The Supreme Court decision changing Chinese anti-monopoly cases

Author: | Published: 26 Sep 2012
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China's Anti-Monopoly Law (AML) established a dual enforcement system consisting of administrative enforcement and civil litigation. Article 50 of the AML provides that business operators who engage in monopolistic conducts and cause damages to others shall bear civil liabilities. According to the People's Supreme Court of China (Supreme Court), from August 1 2008 when the AML came into effect to the end of 2011, local courts in China have accepted 61 civil actions of the first instance under the AML and have closed 53 of them.

The AML provisions are highly abstract. Anti-monopoly cases are often highly technical and complicated. To specify rules for accepting and hearing monopoly civil dispute cases has therefore been one of the top priorities of the Supreme Court.

In April 2011, the Supreme Court released the draft Provisions on Issues Concerning the Application of Law in relation to Trials of Monopoly Civil Dispute Cases (draft provisions) to solicit public comments. One year later in May 2012, the Supreme Court officially promulgated the Provisions on Several Issues Concerning the Application of Law in Hearing Civil Cases Caused by Monopolistic Conduct (the judicial interpretation) governing AML private actions. The judicial interpretation contains 16 articles covering standing of plaintiffs, jurisdiction, burden of proof, evidentiary rules, expert witness, the judicial process, form of civil liabilities and the statute of limitations. The judicial interpretation entered into force on June 1 2012.

Standing of plaintiffs

The judicial interpretation specifies that an individual, legal personal or other entity that is harmed by monopolistic acts or that has disputes over anti-competitive contract clauses or by-laws of trade associations has the standing to bring an AML civil action. It confirms that a plaintiff can either bring a tort action or a non-tortious action, for example, to invalidate clauses in a contract or by-laws of trade associations that are in violation of the AML. In the latter case, the plaintiff usually does not have to prove that it suffers actual damages.

Compared to the draft provisions, it is less apparent whether indirect purchasers still have the standing to sue. Operators who implement a monopolistic agreement or abuse their market dominance not only directly harm the counterparties but also may harm indirect purchasers, including the ultimate consumers. For example, if a manufacturer requests a retailer to maintain a minimum resale price to consumers, it may fall under a vertical monopolistic agreement prohibited by Article 14 of the AML. Under this scenario, the party directly harmed may be the retailer which has a direct contractual relationship with the manufacturer. The consumers, who purchased the goods from the retailer, on the other hand, may also be indirectly harmed.

Article 4 of the draft provisions provides that operators and consumers who are harmed by monopolistic acts have the standing to file AML civil actions. During an interview with the press about the draft provisions, the head of the Intellectual Property Division of the Supreme Court expressly confirmed that indirectly harmed parties and especially indirectly harmed consumers, have the standing as plaintiffs. Although the judicial interpretation does not expressly grant indirect purchasers the right to sue, we understand that as long as an indirect purchaser can prove that he suffers actual damages as a result of the defendant's monopolistic conduct, he shall have the right to sue under the AML.


Back in April 2008, the Supreme Court promulgated the Provisions on the Cause of Action of Civil Cases of the Supreme Court and recognised monopoly disputes, together with various forms of unfair competition disputes, as causes of action under the section of intellectual property disputes. The revised Provisions on the Cause of Action of Civil Cases, which came into effect on April 1 2011, further set out three categories of monopoly disputes, ie, monopoly agreement disputes, abuse of dominance disputes, and concentration of undertakings disputes. The Supreme Court has thus established the rule of centralised jurisdiction such that anti-monopoly civil disputes shall be handled by the intellectual property division of the courts.

The principle of centralised jurisdiction is further clarified in the judicial interpretation, which provide that civil monopoly cases of the first instance shall be heard by intermediate courts in capital cities of the provinces and autonomous regions, in cities separately listed on the State plan, in municipalities directly under the State Council, or by intermediate courts specifically designated by the Supreme Court.

In addition, the judicial interpretation also clarifies that primary courts may also have jurisdiction over civil monopoly cases of the first instance, if approved by the Supreme Court. To empower primary courts with the jurisdiction to hear civil monopoly cases of first instance may encourage more consumers or smaller enterprises to file private actions under the AML.

Relationships with administrative proceeding

Since the AML does not mandate ex ante administrative proceedings, the judicial interpretation recognises that a plaintiff can either directly bring a civil action before the court, or bring a civil action after the decision of the AML enforcement agencies (AMEA) is confirmed effective. The AML enforcement agencies include the National Development and Reform Commission (NDRC), in charge of the price-related monopolistic conducts, the State Administration for Industry and Commerce (SAIC), in charge of the non-price related monopolistic conducts, and the Ministry of Commerce (Mofcom), in charge of merger control review.

In practice, the administrative enforcement process and the judicial process may overlap. The draft provisions have several provisions on how to reconcile this interrelationship. For example, the draft provisions provide that in a follow-on litigation, the parties do not have to bear the burden of proving facts that have already been determined by the AMEA in relation to whether there were actions constituting monopolistic conduct. The draft provisions also provide that when the AMEA is conducting investigation over the alleged monopolistic conduct, the court may decide to suspend the civil lawsuit depending on the circumstances; and even if the AMEA has not yet come to any finding of monopoly, the courts shall still render judgment in related civil actions based on a comprehensive review of the parties' claims.

Unfortunately, the judicial interpretation chooses to stay silent on the above issues. According to the head of the Intellectual Property Division of the Supreme Court in a press interview, issues that are too controversial have all been removed from the judicial interpretation. In practice, the role an administrative decision will play in a follow-on litigation and how the judiciary will interact with AMEAs remains to be tested.

Burden of proof

The judicial interpretation has separately addressed the allocation of burden of proof in a monopoly agreement claim and an abuse of dominance claim.

Monopoly agreement claims

Pursuant to the principles of civil procedural laws, a plaintiff shall bear the burden of proving: the existence of the alleged monopolistic conduct; the damages it claims; and the causal relationship between the alleged monopolistic conduct and the damages. Whether or under what circumstances a plaintiff shall prove the anti-competitive effects of the challenged conduct remained a controversy before the judicial interpretation was promulgated.

According to the draft provisions, a plaintiff does not have to prove that a monopolistic agreement, either horizontal or vertical, has the effect of eliminating or restricting competition if the challenged conduct is expressly listed in the AML as constituting a monopolistic agreement, unless the defendants have enough evidence to prove otherwise.

The judicial interpretation, on the contrary, removed the presumption of anti-competitive effects for vertical agreements, which under the AML include fixing resale price and restricting minimum resale price (RPM). For horizontal monopoly agreements that are explicitly identified in the AML (such as price fixing, output restriction), the judicial interpretation followed the position in the draft provisions, namely the burden is shifted to the defendant to prove the lack of anti-competitive effects of its conduct. As to other types of horizontal monopoly agreements that are not identified in the AML, it will still be the plaintiff's burden to prove that such horizontal agreements have the effect of excluding or restricting competition.

Such a change of position may suggest that the supreme court adopts different standards of proof for horizontal agreements vis-à-vis vertical agreements. According to the head of the Intellectual Property Division of the Supreme Court in a press interview, in most cases, vertical agreements become harmful only if the supplier and/or the buyer has market power. Therefore, in practice, if a plaintiff intends to challenge a vertical agreement, like RPM, it may have to establish that the defendant has market power and that the agreement has anti-competitive effects.

In fact, this was the position taken by a local court in an earlier case. In February 2012, Ruibang, one of Johnson & Johnson (J&J)'s distributors of surgical products in Beijing sued J&J for administering RPM after J&J canceled Ruibang's distribution right due to its failure of abiding by the minimum price set by J&J. The Shanghai No. 1 Intermediate People's Court eventually ruled against Ruibang mainly on the grounds that Ruibang failed to prove that the RPM agreement has anti-competitive effect. The Shanghai court hold that the existence of a RPM clause in itself does not necessarily lead to a monopoly agreement and the plaintiff has to prove that the RPM is anti-competitive and in this regard, the defendant's market share, the competition status of the relevant market should be taken into account.

However, the judicial interpretation only solves the issue of allocation of burden of proof in a private action. It is not clear whether the AMEAs, in particular, the NDRC, who is responsible for overseeing price-related monopoly agreements, will follow suit. After all, the AML itself does not have such differentiated treatment between horizontal monopoly agreement and vertical monopolyagreement.

Abuse of dominance claims

In China, most AML private actions that have been reported thus far relate to claims against abuse of a dominant position. Plaintiffs almost always lost for failure to establish the defendants' dominance. An example is the case in which Tangshan Renren Information Service sued Baidu for abuse of market dominance. On December 18 2009, the First Intermediate Court of Beijing made the first instance decision rejecting Renren's claims, partly on the basis that Renren failed to submit enough evidence to prove Baidu's dominance in the search engine market. The judicial interpretation has a few provisions aiming at alleviating the plaintiffs' burden.

As a general rule, the judicial interpretation provides that the plaintiff shall bear the burden of proof regarding the dominant position of the defendant in the relevant market, and the alleged abusive conducts, whereas the defendant shall bear the burden of proving the justifications of its conduct if it asserts such a defense.

To alleviate the plaintiffs' burden of proof, the judicial interpretation provide that if the defendants are public utility enterprises or other undertakings legally authorised to possess a monopoly position, the court may have a preliminary finding of market dominance on the basis of the market structure and the competition conditions, unless otherwise rebutted by evidence to the contrary.

The judicial interpretation has further clarified that the plaintiff can use information publicly released by the defendant as evidence of its dominance and the court may make a finding of the defendant's dominance on such a basis. This provides for a very helpful way for a plaintiff to establish the defendant's dominant position. Companies with market power should also become more prudent in public promotions of their market positions.

Expert witnesses

Antitrust cases may involve very complex issues that demand industry expertise or economics analysis. The judicial interpretation therefore provides that parties to litigations can apply to the court to entrust one or two specialists to testify at court hearings. They can also apply to the court to entrust an independent institution, either agreed by both parties, or designated by the court, to conduct market survey or economic analysis. For credibility reasons, it may take some time before independent professional institutions are involved in antitrust private actions. Nevertheless, expert witnesses have already been employed in the court hearing held by the Guangdong Higher People's Court on April 18 2012 for the Qihoo v. Tencent case. Qihoo sued Tencent for abusing its dominance in the market of online instant communications services and claimed damages of Rmb150 million.

Going forward

Since the enactment of the AML in August 2008, numerous antitrust private actions have been filed. However, there are barely any cases where the court ruled in favour of the plaintiff. More often, the courts ruled against the plaintiffs due to their failure of meeting the burden of proof. The judicial interpretation has made great efforts in filling the gap between the AML and its implementation in civil litigations.

A lot still remains uncertain. For example, what civil action can a private party file in relation to a merger control decision made by the Ministry of Commerce? Will the court issue a final judgment before an administrative investigation of the same challenged conduct is wrapped up? On August 31 2012, the revised Civil Procedure Law was publisheded and will become effective from January 1 2013. The revised Civil Procedure Law includes an article allowing entities stipulated by law to file public interest litigations against conducts that harm social public interests, such as polluting the environment, damaging the legal rights and interests of many consumers. Will this open the door for AML public interest litigations?

Despite these ambiguities, the judicial interpretation has laid a solid foundation for the development of antitrust judicial reviews in China. It is expected that along with the AML administrative enforcement, AML private actions will play an increasingly important role in shaping the antitrust regime in China.

Susan Ning

King & Wood Mallesons
40th Floor , Office Tower A
Beijing Fortune Plaza
7 Dongsanhuan Zhonglu
Chaoyang District
Beijing 100020

T: +86 10 5878 5200

Susan Ning joined King & Wood Mallesons in 1995. She is a senior partner and leads the international trade and antitrust & competition group. Susan was one of the earliest Chinese lawyers to practice international trade and investment law. She has been widely recognised for her international trade and investment work, which covers a wide range of issues, including anti-dumping, safeguards, countervailing and WTO dispute settlements. Since 2003 she has focused on two main areas: securing Ministry of Commerce (Mofcom) merger clearance for clients and advising on China’s Anti-Monopoly Law (AML) compliance issues, during which she has undertaken more than 90 antitrust merger control filings on behalf of blue-chip clients, which mostly consist of multinational corporations. Prior to the enactment of the relevant regulations in 2003, Susan took a very active role in assisting and consulting with the Chinese government on the drafting of the law. Since the enactment of the AML in 2008, she continued to be actively involved in drafting regulations and guidelines accompanying the AML. Through these consultations (and through her prior work with the Chinese government on WTO issues), Susan built and maintained a close working relationship with the antitrust authorities in China.

Hazel Yin

King & Wood Mallesons
40th Floor , Office Tower A
Beijing Fortune Plaza
7 Dongsanhuan Zhonglu
Chaoyang District
Beijing 100020

T: +86 10 5878 5200

Hazel Yin joined King & Wood Mallesons in 2004 and is a senior associate in the firm’s antitrust & competition group in Beijing. Her current practice includes: representing clients to obtain antitrust clearance from Mofcom; providing antitrust advice on business models, distribution arrangements, pricing policies; advising clients in abuse of dominance litigations; advising clients of deal structures from the antitrust perspective; advising client of competition strategies; representing client in antitrust and anti-unfair competition administrative proceedings; providing anti-unfair competition advisory services. Hazel has advised multinationals in the mining, agriculture, automobile, beverages, high-tech, trading, and manufacturing industries in both antitrust filings in China to Mofcom and on compliance issues.

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