On May 3, 2012, the Supreme People's Court of China finalized and issued the Regulations on Several Issues Concerning Application of Law in the Trial of Civil Cases Arising from Monopolistic Conducts (the "New Regulations").1 These Regulations are China's first judicial interpretation of anti-monopoly related law suits after the promulgation of the Anti- Monopoly Law of the People's Republic of China ("AML") on August 30, 2007, which came into effect on August 1, 2008. The New Regulations, which took effect on June 1, 2012, set out for the first time the general guidelines for PRC courts in handling civil anti-monopoly lawsuits in China.
Article 50 of the AML provides that if a business operator's monopolistic conduct causes others to incur losses, the business operator shall bear civil liability according to the law. However, not until the promulgation of the New Regulations did the AML and its auxiliary regulations provide clear guidelines for a court to handle an anti-monopoly related law suit, which to some extent has hindered plaintiffs (in particular, individual plaintiffs) from bringing AML litigation. The issuance and implementation of the New Regulations will likely result in the growth of civil anti-monopoly related lawsuits in China. We provide the following observations and comments regarding the New Regulations:
I. RE-ALLOCATION OF THE BURDEN OF PROOF
The New Regulations re-allocate the burden of proof between the plaintiff and defendant.
It is reported that, by the end of 2011, 61 anti-monopoly lawsuits were filed with Chinese courts, 53 of which have been concluded. However, few of these concluded cases ruled in favor of the plaintiffs.2 Supreme court spokesman, Mr. Jungong Su, indicated that during the past three years, plaintiffs have had a rather low success rate in the anti-monopoly related cases completed due to both (i) a lack of knowledge by the plaintiffs (especially individual plaintiffs) regarding the AML and its implementing rules, and (ii) difficulty for a plaintiff to obtain sufficient evidence proving monopolistic behavior or abuse of dominant market position of the defendant.
Under the New Regulations, with regard to abuse of dominant market position, a plaintiff will be responsible to prove both the defendant's dominance and its abuse thereof. However, Article 10 of the New Regulations permits a plaintiff to use the information published by the defendant as evidence of defendant's dominance. The defendant is required to demonstrate the reasons justifying its conduct. Furthermore, according to the New Regulations, where the defendant is a public utility enterprise or other business operators that possess an exclusive monopolistic position based on law (such as State-owned electricity and oil and gas suppliers as well as the telecommunication companies), the court can, according to the market structure and competitive status in the market, conclude that such defendant has a dominant market position unless such determination can be rebutted by other evidence. In addition, either plaintiff or defendant may apply to the court for the appearance of one to two experts to explain the technical issues involved in the case. The above mentioned provisions have reduced the plaintiff's burden to prove whether an industry giant has a dominant market position in civil disputes.
In respect of horizontal monopoly agreements (e.g., agreements between competitors that fix or change prices, limit the quantity of goods produced or sold, or divide up the sales market or raw materials procurement market, or restrict the purchase of new technology or new equipment or that restrict the development of new technology or new products, or agreement for the joint boycotting of trade with others, etc.), a defendant will be responsible to prove that such agreements do not eliminate or restrict the competition.
According to the Draft of the New Regulations that the Supreme Court issued in April 2011 to solicit public comments, a plaintiff does not need to prove a vertical monopoly agreement has an anti-competitive effect. Such provision, however, is omitted from these final New Regulations. Thus, it is unclear whether or not the burden of proof will be shifted to the defendant in the case of a vertical monopoly agreement.
II. ELIGIBLE PLAINTIFFS
Before the promulgation of the New Regulations, there was some uncertainty as to whether a natural person is eligible to directly bring an anti-monopoly-related lawsuit to a court.
According to the New Regulations, natural persons, legal persons or other organizations can file a civil AML lawsuit with a court if they have a claim regarding i) losses suffered as a result of monopolistic conduct; or ii) violations of the AML by contract provisions or a trade association's bylaws.
The New Regulations also clarify that a plaintiff can either directly file an anti-monopoly related lawsuit with a court or wait until the AML enforcement authorities (i.e., the National Development and Reform Commission, the State Administration for Industry and Commerce and the Ministry of Commerce) render a valid decision concluding that certain conduct by a business operator constitutes monopolistic conduct.
III. JURISDICTION AND CONSOLIDATED PROCEEDINGS
According to the New Regulations, the intermediate courts of the capital cities of the provinces and autonomous regions, the intermediate courts of the cities specifically designated by the state plan, and the intermediate courts at municipalities directly under the administration of the central government and other intermediate courts that are designated by the supreme courts have jurisdiction over civil monopoly dispute cases. Furthermore, a civil monopoly dispute case may be heard by a basic level court approved by the Supreme People's Court, in addition to courts at the intermediate level.
Under the New Regulations, if two or more plaintiffs file lawsuits separately to one court against one defendant alleging the same monopolistic conduct, the court may consolidate the actions brought against the same defendant. If two or more plaintiffs file lawsuits separately to different courts with jurisdiction against one defendant, the other courts shall refer such cases to the court that was the first to accept such case and such court may consolidate the actions.
According to the New Regulations, the courts with jurisdiction can order the following remedies:
- order the defendant to stop the alleged conduct;
- payment of damages
In addition to injunctions and damages, a plaintiff can also claim reasonable expenses he/she incurred in investigating and bringing an action against the monopolistic conduct.
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We anticipate that the promulgation of the New Regulations is a sign that the PRC Supreme Court is trying to reduce the hurdles that previously appeared to be limiting private civil law suits under the AML by reducing the plaintiff's burden of proof. This will likely result in increased risks of private civil claims against companies relating to the enforcement of the PRC AML. Multinational companies and the PRC leading SOEs or industrial monopoly giants will need to pay more attention to compliance with the AML and implement effective internal compliance plans to mitigate the risk of being sued. Furthermore, a company should be careful about publishing any information about its market position. Although most of the previous cases handled by the courts related to abuse of dominant market position and horizontal monopoly agreements between competitors, it is likely that more cases will be brought to the courts in relation to vertical monopoly agreements between a business operator and its upstream or downstream counterparties. Thus, it is advisable that a company should carefully design its supply and distribution systems and documents for the same to avoid any potential violations of the PRC AML.
1. The Supreme People's Court published a draft of the Regulations in April 2011 for public comments (the "Draft").
2. See Chinese report at: http://finance.ifeng.com/news/industry/20120517/6471307.shtml
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