China Ramps Up Antitrust Enforcement With Second Round Of Raids Of Microsoft Today 

Why you should take notice if you do business in China

By Aymeric Dumas-Eymard

Almost six years to the day after China began enforcing its Antimonopoly Law (“AML”), China’s antitrust authorities are marking the anniversary with a bang as they followed up last week’s raids of U.S. software giant Microsoft with a second round of raids today.

China’s antitrust regulator the State Administration for Industry and Commerce (“SAIC”) announced on its website today that it was following up last week’s raids of Microsoft’s offices in China with new raids of the software giant and its partner in China, Accenture PLC.  SAIC stated that it raided Microsoft offices in Beijing, Liaoning, Fujian and Hubei.  The SAIC also raided the Dalian offices of Accenture, which performs financial work for Microsoft.

Today’s raids follow up on SAIC’s raids of July 28, 2014, in which more than 100 law enforcement officers raided Microsoft offices in Beijing, Shanghai, Guangzhou and Chengdu.  The antitrust enforcers reportedly questioned Microsoft executives and seized documents, electronic data (including emails) and computers.

According to SAIC, these raids flow from an investigation that it began in June 2013 into potential violations of the AML by Microsoft.  The contours of the SAIC’s investigation and the alleged unlawful conduct remain unclear.  However, the SAIC suggested in a July 29, 2014, press release that they concern Microsoft’s Windows operating system and its Office software suite, and relate to issues of interoperability, bundling and document authentication.

In a highly unusual development, on Monday, after meeting with Microsoft Deputy General Counsel Mary Snapp, SAIC enforcers released an exceptionally strongly worded statement warning Microsoft to comply with Chinese law and not to interfere with their investigation in any way.  The statement has been interpreted by some as an implicit warning that any attempt to get the U.S. government to come to Microsoft’s aid will be perceived as a threat and will backfire.

Even absent specific details as to how Microsoft may have violated the provisions of the AML – and in fact, perhaps because of this lack of clarity – the software company’s woes in China are a stern warning to foreign companies doing business in the country, as China steps up its antitrust enforcement efforts aimed at foreign entities.  Other recent examples include the following:

▪  Since November 2013, San-Diego headquartered semiconductor giant Qualcomm has come under scrutiny by another Chinese regulator tasked with antitrust enforcement, the National Development and Reform Commission (“NDRC”).  The NDRC is investigating Qualcomm’s licensing business and certain interactions between its licensing business and its chipset business, including how royalties are calculated in Qualcomm’s patent licenses, whether it will offer license agreements limited to patents essential to certain standards, and its alleged refusal to grant patent licenses to chipset manufacturers.  On July 23, 2014, Chinese state-run media reported that the NDRC would formally declare Qualcomm a monopoly, opening the door for a finding that the conduct investigated by the regulator constitutes an unlawful abuse of a monopoly position.

▪  On August 4, 2014, NDRC officials showed up unannounced at the Shanghai office of Daimler AG’s Mercedes-Benz unit.  Again, few specifics have been disclosed with respect to the matters being investigated by the NDRC.  However, press reports suggest that this latest raid is related to a broader investigation into resale price maintenance and the alleged excessive pricing of foreign car manufacturers’ vehicles and spare parts in China.  Other manufacturers, including Audi AG and Fiat Chrysler Automobiles, appear to have been targeted in the same investigation, and have subsequently announced significant cuts to their prices in China.

Companies doing business in China are now grappling with how to respond to this increased antitrust enforcement.

In a widely reported incident, in July 2013, Xu Xinyu, a senior antitrust enforcement official of the NDRC reportedly told a baffled audience of in-house lawyers from multinational corporations that they should not hire outside counsel to deal with Chinese antitrust authorities.  However, in light of the complexity of the AML and the somewhat opaque manner in which it is interpreted and enforced, it would appear that foreign companies doing business in China, now more than ever, should seek the advice of expert counsel to safely navigate the Chinese market.

– Edited by Gary J. Malone