China: Antitrust Alert: New Chinese Court Developments Provide Insights Into Anti-Monopoly Law

On October 23, 2009, two private lawsuits filed under China's Anti-Monopoly Law ("AML") were resolved, allowing more insight into the workings of the new statute. In the "Shanda-Sursen Case," the opinion by the Shanghai No. 1 Intermediate People's Court provides an indication of how the Chinese courts will weigh evidence to decide whether a defendant has a dominant market position, for purposes of deciding whether it has violated the AML provisions prohibiting abuse of dominance. Procedural decisions in the "China Mobile Case" provide another indication that AML cases will be handled in the first instance by the intermediate level courts in the Chinese judicial system.

Shanda-Sursen Case. This action was filed by Beijing Sursen Electronic Co. ("plaintiff") against Shanghai Shanda Network Development Co. and Shanghai Xuanting Entertainment Information and Technology Co. (together, "defendants"). The plaintiff operates the web portal, and the defendants co-manage, a literature website. The plaintiff alleged that it had commissioned a sequel to a popular novel (the original of which the defendants had published on their website), but that the defendants had coerced the plaintiff's writers to stop writing the sequel and to apologize on their website. The plaintiff claimed that this conduct constituted an abuse of a dominant market position in the online literature market, demanding a public apology and compensation for its legal fees.

The Shanghai No. 1 Intermediate People's Court denied the relief requested by the plaintiff and confirmed the legitimacy of the defendants' conduct, dismissing the claims. The court found that the defendants, Shanda and Xuanting, did not have a dominant position in the "online literature market." The plaintiff had alleged a connection between the defendants' literature website and defendant Shanda's online game business, which allegedly had a dominant position. The court held that (a) the plaintiff had not proven a relationship between the defendants' literature website and the Shanda online game business. (b) Although Shanda's website and third party websites stated that Shanda's had more than 80% of the Chinese online literature market, the court found this did not constitute proof of market share; these statements were just for purposes of promoting the websites. (c) Similarly, the court noted, the plaintiff's own website declared that it had the biggest electronic publications website, but that statement did not establish that the plaintiff had a dominant position. In sum, the court found that there was no proof that the defendants had a dominant market position in the relevant market.

Alternatively, the court concluded that the defendants' conduct was justified to prevent the plaintiff from misleading the public, as the similarities between the pseudonym and story adopted by the plaintiff and those of the defendants suggested that the unauthorized sequel was written by the same authors. The court ruled that a precondition for finding an abuse of dominance is the absence of a valid justification for the conduct. Under the facts of the case, the court held, it was reasonable for the defendants to order the writers to stop.

China Mobile Case. This action was filed by a China Mobile customer, who alleged that China Mobile had abused its dominant position in the China cellular telephone service market by charging customers monthly service fees in addition to usage fees and by charging subscribers different fees for substantially similar services. The customer sought damages equal to his basic mobile fees for the last year and an order requiring China Mobile to stop charging the Plaintiff monthly service fees. The case was accepted by the Beijing Dongcheng District People's Court, which held a hearing on the matter. But shortly after that hearing, the case was transferred to the Beijing No. 2 Intermediate People's Court. On October 23, the customer and China Mobile settled the dispute, agreeing that the customer's phone service would be transferred to the service without monthly service fees and that China Mobile would pay the Plaintiff RMB 1000, called a "bonus" for helping China Mobile to improve its service. The customer withdrew his lawsuit from the Beijing No. 2 Court.

Anti-Monopoly Litigation Under the AML

Since the AML came into force, an increasing number of AML cases have been filed in various China courts. Most of these have been against government organizations, industry associations, and big companies, and some have not done much to develop the jurisprudence. For example, an action was filed against the General Administration of Quality Supervision, Inspection and Quarantine of the PRC, but the Beijing No. 1 Intermediate People's Court ruled that the statute of limitations had expired. A case alleging monopoly agreements was filed in the Chongqing local court against Chongqing Insurance Association, but then withdrawn.

AML litigation is developing slowly, and the Shanda-Sursen Case is the first one that has reached a court verdict. Notably, to date there are no cases finding that any organization or company has violated the AML. Furthermore, to date no foreign companies have been reported to be involved in any AML litigation in China. Nevertheless, a few new insights are available from the resolution of the Shanda-Sursen Case and the China Mobile Case.

Representations on an alleged dominant company's market shares. In the Shanda-Sursen Case, the plaintiff cited Shanda's own website and third party websites as evidence that Shanda had over 80% of the online literature market. However, the Shanghai No. 1 Court ruled that these were only advertisements or only reflected promotions and were not sufficient to prove a defendant's dominant market position without other evidence. This suggests that Chinese courts will be (appropriately) cautious in relying on news reports and parties' own statements about market dominance, especially when the statements are made in a context that can be considered marketing or "puffery."

Thresholds for presuming dominance. Article 19 of the AML establishes rebuttable presumptions of dominance based on market shares: a single firm is presumed dominant if it has a 50% market share (or if two firms jointly have 66.6% or three have 75%). In the Shanda-Sursen Case, the court may found a lack of dominance in part because there was no proof that the Defendants' market share exceeded the applicable threshold and thus did not trigger the presumption under Article 19. (Article 18 of the AML provides a non-exhaustive list of factors to be used to determine dominance. These include market shares and also such considerations as "the financial and technical status" of the parties and the difficulty for other entities to enter the relevant market. There is no indication that the court considered these other factors.)

Jurisdiction for AML lawsuits. The China Mobile Case was first filed in the Dongcheng District Court, which transferred it to the Beijing No. 2 Intermediate Court. This and other recent developments indicate that intermediate level courts will have primary jurisdiction over civil AML litigation, private cases not involving government entities. First, the Beijing High People's Court has published a regulation, "Hierarchical Jurisdiction over Cases of the First Instance of IPR Civil Disputes," which states that AML-related IPR disputes will fall under the jurisdiction of the Beijing municipal intermediate courts. Second, the Specialized AML Panel established by the Shanghai No. 2 Intermediate Court likewise has announced that jurisdiction over AML disputes will be at the intermediate court level. Finally, the first wave of private cases under the AML, including cases filed against Chongqing Insurance Association and China Netcom have been transferred from local or basic courts of first instance to their corresponding intermediate courts for trial.

The intermediate courts are generally more sophisticated, more likely to be specialized (many intermediate courts have specialized IP tribunals, which where they exist will handle AML cases too), and generally perceived as more fair and less likely to be subject to local influence or protectionism. It is a positive sign that AML cases are being put into the hands of courts that are more likely to have the capability to handle them. More detailed rules on the handling of AML-related civil litigation are under discussion and expected to be promulgated by the Supreme People's Court in the future.

Read more on the Shanda-Sursen Case (in Chinese) here.

Read more on the China Mobile Case (in Chinese) here.

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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