China: Civil Actions Under China’s Anti-Monopoly Law - Five Major Cases, Five Major Lessons

Last Updated: 10 February 2010

Article by Hannah C. L. Ha , John M. Hickin and Gerry P. O'Brien

Originally published 8 February 2010

Keywords: China, Anti-Monopoly Law, AML, civil action, merger control, Ministry of Commerce, Mofcom

China's Anti-Monopoly Law (AML) has been in effect for over 18 months, and to date most headlines generated by the law relate to merger control decisions by China's Ministry of Commerce (Mofcom). Outside of Mofcom's reviews, enforcement of the law has been relatively limited. The regulatory bodies charged with enforcing the law's 'conduct rules' (rules governing day to day trading behaviour) appear reluctant to initiate cases before key measures explaining how the rules will be applied in practice are finalised, and until recently it seemed China's courts were similarly hesitant to progress the hearing of AML-related civil actions.

The prospects for AML-related litigation appear to be changing, however. Several high-profile decisions have been handed down in recent months, and it is understood that the volume of cases being filed has grown as a result. Notwithstanding that there is yet to be a successful AML-related civil action, an increasing number of Chinese citizens and activist lawyers appear to believe civil actions under the law offers their best hope for seeking to remedy perceived abuses of power and fair competition principles by government departments and corporations alike.

In this update (the first in a two-part series) we summarise the basis for civil action rights under the AML, before turning to examine five of the more notable cases concluded so far. Part II of this update series, to be published shortly, will then seek to identify the major lessons from these cases that should be heeded by companies operating in (or selling into) China.

Background

ANTI-MONOPOLY LITIGATION UNDER THE AML

Article 50 of the AML entitles individuals and business operators to bring civil actions for damages against entities that engage in a violation of the AML.

Building on this principle, it has now been confirmed that third parties can file AML-related lawsuits with the intermediate courts of a province, autonomous region or municipality. These courts will have first instance jurisdiction over AML cases, and have assigned the task of conducting relevant hearings to existing IP tribunals or new specialized AML panels under their administration.

This is generally perceived as a positive development, as the intermediate courts (and in particular the existing IP tribunals) have a reputation for being more sophisticated forums, and boasting more qualified judges, than other courts in China. It can be argued that they are also less susceptible to the influence of political interests or advocates of local protectionism.

More detailed rules on the handling of AML-related civil actions are understood to be in development, and there are reports these rules include provision for "double damages" orders to encourage litigation in this area.

In the interim, other civil action procedures are being developing on a 'case by case' basis, stimulating great interest in each decision that is handed down, and the processes employed to reach that decision.

Five notable cases so far

During the first few months of the law's operation, there were many reports of complainants seeking to lodge AML-related claims with China's courts. However, it seems a large number of these claims were rejected on technical grounds, or faced lengthy delays before acceptance.

GAQSIQ CASE

An example is the GAQSIQ case, which was the first AML-related civil action to receive significant media attention. In this case, lodged in August 2008, four companies engaged in developing electronic anti-counterfeiting technology filed a suit with the Beijing No.1 Intermediate People's Court against China's General Administration of Quality Supervision, Inspection and Quarantine (GAQSIQ). GAQSIQ is a government body involved in standard-setting and quality inspections.

The plaintiffs in this case alleged that GAQSIQ abused its power in violation of the AML's administrative monopoly provisions, by requiring that certain products be promoted on an electronic supervision website in which GAQSIQ has a significant equity interest before those products could be approved for manufacture and sale in Beijing.

The case generated great interest, as an initial test of the utility of both the AML civil action mechanism and the rules seeking to curb anti-competitive behaviour by government bodies. However, about a month after the suit was filed, the Beijing court dismissed the case on the grounds that the statute of limitations for raising claims against GAQSIQ under China's Administrative Litigation Law had expired. The correctness of this finding was questioned by some commentators, and there were suggestions the court may have been looking for a way to defer hearing civil actions until the regulatory bodies charged with developing a full framework of regulations and guidance documents to explain how the AML conduct rules should be applied in practice had progressed this task.

CHINA MOBILE CASE

The next major case that was widely reported in China was the China Mobile case. In this action, filed with a district court in Beijing on 4 March 2009 and subsequently transferred to the Beijing No. 2 Intermediate People's Court, activist lawyer Mr Zhou Ze alleged that China Mobile had abused its dominant position in China's mobile telecommunications market by engaging in unlawful price discrimination.

Specifically, Zhou alleged that China Mobile was acting in a discriminatory fashion by supplementing his mobile service usage fees with a monthly service fee that was not charged to other customers. He sought damages and an order requiring China Mobile to stop charging the disputed fee component going forward. Interest in the case was heightened by the fact that China Mobile is a state-owned-enterprise, and the AML contains ambiguous provisions suggesting such enterprises may be at least partially exempt from the law.

However, on 23 October 2009 the court announced that the customer and China Mobile had settled the dispute. According to media reports, China Mobile agreed to cease charging Zhou Ze the disputed fee and also agreed to pay him RMB1,000, which amount was referred to as a token of the company's gratitude for Zhou's input on pricing issues.

SHANDA CASE

The first case in which a Chinese court determinatively applied the AML was the Shanda case in late 2009. Specifically, on 23 October 2009, the Shanghai No. 1 Intermediate People's Court announced that it was dismissing the alleged abuse of dominance case filed by Beijing Shusheng Electronic Technology (a technology company operating the web portal www.du8.com) against Shanda Interactive Entertainment Limited and one of its subsidiaries (which operate literature websites).

The plaintiff 's primary claim in the case was that the defendants abused their dominant position in China's online reading market by compelling a writer to stop producing a sequel to a popular novel (originally published by the defendants) which had been commissioned by the plaintiff. The plaintiff alleged that this constituted an abuse of a dominant market position in the online literature market, and asked the court to order the defendant to cease the relevant practices, and to compensate the plaintiff for their losses.

The court denied the relief requested by the plaintiff, holding that the plaintiff had failed to prove that the defendants held a dominant position in the relevant market. The court also found that the defendants' conduct was justified in the circumstances (and thus could not constitute unlawful abuse of any dominant market position), as it aimed to protect their IP rights by preventing the plaintiff from misleading the public into believing the unauthorized sequel was written by the same author as the original.

BAIDU CASE

On 18 December 2009, in the Baidu case, the Beijing No. 1 Intermediate People's Court also dismissed an AML-related claim on the basis that the plaintiff had failed to establish that the defendant held a dominant position.

Specifically, the court ruled for Baidu (a leading Chinese internet search company) in relation to an action brought by Tangshan Renren Information Services Co. (which operates an online medical consulting service). The plaintiff alleged that Baidu held a dominant position in the China search engine market, and had abused this position in violation of the AML by taking steps to limit public access to the plaintiff's website. The plaintiff claimed that after it reduced its spending on Baidu's bid-for-ranking system (pursuant to which companies could pay for greater exposure in the form of higher rankings in search-result listings), Baidu took steps to give the plaintiff a less prominent listing in its search engine results.

The plaintiff's evidence was deemed insufficient to prove that Baidu held a dominant market position. Additionally, the court appeared to accept Baidu's claim that the low ranking achieved by the plaintiff's website was due to the standard operation of the Baidu search engine algorithm rather than targeted 'retaliation' against the plaintiff by Baidu due to reduced spending.

BEIJING NETCOM CASE

Just six days letter, in the Beijing Netcom case, the Beijing No.2 Intermediate People's Court handed down a similar decision.

This case concerned the terms of Beijing Netcom's mobile service contracts. The plaintiff, Mr. Li Fangping, alleged that Beijing Netcom held a dominant position in the mobile services market in Beijing, and had engaged in discriminatory treatment in violation of the AML's abuse of dominance prohibition by imposing certain terms for customers who were not permanent Beijing residents. Specifically, Li's concern was that such customers were required to either provide a guarantee for their fixed-line telephone service bills or pay in advance - in which latter case they would not qualify for certain discounts or preferential packages offered by China Netcom to pay-after-call customers.

In addition to finding that the plaintiff had not proved the defendant's dominance, the Beijing court commented that the defendant's conduct appeared to be a legitimate measure to avoid debt collection problems, and was not discriminatory - as permanent Beijing residents with a history of overdue payments were also required to join the pre-payment plan.

Business operators who may have viewed the AML regime with suspicion and questioned whether China's courts were equipped to deal with antitrust cases will doubtless be encouraged by these cases, as they demonstrate that an appropriately high bar will be set for the establishment of AML-related claims.

However, companies operating in or selling into China will need to remain vigilant, and heed the key lessons from these cases, to minimise the risk of becoming the AML's next major headline.

In Part II of this update, we will set out five key lessons that can be taken from the reported civil action to date.

Learn more about our Hong Kong office and Antitrust & Competition practice.

Visit us at www.mayerbrownjsm.com

Copyright 2010. JSM, Mayer Brown International LLP and/or Mayer Brown LLP. All rights reserved. Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: JSM, a Hong Kong partnership, and its associated entities in Asia; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and Mayer Brown LLP, a limited liability partnership established in the United States. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions