China: Burden Of Proof In Abuse Of Market Dominance Litigation

Last Updated: 4 August 2014
Article by Guanbin Xie and Yi Jin

The Anti-monopoly Law of China governs three types of monopoly activities, monopoly agreements, abuse of market dominance position ("AMDP"), and operator consolidation that has or may have effects of eliminating or restricting competition, whereas the first two types involve more civil suits and damages.

According to the statistics of the Supreme Court of China, since the Anti-monopoly Law came into force in 2008, the nationwide courts have received 116 first-instance anti-monopoly civil suits by the end of 2012, including Zhe Zhou v. China Mobile, Fangping Li v. China Unicom, Sursen v. Shanda, Renren v. Baidu, Ruibang v. Johnson & Johnson, and Qihoo v. Tencent that caused wide public concern. Among them, except Ruibang v. Johnson & Johnson that arose from a vertical monopoly agreement dispute, the other five all came from disputes of abusing market dominance position, wherein Zhe Zhou v. China Mobile closed because the plaintiff withdrew his complaint after reaching a settlement with the defendant, China Mobile, but the other four ended by loss of the plaintiffs1 for the reason that they failed to prove the defendants' market dominance in relevant markets.2 In the following table, we list rulings of the courts regarding the four suits, Renren v. Baidu, Sursen v. Shanda, Fangping Li v. China Unicom, and Qihoo v. Tencent.

Suit

Relevant Market & Evidence of Plaintiff

Arguments & Evidence of Defendant

Ruling of the Court

Renren v. Baidu

1. Plaintiff Renren alleged that the relevant market was the search engine market in China;

2. Main evidence of the plaintiff came from media reports, such as an article entitled "Baidu occupies about 2/3 Chinese search market"

Defendant Baidu argued that since its search engine services were free of charge, and free service was not governed by the Anti-monopoly Law of China, in this case there was no relevant market in the sense of anti-monopoly regulation.

The court found that the relevant market in this case was the search engine market in China, but the plaintiff was unable to determine whether the relevant market on which the plaintiff's "market share" argument was based had the same scope as what was found here, thus the plaintiff failed to prove that the defendant had a dominant market position in the relevant market.

Sursen v. Shanda

1. The plaintiff Sursen alleged that the relevant market was the internet literature reading market in China;

2. The main evidence of the plaintiff was several articles posted on the websites of Qidian, Shanda and Xihua Net, saying that www.qidian.com, http://www.jjwxc.net/ and http://www.hongxiu.com/ ran by the two defendants occupied more than 80% internet literature market in China, and more than 95% the internet original literature market.

Defendants denied the dominant market position allegation by borrowing the introductions of the plaintiff and other literature websites, which said that they enjoyed dominance or occupied major markets in the field of internet literature.

The court did not decide the relevant market in this case. However, it found that the evidence provided by the plaintiff was but advertising materials on each website, without being verified or proved by other evidence. Therefore, the plaintiff did not have enough evidence to prove that the alleged market shares were equivalent to the factual ones. Moreover, www.du8.com of the plaintiff, having similar business to the defendants' www.qidian.com, also presented itself as a globally largest e-book website. Therefore, the court did not hold that the two defendants had a dominant position in the internet literature market in China.

Fangping Li v. China Unicom

1. The plaintiff Fangping Li alleged that the relevant market was the landline telephone, personal access system and ADSL market in Beijing;

2. The plaintiff's main evidence was articles entitled Going Public of Netcom*, and Landline Clients of China Netcom increase 155% and Stop Loss by Earning 9.2B.

* Now part of China Unicom

The defendant China Unicom argued that the relevant market should be the voice communication market only, and provided relevant economic analysis reports to the court.

The court did not clearly define the relevant market, but held that the landline telephone, personal access system and mobile phone could easily replace one another, so did the ADSL and WIFI internet connection. Therefore, the relevant market alleged by the plaintiff was too narrow.

Qihoo v. Tencent

1. The plaintiff Qihoo held that the relevant market was the instant messaging software and service market at the computer end that integrated words, voice and video, and the relevant region was the Mainland China;

2. The Plaintiff's main evidence was the Offering Prospectus in Chinese of the defendant for issuing stocks in Hong Kong, media reports, and reports of iResearch Consulting Group, CNNIC and an economic analysis institute.

The defendant Tencent argued that the actual relevant market was far larger than that alleged by the plaintiff, which should be the global market. Defendant's main evidence was the articles on internet which were used to prove the hard competition in the instant messaging market.

The court did not clearly define the relevant market in this case, but held that instant messaging products had a close replaceablility with Microblog (Weibo) and social networking sites (SNS), which together formed the relevant market. Thus, the plaintiff argued a too narrow market. The court concluded that the relevant market should be global, so the defendant did not have a dominant position.

A major factor for plaintiffs' small chances of winning AMDP suits is their heavy burden of proof. Article 8 of Provisions of Supreme People's Court on Several Issues Relating to the Application of Laws in Trial of Civil Dispute Cases Arising from Monopolies ("Supreme Court Provisions"), which was effective on June 1, 2012, states as below:

In case that the accused monopoly activity falls into the scope regulated by Article 17.1 of the Anti-monopoly Law, the plaintiff shall produce evidence proving that the defendant has a dominance position in the relevant market and that the defendant abuses his market dominance position.

This requires the plaintiff to prove in three aspects: (1) definition of the relevant market; (2) market dominance position of the defendant; and (3) abuses of market dominance by the defendant. In light of such law suits and decisions held by courts in recent years, it is very challenging for the plaintiffs to prove the first two aspects.

The plaintiffs' difficulties in proving their allegation in AMDP suits will weaken willingness of consumers or operators whose rights are infringed by abusing activities to claim judicial relief under the Anti-monopoly Law. Nevertheless the Supreme Court Provisions does not yet relax the plaintiffs from the heavy burden of proof. In addressing this problem, we think it is necessary to continue to explore the issue in similar future cases, and, on the other hand, it is also possible that the burden of proof is reasonably allocated between the plaintiff and defendant within the existing legal frame set by relevant laws and judicial interpretations.

A complete concept of burden of proof shall consist of the subjective and objective prongs.3 The subjective prong means the liability of a party to produce evidence to the court in order to avoid his failure in the suit, and the objective prong means the negative consequence that a party has to accept if the facts are not clarified.4 It is generally believed that the subjective prong is relatively dynamic since it often shifts between the plaintiff and defendant while they defend or offend the other party. The objective prong is relatively still. If the facts remain unclear, but both parties have exhausted their subjective burden, the party having the burden to prove will have to face the adverse result because he fails to help the court clarify the facts. In line with these two prongs, we will try to analyze a reasonable allocation of burden of proof in an AMDP suit in the following.

I. Judges shall take advantage of their right to interpretation, exhausting both parties' subjective burden of proof.

Generally speaking, the defendant of an AMDP suit has a superior position in markets. Thus, the plaintiff is in a disadvantageous position regarding evidence collection, "distance of evidence", and providing evidence to define the relevant market and the defendants' market share and predominance. The existing laws and judicial interpretations do not yet shift the burden of proof from the plaintiff to the defendant in the AMDP suit. However, the burden of proof shall be reasonably allocated to improve a reproduction of the disputable facts, not to set a barrier from finding them.5 It requires the judge to use his/her power to interpretation, encouraging and directing the defendant and plaintiff to prove the facts to their best efforts. For instance of defining the relevant market, it is the plaintiff who shall firstly clarify his allegations, and provide evidence to prove the scope of the relevant market, at least clarifying and defining the relevant market as he alleges. In the meantime, the judge shall play an active role to interpret the meaning of the relevant market and guide the plaintiff to prove his allegation. Secondly, after the plaintiff provides his evidence, the subjective burden of proof shift to the defendant in case that the plaintiff has evidenced the large market share of the defendant in any possible definition of the relevant market. In order to rebut the plaintiff, the defendant shall prove his definition of the relevant market and his market share under his definition. If the defendant does not do so, the judge can take into account the plaintiff's allegations, evidence and description as well as common sense to define the relevant mark.

II. The risk to lose shall be allocated cautiously according to the objective burden of proof.

The objective facts cannot be completely reproduced by proving the legal facts, on the basis of which the judge makes a decision. The real facts must be disclosed in the course of evidence production and interrogation. Even though the laws do not support him to discretionally allocate the statutory burden of proof, the judge shall try to find out the objective facts within the existing legal frame, not to make a curt decision unfavorable to the plaintiff who fails to produce the required evidence in an AMDP suit, because of the said "distance of evidence" and inherent limitations of the plaintiffs in evidence production.However, only in a suit that has questionable subjective facts even after the two parties produce and interrogate evidence can the judge apply the allocation of burden of proof to make a decision.6 That is, the court makes a decision unfavorable to the plaintiff for his failure in evidence production only in the condition that the judge has made an adequate interpretation,that both parties have exhausted their subjective burden of proof, and that the court has exhausted means of discretional investigation, but the objective facts are still unclear. Lastly, for those important and complicated anti-monopoly cases, the court can consult the regulatory administrations, the industry associations or experts in order to determine the appropriate scope of the relevant market. In addition, such shift of burden of proof can be applied to prove the defendant's dominance market position.7

III. The expert witness system has much room to improve.

The AMDP suit requires comprehensive understanding of the industries in issue and quantitative analysis in economics for determining the relevant market and analyzing the competition. In light of the challenges for most parties to fulfill the evidence requirements, the Supreme Court Provisions introduces the expert witness system in Article 12, which reads:

The Parties can apply for one or two specialists having the required expertise to appear before the court and explain technical questions in issue.

In practice, however, the expert witness system still needs further perfection. First of all, it is rather difficult for the parties to identify eligible experts as witnesses whose background knowledge and qualifications meet the rather high standard as discussed above. It is becoming necessary to establish an expert tank classified by their profession and expertise. Upon the parties' request, the court can assist them to retain one or two experts. Secondly, it always costs a lot to retain expert witness. If he is a consumer, the plaintiff may be barred by this cost from claiming his rights via a court action. So we think it is also necessary to study a rationale assignment of expert witness cost, so that more experts can appear in courts, and the system will play its roles better in AMDP suits.

Footnotes

1 In Qihoo v. Tencent, Qihoo lost in the first-instance before the High Court of Guangdong Province, and appealed before the Supreme Court, waiting for the final decision.

2 In Fangping Li v. China Unicom, defendant China Unicom argued that the relevant market was voice telecommunication market and filed relevant evidence.

3 Yuntao Shan, Issues on Burden of Proof in Civil Suits, Politics and Laws Tribunal, 1992 (2): 59.

4 Haihong Huo, Burden of Proof, a "Functional" Analysis,Journal of East China University of Political Science and Law, 2003 (5): 65-66.

5 Hao Li, Study on Civil Burden of Proof (M) Legal Press, Beijing, 2003:149.

6 Chunhua Cheng, Allocation, Reversion and Shift of Burden to Prove—in Civil Litigations (J), Modern Laws, 2008 (2).

7 Gang Feng, Preliminary Discussion on Burden of Proof in Civil Anti-Monopoly Law Suits,http://bj2zy.chinacourt.org/public/detail.php?id=865.

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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