On December 30, 2024, Beijing Intellectual Property Court (“Beijing IP Court”) ruled on the first administrative lawsuit concerning merger review, in which a Chinese company challenged a conditional merger clearance decision. The judgment was in favor of the defendant, the State Administration for Market Regulation(“SAMR”). As the plaintiff did not appeal within the statutory time limit, the judgment has officially taken effect.[1]

The ruling in this case marks the first effective court judgment in the field of merger review since the China's Anti-Monopoly Law (“AML”) took effect in 2008, carrying significant demonstrative effect. As a deeply involved participant, we have summarized the key aspects of the case based on the court’s judgment and offer our first-hand insights.

 

The background of the ruling

On September 22, 2023, SAMR conditionally approved Simcere’s acquisition of Tobishi, the first below-threshold filling case.[2] This is a significant pharmaceutical sector merger, as Tobishi was the only batroxobin injection manufacturer in China while Simcere was the exclusive supplier of the batroxobin active pharmaceutical ingredients (“batroxobin API”). This transaction has attracted significant attention within the industry, primarily because Simcere was previously subjected to an administrative penalty by SAMR for abusing its market dominance by allegedly refusing to deal with Tobishi regarding batroxobin API,[3] and now Tobishi would be acquired by Simcere.  

Tobishi, dissatisfied with SAMR’s approval decision, applied for an administrative reconsideration against it. With the upholding outcome, Tobishi subsequently initiated an administrative litigation against SAMR before Beijing IP court, with Simere as a third party. Tobishi argued that the conditional approval was illegal, because the proposed remedies can not effectively resolve competition concerns. After a full-fledged hearing, Beijing IP court rendered the first-instance judgment and supported SAMR’s decision.

 

Key issues discussed in the judgment and takeaways

1、How the court assess whether a plaintiff’s standing in administrative lawsuit related to merger review decisions?

In administrative litigation, the plaintiff must have the standing to file the lawsuit, meaning their legitimate rights and interests must be infringed by the administrative agency's actions or that such actions have a substantial impact on their rights and obligations.

To assess whether the plaintiff, as the target company of the transaction, has standing, the court first recognized that merger review decision is an administrative approval by its nature. The court clarified that if an unconditional approval is granted, it does not alter the rights and obligations from the concentration agreement, so the filing parties have no standing for administrative litigation. However, if the merger is prohibited or approved with conditions, which affect the filing parties' rights or impose legal obligations, they have standing to initiate administrative litigation.

In this case, since the restrictive conditions attached to the contested decision would impose legal obligations on Tobishi post-concentration, thereby having a tangible impact on Tobishi's legitimate rights and interests, the court found that Tobishi has standing to initiate administrative litigation.

The court's analysis above provides the first explanation of the circumstances under which parties have standing to initiate administrative litigation in merger review cases. Specifically, it clarifies when the court will consider it necessary to adjudicate the administrative actions and substantively resolve the dispute.

For parties involved in or potentially affected by the merger review decisions, if a transaction is likely to receive unconditional approval, those opposing the deal should actively present their claims and supporting evidence during SAMR’s review process - such as fully participating in the public consultation period. On the other end, if a transaction is likely to be approved with conditions or even prohibited, the filing parties should not only strive for the most favorable outcome during SAMR's review but also recognize that they may still have the option to seek judicial relief if they are dissatisfied with the decision.

 

2、Does SAMR Evaluate the Validity of the Transaction Agreement in Merger Reviews?

In this case, Tobishi challenged the validity of the transaction agreement and alleged that the agreement was executed through abusive conduct. However, the court rejected the argument, noting that the transaction agreement was reached well before the alleged abuse of market dominance, and was not concluded under coercion arising from such behavior.

The court further stressed that merger review refers to the ex-ante assessment of whether a transaction has or may have the effect of excluding or restricting competition. Whether the transaction is finally implemented, it is unrelated to the merger review decision. SAMR is neither obligated nor required to conduct a substantive review of the validity of the transaction agreement. In case of disputes over the validity of the transaction agreement, the parties shall resort to arbitration or the competent court in accordance with the law and the terms of the agreement. In this case, since the validity of the transaction agreement has already been confirmed by relevant arbitration institutions and court judgments, the court found Tobishi's claim invalid.

This clarifies SAMR’s primary focus in merger reviews: assessing the competition effects of a transaction. Obtaining a merger review approval simply means the antitrust authority has determined that the concentration is unlikely to eliminate or restrict competition. However, this decision does not validate the underlying transaction agreement or guarantee the legality of the filing parties' businesses. Moreover, the nature of the review - predictive and ex-ante, assuming the concentration will be implemented - further underscores that its scope is limited to assessing potential competition concerns arising from the concentration. It does not extend to addressing or resolving pre-transaction existing competition issues, which could be addressed through other tools in the antitrust authority’s toolbox, such as prohibition of monopoly agreements or abuse of dominance.

 

3、Which approach should take priority for cases with competition concerns in China: prohibition or conditional approval?

Tobishi also challenged the legality of granting conditional approval in the case. Particularly, Tobishi argued that, based on the wording of Article 34 of AML[4], the antitrust authority should in principle prohibit the transactions that eliminate or restrict competition, unless it can be justified with larger pro-competitive effects or the achievement of public interests. Only in these limited situations can the authority grant conditional approval. These arguments were rejected by the court, based on the following reasoning:

Initially, Article 34 of AML should be interpreted systematically in combination with Article 6 of AML, rather than in a fragmented or mechanical manner. As a provision in the “general principle” section of the AML, Article 6 plays a crucial role in understanding the legislative intent behind the specific provisions. Since Article 6 states that "undertakings may implement concentration pursuant to the law, expand the scale of business, and enhance market competitiveness through fair competition and voluntary collaboration," it is clear that the AML adopts the principle of "exceptional intervention" regarding merger control.

The Regulation on the Review of Concentrations of Undertakings (“Merger Review Regulation”), a normative administrative document issued by SAMR based on the AML, further stipulates in Article 39 that parties involved in transactions that eliminate or restrict competition may propose remedy commitments to mitigate these negative effects. SAMR will assess the effectiveness, feasibility and timeliness of such commitments. As a result, prohibition is not automatically or directly applied to transactions that eliminate or restrict competition. If the assessment concludes that the proposed commitments cannot effectively address the adverse impact of the concentration on competition, SAMR should then proceed to prohibit the concentration.

Therefore, Tobishi's relevant claims represent a misinterpretation of the AML, and the related claims lack legal basis, which is why the court did not support them.

In fact, the issue discussed above has also been addressed in SAMR’s most recently issued document, Guidelines for the Review of Horizontal Concentration of Undertakings (“Guidelines”). Article 3 of the Guidelines provides that, antitrust enforcement agencies support undertakings in implementing concentrations in accordance with the law. For concentrations that do not have the effect of excluding or restricting competition, antitrust enforcement agencies will approve them in accordance with the law. For concentrations that have or may have the effect of excluding or restricting competition, antitrust enforcement agencies will either prohibit the concentration or approve it with restrictive conditions in accordance with the law.

Since the enforcement of AML in 2008, SAMR has adopted a pragmatic approach: only three transactions have been prohibited, over sixty conditionally approved, and more than six thousand unconditionally approved. This has reflected SAMR’s preference for resolving competition concerns while allowing transactions to proceed. The reasoning in this ruling highlights the deeper principles embedded in the AML. It reinforces that, for transactions likely to attract antitrust scrutiny in China, proactive engagement and thorough negotiations with SAMR are strongly recommended. Such efforts can lead to a quicker and more favorable outcome for the parties involved, potentially securing timely approval with streamlined conditions or even an unconditional clearance.

 

4、Balancing Remedies and Evidence in Merger Review: what is the methodology for SAMR’s assessment of remedy proposals?

Tobishi further argued that Simcere’s remedy commitments were insufficient to mitigate the anti-competitive effects, and therefore, the standards set in Article 39 and Article 42 of the Merger Review Regulation - stating that if the commitments proposed by the filing parties can effectively reduce the adverse impact of the concentration on competition, SAMR may approve the concentration with restrictive conditions - were not met. Based on this, Tobishi contended that SAMR's acceptance of Simcere's remedy commitments was unlawful. However, this argument was also dismissed by the court.

The court first reviewed SAMR's use of various evaluation methods during its assessment of the transaction. These methods included soliciting feedback from relevant stakeholders, such as industry regulators and associations, conducting on-site surveys with hospitals and drug regulatory authorities, and inviting independent third-party organizations and antitrust experts to provide specific economic and legal analyses. These multi-pronged methods are commonly employed in remedy case assessments to strengthen SAMR’s understanding of the industry, identify core competition concerns, and efficiently negotiate the remedy proposal, ensuring its effectiveness, feasibility and timeliness.

However, for a remedy proposal to be eventually accepted by SAMR, it is not necessary to ensure that every stakeholder is satisfied or that every opinion is incorporated into the remedy proposal. For example, as revealed in the judgment, after all the remedy negotiations and assessments, the only opposing view came from Tobishi, which argued that the sole appropriate remedy was prohibition. Aside from this objection, there were no other opposing opinions on the proposed remedy. To support its objections, Tobishi made extensive preparations during the merger review process, including backing its stance with various economic and legal expert opinions. However, such arguments were rejected by both the SAMR and the court. As we understand, the rejection accounts for two reasons.

Firstly, the proposed remedy is both effective and feasible, offering a timely solution to address competition concerns. For example, to ensure the divestiture and behavior remedies regarding the termination of exclusive supply can be implemented within the designated time frame, alternative solutions have also been outlined. This approach mirrors the “Crown Jewel” principle used in U.S. and EU antitrust enforcement, which is applied in cases where the primary remedy is risky or difficult to enforce. The principle ensures that if the primary remedy fails, a backup plan (the “crown jewel”) can be easily implemented to prevent harm to competition.

The “Crown Jewel” principle is also recognized in Merger Review Regulation[5], and has been applied in previous cases involving divestiture[6]. In this case, however, the alternative solutions are extended to behavior remedies, marking the first time this concept has been used in China for a behavior remedy, which is also rare in global antitrust jurisdictions.

Moreover, the terms of the alternative solutions - the price of Tobishi’s Batroxase injection would be reduced to 50% of its current price - are also stringent. This demonstrates the antitrust authority’s strong commitment to encouraging the concentrated entity to strive its best to implement the primary remedy, which would ultimately alter the market structure. Should this not be achievable, the alternative solution would in place to ensure that the downstream patient benefit from a significantly lower prices - something that competition alone may not be able to provide. The multi-layer design of remedies also highlights the deep deliberation and innovative thinking of SAMR.

Secondly, Tobishi’s opinions were insufficiently substantiated, especially in the absence of opposition from the hospitals directly serving the patients who use the medicine. For example, one of Tobishi’s primary objections concerned the potential for price manipulation of the batroxobin API by the concentrated entity. However, this presumption lacked concrete evidence and was primarily based on subjective conjecture. This stands in stark contrast to SAMR’s well-founded and empirical analysis throughout the review process, which include in-depth research involving end hospitals. Finally, given the stringent supervision over the execution of the remedy and the fact that the pharmaceutical industry is one of the most heavily regulated sectors in China, any alleged price manipulation would be effectively impossible.

This case highlights the rigorous standards applied by SAMR in evaluating remedy proposals and addressing competition concerns. It underscores the importance of comprehensive evidence, innovative remedy design, and the cautious consideration of stakeholder input. Stepping back from the specifics of this case, the key takeaway here is that for parties advocating for merger approval, effectively addressing competition concerns requires fulfilling the burden of proof in a comprehensive and detailed manner at every stage of the process. This includes the initial design of the transaction structure, discussions on potential competition issues, and the negotiation of remedies. On the flip side, for stakeholders seeking to challenge a transaction, presenting convincing evidence supported by solid data and robust materials is critical. Objective and empirical evidence, particularly from downstream companies and consumers, is more persuasive and more likely to be considered - or even adopted - by the antitrust authority. Such thinking is also enshrined in Article 10 of the Guidelines, which states that “the antitrust authority will not assess the competitive impact of a concentration solely based on the general opinions of individual market participants regarding the transaction”.

 

Final Thoughts

This case marks the first administrative litigation on merger control since China’s AML took effect in 2008, and the first time a merger control decision has been reviewed by a court. Particularly, it is significant in clarifying key rules for merger control reviews, including: "the SAMR has the authority to issue conditional approval for voluntarily notified mergers"; “prohibition is neither statutory nor preferred”; and "the primary purpose of the review is to address competition issues arising from the merger." It also exemplifies the court's comprehensive review principle in administrative litigation, where both procedural and substantive aspects are carefully examined. As the designated court for administrative litigations challenging SAMR’s antitrust enforcement decisions[7], the Beijing IP Court has set up a "Competition and Monopoly Committee" as part of its internal professional judges' meeting system and a specialized adjudication team. These initiatives have enhanced the court's ability to conduct thorough and informed judicial reviews of antitrust cases, establishing a solid foundation for fair and consistent rulings in complex antitrust disputes in China.

 

* Associate Kexin Chen contributed to this article.

 

 

[1]SAMR’s news release, available at: https://mp.weixin.qq.com/s/EG_hO8v3xCga0HR-4uPuYQ.

[2]SAMR’s Merger Review Decision of Conditional approval on Simcere’s acquisition of Tobishi (“Simcere/ Tobishi”), available at: https://www.samr.gov.cn/fldes/tzgg/ftj/art/2023/art_90a71deadd224689b026920807c0389c.html.

[3]The Administrative Penalty Decision Number: Guo Shi Jian Chu (2021) No.1.

[4]Article 34: If a concentration of undertakings has or may have the effect of excluding or restricting competition, the antitrust enforcement agency of the State Council shall make a decision to prohibit the concentration. However, if the undertakings can prove that the favorable effects of the concentration on competition significantly outweigh the adverse effects, or if it serves the public interest, the antitrust enforcement agency of the State Council may decide not to prohibit the concentration.

[5]Article 41 of Merger Review Regulation: "If there is a risk that the commitment plan cannot be implemented, the concentrating undertakings may propose an alternative plan. The alternative plan shall take effect only after the failure of the preferred plan and must include conditions that are stricter than those of the preferred plan."

[6]For example, in the Mitsubishi Rayon/Lucite Case (2009) and the Glencore/Xstrata Case (2013), MOFCOM required the acquiring party to submit an alternative solution to avoid the risk that the divestiture would not proceed.

[7]Article 1 of the Notice of the Supreme People’s Court on the Jurisdiction of Administrative Monopoly Litigation: The first-instance administrative cases involving antitrust actions brought against the State Council's antitrust enforcement authority in accordance with the law shall be under the jurisdiction of the Beijing Intellectual Property Court.