD suppliers, and U.S. courts gave 12 executives prison terms for LCD cartel activities.

The NDRC action raises certain issues concerning NDRC's adherence to the letter of the law:
  • Extraterritorial jurisdiction. According to a January 2013 China Law & Practice article, "NDRC Cracks Down on Anti-competitive Behavior," this is the first case in which NDRC has imposed penalties for conduct outside China. Article 2 of the Antimonopoly Law and Article 2 of the Anti-Price Monopoly Provisions both specifically provide for jurisdiction over monopoly acts that occur outside China, but eliminate or restrict market competition within China. However, as noted above, NDRC based its action on the Pricing Law because the conduct occurred before the effective date of the Antimonopoly Law. Article 2 of the Pricing Law provides that it shall apply to pricing acts carried out inside China. While the Pricing Law does not forbid extraterritorial application, unlike the Antimonopoly Law and the Anti-Price Monopoly Provisions, the Pricing Law does not provide for such extraterritoriality.

  • Statute of Limitations. According to the China Law & Practice article, under China's Administrative Penalty Law, the applicable statute of limitations within which authorities would have needed to take action is two years. However, NDRC brought this action long after the conduct occurred. Though there is some question about when the limitation period begins where the conduct has not been discovered, according to competition lawyer Frank Waha, as quoted in the same article, "At least in other legal systems, when one speaks of a two year limitation period you are talking about a four year maximum period. That is how it would work in other jurisdictions, but the rules are not clear in China."

  • Use of "Corrective Measures." In addition to imposing fines, NDRC ordered the members of the LCD Cartel to take corrective actions, including undertaking to supply Chinese television manufacturers fairly and to supply the same high quality products and opportunity to buy new technology products to all customers, and extending the free warranty period for products sold to Chinese buyers from 18 to 36 months. As a January 7, 2013, commentary by O'Melveny & Myers noted, these corrective measures are similar to those the Ministry of Commerce (MOFCOM) has imposed in merger filing cases under the Antimonopoly Law though, "[w]hereas MOFCOM has adopted regulations governing the enforcement of remedial commitments in the merger context, the NDRC has not published similar measures."

It should become clear in the future whether this case heralds robust enforcement against international price cartels by Chinese regulators. However, the case does raise questions as to the willingness of Chinese authorities to skirt the language of regulations and to impose measures beyond those provided for in regulations, as in the case of the abovementioned corrective measures, when doing so protects Chinese industry.

For a discussion of price-fixing cases involving domestic parties, see page 180 of the Commission's 2011 Annual Report.

Source: -See Summary (2013-01-23 ) | Posted on: 2013-02-12  
 Link directly to this item with: http://www.cecc.gov/pages/virtualAcad/index.phpd?showsingle=185513



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