Targets and the Way of Targeting
学术论文

Targets and the Way of Targeting

Targets and the Way of Targeting: On Chinese Anti-Monopoly Law and the U.S. Experience

 

DONG Hao

 

I. Targets of Chinese Anti-monopoly Law: Why enterprises in a monopoly position should not be the targets of Chinese Anti-monopoly Law? 

 

A. Positive Reason 

Great thinker Jeremy Bentham had distinguished ‘a book of expository jurisprudence’ and ‘a book on the art of legislation’ in the legal discussions.1 This theory can also be applied in our topic.2 Distinct to the common law system, Chinese law tries to achieve a logical self-satisfaction system in a codified document,3 a positive analysis on the text of the first chapter of Chinese Anti-monopoly Law and a comparative illustration of other jurisdictions will still help us clarifying the targets of the current Chinese monopoly policy. So in this part, I will use the positive approach firstly, then, in the next part, the legislative reason will be analyzed. 

 

In United Kingdom, the Fair Trading Act 1973 established an ‘abuse’ system seeks to regulate only those monopolies which are found to be operating against the ‘public interest’.4 Although, according to the definition of "monopoly situation" in sections 6 to 9, an enterprise after a merger reaches 25% of market share may face the investigation,5 this merger would not be prohibited per se unless it is harmful to the public interest.6 To harmonize the UK with EU competition policy, the Competition Act 1998 was promulgated mirroring the content of Articles 81 and 82 of the Treaty of Amsterdam (Formally Articles 85 and 86 of the Treaty of Rome). Along with Enterprise Act 2002, new UK competition law continuously targets on (1) the agreements that may prevent, restrict or distort competition7 and (2) ‘abuse’ of a dominant position.8 

 

The evolution of the United States antitrust law can be another good example: Section 1 of the Sherman Act addresses improperly restrictive agreements while Section 2 examines the creation or misuse of monopoly power through wrongfully exclusionary means. Section 2 does not forbid ‘monopoly’ per se, but instead bars ‘monopolization’, which is abuse the dominant position, and attempts to monopolize. Thus, Section 2 cases focus not on the fact of monopoly alone, but rather on how a monopoly has gained or sustained.9 In other words, the target of American policy is ‘monopolization’. Furthermore, ‘attempt to monopolize’ was clarified to be unlawful in Cellar-Kefauver Act 1950. Comparing with the European policy, which is designed to regulate the exercise of market power once it has been acquired, United States policy is more concerned with monopoly power itself, but it still needs the finding of ‘wrongful’ acquisition of such power. So the conclusion here is clear: neither European system nor that of the United States prohibits monopoly per se.  

 

Similarly, the monopoly position is not prohibited per se in Chinese Anti-monopoly Law. Together with Article 3, Article 1 of the Law explicitly expressed the legislators’ attitude of prohibiting three categories of ‘monopolistic conduct’ rather than ‘monopoly position’. Moreover, concentrating conducts that may lead to monopoly are also permitted unless they have ‘effect of eliminating or restricting competition’10 and the law believes these concentrations may ‘enhance market competition’11 sometime. Furthermore, if an industry is under the controlling of the State-owned economy, and this industry is ‘the lifeline of national economy’, or relating to ‘national security’, or ‘implementing exclusive operation according to law’, the monopoly situation in this industry will be protected by the state unless the consumers’ interests is harmed ‘by taking advantage of the controlling or exclusive dealing position’.12 These provisions in the first chapter of the law constitute the general implication of Chinese anti-monopoly policy at the present days – from the legal (not legislative) positive perspective, they are the legitimacy of the saying ‘this law targets only monopoly conducts but not the enterprises in a monopoly position’.13 

 

B. Legislative Reason 

We shall keep in mind that the targets of competition law was, is, and will be under a course of changing. Consequently, whilst the basic feature of the competition law may be same around the world, merely saying that foreign law dose not targeting the ‘monopoly position’ is not enough to justify the choice of Chinese legislation. In this part, I will list the economic, historical, politic and even ideological reasons on why Chinese Anti-monopoly Law aims on the ‘monopolizing conducts’ rather than ‘monopoly position’. 

 

Firstly, the theory of inevitable natural monopoly justifies some enterprises’ monopoly position. Although some claim that the theory is a flawed rationale for state prohibition of competition,14 the threory is still widely accepted. The core argument of the theory is that natural monopoly will be more efficient than the competition. So it is not unlawful if an enterprise possess the dominant market position within the range of natural monopoly.  

 

Secondly, Chinese economy just stepped out from the highly concentrated planning regime. Contrary to the environment when the antitrust law was promulgated in western states, that is free markets were threaten by the emerging concentration, China is under a transformation from a highly concentrated market to a free market. The stock shares of main state owned enterprises were just distributed into the market two years ago.15 Even if the monopoly position itself is proved evil, a law prohibiting it will be a law denying the fact, which is useless and less efficient. 

 

Thirdly, the instinct of Chinese political regime refrain the possibility of prohibiting monopoly position. When discussing the so-called ‘Economic Constitution’, one shall not forget the formal Constitution. Article 6 of the Constitution of PRC is still naming the public ownership ‘the basis of the socialist economic system’, and Article 7 of the Constitution reminds us that the ‘ownership by the whole people’ is the ‘leading force’ in China. Regardless the economic theory again, if the monopoly position were among the targets of Chinese Anti-monopoly Law, it would be a breach of the Constitution. Moreover, this is not merely a legal issue but also an ideological matter. Under an authoritarian regime,16 Chinese authority has to maintain its legitimacy by ‘representing the most advanced productivity’. 

 

II. The Experience in the US: How to determine whether or not monopoly enterprises are engaging in monopolizing conducts in the US Antitrust law? 

 

This question is
asking ‘how’, so the answer shall be focused on ‘in what way to determine’, but not ‘under what standards to determine’. In other words, the aim of this question is not requiring students repeating the rules settled in the US law on each kind of monopolizing conducts – that is hardly possible to be completed within 2,000 words, but focusing on the objects, principle, regime and the institution that guide, guarantee and aid the judges and lawyers when they are facing a specific case. Based on this understanding, my answer includes three parts: A. the illustration of the basic U.S. definitions which can be comparable with the ‘monopolizing conduct’ in the Chinese context; B. the principles of antitrust law behind each decisions; C. the objects of the determination, which is the tests of specific forms of monopolizing conducts; D. the Subjects of the determination, which are the institutions that can initial an antitrust procedure. 

 

A. the Start Point of the Determination: Definition of Monopolization 

 

Comparing with Chinese anti-monopoly law’s target of ‘monopolizing conduct’, the US feature of the antitrust system is prohibiting ‘monopolization’. Therefore, before describing the US mechanism, we need to review the definition of monopolization, which is the logical starting point of understanding ‘how’ the US antitrust law distinguish the legitimate conducts from the monopolizing conducts. Section 2 of Sherman Act is the core statute on the monopolization, but it did not provide a clear definition. So we have to find it from the case law. In the Grinnell case (1966), the US Supreme Court stated that merely a finding of ‘the possession of monopoly power’ is not enough for the violation of Section 2 unless another essential condition is found also, that is: ‘the willful acquisition or maintenance of the power’.17 

 

(1) Monopoly Power. Monopoly power is merely a premise of finding monopolization, and one shall remember that the pure, lawfully attained monopoly power, such as the monopoly of intellectual property, natural monopoly and monopolies attained ‘as a consequence of a superior product, business acumen, or historic accident’18 are not punishable since ‘the successful competitor … must not be turned upon when he wins.’19 In the Cellopane case, monopoly power was defined as ‘the power to control prices or exclude competition’.20 How to find the existence of monopoly power? The market share of the firm on the relevant market is the most important one, albeit it is not the only aspect of consideration.21 Perhaps influenced by different economic school in different period, other considerations are vague and the only thing that can be sure is: very large market shares will constitute a monopoly power.22  

 

(2) Willful Acquisition or Maintenance of the Power. This term can be divided into two parts that represent two categories of conducts. ‘Willful acquisition’ means the conducts of trying to attain the monopoly power intentionally, and ‘maintenance of the power’ means the abuse of dominant position of the enterprises who had acquired monopoly power. However, simply exercising monopoly power does not satisfy the requirement,23 except the proof of anticompetitive acts such as predatory pricing or other exclusionary conduct is found.24 

 

In summary, neither monopoly power nor gaining and maintaining monopoly necessarily leads to the finding of the monopolization except the conduct is ‘improper’.25 Then the next question is: what is ‘improper’?  

 

B. the Principles Guiding the Determination 

 

I have argued in an essay that the aim of competition legislation may be very different in the history of competition law, legislations and policies aimed to promote and / or encourage some enterprises getting monopoly positions can be found easily.26 Therefore, the answer of ‘what is “improper”’ lies in the goals of the antitrust law. In other words, when one has to determine whether a conduct is unlawful, the goals of the antitrust law are the principles guiding his determination. 

 

The academic discussions on the goals of the antitrust law can be divided into three categories: (1) the view of unitary purpose, created by so-called Chicago School, which argues that the enhancement of consumer welfare is the exclusive goal of antitrust; (2) the view of multiple purposes, which believes that the aims of antitrust law are various; (3) the view of ultimate purpose, which thinks that the multiple purposes can be classified and there is an ultimate goal.27 It is not clear whether Chinese legislation belongs to the second or the third school.28 Similarly, the US statutes did not provide a clear and consistent provision on the goals or principles of the antitrust system,29 so, again, the case law stands in centre of the rules. 

 

Generally, the Supreme Court confirmed that the antitrust legislations were passed for ‘the protection of competition, not competitors’.30 From this point, the next principle is: if a conduct is anticompetitive, it is unlawful, albeit if it is pro-competitive, it is lawful. Logically, the third principle is that the antitrust law aims on the economic efficiency.31 Finally, ‘consumer welfare’, which is consistent with the efficiency perspective, is also regarded as one of the guideline of the antitrust law, though there is no court has adopted this standard.32  

 

C. the Objects of the Determination: the Tests of Monopolizing Conducts 

 

To achieve the above goals, the US court, started in Standard Oil. case,33 developed a mechanism of ‘Rule of Reason’ as, at least at the early years, the supplementary of the per se rule that was literarily regulated in the Sherman Acts. By this mechanism, the ‘reasonable’ business practices are not punishable. In recent cases, the using of rule of reason is generally in an expanding trend.34 Nowadays, the extent of illegal per se rule is expanding, and the more the rule of reason be employed, the more important the above goals because they are the basic rationale for the defendant. I will not repeat the details of finding these conducts but only list the basic features of the monopolizing conducts and the standards of the tests in the following table. 

 

 

          Monopolizing Conducts Tests Statutes Typical Case
          Pricing Fixing Per se Sherman Act Socony-Vacuum Oil35
          Market division Per se for geographic market division Sherman Act Palmer36
          Refusals to deal* Per se for group boycotts; rule of reason for others. Sherman Act Hartford37
          Retail price Maintenance* From Per se to rule of reason Sherman Act Albrecht v. Herald Co.38;

          State Oil Co. v. Khan39
          Non-price vertical restraints* Rule of reason Sherman Act Continental TV Inc. v. GTE Sylvania, Inc.40
          Predatory Pricing* From per se to

          rule of reason, then to lawful.

          		 Clayton Act Standard Oil.41
          Horizontal Mergers From per se to rule of reason; HHI standards Clayton Act Brown Shoe42
          Vertical Mergers From rule of reason to not unlawful Clayton Act  
          Tying Arrangement* Per se but the rule of reason seems to be the tendency Sherman Act Eastman Kodak43
          Price Discrimination* Rule of reason Clayton, amended by Robinson-Patman Act Brooke Group44

 

 

Strictly speaking, the narrow concept of monopolization, which is the ‘abuse of the dominant market power’ should merely include the conducts marked ‘*’ in the table. Comparing with the Chapter Three of Chinese Anti-monopoly Law, in which the ‘rule of reason’ was uniformly used,45 evolutions of the objects of the determination in the United States are more complicated and in details. Nevertheless, whilst Rules in statutes and standards in case decisions may be differ in the different jurisdictions and different periods, the approaches of finding those rules are more important for the development of the Chinese anti-monopoly legal system – this is of my core argument of this part. 

 

D. the Subjects of the Determination: Institutions 

 

Antitrust cases are always complex ones, hence in answering ‘how’ to make the determination in the United States, it is valuable to study the subjects in the antitrust procedures. In the US federal level, four subjects have the right (or power) to initial an antitrust case. First, the Antitrust Division of the Department of Justice may bring either a civil case to prohibit further violations of the law or a criminal case that can result in fines for businesses and jail terms and fines for individuals. Second, the Federal Trade Commission, established in accordance with the Federal Trade Commission Act, can bring civil cases for violations of certain antitrust statutes, but not criminal cases. Third, state attorneys general, in addition to enforcing state antitrust laws, can in certain circumstances bring civil lawsuits under the federal antitrust laws for injunctions against further violations and for damages. Fourth and the most uniquely, a private party that believes some conducts of the monopoly enterprises violated the antitrust law and damaged them may file a civil lawsuit in the federal court by themselves. Before initial the case, these subjects have to determine whether the monopolization has been constituted. So we can say they are, besides the courts, the subjects who have to answer the question on whether the monopolizing conducts has been constituted. Among these subjects, the judges are of course the ultimate man who make the decisions, but one shall remember that the balance in the procedure and the opportunities for each stakeholder to proclaim their own opinion is sometimes of very important for a healthy anti-monopoly regime. 

 

III. Not Ended Conclusion  

Comparing with Sherman Act in 1890, Chinese Anti-monopoly Law is more mature in the goals (by providing a chapter of general principles), conception and the structure. This is a result of studying from the advanced legal system. Besides these, targeting to the monopolizing conducts but not monopoly position, utilizing the per se rule as well as the rule of reason, distinguishing the different kinds of goals and using these goals as the principle in deciding the new cases, establishing a due process and providing opportunities for the different stakeholders, we can continue to study from the antitrust system from the US. However, the different background in the legislation and the regime. Which I had mentioned in the first part of this essay, may affect the development of Chinese competition law. This is perhaps the biggest difficulty in future.

 

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FOOTNOTES

1 Jeremy Bentham, An Introduction to the Principles of Morals and Legislation (London: Printed for W. Pickering, 1828), p. 256.

2 On the one hand, if the question were focused on the implementation of the newly promulgated Anti-monopoly Law of People’s Republic of China (Chinese Anti-monopoly Law hereinafter), the approach of answering it should be a classical expository legal thought (Rechtsdogmatik in German), i.e. interpret the text of Chinese Anti-monopoly Law and other relevant documents, and find out the objects at which was brought negative or prohibitive regulates by the law, then these objects are supposed to be the targets of the anti-monopoly law of China. On the other hand, if the question were focused on a ‘legislative issue’, the answer should be around the rationale of provisions and the aim of current Chinese monopoly policy, i.e. economic, politic, historical, cultural and even ideological reasons on why Chinese Anti-monopoly Law aims on the ‘monopolizing conducts’ rather than ‘monopoly position’.

3 This is actually one of the advantages of the Civil Law System. The United States’ antitrust statutes, on the contrary, did not pay enough attention on illuminating the fundamental purpose of the law. This causes, at least partly, the unstable and vague interpretation of the purpose of the law by the courts in the United States.

4 Tim Frazer, Monopoly, Competition and the Law: The Regulation of Business Activity in Britain, Europe and America (Wheatsheaf Books LTD, 1988), p. 24.

5 See s. 6(1)(a), Fair Trading Act 1973, UK.

6 The conditional acceptance of the merger of Allied-Lyons PLC and Carlsberg A/S is a good example. See (UK) Monopolize and Mergers Commission, Allied-Lyons PLC and Carlsberg A/S: A report on the Proposed Joint Venture (1992), available at http://www.mmc.gov.uk/rep_pub/reports/1992/324alliedlyons.htm.

7 Chapter I of Competition Act 1998, UK.

8 Chapter II of Competition Act 1998, UK.

9 Ernest Gellhorn & William E. Kovacic, Antitrust Law and Economics in A Nutshell (4th ed. West publishing Co., 1994), p. 23.

10 Article 3 (3), Anti-monopoly Law of the People’s Republic of China.

11 Article 5, Anti-monopoly Law of the People’s Republic of China.

12 Article 7, Anti-monopoly Law of the People’s Republic of China.

13 Said by Mr. ZHANG Qiong, Deputy Director of the Legislative Committee of the State Council, in the China’s Anti-Monopoly Legislation Seminar, held at Xiamen International Conference and Exhibition Center. See Shanghai Securities Newspaper, 12 September 2007.

14 DiLorenzo, Thomas J. (1996). The Myth of the Natural Monopoly, The Review of Austrian Economics 9(2); Demetz, Harold. Why Regulate Utilities? 11 Journal of Law and Economics, 55, 65 (Apr., 1968); LI Huai, Zi Ran Long Duan Li Lun Yan Jiu (A Research of the Natural Monopoly Theory), Dongbei U. of Finance and Econmics Press, 2003.

15 See Circular of China Securities Regulatory Commission on Distributing the Measures for the Administration of the Share-trading Reform of Listed Companies, promulgated by China Securities Regulatory Commission, 4 September 2005.

16 See Pierre F. Landry & Yanqi Tong, Disputing the Authoritarian State in China, Prepared for the Stanford University Comparative Politics Workshop, November 14 2005.

17 United States v. Grinnell Corp., 384 U.S. 563 (1966).

18 United States v. Grinnell Corp., 384 U.S. 563 (1966).

19 United States v. Aluminum Co. of America, 148 F. 2d 416 (2d Cir. 1945).

20 United States v. Du Pont & Co., 351 U.S. 377 (1956).

21 John H. Shenefield & Irwin M. Stelzer, The Antitrust Laws: A Primer (Washington D.C.: The AEI Press, 1993), p. 33.

22 In Alcoa case, a share of 90% would be sufficient to constitute monopoly but a 33% share would certainly not be sufficient, see United States v. Aluminum Co. of America, 148 F. 2d 416 (2d Cir. 1945); in Eastman Kodak case (1979), the court found that Kodak’s shares of 95% and 60% to 67% in respective markets had ‘clearly reached the level of a monopoly’, see Berkey Photo, Inc. v. Eastman Kodak Co., 444 U.S. 1093 (1980).

23 Debra J. Pearlstein, Antitrust Law Developments (Fifth ed., American Bar Association, 2002), p. 246.

24 Theodore L. Banks, Distribution Law: Antitrust Principles and Practice (Aspen Publishers, 1995), p. 1-90.

25 John H. Shenefield & Irwin M. Stelzer, The Antitrust Laws: A Primer (The AEI Press, 1993), p. 41.

26 See DONG Hao, Xi Fang Jing Zheng Fa Shi Shu Yao (A Brief Recall of the History of Western Competition Law) Journal of Yunnan University, (2002) Winter Extra Issue, can also be available at: http://www.privatelaw.com.cn/new2004/shtml/20040803-205349.htm.

27 Ding Maozhong, Fan Long Duan Fa Zong Zhi Yan Jiu (A Research to Purposes of the Anti-monopoly Law), Available at: http://article.chinalawinfo.com/article/user/article_display.asp?ArticleID=35152.

28 Six goals of the law was declared in Article 1 of Chinese Antimonopoly Law: (1) preventing and curbing monopolistic conduct; (2) protecting fair market competition; (3) enhancing economic efficiency; (4) maintaining the consumer interests; (5) maintaining the public interests; (6) promoting the healthy development of socialist market economy. See Article 1, Anti-monopoly Law of the People’s Republic of China.

29 For instance, the purposes of Pobinson-Patman Act is under the discussion: some scholar argues that it aimed to protect the small dealers and competitors, notwithstanding some possible costs to society in reduced efficiency (See John H. Shenefield & Irwin M. Stelzer, The Antitrust Laws: A Primer (The AEI Press, 1993), p. 11.), however, in the footnote 2 of the Justice Stevens’ dissenting in the Brook Group Case (1993), he quoted ‘you must remember that the Robinson-Patman Act was designed to protect competition, rather than just competitiors, and their fore, injury to competition does not mean injury to a competitor…’ (See Brook Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993)).

30 Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962), restated in Brook Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).

31 Richard A. Posner, Antitrust Law (University of Chicago Press, 2001), p. 22.

32 William E. Kovacic, The Antitrust Paradox Revisited: Robert Bork and the Transformation of Modern Antitrust Policy, 36 Wayne L. Rev. 1413, 1446-51 (1990).

33 See Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911).

34 For instance, in Continental TV v. GTE Sylvania, 433 U.S. 36 (1977), the court holds that courts should analyze non-price vertical restraints under the Rule of Reason; in State Oil v. Khan, 522 U.S. 3 (1997), the maximum resale price maintenance should also be evaluated under the Rule of Reason.

35 See U. S. v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940).

36 See Palmer v. BRG of Georgia, Inc., 498 U.S. 46 (1990).

37 See Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993).

38 See Albrecht v. Herald Co., 390 U.S. 145 (1968).

39 See State Oil Co. v. Khan, 522 U.S. 3 (1997).

40 See Continental T.V. Inc., et al. v. GTE Sylvania, Inc., 433 U. S. 36 (1977).

41 See Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911).

42 See Brown Shoe Co.v.United States, 370 U.S.294 (1962).

43 See Eastman Kodak v. Image Technical Servs., 504 U.S. 451 (1992).

44 See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).

45 See Article 17 of Chinese Anti-monopoly Law.