Antitrust Alert: New Tool for Antitrust Investigations in China
In recent years, China's National Development and Reform Commission (NDRC), the antitrust enforcement agency responsible for price-related monopoly conduct, has cracked down on resale price maintenance (RPM) through a series of enforcement actions. These have targeted companies in industries including baby formula, automobiles, liquor, and eyeware. A recent penalty decision against Chinese white goods giant Haier issued by the Shanghai Price Bureau (the Shanghai branch of the NDRC) is particularly noteworthy, because it explicitly referenced screenshots of mobile phone chat histories as evidence to prove the RPM conduct. This decision raises the question, to what extent can personal communications such as smartphone messages be used as evidence in antitrust investigations?
The Haier decision and other NDRC investigations this year highlight the potential antitrust exposure for companies from employees using personal mobile devices and social networking applications in business communications. These communications outside of normal corporate networks and technology infrastructure can create blind spots for antitrust compliance monitoring and internal auditing, but increasingly are targets for government enforcement of PRC antitrust and other laws, such as anti-bribery laws.
WeChat records as investigative targets
The August 2016 Shanghai Price Bureau decision imposed a fine of RMB 12 million (USD 1.8 million) on three subsidiaries of Haier, one of the largest home appliance companies in China, for restricting the minimum resale price at which their distributors sold Haier products. The Haier decision specifically listed WeChat screenshots as supporting evidence gathered by investigators, alleging the three companies had requested distributors make price adjustments in accordance with the imposed minimum resale price through WeChat chat groups. WeChat is the most popular social network and instant messaging app in China, with a reported user base of 764 million.
Similarly, in April, NDRC's Shaanxi branch found that a group of motor vehicle inspection service providers had colluded on prices by communicating through a WeChat group. NDRC fined 31 such providers a total of RMB 5.76 million (USD 860,000). In July, NDRC's Jiangsu branch discovered six chemical companies conspiring to fix the price of chlorophenols, used in pesticides and pharmaceuticals. Again, WeChat and other communications were held out as evidence against the investigated companies.
Potential Access to WeChat Records
One important question arising from these decisions is how the agencies came to possess the WeChat screenshots, which was not explained in the decisions themselves. One possibility is that the agency retrieved the WeChat screenshots from WeChat users working for cooperating third parties, such as the employees of complaining Haier distributors. Although the Haier decision did not state whether the investigation was initiated by whistleblower complaints, in practice it is common for complaining distributors in China to allege or report RPM to the enforcement agencies.
Alternatively, the agencies could have retrieved the screenshots from WeChat users within the investigated companies, possibly by causing the individuals to believe that they were required to turn over their personal mobile phones and grant access to their WeChat accounts.
Although the Chinese Constitution generally recognizes the protection of private communications by Chinese citizens, with exceptions only for criminal investigations or national security issues, there are no detailed laws or regulations regarding the protection of personal data. Therefore, it is possible that personal devices and chat histories may be obtained by antitrust or other enforcement officials through one of the above channels.
The widespread popularity of social networking and instant messaging applications such as WeChat, and the increasing use of such channels for business purposes, make them easy targets for antitrust or other investigations in China. This raises some noteworthy issues:
First, what power to search for evidence does the antitrust enforcer have during an investigation? Can the authority search the contents of WeChat histories on personal smartphones?
The Chinese Constitution allows officials to access citizens' private communications during investigations of crimes or national security matters, but those types of investigations normally are the province of police and public prosecutors, not antitrust or similar authorities. Violations of the Anti-Monopoly Law are not specifically defined as criminal violations, with the exception of bid-rigging, which is criminalized in the Chinese Bidding and Criminal Laws.
Moreover, business communications, including communications by which companies collude with competitors or enforce RPM with distributors, are not personal, private communications and thus should fall outside of the constitutional protections. However, it is not clear whether or on what basis the antitrust agencies would have the power forcibly to search personal communication devices or enter personal communication accounts such as WeChat to search for evidence of potential illegal business communications.
Second, given the private nature of mobile phones (unless employer-supplied for business purposes only) and messaging apps such as WeChat, what difficulties may companies encounter in supervising how employees use them for business purposes? It is common for employees in China to use personal phones and WeChat accounts to discuss business matters, which adds another layer of difficulty for antitrust compliance. Monitoring such personal chat records and mobile devices places companies at risk of being accused of invasion of privacy. To control such compliance risks, it may be helpful for companies to put appropriate policies in place that, for example, prohibit the use of instant messaging apps for businesses, or alternatively require employees to use a separate business account on a company-issued phone for any business discussions through a messaging app, and to sync those regularly with the company's systems. It is unclear whether corporate policies that would require employees to consent to employer access to personal phones or WeChat accounts if they are used for company business, would be enforceable in China.
The increasing use of WeChat records and similar communications as evidence in antitrust investigations in China poses new challenges for companies working to ensure antitrust compliance in China. Company policies prohibiting the use of messaging apps for business purposes or requiring the use of business-only accounts on company-issued phones will mitigate the risks. Such policies may enable the companies to retain confidentiality of the workplace, and ensure better supervision on employees' business communications to limit antitrust risks.
For more information, please contact your principal Jones Day representative or either of the lawyers listed below.
Peter J. Wang
Shanghai / Beijing
+86.21.2201.8040 / +86.10.5866.1111
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