Uneasy options - AML enforcement through judicial or administration system?

Since the AML took effect on August 1 2008, the court has only issued a small number of AML-related decisions, the vast majority of which deal with single-firm monopolies. In these cases, the complainants often find unfriendly courts that narrowly interpret the law and impose a relatively high evidentiary burden on the plaintiff. On the other hand, the SAIC's broad investigative powers may allow the complainant to hope for the best, even though its view on some important AML issues is unclear due to the secrecy surrounding its investigations or decisions.

Narrow interpretations of the AML

The court, in published AML decisions, has narrowly interpreted the relevant AML provisions on the relevant market, market dominance and the abuse of market dominance generally in favour of the party accused of violating the AML. For example, regarding the scope of a relevant market, which is probably the single most important issue in an AML dispute, whether certain goods or services are substitutable is a key question. The court has favoured a side-by-side comparison of the prices and features of the products or services in the dispute to gauge the extent to which a consumer will switch to another product or service in response to a price increase, an analytical framework that is likely to lead to a broader relevant market.

In Li Fangping v. China Netcom, the plaintiff accused the defendant, one of the largest telecommunications service providers in China, of abusing its dominance of landline telephone services. The court examined different forms of telecommunications services on the market and determined that the relevant market consists of services for landline telephones, mobile phones, little personal access handsets (xiaolingtong) and other forms of telecommunications because they are similar in terms of price and they all allow people to speak to each other remotely. The court did not conduct any study on whether consumers would switch to another product in response to a price increase of one product in determining the scope of the relevant market. In an age of information revolution and given the breakneck speed of technological advancements, telecommunications service providers tend to target their products and services at a particular group of loyal customers. For example, it is doubtful whether landlines users, who typically comprise home owners and business entities, will switch to mobile phones or xiaolingtongs if the price for landlines goes up.

It is unclear whether the SAIC will be more likely to take a demand-side approach than the court does, as the SAIC seldom makes its investigations public. In the Guidelines on the Definition of Relevant Market (国务院反垄断委员会关于相关市场界定的指南) published by the State Council, consumer's perspectives concerning the substitutability of goods and services is officially endorsed as the test for defining the scope of the relevant market. Moreover, the most recent SAIC AML regulations, effective February 1 2011, include a non-exhaustive list of business conduct that would be prohibited under the AML, and identify factors to be considered in determining whether such conduct in certain cases may be justified. The detailed guidance provided by these regulations will help create certainty for firms seeking to resolve their AML disputes.

High evidentiary burden

In Chinese civil litigations, each party bears the burden to prove each element of its claims, and the court is required to decide on factual questions based on the preponderance of evidence if the facts are in dispute. However, the level of burden to prevail on each party's legal claim is not clear and may depend on the specifics of the case. In all reported AML decisions, the court appears to have set a high burden of proof for plaintiffs to support their AML claims.

In the case of Baidu, the Chinese Internet search engine, the plaintiff presented two news articles: a report from China Securities Journal, and a news article from Baidu's own website to support its claim that Baidu had the dominant share in the search engine market. The court ruled that these two articles were not sufficient to prove Baidu's market share because (1) it is unclear whether the market used to calculate market share in these articles is the same as the relevant market accepted by the court in the case; and (2) the articles did not disclose how exactly the market shares were calculated. Thus, the plaintiff in the AML cases faces a conundrum: it has to proffer a scope of the relevant market and present evidence on the market share of the defendant in such market. It also needs to collect and present evidence on different relevant markets and the defendant's market share therein in case its proffered position is not adopted by the court.

Unlike the court, the SAIC has the broad power to conduct investigations, such as inspecting premises, questioning employees, detaining evidence, and forcing the suspected companies to submit business records or respond to its inquiries. The broad investigative powers allow the SAIC to not rely heavily on evidence presented by the complainant so that it may initiate an investigation with only prima facie evidence of AML violations.

Involvement by the parties

Rules and standards applied in civil AML cases are governed by PRC Civil Procedure Law (中华人民共和国民事诉讼法), which affords litigants equal rights in participating in the civil proceeding. The court will rule on cases based on the strength of each party's arguments. On the other hand, because the SAIC's investigation is entirely ex parte and shrouded in secrecy, the complainant who initiated the investigation will not play a meaningful role throughout the course of the investigation, and may even be shut out from the process altogether.

The plaintiff's right to choose among courts that have jurisdiction to file its claim, withdraw the case at any time during the litigation, and settle with the defendant with little interference from the court may also add to the benefits that a civil case presents to victims of perceived AML violations compared to SAIC investigations, even though an SAIC complainant does have the opportunity to constantly follow up on the progress of the investigation.

Moving forward

The court so far has shown great reluctance to side with the plaintiffs in past AML disputes. In some of these cases, plaintiffs cannot be blamed for picking the wrong fight, with the defendants being some of the largest companies in their respective industries and presumably easy targets for AML claims. However, the plaintiffs in these cases were unable to obtain favourable court judgments, mostly due to the reason that they did not satisfy the burden of proof.

The SAIC appears more likely to accept AML complaints. In the two and a half years since the AML went into effect, the SAIC has accepted hundreds of complaints concerning alleged AML violations. In addition, AML violators under SAIC investigation may voluntarily change their business practices to be in line with AML requirements due to the SAIC's broad powers to issue injunctive reliefs and impose fines. However, SAIC complainants may also be dissatisfied with their lack of involvement in SAIC investigations and the fact that, unlike the court, the SAIC faces no statutory mandate to conclude a case in a timely manner.

Victims of the perceived anti-monopoly practices undoubtedly face an uphill battle before both the court and the SAIC. They have to overcome the court's manifested reluctance to find AML violations and the SAIC's idiosyncratic investigative practices. When facing a dilemma, companies such as Qihoo 360 may elect to pursue its course with the SAIC, whereas others may believe the court is a better place to seek redress of their grievances. In any event, it is certain that the boundaries of the AML will be repeatedly tested before the court and the SAIC, and the AML will continue to play a critical role in regulating the market competition.

Fang Qi, Fangda Partners, Beijing