China: Li Fangping vs China Netcom - Abuse of Dominance Case Dismissed

Last Updated: 20 September 2010
Article by Susan Ning, Ding Liang and Angie Ng

In late August 2010, it was reported in the press that at least 10 antitrust private actions have been heard in the courts in China (see Two years on, ten private antitrust actions).This article describes one of the cases - Li Fangping vs China Netcom – in detail. This was the first private antitrust action filed in the Chinese courts (this case was filed on 1 August 2008, the day which China's Anti-Monopoly Law took effect).
 

This was an abuse of dominance case – the case was ruled in favour of the defendant.

The first instance judgment (from the Beijing First Intermediate People's Court) was handed down on 18 December 2009. This judgment was affirmed on appeal (by the Beijing Higher People's Court) on 9 June 2010.

Facts

The Plaintiff, Li Fangping (a lawyer by profession) (Li) commenced proceedings against the Beijing Branch of China Netcom (Group) Co. Ltd (CNC Beijing) (a telecommunication services provider); alleging that the latter had abused its dominance in relation to their fixed telephone line services.

CNC Beijing offered two payment plans in relation to their fixed telephone line services: (a) a "pre-pay" payment plan; and (b) a "post-pay" payment plan. Pursuant to Article 2 of the CNC Beijing standard form customer service contract, customers who are not residents registered in Beijing are generally not eligible for "post-pay" payment plans.

Li lived and worked in Beijing – but he was not registered as a resident in Beijing. Li attempted to register for their "post-pay" payment plan but was refused this service by CNC Beijing, due to his residency status. Li alleged that since CNC Beijing restricted a number of special offers in relation to their fixed telephone line services (including the "post-pay" payment plan) only to Beijing registered customers, they have abused their dominance.

Specifically, Li alleged that CNC Beijing abused their dominance by implementing "differential treatment" for customers registered in Beijing versus customers (like himself) who were not registered in Beijing – in relation to CNC Beijing's fixed telephone line services.

Judgment

The following are some of the salient issues raised and discussed in the first instance judgment:

  • the court affirmed that the plaintiff bore the burden of proof in relation to market definition and to prove that the defendant held a dominant position in the relevant market;
  • Li alleged that CNC Beijing was dominant in the fixed line services market. To prove this, Li relied on CNC Beijing's high ranking in a website called "Netcom Listing" as well an article sourced on the web about how successful CNC Beijing was in the fixed line services industry. The court found that Li's evidence was insufficient to prove that CNC Beijing was dominant. The court also found that from the evidence provided, Li had failed to articulate and provide evidence as to what the "relevant market" was.
  • Li alleged that CNC Beijing was in breach of Article 17(6) of the Anti-Monopoly Law; that is they abused their dominance by implementing differential treatment in relation to their fixed telephone line services to registered and non-registered Beijing customers, without a valid reason.
  • CNC Beijing argued that it was not true that there were strictly different conditions for registered and non-registered Beijing customers. For example, persons not registered in Beijing could still be eligible for special offers such as the "post-payment" plan provided they own real estate in Beijing. If CNC Beijing did not implement such restrictions on persons not registered in Beijing, they claimed that they would face significant "operational risks". The court accepted this "operational risk" reason as a "valid reason" in terms of CNC Beijing explaining its conduct in relation to the different limitations and conditions in relation to customers who wished to apply for fixed telephone services.

Commentary

It appears that Li did not provide sufficient evidence as to CNC Beijing's dominance in the fixed telephone line services market. It also appears that Li failed to articulate and provide evidence in relation to what the "relevant" market was. It is important that plaintiffs clearly articulate what the relevant market is; as well as submit clear evidence in relation to a defendant's dominant position in that market. It does not appear that web rankings and articles on the web are sufficient to prove a defendant's dominant position in a relevant market. This calls to question what evidence would be required to prove dominance – some possibilities are survey data from credible reports or sources or perhaps other quantitative or qualitative data from credible economic agencies or economists.

It is also interesting that the court accepted CNC Beijing's "operational risk" reason as a valid reason in relation to their different conditions for registered and non-registered Beijing customers. In other jurisdictions, courts and antitrust authorities have also recognised such similar "legitimate commercial reasons" as defences in relation to abuse of dominance cases.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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