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Case analysis of centralized punishment on Internet platform enterprises without declaration under VIE

Post:2020-12-22    Views:6415    Copy link   

On December 14, 2020, the State Administration of market supervision and Administration issued the punishment decision on three cases (No.26, No.27 and No.28) issued by the State Administration of market supervision on failing to declare the concentration of business operators according to law. Looking at the three cases, we can see the following common points: first, all of them are equity acquisition under the control of agreement (hereinafter referred to as "VIE" framework); second, the purchasers are all Internet platform enterprises; third, according to the evaluation of law enforcement agencies, the acquisition does not have the effect of eliminating or restricting competition, and they are all subject to the upper penalty limit of Article 48 of the current anti monopoly law, that is, a fine of 500000 yuan.

This is the first time since China formally implemented the anti-monopoly law enforcement on August 1, 2008 to punish the failure to declare the VIE structure according to law. In anti-monopoly law enforcement, it is not uncommon to punish those who fail to declare according to law, and dozens of cases have been announced so far. This is the first time after 12 years that the VIE is punished for failing to declare according to law, and the dominant feature of Internet platform is superimposed. The market has various interpretations and speculations on this. Based on the research and analysis of the relevant issues, the author expresses his opinions.

1 Antitrust review of VIE concentration

Agreement control refers to the legal mode in which a listed company establishes a listed shell company overseas and establishes a series of contracts and agreements with domestic entities to control domestic entities, thus indirectly achieving the purpose of listing domestic entities overseas. The essence of agreement control is to control the business and finance of domestic operating companies through the complex framework of multi-level agreements by using the different standards of legal provisions and accounting rules for a certain same matter, so as to make them become the variable interest entities of overseas holding companies, so as to realize the legal transfer of domestic operating interests to overseas, so as to effectively avoid domestic laws and regulations from outside some industries The restrictions on capital access and the relevant restrictions on domestic entities' direct listing abroad. Therefore, agreement control usually has the characteristics of complex transaction structure, multi jurisdictional control and indirect control through agreement. VIE involves the issue of "control right" in the sense of anti-monopoly law. Therefore, when enterprises involving VIE structure meet the declaration standard of concentration of business operators, they should take the initiative to declare to the anti-monopoly law enforcement agency of the State Council, and provide true and complete information for review. Those who have not reported shall not implement concentration.

On April 20, 2020, the State Administration of market supervision and administration of the people's Republic of China put on file a simple case involving the VIE structure, that is, the case of the newly established joint venture between Shanghai Mingcha zhegang Management Consulting Co., Ltd. and Huansheng information technology (Shanghai) Co., Ltd., which is a positive examination of the VIE case; and the punishment for the three cases is that the VIE case that has not been declared according to law is countered Monopoly law enforcement.

In the three penalty cases, both the buyer and the acquiree are applicable to the VIE framework. It can be seen that under the legal principle of the anti-monopoly law, the law enforcement agencies are concerned about the possible changes in market structure and the impact of competition order after concentration, which has no essential relationship with the manifestation of control relationship. Article 19 (2) of the guidelines on anti monopoly in the field of platform economy (Draft) released by the market supervision and Administration Bureau in 2020 stipulates that "concentration involving VIE framework belongs to the scope of anti-monopoly review on concentration of undertakings. If the concentration of business operators meets the declaration standards stipulated by the State Council, the business operators shall report to the anti monopoly law enforcement agency of the State Council in advance, and those without declaration shall not be concentrated ", which is the reiteration and emphasis of the VIE concentration review rules.

2 Anti monopoly regulation of platform enterprises

It is the legal duty of anti-monopoly law enforcement organs to punish those who fail to declare in accordance with the law, and it is also a necessary means to strengthen the anti-monopoly law enforcement and administrate according to law. According to the author's statistics, as of December 31, 2019, a total of 47 cases of administrative punishment were not declared 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).


Case analysis of centralized punishment on Internet platform enterprises without declaration under VIE

From a historical point of view, the industries and characteristics of the punished enterprises are different. The purchasers involved in this case are all platform enterprises. This first shows that regardless of the business scale, business model and control mode of the enterprises, they must abide by the market rules and comply with the provisions of the anti monopoly law. There is no exception for platform enterprises. Secondly, the three cases also show that foreign investment regulation or financing rules and other objective reasons lead to the network platform enterprises are more likely to adopt VIE framework than other industries. Finally, the aggregation efficiency of platform enterprises combined with the rapid expansion of M & A is more likely to lead to market competition damage, and more likely to cause high attention of law enforcement agencies. At present, the strangling takeover, which is concerned by the theoretical and practical circles at home and abroad, is an example.

It should be noted that the competition concerns of law enforcement agencies on platform enterprises are not limited to the field of concentration of operators. There are provisions on monopoly agreement and abuse of market dominant position in the anti-monopoly guide on platform economy (Draft). The punishment of failing to declare according to law can be regarded as a warning and urging for the platform enterprises to fully comply with the regulations.

3 Imposing administrative punishment on illegal enterprises

Article 48 of the anti monopoly law stipulates that "if a business operator violates the provisions of this law to implement concentration, the antimonopoly law enforcement agency of the State Council shall order it to stop the concentration, dispose of the equity or assets within a time limit, transfer its business within a time limit and take other necessary measures to restore it to the state before concentration, and may impose a fine of less than 500000 yuan." The administrative fine of the three cases announced this time is the legal maximum limit of 500000 yuan.

First of all, according to the assessment of law enforcement agencies, the concentration of cases involved does not have the effect of eliminating or restricting competition, which is the basic premise of not taking measures to "restore to the state before concentration". Otherwise, no matter the amount of fine, the monetary compensation of fine alone can not make up for or correct the competition damage.

Secondly, in terms of the amount of fine, 500000 yuan is the highest limit under the current law, and it is the only case that has been punished by the ceiling. From the perspective of administration according to law, we should not only punish according to law, but also conform to the principle of proportionality. Different from the administrative penalty rules of other monopoly behaviors, the penalty of centralized illegal implementation does not take the turnover of the illegal enterprise as the basis of fine, but "can" impose a fine of less than "500000 yuan". Article 55 of the revised draft of the anti monopoly Law (Draft for public opinions) published by the General Administration of market supervision and administration in January 2020 stipulates that the penalty for illegal concentration of business operators is between 1% and 10% of the sales volume of the previous year, which is consistent with the punishment rules for other illegal acts, and can effectively deter illegal behaviors according to the calculation method of enterprise turnover.

These three cases of extreme punishment, from one side, reflects the law enforcement agencies' understanding of the nature, degree and duration of illegal acts, and is also a deterrent to specific enterprises and a general warning to the market. The three acquisition enterprises have large volume, strong market influence and frequent centralized transactions. If they can not achieve effective supervision, it will lead to drastic changes in the market structure, resulting in disordered competition. In addition, the characteristics of Internet platform economy, such as dynamic competition, cross-border competition and network effect, have a wide and deep impact on the market competition pattern. From the macro level of the market, it is related to the industrial concentration and the innovation vitality of enterprises. Therefore, we should abide by the anti monopoly law, safeguard the free and fair competition in the market and realize the overall high-quality development of the Internet Ecology.

(author: Zhang Chenying, associate professor and doctoral supervisor of Tsinghua University Law School, director of competition law research center, member of expert advisory group of anti monopoly Commission of the State Council, vice president of Commercial Law Research Association of China Law Society)


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