Header graphic for print
Global Media and Communications Watch The International Legal Blog for the Tech, Media and Telecoms Industry
Posted in Policy & Regulation Andy Huang

MOFCOM’s recent actions against technology companies signal increased enforcement of merger control rules

163298411_mainThe technology sector has been a constant focus of the Chinese merger control regime. In fact, the IT sector alone has contributed six of the 26 public decisions imposing remedies or outright prohibitions, among them the recent Microsoft/Nokia, Mediatek/MStar and ARM/Giesecke & Devrient/Gemalto transactions.

In particular, two sanctions handed down on the same day on 2 December 2014 at the end of last year signal that the merger control regulator, the Ministry of Commerce (“MOFCOM”), is taking an increasingly assertive enforcement stance, which, given that the sanctions targeted companies in the technology sector, calls for companies operating in this space to pay closer attention to the PRC’s anti-monopoly regime.

The first was MOFCOM’s imposition of a fine on the state-owned Tsinghua Unigroup Ltd. (“Tsinghua Unigroup”) for failure to notify MOFCOM of its acquisition of RDA Microelectronics Inc.

MOFCOM found that the acquisition had triggered the notification requirements under the Anti-Monopoly Law, but that Tsinghua Unigroup had completed the
acquisition on 18 July 2014 without going through the merger control review process.

In its decision, which is published on its website, MOFCOM indicated that it engaged in its own assessment of the effects on competition resulting from the acquisition. Fortunately for Tsinghua Unigroup, MOFCOM concluded there would not be any anti-competitive impact (had MOFCOM concluded otherwise, one potential consequence could have been unwinding the transaction). Nevertheless, because of the failure to file a notification in the first place, MOFCOM imposed a fine of RMB 300,000 (approximately US$48,000) on Tsinghua Unigroup.

Fines for failure to notify are not unheard of, and MOFCOM is said to have imposed fines for failure to notify transactions in the past, including deals in the
technology sector. However, it has never done so in a published decision.

As early as March 2014, MOFCOM warned that it would start publishing decisions imposing penalties for failure to file in an effort to deter future violations. The published Tsinghua Unigroup case – the first of its kind – marks the first time MOFCOM made good on this threat.

The second was MOFCOM’s sanctioning of Western Digital, a US technology company, for breaches of hold-separate commitments made in relation to the
company’s acquisition of Hitachi’s hard disk drive business, a transaction cleared conditionally by MOFCOM in March 2012.

These two developments illustrate that technology companies, whether multinational or domestic, need to take into account MOFCOM’s increasingly assertive
enforcement stance. In particular, companies should be aware that MOFCOM will not shy away from making public any of its decisions finding companies to have breached their merger control filing or other obligations: this is likely to have a material impact on the reputation of those singled out.

The ultimate weapon in MOFCOM’s arsenal is, of course, its power to order the unwinding of a transaction which was not notified according to the law, though to the best of our knowledge, MOFCOM has yet to exercise this power.