Risks from China anti-monopoly lawsuits increase

Article 50 of the AML entitles individual persons and entities to bring private actions in respect of monopolistic conduct and to claim damages. The term “monopolistic conduct”, as defined in Article 3 of the AML, includes monopoly agreements, abuse of dominant market positions, and concentrations between undertakings that have, or may have, the effect of eliminating or restricting competition. Among the three types of monopolistic conduct, those most often cited as cause of action in private actions so far are activities abusing market dominant positions, which, as prescribed by Article 17 of the AML, include:

(i) unfair high selling price or low buying price;

(ii) predatory pricing;

(iii) refusal to deal;

(iv) exclusive dealing;

(v) tying and discriminatory treatment without justification; and

(vi) other abusive behaviour as determined by the AML enforcement agencies.

In recent private anti-monopoly litigation, monopolistic conduct asserted by the plaintiff include:

(i) procuring a third party to break its business relationship with its competitors;

(ii) restricting the plaintiff's website being shown in search results;

(iii) excessive pricing;

(iv) discriminatory treatment; and

(v) price fixing.

Some of the allegations exceed the scope of activities expressly stipulated in the AML. Although the courts have not rendered any judgment, the fact that they accepted these cases indicates that monopolistic conduct subject to judicial review may be interpreted broadly to include those activities which are not clearly provided for in the AML.

Element of fault

Under the PRC law regime, generally speaking, in order to establish a tort claim (of which a private claim under the AML is one type), the plaintiff must prove that the defendant is at fault unless otherwise provided by the law. In other words, the burden is on the plaintiff to prove that the defendant knew or ought to have known that the conduct complained of would lead to loss being suffered by the defendant.

It is not clear, however, whether this element of fault is required to be proved by the plaintiff in order to establish an anti-monopoly claim under the AML. Nor has any existing private action established any rule on this. According to the Consultation Minutes, there are three opinions from the panellists: (i) that the plaintiff must prove that the defendant knew or should have known that damages would be caused by its monopolistic activities (i.e. the general test for a tort claim); (ii) that the defendant should bear liabilities for its monopolistic activities regardless whether there is reasonable ground for it to contemplate that possible damages may be caused by such activities (i.e. it is one of strict liability); and (iii) that the defendant is presumed to know that damages would be caused by its monopolistic activities unless it can prove to the contrary, which is the majority opinion.

If the majority opinion is adopted in future practice, the plaintiff in an anti-monopoly litigation will not have the burden of proving fault on the part of the defendant. Rather, once a monopolistic conduct is established as a matter of fact, the defendant has the burden to prove that the monopolistic conduct complained of can be justified by legitimate reasons, including those stipulated in Article 15 of the AML.

Calculation of damages

As a general rule under the PRC law regime, if a plaintiff successfully establishes a tort claim against a defendant, it will be entitled to damages at an amount equivalent to its actual losses, including direct losses and the loss of profits which can be reasonably expected but for the tortious activities by the defendant.

The panellists participating in the consultation meeting realised the difficulty of proving actual damages arising from monopolistic activities and agreed with the approach adopted by the draft judicial opinion on the AML that, in cases where it is difficult to prove actual amount of damages, the court may determine the amount of damages according to, among other factors, the nature of monopolistic activities, the length of period of monopolistic activities and the benefits received by the defendant from its monopolistic activities. One panellist further suggested that statutory damages should be included in the judicial opinion on the AML.

The panellist also suggested that, in the case of horizontal cartels and core cartels, the court may, on the motion by the plaintiff and according to the specific situation in the case, render punitive damages. If this suggestion is accepted, it will be the first time that the PRC court has officially recognised punitive damages in civil claims.

Issues on procedure and remedy in private anti-monopoly litigation

Tribunal and jurisdictions

Considering the close relationship between anti-monopoly cases and intellectual property cases, the Supreme People's Court issued a notice calling for the formation of tribunals specialised in trying intellectual property disputes, anti-monopoly disputes and certain unfair competition disputes. Pursuant to the notice, in December 2008 the Shanghai No. 2 Intermediate People's Court appointed a special anti-monopoly panel with judges having an intellectual property and administrative law background. The Intermediate People's Court of Chengdu established a Collegial Bench for anti-monopoly cases under its Intellectual Property Division in April 2009.

According to the Meeting Minutes, with respect to the jurisdiction of courts the panellists agree with the draft judicial opinion on the AML which provides that the first instance of trial of all anti-monopoly disputes must be handled by intermediate courts in Shanghai, Beijing, Tianjin, Chongqing and capitals of provinces and autonomous regions, as well as other intermediate courts designated by the Supreme Court. In a tort case or a breach of contract case handled by a district court or a court which is not authorised to hear anti-monopoly cases, if the defendant raises a defence or counterclaim on the basis under the AML, such district court or unauthorised intermediate court must forward the case to a court with authority to hear anti-monopoly cases unless such district court or unauthorised intermediate court considers such defence or counterclaim obviously lacking in standing or evidential support; such district court or unauthorised intermediate court may directly overrule the defence or counterclaim.

Qualified plaintiffs and class actions

The PRC Civil Procedure Law (中华人民共和国民事诉讼法) requires that the plaintiff in a civil case must be a natural person or entity which has direct interests in the case. The panellists in the consultation meeting considered that, at the current stage, the judicial resources for handling anti-monopoly cases are still limited and therefore it is advisable to limit the scope of qualified plaintiffs who may bring lawsuits under the AML to those customers and business operators which have been harmed by monopolistic activities. In other words, individuals or entities may not be allowed to initiate anti-monopoly litigation if they do not actually and directly suffer losses from monopolistic activities.

As such, public interest lawsuits are not available in China. However, some recent cases indicate a clear appetite to use private anti-monopoly suits under the AML in a quasi-public interest advocacy role, including the case against China Netcom Beijing Branch for discriminatory treatment, and the case against Sinopec Beijing Oil Products Company for excessive pricing. These cases were initiated by local lawyers as customers who have demonstrated a clear intention to test the power of the AML in regulating the behaviour of business giants.

Since monopolistic activities may harm a large number of consumers and competitors, the rules for anti-monopoly actions brought by or on behalf on multiple plaintiffs have long been a hotly debated issue. The Civil Procedure Law has principle provisions regulating (i) joint actions where two or more plaintiffs represent themselves in an action; (ii) representative actions where a certain number of plaintiffs appoint several representatives to represent them in an action; and (iii) class actions where an unknown number of plaintiffs appoint several representatives to represent them in an action. The panellists participating in the consultation meeting generally agreed with application of these types of actions in anti-monopoly cases but they were concerned about the courts' capability to handle complicated class actions. They were not therefore in favour of the class action rules as found in the US and suggested limiting the scope of application of class actions in China.

In addition, most of the panellists agreed that consumer organisations or trade associations may initiate anti-monopoly class litigation on behalf and for the benefit of their members, who are allowed to opt-out of the litigation. However, some panellists expressed concerns over whether trade associations are able to represent the interests of its members because, in most cases, they represent the interests of big players in the relevant industry.

Rules of evidence

As a principle in the Civil Procedure Law, the burden of proof lies with the claimant. Therefore the plaintiff and defendant bear the burden to prove the claim and defence respectively. Although it is still unclear whether the plaintiff in an anti-monopoly litigation bears the burden to prove fault on the part of the defendant (as discussed above), the prevailing opinion is that the plaintiff needs to prove monopolistic activities and damages (of which the amount can be presumed), and the causation between them. The defendant bears the burden to prove its defences (including exemptions under Article 15 and justifications under Article 17 of the AML) or to rebut a presumption of dominant market position under Article 19 of the AML. Some judges take the opinion, as stated in their articles, that the plaintiff should not have the burden to prove the causation between the asserted monopolistic activities and the damages suffered and, rather, the defendant should bear the burden to prove the causal link does not exist..

According to the Meeting Minutes, it is well accepted that a finding by a competent administrative body of monopolistic activity is a prima facie evidence of infringement in related anti-monopoly litigation. Nevertheless, a defendant may challenge such administrative findings in the civil claim. The panellists also emphasised during the consultation meeting that the evidence rule should not discourage business operators' co-operation with administrative bodies. It is therefore suggested that any commitment to stop suspicious monopolistic activity made in accordance with Article 45 of the AML cannot be used as evidence to prove the existence of monopolistic activities.

Permanent and preliminary injunctions

There were two issues in relation to injunctions which are controversial and where different judges have different views. The first issue is whether courts may award permanent injunctions by themselves. Some judges consider that the right to issue injunctive orders on monopolistic activity should vest in the administrative authority and the court may only accept appeals against the making of such injunctive orders. However, the Meeting Minutes indicate that the prevailing opinion is that the courts should be given the power to issue injunctive orders.

The second controversy is whether preliminary injunctions should be available in anti-monopoly litigation. Under the Civil Procedure Law, preliminary injunctions are available for special emergency cases usually only where the plaintiff's livelihood is at risk of being jeopardised, or where the plaintiff is an enterprise which will face bankruptcy absent the preliminary injunction. In practice, it is very difficult (if not impossible) to obtain a preliminary injunction in commercial cases except for certain intellectual property infringement cases in which preliminary injunction is provided for in order to meet the TRIPs standard. Some judges take the view that preliminary injunctions should also be available in anti-monopoly cases as they are in intellectual property infringement cases.

Conclusions

The availability of civil litigation under the AML, and the establishment of substantial (and still developing) civil procedural rules, demonstrate China's efforts to promote competition. According to some news reports, the Supreme People's Court will complete and issue its judicial opinion on the AML by the end of 2009 and the amount of private litigation initiated under the AML is expected to increase.

Leading Chinese and multinational companies are clearly in the spotlight and should carefully assess litigation risks and review their business practices to ensure AML compliance.

Yang Xun, Hong Kong associate, and Jessica Su, Beijing senior legal consultant, Freshfields Bruckhaus Deringer