China SPC Seeking Comments to Revise Antitrust Litigation Rules

By：Frank Jiang，John Jiang，Megan Li，Shirley Chen

China Supreme People’s Court Seeking Public Comments to Revise Rules on Adjudicating Private Antitrust Litigation.

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On November 18, 2022, the Chinese Supreme People’s Court (“SPC”) published an exposure draft of the Provisions of the Supreme People’s Court on Issues Concerning the Application of Law in Adjudicating Monopoly-Related Civil Cases for public comments (the “Draft Provisions”).  Following the promulgation of the newly amended Anti-Monopoly Law (“Amended AML”) on August 1, 2022 (see our note China Amends Its Anti-Monopoly Law For the First Time[1] for more detail,), the Draft Provisions are designed to align with the Amended AML and will supersede the prior Provisions of the Supreme People’s Court on Issues Concerning the Application of Law in Adjudicating Civil Dispute Cases Arising from Alleged Monopolistic Conducts promulgated by the SPC in 2012, amended and re-promulgated in 2020 (“2020 Provisions”).  The Draft Provisions also provide detailed guidance on finding of specific monopoly instances, drawing upon the courts’ experiences in adjudicating numerous antitrust cases in the past decades.

The Draft Provisions, once formalized, will have significant implications to multinational companies doing business in China. Below please find some highlights.

1. More comprehensive coverage and clearer structure

The Draft Provisions include 52 articles, over 3 times more articles compared to the 2020 Provisions. It contains six parts: Procedural Provisions, Relevant Market Definition, Monopoly Agreement, Abuse of Dominant Market Position, Civil Liability and Supplementary Provisions. It does not specifically touch upon the merger-related private litigations, as there is no such public case in China so far.  Nevertheless, the Relevant Market Definition part will likely also be of referential value in merger review cases.

2. More clarity on various procedural issues

In contrast with the 2020 Provisions, the Draft Provisions further clarify a number of procedural issues.  Specifically:

• Arbitration agreement does not preclude PRC court jurisdiction.  The Draft Provisions expressly stipulate that an existing arbitration clause cannot preclude the plaintiff from bringing antitrust claims with the Chinese courts, i.e., the people’s court can still docket a monopoly case to the extent the plaintiff can show that the contractual disputes contain antitrust elements, which the Amended AML and Arbitration Law are silent on this issue. These provisions reflect the SPC rulings in prior cases, although its stance could vary depending on specific case circumstances. (See., e.g., Dispute over Abuse of Market Dominance between C Industrial Co., Ltd. and S (China) Co., Ltd.[2], Monopolistic Agreement Dispute between H Co., Ltd. and S (China) Co., Ltd.[3], Monopolistic Agreement Dispute between State Grid Shanghai Electric Power Company and VISACS Co., Ltd.[4], Dispute over Abuse of Market Dominance between Y Technology Co., Ltd. and W (China) Limited[5])  [Art. 3]

• Chinese courts can exercise extra-territorial jurisdiction over certain overseas antitrust cases.  The Draft Provisions expressly provide that Chinese courts can exercise jurisdiction over certain antitrust disputes outside of China to the extent it eliminates or restricts competition in Chinese domestic market, which conforms to the extra-territorial provisions as stipulated under the Amended AML.  [Art. 7]

• Interactions between administrative enforcement and judicial practice.  The Draft Provisions touch upon a number of important points dealing with interactions between the administrative enforcement and juridical proceedings: first, a plaintiff can be released from burden of proof by virtue of an effective antitrust administrative sanction decision; second, the court may decide to stay an antitrust lawsuit pending antitrust enforcement authority’s ongoing investigation over the conduct in suit; third, the court could transfer clues of suspected antitrust violations to the enforcement agencies in the course of adjudicating a civil dispute.  [Art. 11, 14, 15]

• Explicit rules on public interest lawsuit against antitrust infringers.  The Draft Provisions also provide that the people’s court may docket and adjudicate antitrust lawsuits concerning public interests brought by people’s procuratorate (similar to state attorney general in the U.S.), echoing the Amended AML, which provides that public interested lawsuit could be filed against antitrust infringers.  [Art. 13]

3. Approaches to defining relevant market

The Draft Provisions propose to clarify the market definition approaches and set out the rules on burden of proof by combining and extending the relevant provisions of the Amended AML and the Guidelines for Definition of Relevant Market issued in 2009. For example:

• Removal of plaintiff’s burden of proof in certain antitrust lawsuits.  While the plaintiff generally bears the burden of proof to define relevant market, such burden can be removed if the relevant direct evidence provided by plaintiff is sufficient to prove that the defendant has significant market power in case of alleged monopolistic agreement or has market dominance in case of alleged abuse of dominance, or that the alleged violation has apparent anti-competitive effect, this appears to be a significant breakthrough compared with the traditional analytical approach in China (where market definition should be the starting point for competitive analysis) and will likely draw attention and discussion among stakeholders. Further, the Draft Provisions stipulate that the plaintiff bears no burden of proof in defining relevant market where the alleged monopolistic conduct concerns cartels or price-related vertical restraints, such as resale price maintenance. [Art. 16]

• Special rules for market definition concerning digital platform.  The Draft Provisions provide several factors for the courts’ consideration when defining the relevant market for cases involving digital platform. For example, if a specific Internet platform is subject to a cross-side network effect which imposes sufficient competition constraints on the platform operator, the court could consider market definition based on the Internet platform in its entirety or define multiple relevant product markets respectively based on multilateral markets involved in the cross-side network effect; and in defining relevant geographic market, factors like the consumption habits, the current conditions and promptness of market entry of competitors in other areas could be considered.  [Art. 18&19]

4. More elaborated considerations for finding joint conducts

The Draft Provisions set out various factors to be considered in finding joint conducts, including the parallelism, communication of intent or information exchange between the undertakings, the market structure, market competitiveness, market changes and other situations of the relevant market, and whether the alleged infringers can provide reasonable explanation of parallelism of their conduct. These factors are consistent with the Interim Rules on Prohibition Against Monopoly Agreements. [Art. 20]

• Concerted conducts in digital economy.  Following addition of relevant articles to the Amended AML and the Anti-Monopoly Guidelines on Platform Economy Sectors tackling antitrust abuse of data, algorithms, technology, capital and platform rules (see our note Platform Players Bracing for Tighter Antitrust Scrutiny in China[6]), the Draft Provisions focus on the anticompetitive behaviors in the digital economy, stating that where an alleged monopoly agreement is concluded or implemented by means of data, algorithm, technology, platform rules, etc., the basic rules for determining monopoly agreements should also be applied as in other sectors. [Art.22]

• Joint conducts in pharma sector.  Following up on recent judicial practices (such as Dispute over Infringement of Invention Patent between A Co., Ltd. and JA Pharmaceutical Co., Ltd.[7]), the Draft Provisions explicitly address agreement concerning “reverse payment” or “pay-for-delay” issues in the pharmaceutical sector, e.g. (1) the patentee of generic drug grants or promises to grant the applicant a high amount of benefit compensation in money or other forms, and (2) the applicant promises not to challenge the validity of the patent of the drug subject to generic production or to delay entry into market related to the generic drug. Whether such clause will be kept in the final version remains to be watched. [Art. 23]

• “MFN” treatment within Internet Platform.  Most-Favored-Nation (“MFN”) treatment means that an undertaking with market power requires its counterparty to offer the most favorable trading terms compared with other competitors. Depending on the specific case circumstances, an undertaking requesting MFN treatment could be accused of either abusing its dominance or facilitating a monopoly agreement. The Draft Provisions target the behavior of internet platform operator to require other operators within the platform to offer the trading conditions of MFN treatment, noting that such behavior could be deemed as concerted conducts, vertical monopoly, or abuse of dominance. [Art. 24]

• Allocation of burden of proof in vertical antitrust cases.  To implement the relevant articles under the Amended AML, the Draft Provisions strike a balance in allocating the burden of proof in vertical antitrust cases, where the defendant bears burden of proof to show that the resale price maintenance in suit has no anti-competitive effect, while the plaintiff bears burden of proof to show that the other kinds of vertical restraints in suit has anti-competitive effect.  Further, the defendant is entitled to show that it meets the market share criterion among others for “safe-harbor” exemption, while the plaintiff can further submit evidence to show that the vertical agreement in suit has anti-competitive effect. [Art. 25]

5. More detailed rules for determining abuse of dominance

The Draft Provisions also intend to provide more guidance on how to find the various types of abuse of dominance, including unfair pricing, refusal to deal, restrictive arrangement, discriminatory treatment, tying or imposing other unreasonable trade terms, etc., which are expressly set out in Article 22 of the Amended AML. [Art 37-42]

• Effect-based analytical approach.  The Draft Provisions stipulate that almost every type of alleged abuse of dominance should be analyzed based on comprehensive consideration of justifiable causes and anticompetitive effects of the conduct. For example:

- In finding unfair pricing, the court should consider whether the pricing behavior is sufficient to eliminate, restrict the equivalently efficient transaction counterparty to the transaction in the relevant market, in addition to the specific pricing behavior. [Art. 37]

- In finding refusal to deal, one of the factors to be considered is that the behavior obviously eliminates or restricts effective competition in the upstream market or downstream market. In particular, for the refusal of compatibility with specific products/platform/software system or opening of technology/data/platform interface by the Internet platforms, the court should consider whether such behavior substantially eliminates or restricts effective competition in the relevant market. Also, some circumstances may constitute justifiable causes for such behavior, including force majeure, change of circumstances, counterparty’s lack of ability to perform the transaction, failure or refusal to accept the proper terms by the counterparty, etc. [Art. 39]

- In finding restrictive arrangement, tying or discriminatory treatment, the factor of elimination or restriction of competition in the relevant market should be considered. For such behaviors, there are various justifiable causes, including the IPR/technology needs, for example, (a) (refusal to deal is) necessary to protect intellectual property rights or data security; (b) (tying is) necessary for the implementation of specific technologies; (c) implement discriminatory treatment to comply with justifiable trading habits, consumption habits or business practices. [Art. 40, 41 & 42]

• Noteworthy points in evaluating IPR related monopoly behaviors.  The Draft Provisions specify the factors in connection with finding dominant market position in IPR sector, including: (1) the substitutability of the specific intellectual property rights and the number of alternative intellectual property rights; (2) the substitutability of the products which use particular IPR and the market share of such products; (3) the transaction counterparty’s counter-veiling power against the IP holder; (4) innovation and technological changes in the relevant market; and etc. [Art. 35]

6. Enhanced clarity on civil liability

The Draft Provisions expressly set out that, once antitrust violation is established, the plaintiff can seek injunctive relief as well as damages, and the defendant can be ordered to taking specific actions to restore competition. [Art. 44]

• Damages for the plaintiff.  The losses suffered by the plaintiff due to the alleged monopolistic conduct include direct losses and diminished available gain. To determine the losses, the factors to be considered include the product prices, operating costs, profits, market shares in the relevant market before/after the implementation of the alleged monopolistic conduct compared with those during the implementation period, and the product prices, operating costs, profits, market shares, of comparable markets and undertaking, which are not affected by the monopolistic conduct. [Art. 45]

• Damages caused by multiple monopolistic conducts.  Where multiple alleged monopolistic conducts are combined to cause indivisible overall losses to the plaintiff in the same relevant market, the overall loss would be considered when determining the losses.  [Art. 47]

• Time limitation for actions.  Consistent with the Civil Code, the limitation of actions for claiming damages arising from monopolistic conducts are three years, commencing from the date on which the plaintiff knows or should have known the damage to its rights and interests and the obligor. However, the time limitation for action can be tolled once the plaintiff launches a complaint with antitrust enforcement authority.  Special Civil Code rules will apply to claims arising over 20 years ago.  [Art. 50]

[Note] 

[1] https://www.lexology.com/library/detail.aspx?g=d153b212-59a4-451e-9355-120bc2ebc09c

[2] (2019) SPC Min Shen No.6242.

[3] (2019) SPC Zhi Min Xia Zhong No.46 and No.47.

[4] (2019) SPC Zhi Min Xia Zhong No.356.

[5] (2021) SPC Zhi Min Zhong No.880.

[6] https://www.lexology.com/library/detail.aspx?g=66511bac-0f66-4aa8-b263-3c78a9492f7b

[7] (2021) SPC Zhi Min Zhong No.388, https://enipc.court.gov.cn/zh-cn/news/view-1779.html

About the Author

Frank Jiang

Beijing Office

Equity Partner

Practice Areas：Antitrust & Competition, Cross-border Investment/M&A, Compliance & Anti-corruption

Industry Sectors：Energy and Natural Resources, Telecommunications and Technology, Healthcare and Life Sciences

John Jiang

Beijing Office

Senior Counsel

Practice Areas：Investment/M&A & Corporate Governance, Antitrust & Competition, Cybersecurity & Data Protection

Megan Li

Beijing Office

Regulatory Compliance Department

Shirley Chen

Beijing Office

Regulatory Compliance Department

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