China's Anti-Monopoly Law (the AML), which entered into force on 1 August 2008, provides that any undertaking violating the AML and causing damage to others shall "bear civil liability". However, no procedural rules regarding antitrust litigation in China had previously been provided. This has now changed: China's Supreme People's Court's Rules Concerning the Application of the Law in Civil Proceedings Arising as a Result of Monopolistic Conduct (the SPC Rules), which entered into force on 1 June 2012, provide guidance on a number of important issues relevant to private antitrust actions, including in relation to standing, the allocation of jurisdiction amongst the PRC courts, the allocation of the burden of proof between plaintiff and defendant, the appointment of independent experts and the statute of limitations applying to private actions under the AML. The SPC Rules now provide a basic framework to guide the hearing of civil disputes under the AML, and set the scene for an increase in private actions in the coming years. By adopting a more ambiguous position on certain key issues, the SPC Rules possibly represent a step backwards compared with previous draft versions.
Although the SPC Rules might have suggested that China had opened a Pandora's box of antitrust private litigation, they also omit certain of the more plaintiff-friendly provisions of the earlier draft rules, including the provision for court-directed discovery and the presumption of dominance for public utilities and other legally-sanctioned monopolies. They also abandon the express option of collective actions. A landmark ruling in a private action adopted by the Shanghai First Intermediate People's Court 15 days before the official entry into force of the SPC Rules, Bangrui Yonghe v. Johnson & Johnson, seems to confirm the relatively defendant-friendly approach adopted so far by Chinese courts.
This memorandum summarizes the SPC Rules and gives some guidance to companies as to how antitrust litigation is likely to develop in China.
The possibility of private civil actions is directly contemplated by the AML, with Article 50 holding that undertakings shall be subject to civil liability in respect of losses caused to others as a result of their monopolistic conduct. Monopolistic conduct under the AML includes abuse of a dominant position, and anti-competitive agreements such as price fixing1 .
The first private lawsuit under the AML emerged very soon after its entry into force in 20082 , notwithstanding the absence of detailed guidance regarding the conduct of such proceedings. By the end of 2011, some 61 cases had been brought before the people's courts in China, 53 of which have been concluded. In parallel with these developments, the Supreme People's Court has been working steadily since 2008 in drafting a detailed judicial interpretation concerning procedural issues in AML-related private disputes. On 25 April 2011, the Supreme People's Court issued the final draft version of its implementing rules for public comment (the 2011 Draft Rules), which were followed by the SPC Rules on 8 May 2012.
In the reported private anti-monopoly actions brought to trial thus far, plaintiffs have very rarely been successful. In light of this trend, one of the chief aims of the SPC Rules has been to address some of the perceived difficulties for plaintiffs in initiating private actions under the AML, particularly some of the evidentiary difficulties in cases of this kind given the limited role of discovery in China. The SPC Rules have confirmed the existing practice by removing some of the explicit provisions of the 2011 Draft Rules on discovery.
Article 1 of the SPC Rules confers standing for the initiation of a private civil action under the AML in respect of two types of cases: first, cases where the plaintiff has suffered losses as a result of monopolistic conduct, and second, cases where the plaintiff is involved in a dispute because certain contractual provisions, or the provisions of the articles of association of a trade association, violate the AML3 . This is in line with the approach in other jurisdictions such as the European Union, where any legal person who has suffered loss or damage as a result of a defendant's infringement of the relevant law can bring a claim. In contrast, U.S. antitrust laws require a plaintiff to demonstrate "antitrust injury"- i.e., a harm to competition, not simply that the plaintiff has suffered losses4 .
The party initiating the action under the AML may be a natural person, a legal person or an organisation of some other kind. According to Article 2 of the SPC Rules, any private action under the AML must also satisfy the general conditions for the acceptance by the courts of civil actions, which are set out in the Civil Procedure Law5 . Interestingly, it cannot be excluded that parties to monopolistic arrangements could also bring a case against their own monopolistic conduct, requesting a declaration from the court that such monopolistic conduct is invalid or unenforceable.
According to Article 3 of the SPC Rules, private actions under the AML are to be heard in the first instance by the intermediate people's courts in those municipalities which are seats of government for the provinces, autonomous regions and centrally administered municipalities, or by such other intermediate courts as are appointed by the Supreme People's Court.
According to the press release issued by the Supreme People's Court alongside the announcement of the SPC Rules6 (the SPC Press Release), this provision reflects a desire on the part of the Chinese judicial authorities to allocate jurisdiction over private anti-monopoly actions to courts with a sufficient level of experience and sophistication to deal with the complex and technical issues involved in antitrust cases. It is also hoped that this will lead to the development of relatively consistent standards of adjudication within a relatively short period of time. In exceptional cases, upon approval by the Supreme People's Court, an AML-related private action may be heard by a people's court at the local level.
In terms of the territorial jurisdiction of the relevant intermediate courts, private actions under the AML follow the general principle under the Civil Procedure Law, i.e. the people's court of the place where the defendant has its domicile has territorial jurisdiction7 .
Relationship between administrative and judicial decision-making
Article 2 of the SPC Rules states that a plaintiff is permitted to initiate an AML-related private action directly before the people's courts, or may otherwise initiate an action before the people's courts upon the entry into force of a judgment by the anti-monopoly enforcement authorities that the conduct in question constitutes monopolistic conduct.
According to the SPC Press Release, this provision does not require that the alleged monopolistic conduct had been declared anti-competitive by any of the anti-monopoly enforcement authorities pursuant to a legally binding decision8 .
(a) Parallel investigations before the courts and the administrations
What is less clear is whether a plaintiff can initiate a private action in the courts in parallel with an investigation by the anti-monopoly enforcement authorities, i.e., while an investigation by the NDRC or the SAIC is still underway in respect of the same facts. The implication under Article 2 appears to be that, if the anti-monopoly enforcement authorities have commenced an investigation, the plaintiff cannot commence a private action in the courts until the authorities have concluded their investigation. This would seem to be supported by the provisions relating to the calculation of the limitation period for private anti-monopoly actions (see discussion below), according to which the limitation period for private anti-monopoly actions is suspended where the plaintiff reports its case for investigation by the anti-monopoly enforcement authorities.
This is in contrast to the position in the U.S., where there is no formal requirement that private litigation be stayed in the event of a parallel investigation by the authorities. In fact, plaintiffs will often file a lawsuit within days of the announcement of an investigation9 . Moreover, in civil challenges to non-criminal conduct, in addition to seeking judicial relief, private plaintiffs will sometimes also complain to the antitrust agencies, depending on the type of remedy sought. In the EU, a plaintiff can start a standalone private action at the same time the European Commission is carrying on an investigation in the same area. However, national courts of the EU Member States cannot take a decision which would run counter to an infringement decision which has already been adopted by the European Commission. In addition, national courts are also required to avoid adopting decisions which would conflict with a decision contemplated by the European Commission in proceedings it has initiated10 . To that effect, Member States' courts are obliged to assess whether they need to stay proceedings before trial on the basis that they overlap with an area which the European Commission is investigating.
(b) Findings of anti-monopoly enforcement authorities may not bind courts
Another related question regarding the relationship between private actions and administrative enforcement of the AML that the SPC Rules also fail to directly address is whether the courts are obliged to follow any factual and legal conclusions reached by the anti-monopoly enforcement authorities in any prior investigations involving the same facts, and vice versa. The 2011 Draft Rules were clearer on this point, stating that factual determinations contained in decisions made by the anti-monopoly enforcement authorities did not require further proof in subsequent court proceedings, except where the party to the court proceedings was able to adduce new evidence capable of rebutting the factual determination. The 2011 Draft Rules also expressly stated that the courts were obliged to conduct a full hearing of a plaintiff's AML-related claim, even where the anti-monopoly enforcement authorities had completed an investigation of the conduct in question and concluded that it did not constitute monopolistic conduct. These provisions do not appear in the final version of the SPC Rules.
The removal of these provisions from the SPC Rules most likely reflects the sensitivity of the relevant issues, which touch upon the jurisdiction and competence of the judicial and administrative authorities in China. By refraining from making any definitive statements on these issues, the SPC Rules avoid stepping on any proverbial toes. The most that can be drawn from the SPC Rules is that the courts might not commence hearing civil claims in respect of alleged monopolistic conduct that is the subject of an ongoing investigation by the SAIC or the NDRC. When it comes to the binding nature of any decisions or factual determinations reached by the anti-monopoly enforcement authorities in subsequent court proceedings, however, the position is far from clear. Similarly, as far as the anti-monopoly enforcement authorities are concerned, it is unclear what significance a prior binding court judgment would have for a later investigation into the same case by the SAIC or the NDRC.
The position in China is different from that of the U.S., which it is more defendants friendly. In the U.S., if an enforcement action has resulted in a final court judgement, factual determinations will generally be given preclusive effect against the defendant in subsequent litigation11 . This is also the position in the UK, where the finding of infringement by a competition authority will be taken as evidence by a court in subsequent court proceedings. Under the German Competition Law, civil courts are also bound by a finding that an infringement has occurred, to the extent such a finding was made in a final decision by the cartel authority, the European Commission, the competition authority or a court acting as such in any other Member State of the European Union.
The allocation of the burden of proof and other evidence-related provisions
As acknowledged in the SPC Press Release, there are significant evidentiary hurdles involved in the pursuit of private antitrust actions.
For example, it is often difficult for private parties to adduce evidence demonstrating the dominant position of a particular undertaking on a relevant market, or the anti-competitive effects of a particular horizontal agreement, as significant resources and expertise are often necessary in order to collect and analyse the relevant economic and market data, and in many cases the relevant information is of a highly confidential nature. These issues are particularly acute in the Chinese context, where court-ordered discovery at the behest of the parties is not a standard part of civil litigation procedures, and sweeping U.S.-style discovery is unavailable. Although the SPC Rules omit a provision in the 2011 Draft Rules which provided for applications for court-ordered discovery by the parties in certain limited circumstances, the SPC Rules have nevertheless sought to address some of these evidentiary hurdles for private plaintiffs in other ways, clarifying rules regarding the allocation of the burden of proof in AML-related private actions and providing for legal presumptions in certain instances. These rules are discussed further below.
(a) Allocation of burden of proof in respect of anti-competitive effects of a horizontal agreement
Article 7 of the SPC Rules provides that where the monopolistic conduct in question consists of an agreement between competitors of the kinds listed under Article 13(1)(i)-(v) of the AML (including conduct traditionally treated as "hardcore" restraints or "per se" violations of antitrust principles, such as horizontal agreements to fix prices, limit output, divide markets, restrict the purchase or development of new technology or jointly boycott transactions), the defendant shall bear the burden of demonstrating that the relevant agreement does not have the effect of restricting or eliminating competition.
Although the plaintiff will still have the burden of proof in respect of the existence of the agreement itself, this provision means that, once the court is satisfied of the existence of the agreement, the evidentiary onus will be on the defendant to convince the court that the agreement in question does not have the effect of "eliminating or restricting competition" on the market. In this way, the AML and the SPC Rules are somewhat more lenient to defendants than, for example, U.S. antitrust laws, at least with respect to hardcore restraints such as price fixing or market allocation, where liability is established upon mere proof of the agreement12.
For horizontal agreements not addressed in Article 7 of the SPC Rules and all vertical agreements under Article 14 of the AML (including retail price maintenance), the plaintiff will still have the burden of proof in demonstrating both the existence of an agreement and that the agreement eliminates or restricts competition on a relevant market. This is in line with the "rule of reason" principle adopted in the U.S. The recent court decision on the first civil action relating to a vertical monopoly agreement in China, Bangrui Yonghe v. Johnson & Johnson, seems to confirm that the mere existence of a monopolistic agreement (Article 14 of the AML) does not of itself constitute a breach of the AML, even for restraints that in other jurisdictions are sometimes considered as violating antitrust rules due to their mere existence, such as resale price maintenance13 .
(b) Abuse of dominance cases
The plaintiff is also in a more challenging position in the context of abuse of dominance cases, where it holds the burden of proof in respect of all key aspects of the claim: the dominance of the defendant on the relevant market and the defendant's abuse of its dominant position.
The one apparent concession to plaintiffs in this context is provided in the form of Article 9, which states that, for "public utility companies" and "other undertakings holding a dominant position in accordance with the law" (i.e., undertakings whose dominant position is officially created or sanctioned by the law), the court may, based on the structure and competitive conditions of the relevant market, determine that the relevant undertaking holds a position of dominance. Unfortunately from the point of view of prospective plaintiffs, the potential impact of the new Article 9 appears to be far more modest than the previous Article 9 contained in the 2011 Draft Rules. In the earlier draft provision, the plaintiff was effectively entitled to a presumption of dominance where it could show that the defendant was a "water, electricity, heating, gas or other public utilities company" or a company that was specially designated as the exclusive provider of a service or product under applicable laws or regulations. The new provision, on the other hand, suggests that the court must still undertake an analysis of the applicable market conditions and market structure.
As a result, the new Article 9 no longer operates as a presumption (even if the presumption of dominance as provided for in the AML remains intact14 ). In fact, it is questionable whether the new Article 9 alleviates the plaintiff's evidentiary burden in any meaningful way, as it is unclear how the rules that the courts are to apply in evaluating the "structure and competitive conditions of the relevant market" are different from those applying to other types of companies.
(c) Information publicly disclosed by the defendant
Article 10 of the SPC Rules provides that the plaintiff may use information publicly disclosed by the defendant to prove that the defendant holds a dominant position in the market. This provision recognises that, in circumstances where much of the relevant market information required by the plaintiff is either difficult to obtain or subject to confidentiality restrictions, the defendant's own statements as to its position on the market (often contained in promotional materials aimed at attracting investment in the company or customers) will often be one of the few sources of information that is readily accessible.
As always, prudence is required by companies when making public statements about their market share or market position, particularly in light of the presumptions of dominance applying at certain market share levels under the AML15 .
(d) Appointment of experts
In recognition of the highly specialised and technical nature of the information necessary to prove monopolistic conduct (in particular, the existence of dominance and the anti-competitive effects of particular agreements), Article 12 of the SPC Rules provides that the parties to an AML-related private action may apply to the courts for between one and two experts to appear at the hearing to provide testimony in respect of specialist issues arising in the case. Similarly, Article 13 provides that the parties to an AML-related private action may apply to the court for the appointment of a specialist body or individual to prepare a market investigation or economic analysis. To the extent that the parties are unable to agree on the expert to be appointed, the court may itself make the appointment decision.
U.S. law differs in this regard, as parties to civil litigation are generally responsible for hiring their own experts, in keeping with the adversarial nature of the system. In antitrust cases, often a variety of economic experts are retained, and the weight to be given to the findings of competing experts is determined by the finder of fact.
Articles 6 and 7 of the SPC Rules allow PRC courts to consolidate proceedings relating to the same monopolistic conduct, either by a single court consolidating two cases before it or one court transferring a case it has received to another court already seised of a dispute relating to the same facts. This is similar to the practice of consolidating like actions in the U.S. or in jurisdictions of many EU Member States, and should promote judicial efficiency.
An earlier provision of the 2011 Draft Rules had also provided that private anti-monopoly actions could be initiated either as an individual action or a "collective action". Collective actions are recognised under the PRC Civil Procedure Law, and whilst more limited than the "opt-out"-style class action procedures available in the U.S., nevertheless provide an avenue for the pursuit of private anti-monopoly actions involving a large number of plaintiffs. However, the PRC courts have traditionally adopted a cautious attitude in respect of class actions, as, particularly where the defendant in the proceedings is a government authority or state-owned enterprise, collective actions can sometimes be perceived as too closely mirroring collective political action. The omission of the earlier provision directly referring to the possibility of "collective actions" in anti-monopoly cases likely reflects this general suspicion of these procedures by the Chinese state. Therefore, although "collective actions" are technically still available for AML-related cases by virtue of the general provisions under the Civil Procedure Law, it is likely to prove difficult in practice for plaintiffs to successfully utilise these procedures.
According to Article 16 of the SPC Rules, the limitation period for private actions under the AML (which, based on the relevant provisions of the General Principles of Civil Law, is two years) starts to run from the time that the plaintiff becomes aware, or ought to have become aware, of the damage to its rights and interests giving rise to the claim. However, as indicated earlier, the limitation period will be suspended where the plaintiff reports the matter for investigation by the anti-monopoly enforcement authorities. The limitation period will then restart from the beginning on the conclusion of the anti-monopoly enforcement authority's investigation, whether in the form of the termination of their investigation or the issuance of a decision finding the defendant guilty of monopolistic conduct.
Specific Issues in Relation to Anti-competitive concentrations
One question the SPC Rules arguably leave unanswered is whether private plaintiffs are able to sue for losses suffered as a result of anti-competitive concentrations. On the one hand, the SPC Rules are intended to apply to disputes involving parties suffering losses as a result of "monopolistic conduct". "Monopolistic conduct" is defined by the AML to include concentrations that restrict or eliminate competition and arguably includes concentrations that have not been properly notified and cleared by the Anti-Monopoly Bureau of MOFCOM (the AMB). However, the SPC Rules do not specifically mention challenges to anti-competitive concentrations, whereas there are provisions specifically addressing other types of monopolistic conduct, such as those relating to burden shifting in challenges to price-fixing agreements and abuse of dominance, as discussed above. While the AML clearly creates a legal framework for reviewing potentially anti-competitive concentrations, it is limited to concentrations between parties whose global and China-wide turnover meets certain prescribed thresholds. Thus, even if one accepts the argument that the requirement of notifying the AMB precludes a private right of action, that would still leave unanswered the question of why it should preclude challenges to smaller, non-reportable transactions and reportable concentrations that have not been notified to the AMB. Enabling private parties to challenge all potentially anti-competitive concentrations would bring the Chinese system closer to the U.S. or EU models, under which private plaintiffs can challenge all concentrations, whether reportable to the antitrust agencies or not. This remains an open issue that will hopefully be clarified by the anti-monopoly enforcement authorities in time.
It is unclear whether the issuance of the SPC Rules heralds a new era for the pursuit of private actions under the AML in China. The new provisions seek to address a number of the practical hurdles facing potential private litigants in China, particularly in respect of the evidentiary burden faced by prospective plaintiffs. At the same time, the final version of the SPC Rules omits certain of the more plaintiff-friendly provisions of the earlier 2011 Draft Rules, including the provision for court-directed discovery, the presumption of dominance for public utilities companies and other legally-sanctioned monopolies, and the express option of collective actions. The SPC Rules also leave a number of important questions unanswered regarding the relationship between court proceedings and administrative investigations in China and the ability to challenge mergers. It therefore remains to be seen whether the SPC Rules will have any real impact on the number of successful private actions brought in China under the AML.
This memorandum has been drafted by our China antitrust team, which has greatly benefited from the experience and expertise of our overseas colleagues in the U.S., the European Union and Australia.
1. Monopolistic conduct also includes mergers that restrict or eliminate competition. We should not exclude that a private right of action to recoup losses from a breach of Chapter IV of the AML on merger control may exist.
2. Li Fangpeng v. China Netcom, a case initiated in September 2008, the plaintiff alleged that the defendant had engaged in discriminatory treatment of customers, and abused its dominance in the fixed telephone lines market. The court of first instance (the Beijing First Intermediate People's Court) rejected the plaintiff's claims on 18 December 2009 and the court of appeal (the Beijing Higher People's Court) upheld the first instance judgment on 9 June 2010.
3. As discussed further below, private parties may also have a right of action to challenge concentrations that would have breached the AML.
4.See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977).
5.These conditions, set out under Article 108 of the Civil Procedure Law, are that the plaintiff has a direct interest in the case, there is a clearly identified defendant, there is a specific claim or claims and corresponding facts and reasoning, and the case falls within the scope of cases subject to the civil jurisdiction of the people's courts.
7.Article 22 of the Civil Procedure Law.
8.The relevant anti-monopoly enforcement authorities for the purposes of private actions under the AML are the National Development and Reform Commission (NDRC) (in respect of price-related monopolistic conduct, such as price-fixing) and the State Administration for Industry and Commerce (SAIC) (in respect of non-price-related monopolistic conduct, such as tying or exclusive dealing). MOFCOM, in charge of reviewing concentrations, is not mentioned. However, see the discussion under "Specific Issues in Relation to Anti-competitive Mergers" below regarding challenges to mergers.
9.However, in the case of criminal matters such as price fixing, the U.S. Department of Justice will often seek to stay the civil proceedings pending conclusion of its criminal investigation.
10.Article 16 of EU Regulation 1/2003.
11.However, defendants often reach settlements with enforcement authorities, the terms of which can vary the evidentiary effect of the settlement in subsequent litigation.
12.See 15 U.S.C. § 1; Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980).
13.See Beijing Bangrui Yonghe Science and Technology Trade Company Ltd. v. Johnson & Johnson, the first civil case on a vertical monopoly agreement heard in a Chinese court. The plaintiff alleged that the defendant had included in the distribution agreement a clause on minimum sales prices, which constituted an anti-competitive agreement under Article 14 of the AML. The plaintiff claimed for damages of more than RMB14,000,000. The court of first instance (the Shanghai First Intermediate People's Court) rejected the plaintiff's claims on 15 May 2012. The court confirmed the distribution agreement did contain a clause on minimum sales prices, which was covered by Article 14(2) of the AML. However, the plaintiff failed to provide sufficient evidence to prove that this distribution agreement could eliminate and restrict competition on the relevant market.
14. Article 19 of the AML presumes, although it is rebuttable, that undertakings can be constructed to have a dominant market position either if the market share of one undertaking accounts for half of the relevant market the joint market share of two undertakings amounts for two thirds of the relevant market; or the joint market share of three undertakings amounts for three fourths of the relevant market. An exception is provided for undertakings with less than 10% of the market in joint dominance cases.
15. See Article 19 of the AML above.