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China¡¯s Anti-Monopoly Law Makes it Easier to Sue in Cases of Anti-Competitive Conduct

Recently, the Supreme People¡¯s Court of China issued final rules to build a working framework for civil anti-monopoly cases brought under the country¡¯s Anti-Monopoly Law. The rules will take effect on 1 June 2012.

China¡¯s Supreme People¡¯s Court (SPC) finalized and issued the ¡°Relevant Issues Concerning the Application of Law in the Trial of Civil Monopoly Dispute Cases¡± on 8 May 2012. The rules are based on draft rules the SPC issued on 25 April 2011. (For comments on the draft rules see China¡¯s Supreme Court Drafts Regulation for Civil Antitrust Cases.) The rules seek to build a working judicial framework for civil anti-monopoly disputes. The rules will take effect on 1 June 2012.

Compared to the draft rules, the major changes are as follows:

Litigating parties

Individuals (legal and natural persons) can bring their disputes under the Anti-Monopoly Law (AML) to the court (Article 1).

A plaintiff can bring its dispute directly to the court. Alternatively, a plaintiff can wait until the administrative decision of a governmental agency comes into force (Article 2). There had been some residual speculation that private parties could not do so even though there have been more than a dozen AML cases accepted by the intermediate courts in China.


Subject to the approval of the SPC, a court at the basic level can have jurisdiction to hear AML cases (Article 3.2). In general AML cases have only been accepted by intermediate or higher courts. The new rules now clarify that if the SPC designates a lower court, even one at the lowest ¡°basic¡± level, it is able to hear AML cases. It can be expected that basic-level courts in large cities such as Shanghai, Beijing and Guangzhou will be designated to hear AML cases.

Burden of Proof

For disputes concerning a horizontal monopoly agreement (such as an agreement involving price fixing, restrictions on sales or production, market-sharing, boycotts or restricting technology development), the rules shift the burden of proof to the defendant to prove that the agreement does not have any effect of eliminating or restricting competition (Article 7).

It is generally difficult to conclusively prove that such agreements can have no anti-competitive effect, and such a rule means private litigation will likely be difficult to defend in these cases, especially if the case is in a ¡°grey area¡±. Of course, companies often argue that agreements like these are exempt from the AML because they fall within one of the AML-listed beneficial agreement types and could be exempted. For that reason, a huge increase in litigation for these types of agreements is not anticipated¡ªone should have already been seen regardless of the new rule.

Note: The rules do not mention whether or not the burden of proof would be shifted from the plaintiff to the defendant in case of a vertical monopoly agreement.

For disputes on abuse of a dominant market position, the burden of proof is still on a plaintiff to prove that a defendant has a dominant market position in a relevant market, and that the defendant has abused its dominance (Article 8).

For a civil lawsuit against a public undertaking¡¯s monopoly activities, or a business operator that obtains its monopolistic position by law, a court may, at its own discretion, make a determination that the concerned defendant has a dominant market position in a relevant market. However, this determination can be rebutted (Article 9). Under the new rules, entities that have a public monopoly (e.g., some large state-owned enterprises) are presumed to be dominant, so a private litigant does not have to prove dominance if such an entity is abusing its position in the market.

Self-admission Evidence

The information a defendant disseminates to the public can be used as admission of evidence against the defendant, however the defendant can bring evidence to rebut this presumption (Article 10).

This is a big difference introduced by the new SPC rules. It¡¯s clear that official company statements showing a company is dominant on the market, such as those made in press releases or on websites, are to be accepted as proof of the statement, unless it is rebutted by the company. This is a reversal ofthe normal burden of proof. For example, if a company says on its website or in a press release that it has more than half of the market, the company is presumed to be dominant unless the company proves otherwise. This rule would make it a lot easier to bring a case of abuse of dominance in China. Some of the earlier cases failed because the plaintiff could not prove the defendant was dominant in a particular market even though the defendant had issued a statement that it had more than 50 percent of the market.

Lawyers will now trawl company statements and (prior, as well as existing) websites looking for statements that can be used in litigation, and use this as a fact. The defendant company will then have to bring sufficient proof to rebut its prior statements. The new rules mean companies with significant market shares in China will have to be much more careful with what they state publicly and to have good compliance mechanisms in place to stop publication of inappropriate statements. They will have to ensure statements about things such as size in relation to other companies in the market, market influence, market characteristics and similar statements are made in such a way that they cannot be used against them in private litigation.

It seems the SPC drew lessons from previous litigation, such as Renren v. Baidu case. In 2009, Baidu, the Chinese flagship search engine provider, was sued by Renren, a Chinese corporate client, for alleged abuse of Baidu¡¯s dominant market position. In this first private lawsuit brought under the AML of China, Renren lost the case.

Renren sued Baidu in the Beijing First Intermediate People¡¯s Court, alleging Baidu had abused its dominant market position in violation of the AML. Article 17 of the AML provides for seven prohibited violations in respect to abuse of dominant market position; however, news reports did not indicate what provision Renren was citing under Article 17. Renren sought to require Baidu to un-block its website and demanded compensation of more than RMB 1,100,000.

In support of its claims, Renren pointed to several industry reports that stated Baidu¡¯s market share is well above the 50 per cent level that gives rise to a presumption of dominance under the AML. Most notably, Renren cited a press release issued by Baidu itself in October 2008, in which Baidu asserted its market share exceeded 70 percent. Renren went on to argue that, as a consequence of Baidu¡¯s dominance, it had no choice but to seek a listing on Baidu, and that Baidu¡¯s ranking-by-bidding architecture is the kind of forced transaction prohibited under the AML. However, surprisingly, the court did not admit the evidence. Under the new SPC rules, the court should have admitted the evidence, then allowed Baidu to submit other evidence to rebut its previous prejudicial statement (i.e., the previous press release). Obviously, the SPC noticed the issue, and modified the rules accordingly.

Expert Witnesses

The plaintiff and the defendant can only submit one or two experts as expert witnesses (Article 12). There was no limitation in number in the draft rules.

Either the plaintiff or defendant may appoint a professional organization or individual to conduct a market investigation or issue an economic report. Alternatively, both parties can make joint recommendations on such a professional organization or individual. If there is a dispute as to the recommendation, the court may designate one for the two parties (Article 13). This means parties in a lawsuit can agree on an expert to conduct a market analysis or, failing agreement, the court can appoint an expert for them. The pressure will therefore be on the parties to agree on an expert as the court can appoint one if they disagree.

Since the introduction of China¡¯s AML in August 2008, Chinese courts have experimented with various methods of civil dispute adjudication based on breach of the AML. In general, China¡¯s courts have very limited judicial experience with such cases. A number of civil cases have been brought before the courts, but few, if any, have resulted in a successful judgment for breach of the AML.

According to statistics (albeit incomplete), there have been no less than 14 civil lawsuits based on the AML brought before China¡¯s courts since it came into force. Only two of the cases concern an agreement allegedly prohibited by the AML. The remainder concern abuse of dominant market position. Of those, two were settled, three are still pending, six ended with withdrawal or non-prosecution or loss of the lawsuit, and the remaining one had an unknown outcome. Based on publicly available information, none of the plaintiffs in the above cases have ever won a single case, for which there seems to be a common reason: it was very difficult for the plaintiff to meet its burden of proof. To address the apparent imbalance in the ratio of success between plaintiffs and defendants, the new rules of China¡¯s Supreme People¡¯s Court have been issued.

The new SPC rules will have some impact on current cases, such as Qihoo v. Tencent (see An RMB 150-Million Litigation in China for the Abuse of a Dominant Market Position for more information). For example, Qihoo argues that Tencent has a dominant position because the data from iResearch (a third-party market researcher) shows the market share of Tencent amounts to 76.2 per cent, and a study report issued by the China Internet Network Information Centre (CNNIC) also shows the penetration rate of QQ software is 97 per cent. It seems the market players have been learning from the case of Renren v. Baidu. Tencent has been careful enough in that it did not create press releases indicating it was dominant on the market, thereby forcing the plaintiff to prove that the defendant was dominant and had then abused its dominance. However, Tencent will have to rebut the research results of iResearch and CNNIC.

Web link: http://www.jdsupra.com/post/documentViewer.aspx?fid=c24036d6-d066-4553-96c1-9f7da615a22b

Lehman, Lee & Xu is a top-tier Chinese law firm specializing in corporate, commercial, intellectual property, and labor and employment matters. For further information on any issue discussed in this edition of China IP In The News or for all other enquiries, please e-mail us at mail@lehmanlaw.com or visit our website at www.lehmanlaw.com and Mongolia www.lehmanlaw.mn.

Lehman, Lee & Xu Mongolia is one of the first and only international law firms with a full time presence in Mongolia.  Our Ulaanbaatar office is staffed with resident foreign legal consultants having significant experience in Mongolia and qualified Mongolian attorneys. The firm’s foreign legal consultants and local attorneys are fully acquainted and experienced with Mongolia’s laws and legal system, business climate and political affairs. For any Mongolian legal matters please refer to our Mongolian website www.lehmanlaw.mn.

© Lehman, Lee & Xu 2012.
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