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23 July 2020
Antitrust law is becoming increasingly important in China, with penalties from Chinese antitrust cases continuing to grow and Chinese regulators taking swift action against companies whose conduct is considered anti-competitive. For example, in February 2015 Qualcomm paid almost $1 billion to end an investigation by Chinese antitrust authorities and in Spring 2020 Chinese authorities imposed maximum fines (ie, 10% of a company's annual turnover) on three pharmaceutical ingredient suppliers for unfair pricing – namely, Shandong Kanghui Medicine, Weifang Puyunhui Pharmaceutical and Weifang Taiyangshen Pharmaceutical.
Alongside increased administrative action, Chinese companies increasingly bring private antitrust actions against rival companies, particularly in the technology sphere. These suits are often accompanied by an administrative complaint that can lead to investigations and penalties. This article clarifies China's hybrid antitrust system in order to better understand the antitrust risks facing foreign enterprises in China.
China's anti-monopoly and antitrust regime is a hybrid system that includes public enforcement alongside private rights of action. Public enforcement refers to the administrative anti-monopoly investigation and law enforcement activities carried out by authorised enforcement agencies. 'Private rights of action' are rights held by private entities or natural persons affected by anti-competitive conduct to enforce the Anti-monopoly Law (AML) through a civil court proceeding.
The basis of civil anti-monopoly litigation in China is Article 50 of the AML. This provision stipulates that "business operators that carry out the monopolistic conducts and cause damages to others shall bear the civil liability according to the law". For its part, the basis for antitrust investigation is Article 38 of the AML, which stipulates that:
[t]he Anti-monopoly Law Enforcement Agency shall investigate any suspicious monopolistic conducts according to law. Any entities or individuals may tip off any suspicious monopolistic conduct to the Anti-monopoly Law Enforcement Agency. The Antimonopoly Law Enforcement Agency shall keep the informer confidential.
To file a civil lawsuit against an undertaking which engages in monopolistic behaviour in accordance with Article 50 of the AML, an individual or a company must first prove that they meet the necessary requirements under Article 119 of the Civil Procedure Law (CPL). These requirements are as follows:
However, in China plaintiffs need not always suffer a direct loss. Although in practice this is most often the case, according to Article 1 of the Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct, any natural person, legal person or other entity can have standing to bring an antitrust claim as long as it suffers losses. Specifically, they may bring such a claim based on disputes over contractual terms, articles of association and terms of other agreements which might contravene the AML.
An increasingly common source of claims flowing from direct losses are consumer complaints. While the AML mainly aims at safeguarding consumers' interests and protecting fair market competition and public interests, in practice, consumers have seldom brought antitrust lawsuits – possibly due to:
Accordingly, the plaintiff is often a competitor or a firm that is upstream or downstream relative to the defendant. However, consumer antitrust actions are increasingly common in China and may continue to rise in importance relative to commercial antitrust suits.
Notably, the AML may have extraterritorial application. There is reason to believe that private actions can be brought against firms for their conduct outside China if this conduct has anti-competitive effects in the Chinese market. In Hytera v Motorola System, Hytera filed a lawsuit against Motorola Systems in the Shenzhen Intermediate People's Court on 25 March 2019 for abusing its dominant market position with respect to one of its standard essential patents (SEPs). Hytera sought a court order against the defendant to immediately stop abusing its dominant market position and filed a claim for damages totalling Rmb70 million. Even though the anti-competitive conduct happened outside China, the case was accepted after the plaintiff showed prima facie evidence proving anti-competitive influence in the Chinese market. This suggests that the AML has extraterritorial application.
In China, administrative enforcement by an antitrust enforcement agency is not a precondition for initiating a private anti-monopoly claim. Article 2 of the Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct provides that:
[n]o matter whether the plaintiff brings a civil suit directly to the court, or brings a civil suit to the court after the anti-monopoly law enforcement agency's effective decision that the action constitutes a monopoly act, if other requisite requirements for acceptance stipulated by law have been fulfilled, the court shall accept the case.
It is worth highlighting the distinction between private and public actions in China. With regard to civil litigation, according to the Civil Procedure Law and other relevant laws in China, if the plaintiff meets the conditions for initiating a claim, the courts are required to file a case. However, the State Administration for Market Regulation (SAMR) is not obliged to start an investigation after receiving tip-off materials from a natural person or private entity and retains full discretion on whether to initiate an action.
However, in practice complaining to the antitrust authority and lodging a civil antitrust claim in parallel has become a strategy that plaintiffs increasingly use in China. Plaintiffs may bring civil action before the courts and report the suspected antitrust violation to the SAMR. This can lead to multiple, simultaneous proceedings involving the same or related facts. In Huawei v InterDigital Technology Corporation (IDC), Huawei sued IDC for abusing its dominant position in March 2013 before the Shenzhen Intermediate People's Court and obtained a favourable judgment. IDC appealed. The Guangdong High People's Court judgment was entered in October 2013. Meanwhile, in June 2013, the National Development and Reform Commission (NDRC), which prior to the SAMR's formation in 2018 had antitrust authority, launched an antitrust investigation against IDC. This case was suspended and ultimately terminated after IDC made commitments that the NDRC accepted.
Legally, courts have discretion to stay a private antitrust claim pending resolution of an administrative action, but in practice it is rare. Experience suggests that courts do not avail themselves of this discretion to stay the hearing.
In considering such parallel antitrust proceedings, it is also unclear whether China's civil law judges approach evidence collection differently than common law judges. As regards the evidence, parties to the action are entitled to apply to the courts to collect relevant evidence from the parallel administrative investigation. Chinese courts have discretion to use their inquisitorial powers (China's civil law judges have greater fact-finding powers than common law judges) to request such evidence from antitrust authorities of their own initiative. However, whether and to what extent they elect to use this discretion in practice remains unclear.
This year marks the 12th year of the AML's implementation and the newly drafted AML (Draft for public comment) was published in January 2020. In both public enforcement and private actions since the AML's passing, case law and institutional experience have grown considerably. However, issues remain with regard to coordination between administrative and judicial proceedings, which must be solved through legislation or judicial practice. Especially considering the unavailability of class actions in China, it is hoped that coordination and unity between administrative law enforcement and civil judicial practice can help play a greater guiding role with respect to operators' antitrust compliance and the protection of market competition.
For further information on this topic please contact Ying Song at AnJie Law Firm by telephone (+86 10 8567 5988) or email (firstname.lastname@example.org). The AnJie Law Firm website can be accessed at www.anjielaw.com.
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