Comments on Draft Guidelines on Disgorgement and Fines in AML Matters

Attached are comments of the ABA Sections of Antitrust and International Law  (ABA) and the George Mason University Global Antitrust Institute (GAI) on the draft guidelines of the National Development and Reform Commission on Disgorgement and Fines in Antimonopoly Law matters. The ABA comments are bilingual and have the complete text of the draft guidelines included in the package that is being made available here.  The guidelines were published for public consultation on June 17, 2016.

The two sets of comments offer two slightly nuanced approaches in their understanding of the final drafting responsibilities for these guidelines.  The ABA comments are nominally  directed to the Antimonopoly Commission of the State Council, while the GAI’s Comments are more directed to the National Development and Reform Commission which released this draft for eventual adoption by the Antimonopoly Commission.  The relationship between these drafts and an official adoption by the AMC is not clear to me, as the NDRC announcement of the draft states that the drafting of the guidelines are in the work plan of the Antimonopoly Commission, and that NDRC undertook the research and drafting (根据国务院反垄断委员会的工作计划,我们研究起草了《关于认定经营者垄断行为违法所得和确定罚款的指南》(征求意见稿),现面向社会公开征求意见.). It does not explicitly say that this research and  drafting was undertaken on behalf of the AMC.  Moreover, comments are to be delivered to the Pricing Bureau of NDRC, not the NDRC itself, which may suggest that this is indeed a research project (发送到国家发展改革委(价监局).  It is my view that considering the continuing battle of drafting responsibility by Antimonopoly enforcement agencies + SIPO,  in the IP Abuse guidelines, which the State Council has recently said is the responsibility of these four agencies and the State Council Legislative Affairs Office, final drafting  responsibility for an interagency antimonopoly law guideline may not be easily assumed at this time.  If others in the antitrust community have more specific information, I welcome them posting it here.

Regardless of which agency is the lead, the sharing of drafts with this website and others helps to increase our understanding of the overall process through sharing of different commenters’ positions, for which I am grateful.  I hope that over time Chinese agencies will also make all non-confidential comments publicly available.

GAI’s recommendations include that the Draft Guidelines be revised to limit the application of disgorgement (or the confiscating of illegal gain) and punitive fines to matters in which: (1) the antitrust violation is clear (i.e., if measured at the time the conduct is undertaken, and based on existing laws, rules, and regulations, a reasonable party should expect that the conduct at issue would likely be found to be illegal) and without any plausible efficiency justifications; (2) it is feasible to articulate and calculate the harm caused by the violation; (3) the measure of harm calculated is the basis for any fines or penalties imposed; and (4) there are no alternative remedies that would adequately deter future violations of the law.  In the alternative, and at the very least, the NDRC should expand the circumstances under which the Anti-Monopoly Enforcement Agencies (AMEAs) will not seek punitive sanctions such as disgorgement or fines to include two conduct categories that are widely recognized as having efficiency justifications: unilateral conduct such as refusals to deal and discriminatory dealing and vertical restraints such as exclusive dealing, tying and bundling, and resale price maintenance.

GAI also urges the NDRC to clarify how the total penalty, including disgorgement and fines, relate to the specific harm at issue and the theoretical optimal penalty.  According to GAI, economic analysis should determine the total optimal penalties, which includes any disgorgement and fines.  When fines are calculated consistent with the optimal penalty framework, disgorgement should be a component of the total fine as opposed to an additional penalty on top of an optimal fine.  If disgorgement is an additional penalty, then any fines should be reduced relative to the optimal penalty.

Finally, GAI recommends that the Anti-Monopoly Enforcement Agencies (AMEAs) rely on economic analysis to determine the harm caused by any violation.  When using proxies for the harm caused by the violation, such as using the illegal gains from the violations as the basis for fines or disgorgement, such calculations should be limited to those costs and revenues that are directly attributable to a clear violation.  This should be done in order to ensure that the resulting fines or disgorgement track the harms caused by the violation.  To that end, GAI recommends that the Draft Guidelines explicitly state that the AMEAs will use economic analysis to determine the but-for world, and will rely wherever possible on relevant market data.  When the calculation of illegal gain is unclear due to lack of relevant information, GAI strongly recommends that the AMEAs refrain from seeking disgorgement.

These comments are broader than IP-related antitrust.  One common theme they share with IP damage issues is the low utilization of economic calculations to determine damages, and unclear sensibility of when damages are adequate, deterrent or punitive.

The comments also do not address the relationship, if any, between low IP damages and high antitrust damages for IP abuse, except in the broadest sense that excessive damages may create over deterrence.  The Chinese government and academics are also increasingly focused on the problem of low IP damages, including possibilities of providing for punitive damages and higher compensatory damages,  the availability of discovery for damage calculations, such as in the trademark law and with experiments in increasing statutory damages or relying on alternative calculations such as actual or implied royalties such as occurred last year in Jiangsu (See 江苏固丰管桩集团有限公司诉宿迁华顺建筑预制构件有限公司侵害发明)专利权纠纷一案[(2015)苏知民终字第00038]), where an implied royalty was used for perhaps the first time in a patent case. The issue is also actively being discussed by academics. See, e.g., 刘自钦 , 著作权惩罚性赔偿制度在中国大陆的具体运用, Macau Law Review, No. 10, at p. 123 (Liu Zichen, Substantial Application of the Punitive Compensation System for Copyright in Chinese Mainland – Based on American Experience and the Chinese Reality).

­The current reality is that IP damages remain too low and non-deterrent.  To me this suggests a possible issue of disproportionality between IP protection and antitrust enforcement for IP abuse, or as I have often said one cannot have IP ‘abuse’ without having IP ‘use.’   On June 7, 2016 I had the pleasure in my official capacity of testifying before the House Judiciary Committee, where I discussed the issue of the large disparity between high antitrust damages and low patent infringement damages.   My testimony is also on the PTO website.  I recently calculated that the current ratio of average patent damages as determined on the database and the Qualcomm damage imposed by NDRC is about 50,000 to 1 (18,000 USD to 975 million USD); it is only somewhat lower if other databases are used.  As I noted in my testimony, antitrust damages and patent damages address different issues and thus may not always be directly comparable.  However, if the ratio is wildly disproportionate the ecosystem for innovation and technology transfer could erode.  Many companies already do not want to transfer technology to China, for fear that their IP will not be adequately protected.  As I have noted, the data already suggests that China is an under-licensed market.  Some companies may also now be avoiding China because damages are too low and/or antitrust risks are too high.  If antitrust damages become be too high in relationship to the actual value of a patent, incentives to disclose patentable inventions may erode – which itself may erode competition in the long run.  Moreover, China will suffer as it may not be able to obtain leading-edge technology.  I personally believe that antitrust and IP damages should not be wildly disproportionate, which should be another factor in antitrust damages, IP damages and in China’s efforts to become an IP “strong country.”

This blog remains my academic, personal and non-official observations and should not be construed as the opinion of the US government, or any former client or third party or even any academic institution with which I am affiliated.  Corrects and comments in English or Chinese are most welcome!





One thought on “Comments on Draft Guidelines on Disgorgement and Fines in AML Matters

  1. chinaipr2 says:

    One reader, who wishes to remain anonymous notes: “I agree that there is no public statement to the effect that NDRC is drafting these sets of guidelines on behalf of the State Council (or its AMC), but I have been told that by a number of officials, both at the NDRC and the Expert Advisory Committee to the AMC.”
    My thoughts: While this reader likely knows much about the process of preparing this draft than me, the usual procedures for draft legislation is for the highest ranking authority requesting the legislation to publish it for notice and comment. Indeed, the State Council itself has taken to publishing draft administrative rules such as this for public comment. See: Chinese agencies sometimes may also publish draft laws to stimulate interest as well as seek comment. Sometimes drafts may e circulated by line agencies in advance of State Council consideration, such as was the case in the copyright law amendments. As an agency if tasked to prepare a draft by a higher ranking authority would likely want to make that point clear to others, this current draft may still be several stages away from a final for consideration by the Antimonopoly Commission.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s