China’s First Antitrust Enforcement Case Targeting Individual Liability: Strategic Guidance for Multinational Corporations

The Administration for Market Regulation of Shanghai recently finalized penalties totaling RMB 223 million (approx. $31 million) against three pharmaceutical companies for colluding to fix prices and divide markets for methanesulfonic acid neostigmine injection, a critical drug in anesthesia and emergency care (Product Involved). This landmark case marks the first application of the individual liability for monopoly agreement provision under China’s Anti-Monopoly Law (AML), penalizing both corporations and direct persons-in-charge involved in cartel conduct, since the provision has been added to the AML in 2022.

In addition to the penalties against the three companies (hereinafter referred to as SHXY, HNRH, and CDHX respectively), the Administration for Market Regulation of Shanghai (Shanghai AMR) also made a penalty decision against the General Manager of the Business Development and Agency Department of SHXY (GM Penalized) for his personal liability in facilitating the monopoly agreement and the implementation thereof among the three companies. Consequently, the GM Penalized was fined RMB 0.5 million (approx. $70,000) for the violation. 

KEY TAKEAWAYS

1. Entrusting a competitor as an exclusive distributor or making exclusive agreements through a third party (e.g., a shared agent) could be deemed to constitute a horizontal monopoly agreement.

According to the penalty decisions, the Shanghai AMR found that the three companies, being the main distributors of the Product Involved in China, reached and implemented a monopoly agreement over 2020 to 2023 for

• driving up the price of the Product Involved, resulting in a 11 to 21 times surge in price; and
• dividing the sales markets of both public and private hospitals to maintain the stability of their respective market shares and to exclude and restrict fair market competition.

Specifically, the Shanghai AMR found that the following collusions among the three companies constituted division of sales market prohibited under the AML:

• Despite their competing relationship, CDHX entrusted SHXY as its national exclusive distributor to sell the Product Involved to private hospitals, which could facilitate the coordination or collusion among the competitors regarding price, sales volumes, sales areas, etc., of relevant product in the relevant market resulting in elimination of fair market competition
• SHXY and HNRH shared the same provincial distributor to sell the Product Involved to public hospitals in accordance with the existing market segmentation and to jointly explore new markets; in such case, the shared distributor was in fact a vehicle for competitors to align, communicate, and implement the cartel agreement, which is a typical scenario of a monopoly agreement among competing companies by communicating or exchanging information to coordinate or act in concert regarding drug price through a third party, under the Anti-monopoly Guidelines in the Pharmaceutical Sector issued by the Anti-monopoly and Anti-unfair Competition Commission of the State Council on January 23, 2025 (Pharmaceutical Antitrust Guidelines).

2. Directly responsible individuals would be held personally accountable for facilitating and implementing the monopoly agreement.

As revised in 2022, the AML has added a new provision specifying personal liability, a monetary fine up to RMB 1 million (approx. $140,000), against the “legal representative, key person-in-charge, and direct responsible person” of a company if such persons are found personally accountable for entering into and implementing a monopoly agreement.

In the penalty decision for the GM Penalized, the Shanghai AMR elaborated and focused on his role and personal involvement in facilitating and implementing the monopoly agreement among the three companies, including the following actions:

• Instructing his subordinates to initiate and communicate with the sales manager of the other two companies to enter into a price-fixing agreement among the three companies;
• Being responsible for internally reporting to SHXY’s management team regarding the price increase of the Product Involved;
• Proposing and initiating the negotiation with the other two companies regarding the price increase and the division of relevant markets;
• Instructing his subordinate to draft the tripartite agreement among the three companies for price-fixing and division of relevant markets of the Product Involved;
• Arranging and coordinating for SHXY to implement the tripartite agreement, including compensation to HNRH paid by SHXY, implementing the price increase by SHXY, and facilitating the engagement of SHXY as the exclusive distributor of CDHX and the sharing of the provincial distributor by SHXY and HNRH; and
• Actively coordinating and facilitating communication when there were disagreements among the three companies for better implementation of the monopoly agreement.

In addition, when determining the personal liability of the GM Penalized, the Shanghai AMR also considered the leading role of SHXY as the organizer of the monopoly agreement, and that the GM Penalized was the key and direct person-in-charge of SHXY with respect to the monopoly agreement.

From this perspective, as the other two companies were participants instead of the organizer of the monopoly agreement, this could be the reason why the respective person-in-charge of the other two companies were not held personally accountable for the monopoly agreement even though they had also participated in relevant communication with the GM Penalized and facilitated the implementation of the monopoly agreement.

3. Active self-reporting to apply for leniency and cooperating with the investigation could significantly reduce the penalty.

It is also worth noting that, when determining the corresponding penalties for the different subjects, the Shanghai AMR not only assessed the role and degree of involvement of the different subjects in entering and implementing the monopoly agreement, but also considered the applicability of leniency for the difference subjects, including proactive self-reporting, cooperation with the investigation, and actively taking correction actions, among other considerations.

Different penalty rates may apply to the organizer and other participants of the monopoly agreement.

The Shanghai AMR determined different penalty rates for the three companies based on their respective roles in entering and implementing the monopoly agreement. Specifically, as the organizer and key player, SHXY was subject to a monetary fine equal to 10% of its total sales of 2023, which is the highest ratio of the monetary fine under the AML for entering and implementing a monopoly agreement.

On the other hand, the monetary fines against the other two companies equal to 4% of their respective total sales of 2023.

Penalty decisions could be affected by applications for leniency by proactive self-reporting and provision of key evidence.

The Shanghai AMR specified in the penalty decision that SHXY was the first to proactively report misconduct relating to the monopoly agreement, provided important evidence, and applied for leniency before the investigation by the Shanghai AMR.

The Shanghai AMR further assessed that the penalties against SHXY could be reduced by 80% of the original fine given the aforementioned self-reporting and provision of important evidence, but should not be exempted from the penalties as it was the organizer and had a leading role in entering and implementing the monopoly agreement.

Under the AML and relevant anti-monopoly agreement regulations and guidelines, key points for successful application of the leniency program include the following:

• Order of reporting is critical to the magnitude of potential reduction or exemption of penalties. The first-in applicant could be exempted from the penalties or reduced not less than 80% of the penalties, while the second and third applicant may be reduced 30% to 50% and 20% to 30% of the penalties, respectively.
• Important evidence must be submitted to apply for leniency. Important evidence required for applying for leniency should include evidence or clues that (1) have not been uncovered by the enforcement agency, (2) are sufficient for the enforcement agency to open a case or initiate an investigation, or (3) could assist the enforcement agency in determining the monopoly agreement. Submitting and providing relevant information of the monopoly agreement is one of the prerequisites of the self-report to apply for the leniency but do not constitute important evidence.
• Submitting the important evidence within the specified timeline would affect the determination of reporting order. The application for leniency may be submitted at any time before the enforcement agency issues the notice for administrative penalty. To reward early reporting, the first-in reporter could first apply for leniency by submitting a report with relevant information regarding the monopoly agreement and then supplement with relevant important evidence within 30 days (could be further extended to 60 days). If the reporter supplements the important evidence within the specified timeline, the time when the enforcement agency receives the report would be deemed the time of application to determine the reporting order; otherwise the enforcement agency will cancel the qualification for leniency application of such reporter.
• Leniency would also apply to the liable individuals who proactively report and provide important evidence to the enforcement agency. The individuals who may assume personal liability for the monopoly agreement could be granted a 50% reduction or even exemption of penalties if they proactively report the monopoly agreement and submit important evidence as required under the AML and relevant regulations as well as guidelines.

Compliance incentive would be granted for proactive remediation measures including ceasing of misconduct, cooperation with the investigation, and active corrections and remediations.

In addition to the application of the leniency program discussed above, the Shanghai AMR also specified in the penalty decisions that when determining the specific amount of penalties, it has taken into account the nature, extent, and duration of the misconduct as well as measures that have been taken to eliminate the impact of the misconduct, etc., in accordance with Article 59 of the AML:

• The active cooperation with the investigation by HNRH and CDHX and their proactive reduction of the price of the Product Involved
• The active cooperation, truthful statement of relevant information, and proactive provision of relevant evidence by the GM Penalized.

Further, a public announcement of SHXY’s parent company released on the same date as the penalty decision of the Shanghai AMR indicates that, apart from the self-reporting and cooperation with investigation, SHXY has taken other remediation measures including immediate termination of relevant misconduct and termination of the employment with relevant employees involved, which also contributed to the reduction of penalties against SHXY by the Shanghai AMR.

RECENT ENFORCEMENT UPDATE

Following this first case, around the beginning of May three A-share listed companies separately released public announcements confirming the receipt of administrative penalties by the Administration for Market Regulation of Tianjin (Tianjin AMR) for a monopoly agreement to fix the price of dexamethasone sodium phosphate API.

Among others, one of the foresaid companies has confirmed in a public announcement released on May 6 that the legal representative and chairman of the board of the company has been found personally accountable for the monopoly agreement and subject to a monetary fine of RMB 0.6 million (approx. $80,000) for failure to ensure the legal operation and strict compliance with the AML of the company as the key person-in-charge responsible for its overall operation and strategy deployment. Relevant administrative penalty decisions of the Tianjin AMR on this case have not yet been publicly available.

PRACTICAL STEPS FOR COMPLIANCE TEAMS

These cases underscore the importance of compliance with antitrust laws and the high risk of individual liability. Multinational corporations should take proactive steps to ensure adherence to these regulations to avoid significant penalties.

Screening and Restructure Distributor Management 

• Ensure the autonomy of distributors in pricing, sales markets, etc.
• Avoid exclusive distribution agreements with competitors
• Refrain from communicating or exchanging information related to pricing, sales volumes, market shares, etc., with other competitors through a shared distributor or other third party (e.g., industrial associations, ecommerce platforms)
• Mandate quarterly audits of distributor networks to detect lingering violations

Scenario-Based Employee Training

• Categorize employees based on the different anti-trust risk exposure of their respective positions
• Tailor-make compliance requirements and training programs for employees in accordance with the risk-based categories
• Apply additional risk review and increase training frequency for employees in key positions, including the middle-level and senior-level management, marketing department, sales department, distributor management department, and person responsible for pricing decision and market development plans

Operationalize Whistleblower Mechanisms

• Establish and improve the internal whistleblower mechanism to encourage and ensure timely speak-up of potential misconduct
• Ensure that whistleblowers are properly protected and that the corresponding reward and punishment mechanisms are transparent
• Develop rapid response protocols for evidence collection (e.g., preserving WeChat records) and engage local counsel to navigate evidentiary standards
• Link the internal whistleblower mechanism with the leniency program under the AML and establish corresponding emergency responding system to ensure timely review and report of evidence of antitrust misconduct

Industry-Based Dynamic Antitrust Risk Identification 

• Highlight key areas, personnel, and sections based on the industry-specific circumstances, including market competition conditions, business model and scale, etc., to strengthen the identification of antitrust compliance risk
• Closely monitor the enforcement trend and reference to existing antitrust guidelines, such as the Pharmaceutical Antitrust Guidelines, the Anti-monopoly Guidelines for Automotive Industry, to timely adjust relevant risk identification and risk assessment strategies