On December 14, 2020, the State Administration of Market Supervision and Administration issued the punishment decisions of the State Administration of Supervision  No. 26, 27 and No. 28 involving the concentration of operators who fail to declare according to law. Looking at these three cases, the following commonalities are presented: first, they are all equity acquisitions under the control of the agreement (hereinafter referred to as the “VIE” framework); second, the acquirers are all Internet platform enterprises; third, after the evaluation of law enforcement agencies, the acquisition does not have the effect of excluding or restricting competition, and they are all punished by the current Antimonopoly Law No. The maximum penalty in Article 48 is a fine of 500,000 yuan.
This is the first time since the official implementation of anti-monopoly law enforcement on August 1, 2008 that the VIE structure has been punished for failure to declare according to law. It is not uncommon to punish failure to file according to law in antitrust law enforcement, and dozens of cases have been announced so far. This is the first time after 12 years that VIE’s failure to declare according to law has been punished, and the dominant feature of the Internet platform is superimposed. The market has a variety of interpretations and speculations about this. The author combines the research and analysis of relevant problems to express and manage.
I. Centralized anti-monopoly review of agreement control (VIE) operators
Agreement control refers to the legal model of the proposed listed company to indirectly achieve the purpose of listing domestic entities by establishing a listed shell company overseas and setting up a series of contracts and agreement frameworks between them and domestic entities. Agreement control is essentially to use different criteria for determining the same matter from the legal provisions and accounting rules to control the business and finances of domestic operating companies through the complex structure of multi-level agreements, so as to become variable interest entities of overseas holding companies, so as to realize the legal transfer of domestic operating interests abroad, thus Effectively avoid the restrictions on foreign investment access in some industries by domestic laws and regulations, as well as the relevant restrictions on the direct listing of domestic subjects abroad. Accordingly, protocol control usually has the characteristics of complex transaction structure, multi-jurisdictional control, and indirect control through agreement. VIE involves the issue of “control” in the sense of antimonopoly law. Therefore, when enterprises involving the VIE structure meet the declaration standard of operator concentration, they should take the initiative to declare to the anti-monopoly law enforcement agency of the State Council and provide real and complete information for examination. Those who have not declared shall not implement operator concentration shall be implemented. Behavior.
On April 20, 2020, the State Administration of Market Supervision and Administration announced the filing of a simple case involving the VIE architecture, that is, the “Shanghai Mingcha Zhegang Management Consulting Co., Ltd. and Huansheng Information Technology (Shanghai) Co., Ltd.’s new joint venture case”, which is a positive review of the VIE case; and the three The penalty of the case is to explain the anti-monopoly law enforcement on VIE cases that have not been declared according to law.
In the three punishment cases, there are both buyers and buyers who apply the VIE structure. It can be seen that under the jurisprudence of anti-monopoly law, law enforcement agencies are concerned about the changes in the market structure and the impact of competition order that may be caused after concentration, and have no essential relationship with the expression of control relations. Article 19, paragraph 2, of the Antimonopoly Guide in the Field of Platform Economy (Draft for Comments) published to the public by the Market Supervision Administration in 2020 stipulates that “the concentration of operators involving the agreement control (VIE) structure belongs to the scope of centralized antimonopoly review of operators. If the business operator centrally meets the declaration standards set by the State Council, the business operator shall declare to the anti-monopoly law enforcement agency under the State Council in advance. If it fails to declare, concentration shall not be implemented”. It is a reaffirmation and emphasis on the rules for the centralized examination of VIE operators.
II. Anti-monopoly regulation of platform enterprises
It is the legal duty of anti-monopoly law enforcement agencies to punish failure to declare according to law, and also a necessary means to strengthen anti-monopoly law enforcement and administer according to law. According to the author’s statistics, as of December 31, 2019, there were a total of 47 cases of administrative penalties for failure to declare according to law. From 2014 to 2019, the number of public punishment cases increased year by year, and the average fine amount increased year by year (see the table below).
From the perspective of history, the punished enterprises are located in different industries, characteristics and different. The acquirers involved in this case are platform enterprises. This first of all, it shows that no matter the business scale, business model and control mode of the enterprise must comply with market norms and the provisions of the Antimonopoly Law, and the platform enterprises are not exceptional. Outside. Secondly, the three cases also show that objective reasons such as foreign investment supervision or financing rules make it more likely that network platform enterprises adopt VIE architecture than other industries. Finally, the aggregation efficiency of platform enterprises and the rapid expansion of mergers and acquisitions are more likely to cause competitive damage in the market and attract the high attention of law enforcement agencies. At present, the strangling acquisitions that are concerned by theoretical and practical circles at home and abroad are examples.
It should be noted that the competition attention of law enforcement agencies to platform enterprises is not limited to the concentrated areas of operators. The Antimonopoly Guide (Draft for Comments) in the field of platform economy has provisions on monopoly agreements, abuse of market dominance, etc. This penalty for failure to declare according to law can be regarded as a warning and urging for the full compliance of platform enterprises.
III. Top administrative penalties on illegal enterprises
Article 48 of the Antimonopoly Law stipulates that “If a business operator violates the provisions of this Law and implements concentration, the anti-monopoly law enforcement agency under the State Council shall order it to stop the centralized implementation, dispose of equity or assets within a time limit, transfer business within a time limit, and take other necessary measures to restore to the pre-centralization state, and may be fined not more than 500,000 yuan.” The administrative fines in the three cases announced this time are the statutory maximum of 500,000 yuan.
First of all, according to the assessment of law enforcement agencies, the concentration involved in the case does not have the effect of excluding or restricting competition, which is the basic premise for not taking the measures of “restore to the pre-centralization state” for the concentration. Otherwise, regardless of the amount of the fine, the monetary reward of the fine alone cannot make up for or correct the competitive damage.
Secondly, in terms of the fine amount, 500,000 yuan is the maximum amount under the current law, which is the only case that has been punished at the top. From the perspective of administration according to law, it is necessary to punish not only according to law, but also conform to the principle of proportionality. Unlike the administrative penalty rules for other monopoly acts, the centralized punishment for illegal implementation is not based on the turnover of illegal enterprises, but can be fined less than 500,000 yuan. Article 55 of the revised draft of the Antimonopoly Law (Draft for Public Comments) promulgated by the State Administration of Market Supervision and Administration in January 2020 stipulates that the illegal and centralized fine imposed by operators is more than 1% and less than 10% of the sales volume of the previous year, which is not only consistent with the punishment rules for other illegal acts, according to the enterprise operation. The calculation method of the turnover can also effectively deter illegal acts.
The extreme punishment of these three cases reflects the comprehensive elements of law enforcement agencies’ understanding of the nature, extent and duration of the illegal act in the case from one aspect. It is also a deterrent to specific enterprises and a general prevention warning to the market. The three acquisition enterprises are large in size, strong market influence, and frequent centralized transactions. If effective supervision is not achieved, it will lead to drastic changes in the market structure and disorderly competition. In addition, the unique characteristics of dynamic competition, cross-border competition, network effect and so on of the Internet platform economy are extensive and deep, which is related to the competition pattern of the market. From the macro perspective of the market, it is related to industrial concentration and the innovation vitality of enterprises. It is more important to abide by the Antimonopoly Law and maintain free and fair competition in the market. The overall high-quality development of the Internet ecology now.
(Author: Zhang Chenying, associate professor, doctoral supervisor, director of the Competition Law Research Center of Tsinghua University Law School, member of the Expert Advisory Group of the Antimonopoly Committee of the State Council, and vice president of the Commercial Law Research Association of the Chinese Law Society)