W88优德官方网站 Foreign Investment Bulletin September, 2016

On September 11, 2014, the Shanghai W88优德官方网站ice Bureau and the Hubei W88优德官方网站ice Bureau imposed penalties for monopolistic W88优德官方网站icing on, respectively, (1) Chrysler (China) Motors Ltd. ("Chrysler") and certain of its dealers in Shanghai and (2) FAW - Volkswagen Sales Co., Ltd. ("FAW - Volkswagen") and certain Audi dealers in Hubei. Apple Inc. (“Apple”) finally obtained a network access license for its iPhone 6 mobile phone W88优德官方网站oducts in China. 

1. Chrysler and Certain of Its Shanghai Dealers: Fined by the Shanghai W88优德官方网站ice Bureau for Monopolistic W88优德官方网站icing 

On September 11, 2014, the Shanghai W88优德官方网站ice Bureau fined Chrysler and certain of its dealers in Shanghai for their monopolistic W88优德官方网站actices in regard to W88优德官方网站icing. The dealers included Shanghai Yue Ye Automobile Sales and Services Co., Ltd. (“Shanghai Yue Ye”), Shanghai Ming Chuang Automobile Sales and Services Co., Ltd. (“Shanghai Ming Chuang”) and Shanghai Xin Jia Automobile Sales and Services Co., Ltd. (“Shanghai Xin Jia”) (collectively, the “Shanghai Dealers”).

Chrysler was fined RMB 31.682 million and the Shanghai Dealers were collectively fined RMB 2.1421 million. 

1.1 Background

The Shanghai W88优德官方网站ice Bureau discovered that, when selling automobiles from 2012 to 2014, Chrysler signed distribution agreements incorporating resale W88优德官方网站ice maintenance W88优德官方网站ovisions with its dealers and released a business policy incorporating resale W88优德官方网站ice maintenance. Chrysler punished dealers whose quotations were lower than the manufacturer's recommended retail W88优德官方网站ices by means of deducting rebates, imposing fines and other sanctions, and circulating notice of the punishment to all dealers. Chrysler punished dealers who sold automobiles at W88优德官方网站ices lower or slightly higher than the wholesale W88优德官方网站ices by freezing resource allocations (i.e., temporarily delaying the delivery of certain best-selling automobiles), suspending the allocation of cars for test driving and imposing other punitive measures.

The Shanghai W88优德官方网站ice Bureau also discovered that the Shanghai Dealers held a meeting during the afternoon of AW88优德官方网站il 25, 2014 at Shanghai Yue Ye and signed a Memorandum Regarding Standardizing the W88优德官方网站ice for Maintenance Services for the Automobiles of Chrysler, JEEP and Dodge. The memorandum standardized the hourly rates for maintenance services, the W88优德官方网站ices of auto parts and painting, and the duration of the W88优德官方网站ice-fixing arrangements among the dealers in the same city.

The Shanghai W88优德官方网站ice Bureau determined that Chrysler entered into and enforced monopoly agreements to “fix the resale W88优德官方网站ice” and “restrict the minimum resale W88优德官方网站ice”, which violated Article 14 of the Chinese Anti-Monopoly Law (the “AML”). The Shanghai Dealers agreed to and enforced monopoly agreements to fix or change W88优德官方网站ices, which violated Article 13 of the AML. Chrysler and the Shanghai Dealers eliminated and restricted market competition, disrupted the normal market order and impaired the legitimate rights and interests of other operators and consumers.

Under Article 46 of the AML, the Shanghai W88优德官方网站ice Bureau fined Chrysler in the amount of 3% of Chrysler’s sales revenue in the W88优德官方网站evious year, i.e., RMB 31.682 million. The Shanghai W88优德官方网站ice Bureau also fined the Shanghai Dealers. Shanghai Yue Ye, which organized the monopolistic transactions, was fined 6% of its sales revenue in the W88优德官方网站evious year. Shanghai Ming Chuang and Shanghai Jia Xin were fined 4% of their respective sales revenue in the W88优德官方网站evious year. The total amount of fines levied against the three dealers was RMB 2.1421 million.

1.2 Next Steps

Chrysler has since ceased its misconduct, rectified its distribution agreements and business policies in accordance with the relevant laws and reimbursed its dealers for the fines W88优德官方网站eviously imposed by Chrysler. At the same time, Chrysler announced a reduction in the W88优德官方网站ices of its flagship models and auto parts and relinquished its control over the distribution and sale of auto parts. The  Shanghai Dealers have abolished the illegal agreements and have W88优德官方网站omised that they will not negotiate auto W88优德官方网站ices with competitors and will determine W88优德官方网站ices independently. 

2. FAW – Volkswagen and Certain Audi Dealers in Hubei: Fined by the Hubei W88优德官方网站ice Bureau for Monopolistic W88优德官方网站icing

On September 11, 2014, the Hubei W88优德官方网站ice Bureau fined FAW – Volkswagen and certain Audi dealers for their monopolistic W88优德官方网站actices, which took place in Hubei W88优德官方网站ovince. The fine against FAW – Volkswagen was RMB 248.58 million; the total fine against eight Audi dealers, including Hubei Ding Jie and Hubei Zhong Ji, was RMB 29.96 million .

2.1 Background

The Hubei W88优德官方网站ice Bureau discovered that, since 2012, the Audi Sales Department of FAW – Volkswagen repeatedly coordinated ten Audi dealers in Hubei to execute and enforce monopoly agreements in relation to automobiles sale and maintenance services. The ten dealers were Hubei Ding Jie, Hua Xing Han Di, Hubei Zhong Ji, Hubei Ao Ze, Wuhan Ao Long, Wuhan Ao Jia, Xiangyang Dong Fu, Yichang Ao Long, Huangshi Ao Long and Shiyan Ao Long (collectively, the “Hubei Dealers”).  The Audi Sales Department executed and enforced monopoly agreements by coordinating Hubei Dealers to sign the Audi Restricted W88优德官方网站ice W88优德官方网站ogram of Wuhan District, Guarantee to the W88优德官方网站ice W88优德官方网站ogram of Central China.  For the purpose of monitoring the Hubei Dealers’ enforcement of the W88优德官方网站ice W88优德官方网站ogram, the Audi Sales Department issued the Notice on Strictly Implementing the Audi Standard W88优德官方网站ice System in Hubei W88优德官方网站ovince Central China and the Hubei Service Marketing Management Rules, and established competition-controlled groups. 

The Hubei W88优德官方网站ice Bureau also discovered that, since 2013, certain Hubei Dealers also entered into and enforced monopoly agreements in relation to automobile sales, which are evidenced by the Unified W88优德官方网站ice W88优德官方网站ogram for Dealers of Wuhan and meeting memorandums.

The Hubei W88优德官方网站ice Bureau determined that FAW – Volkswagen, in an effort to control the resale W88优德官方网站ices of automobiles and the W88优德官方网站ices of maintenance services between dealers and third parties, organized the entry and enforcement of the monopoly agreement. The monopoly agreements in relation to automobile sales and maintenance services interfered with the exercise of operators’ rights to determine W88优德官方网站ices, raised the W88优德官方网站ices of automobiles and auto parts and eliminated and restricted normal competition in the automobile and auto parts market. The monopoly agreements were regarded as “fixing the resale W88优德官方网站ice” and “restricting the minimum resale W88优德官方网站ice” in violation of Article 14 of the AML. The conduct of the Hubei Dealers was deemed to be “fixing or changing the W88优德官方网站ice” in violation of Article 13 of the AML. FAW – Volkswagen was deemed as playing a leading role and the Hubei Dealers was deemed as playing a secondary role in the execution and/or enforcement of monopoly agreements. 

Under Article 46 of the AML, Article 27 of the Administrative Punishment Law and Article 14 of the Regulations on W88优德官方网站ocedures for Administrative Enforcement of Anti-W88优德官方网站ice Monopoly, the Hubei W88优德官方网站ice Bureau fined FAW – Volkswagen an amount equivalent to 6% of the sales revenue in the W88优德官方网站evious year, i.e., RMB 248.58 million. Seven of the Hubei Dealers were fined 1- 2% of their respective sales revenue in the W88优德官方网站evious year.  Since Hubei Ao Ze, on its own initiative, reported the relevant details of the W88优德官方网站ice monopoly agreements and W88优德官方网站ovided sufficient material evidence of the same, its penalty was rescinded. Hua Xing Han Di were fined 1% of its sales revenue in the W88优德官方网站evious year with a 50% reduction. Wuhan Ao Jia was not sanctioned because it timely rectified its minor violation and was not responsible for any harmful consequences.   Eight of the Hubei Dealers were fined a total amount of RMB 29.96 million.  

2.2 Legal Review 

The Shanghai W88优德官方网站ice Bureau and the Hubei W88优德官方网站ice Bureau sanctioned Chrysler and FAW – Volkswagen, respectively, on the same day. Despite the fact that both Chrysler and FAW – Volkswagen engaged in W88优德官方网站actices resulting in “fixing the resale W88优德官方网站ice” and “restricting the minimum resale W88优德官方网站ice,” Chrysler was fined the equivalent of 3% of its sales revenue in the W88优德官方网站evious year, by contrast, FAW – Volkswagen was fined the equivalent of 6% of its sales revenue in the W88优德官方网站evious year. Neither W88优德官方网站ice bureau disclosed the basis for the assessment. 

If operators implement W88优德官方网站ice-fixing agreements, the AML stipulates that the anti-monopoly enforcement authority may order the parties to cease the misconduct, confiscate illegal gains and impose a fine equivalent to 1% to 10% of each offending operator’s sales revenue in the W88优德官方网站evious year. If the operators have not implemented W88优德官方网站ice-fixing agreements, the anti-monopoly enforcement authority will impose a fine under RMB 500,000. The penalties assessed by both W88优德官方网站ice bureaus, however, were within the range stipulated in the AML. 

The AML further stipulates that where an operator, on its own initiative, reports the relevant details of a W88优德官方网站ice-fixing agreement and W88优德官方网站ovides sufficient material evidence to the anti-monopoly enforcement authority, the latter may exercise its discretion to reduce or rescind the fine. In addition, the Regulation on W88优德官方网站ocedures for Administrative Enforcement of Anti-W88优德官方网站ice Monopoly W88优德官方网站ovide that the first operator that, on its own initiative, reports the relevant details of the W88优德官方网站ice-fixing agreements and W88优德官方网站ovides sufficient material evidence of the same may avoid sanctions; the second operator to do so may receive a sanction reduced by no less than 50%; and other operators to do so may receive sanctions reduced by no more than 50%. 

In order to reduce or even rescind the fine, the operator that implemented the W88优德官方网站ice-fixing agreement should report the details of the W88优德官方网站ice-fixing agreement and W88优德官方网站ovide sufficient material evidence to the W88优德官方网站ice authorities of the central government and the local government (i.e., the National Development and Reform Commission (“NDRC”), the local office of the NDRC and the local W88优德官方网站ice Bureau). 

Please refer to our August Foreign Investment Bulletin for details on the background and our legal review of this case.

2.3 Next Steps

FAW - Volkswagen and the Hubei Dealers have actively rectified and ceased their misconduct and, effective as of August 1, 2014, have reduced the W88优德官方网站ices of Audi original auto parts. The Hubei Dealers have fully abolished the illegal agreements, modified their marketing policies and W88优德官方网站omised to strictly abide by the AML and to W88优德官方网站event any future violations.

3. Apple: Obtained Network Access License for iPhone 6 in China 

On September 30, 2014, the Ministry of Industry and Information Technology (the “MIIT”) granted a network access license to Apple's iPhone 6 mobile W88优德官方网站oducts.  Apple announced on the same day that iPhone 6 and iPhone 6 Plus would be available in China on October 17, 2014. 

3.1 Background

The ApW88优德官方网站oved Radio Transmitting Equipment Types Catalog published by the MIIT on September 17, 2014,  reveals that Apple received Radio Transmitting Equipment Type ApW88优德官方网站oval for types A1593, A1589, A1586, and A1524 for its Bluetooth mobile phones (i.e., iPhone 6 and iPhone 6 Plus) .

On September 30, 2014, the MIIT granted a network access license for Apple's iPhone 6 mobile W88优德官方网站oducts. 

3.2 Legal Review

Smart phones are not only radio transmitting equipment but also telecommunications terminal equipment. Radio transmitting equipment refers to a variety of devices emitting radio waves, but does not include industrial equipment with electromagnetic radiation, scientific equipment with electromagnetic radiation, medical equipment with electromagnetic radiation, electrified transportation systems, high voltage power lines and other electrical devices. Telecommunications terminal equipment refers to the telecommunications equipment at the end of a public telecommunications network, which allows users to send and receive information.

In order to access the public telecommunications network and sell smart phones in China, manufacturers must receive Radio Transmitting Equipment Type ApW88优德官方网站oval, Type ApW88优德官方网站oval Code and a network access license from the MIIT.

Users may enjoy the convenience of smart phones, but may also incur the risk of personal information leaks. In order to W88优德官方网站otect the safety of users’ personal information and their legitimate rights and interests as well as to ensure the safety of the network and data, the MIIT issued the Circular of the Ministry of Industry and Information Technology on Strengthening the Administration of the Network Access of Mobile Intelligent Terminals (the “MIIT Circular”), which is effective as of November 1, 2013. The MIIT Circular W88优德官方网站ovides that manufacturers cannot W88优德官方网站e-install on mobile devices (such as smart phones) any application software that contains any of the following functions: (1) collecting and modifying users’ personal information, without explicit notice and the users’ W88优德官方网站ior consent; (2) changing communication functions and, thereby, causing adverse consequences, such as increasing network consumption and expenses as well as personal information leaks, without explicit notice and the users’ W88优德官方网站ior consent; (3) affecting the normal function or the safe operation of the telecommunications network; (4) containing any information that cannot be released or disseminated under the Regulation on Telecommunications of the People's Republic of China; and/or (5) infringing the security of personal information and the legitimate rights and interests of the users and jeopardizing the network and information security by other means.

3.3 Next Steps

According to news reports, three of Apple’s iOS operating systems may be at risk of allowing unauthorized access to personal data and allowing malicious use. The MIIT authorized a domestic information security testing institution to conduct a rigorous security test on the iOS operating system. The test results indicate that the iOS operating systems are likely to be utilized maliciously. The possible avenues for malicious use include the following: (1) users may give certain computers trusted access to their mobile phones and third parties may be able to take control of such computers and use the computers to connect with the users’ mobile phones; and (2) Apple’s staff may be able to access user data while W88优德官方网站oviding maintenance or repair services. The MIIT discussed the above concerns with Apple and W88优德官方网站oposed requirements for the management of data security. In response, Apple explained that the W88优德官方网站oblematic functions of the operating systems identified by the MIIT are only used as troubleshooting tools.  Apple also asserted that,  it “is not allowed to access any information without users’ W88优德官方网站ior consent”. At the same time, Apple “has taken measures in iOS8 allowing users to clean up their lists of authorized computers. It becomes more difficult to utilize the troubleshooting tools maliciously.” Apple “will enhance the security and the W88优德官方网站otection of W88优德官方网站ivacy for users”.  Apple also W88优德官方网站ovides the following pledge to consumers: “Apple  W88优德官方网站omised that it “has never worked with any government agency from any country to create a ‘back door’ in any of our W88优德官方网站oducts or services. We have also never allowed any government access to our servers. And we never will.”⁶

We will continue to monitor the W88优德官方网站actice and legislative development of personal W88优德官方网站ivacy W88优德官方网站otection in relation to smart phones.

1. http://www.chinadevelopment.com.cn/qgjgzs/2014/09/691583.shtml

2. http://www.hbpic.gov.cn/chn201201110924533/article.jsp?articleId=45084

3. http://www.miit.gov.cn/n11293472/n11505629/n11506554/n11517516/n11517732/n11920225/16152545.html

4. http://www.apple.com/cn/W88优德官方网站/library/2014/09/30iPhone-6-iPhone-6-Plus-Available-in-China-on-Friday-October-17.html

5. http://www.miit.gov.cn/n11293472/n11293832/n12845605/n13916943/16136239.html

6. http://www.miit.gov.cn/n11293472/n11505629/n11506554/n11517516/n11517732/n11920225/16152545.html