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George Washington University Law School

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Wednesday, September 3, 2008

Antimonopoly proceedings against Microsoft?

Here's an interesting bit of news from Caijing regarding an antimonopoly investigation being opened against Microsoft by the National Development and Reform Commission (NDRC). The investigation was allegedly prompted by a letter from a lawyer who alleged "that Microsoft has used its 70 percent market share to manipulate software prices in China." (Not having seen the petition, I'm not sure whether by "manipulate" it means anything other than "set".)

If the petition does make this allegation, it seems to bear out the fears of American commenters on earlier drafts of the Antimonopoly Law that market share alone (which could be nothing more than the result of being a good competitor), as opposed to specific acts inhibiting competition, might be the basis for sanctions. Art. 17 of the AML prohibits undertakings with dominant market positions from "abusing their dominant market positions" by "selling commodities at unfairly high prices." (禁止具有市场支配地位的经营者从事下列滥用市场支配地位的行为:
    (一)以不公平的高价销售商品...)

I'm attaching below some insightful (slightly edited) comments on this news item by attorney Paul Jones (originally posted on the Chinalaw list):

I have been watching this story unfold for awhile.

I am not yet convinced that this complaint is more than a marketing ploy by the lawyer, and that the letters received (one each so far from the Ministry of Commerce (MOFCOM) and NDRC) are anything more than acknowledgments thanking the lawyer and his firm for the input. The 三定 for all three agencies are now available (NDRC | SAIC | MOFCOM) and it is pretty clear to me that the State Administration of Industry and Commerce (SAIC) is the agency that should have the lead on this, with MOFCOM having the least responsibility. Interestingly MOFCOM was the first to send an acknowledgment letter and SAIC has still not responded.

This story that appeared on Sunday in Legal System Daily (法制日报) suggests that some in China might agree with my concern.

The commentaries in China on the law that I have seen make it very clear that under the AML big is not bad, and that there must be something more. I would be very surprised if the enforcement agencies make that mistake.

While charging unfairly high prices is not an antitrust offence in the U.S. or Canada, it is an offence under Art. 81 of the EU Treaty. The other accusation that I have seen in the Chinese language press is bundling, or integration, which got Microsoft into trouble in both the U.S. and the E.U.

Interestingly, Microsoft China has responded with an interesting defense: it cannot have a dominant market position in software because most of the software copies in China are counterfeit. It is an interesting argument, but I do not think that it is a very astute one in this context. Correctly or incorrectly many Chinese regulators see a connection between the piracy problem and IP abuse. This public rebuttal is like daring the regulators to come and get them (Microsoft).

I think that the more interesting story is that although some 40 regulations and guidelines are waiting to be approved there have been two private actions filed, one in the area of administrative monopoly and the other against a trade association in the insurance industry. Caijing has a good summary of the first case filed, the administrative monopoly case, here.

The interest in the AML in China is very high, in my opinion. My office is littered with Chinese-language articles on the topic, many from the last month. With time we may have a better idea of the effect it might have on the Chinese legal and economic systems.

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