Ding Liang reviews the booming antitrust litigation market in China, eight years after the Anti-monopoly Law became effective, and suggests changes to further improve the effectiveness of private enforcement of competition law
1 Are there any particular sectors in your jurisdiction which tend to be a focus for competition damages actions? Why do you think this is the case?
The statistics shows that antitrust civil litigations in China are scattered across many industries, such as pharmaceuticals, food, household appliances, electric power, internet, etc.
Internet might be a focus for competition damages actions, because the rapid expansion of the internet companies and strong network effects strengthened the dominant market position of certain internet giants. It is hard for some small- or medium-sized internet companies to meaningfully enter into the market. This issue has triggered disputes under the Anti-monopoly Law (“AML”). The subsectors that may involve antitrust litigations include search engines, security software, general software, databases, online games, browser, and communication software.
In addition, the National Development and Reform Commission (“NDRC”) is likely to enforce antitrust law in five sectors in 2016: (1) smart manufacturing; (2) pharmaceuticals; (3) medical devices; (4) vehicle manufacturing; and (5) ocean shipping. It is unclear whether antitrust investigations in the above sectors could trigger more antitrust litigations.
2 Who do damages claims tend to be brought by in your jurisdiction? (e.g. direct purchasers, indirect purchasers, end consumers?) If claims are not currently being brought by indirect purchasers and/or end consumers, why do you think this is?
Both direct purchasers and indirect purchasers can bring damages claims to Court in China.
So far, the laws and regulations concerning the enforcement of competition law are unclear on the issue whether an indirect purchaser, such as an end consumer, can bring a case to Court to get compensation from the undertaking who has violated the AML.
Despite the lack of laws and regulations, the Beijing Intellectual Property Court has expressed its opinions on the issue through Tian Junwei v. Abbott – a case brought by an end consumer’s act as an indirect purchaser on the basis of an administrative penalty decision made by an anti-monopoly enforcement authority – and held that Tian Junwei, as an indirect purchaser, has the right to bring an antitrust litigation to the Court.
In 2013, the NDRC carried out an antitrust investigation against several infant formula suppliers, including Abbott Trading (Shanghai) Co., Ltd. (“Abbott”), and found that Abbott violated the AML by fixing the resale price of infant formula to a third party. The NDRC imposed a fine of 3% of Abbott’s previous year’s sales volume.
In February 2013, Tian Junwei bought a case of Abbott’s infant formula in a Beijing Carrefour (“Carrefour”) store. On December 16, 2013, after the NDRC issued the administrative penalty decision against Abbott, Tian Junwei brought an antitrust litigation to Beijing Intellectual Property Court against Abbott and Carrefour. Tian Junwei alleged that Abbott, together with Carrefour, had harmed his interests as a consumer by forcing him to accept a higher price of Abbott’s infant formula through Retail Price Maintenance (“RPM”).
The Court held that since the standing to sue by an indirect purchaser hasn’t been removed by either the AML or the AML Judicial Interpretation, taking the purpose of the AML into consideration, an indirect purchaser has the right to ask for compensation from the undertakings who have implemented monopolistic conduct through an antitrust civil litigation.
3 What approach are the courts taking to claims that originate from investigations or infringements arising out of the jurisdiction?
Article 2 of the AML provides that this Law shall apply to monopoly acts outside the People’s Republic of China which eliminate or restrict market competition in China. Therefore, the AML provides for extraterritorial application. In particular, the AML applies to monopoly conduct taking place outside of China, but affecting market competition in China.
However, the Courts may treat the claims that originate from investigations or infringements arising out of the jurisdiction different from the claims that originate from investigations or infringements arising in China, because the Courts have the power to investigate and collect evidence from the competent authority of China, but it has no such power to force the foreign government agencies to provide evidence.
In practice, the cases handled by the People’s Court are mostly cases in which the investigations and infringements arise in China.
4 Do claimants favour your jurisdiction when they have a choice as to where to lodge a claim? Why?
The factors to be considered when claimants have a choice as to where to lodge a claim might include whether the Court, the judge, or the law is most likely to favour the claimant's case and whether the forum is convenient to the claimant.
I believe claimants may not want to choose China to file an antitrust litigation because:
(1) it will be difficult for a claimant to win an antitrust case in China if it does not have a specialised antitrust lawyer;
(2) even though the judges have become sophisticated over the years in ruling antitrust cases, the antitrust litigation is premature in many provinces;
(3) there could be local protectionism to deter the claimant from filing an antitrust lawsuit; and
(4) it is an inconvenience for a foreign claimant to file a lawsuit in China.
5 In practice, are the courts generous to claimants when awarding disclosure, including pre-action disclosure?
There is no mechanism in the Civil Procedure Law of the PRC exactly the same as “disclosure” in the Federal Rule of Civil Procedure. However, Article 64 of the Civil Procedure Law provides: “[A] people's court shall investigate and collect evidence, where the evidence is unable to be collected by a party concerned and the agent ad litem thereof themselves for reasons beyond their control.”
As a general judicial policy, in an antitrust litigation, the Court is encouraged to take appropriate measures to preserve evidence and ex officio obtain evidence if the relevant standards are met. However, whether the Court is willing to investigate and collect evidence should be evaluated on a case-by-case basis.
6 How do the dynamics of a settlement really work in your jurisdiction? Is there a mechanism by which a "global settlement" can be approved/enforced?
In practice, the claimant is unlikely to seek settlement with the defendant in an antitrust litigation, if the aim of the antitrust litigation is to change the business model of the defendant. However, if the purpose of the antitrust litigation is to force the defendant to accept certain settlement terms proposed by the claimant, a settlement could be a possible solution.
For instance, Arima Communications Corporation (“Arima”), a mobile equipment manufacturer based in Taiwan, entered into a settlement agreement with InterDigital concerning ongoing antitrust disputes in China and in other jurisdictions.
In 2005, InterDigital and Arima reached a patent license agreement. However, due to a dispute on the payment of royalties, InterDigital requested arbitration in the United States and was awarded, in July 2014, a total of USD 23.6 million in unpaid royalties, including arbitration costs and expenses paid by InterDigital.
In July 2014, challenging the unfavourable arbitration award, Arima initiated antitrust actions in China alleging that InterDigital abused its dominant position. In its complaint, Arima alleged that InterDigital abused its dominant position by licensing its patents at unfairly high prices, imposing discriminatory treatment in royalties, and attaching unreasonable trading conditions. Arima sought relief in the amount of RMB 120 million (USD 19.6 million), and an order requiring InterDigital to license all of its patents to Arima on a FRAND basis.
In June 2015, InterDigital announced that they had entered into a settlement agreement with Arima concerning ongoing antitrust disputes. According to this agreement, the parties will maintain their existing patent license agreement, and dismiss all pending litigations and arbitrations in all jurisdictions.
There is no mechanism by which a global settlement can be approved/enforced in China. The parties can agree to global settlements. If the claimant requests to withdraw from the antitrust litigation based on a settlement, the People's Court shall issue a ruling on whether to grant such a request.
7 How long do damages actions take? What is the likely range of costs required to defend a claim?
Since antitrust litigations are handled by the civil division of the People’s Court in China, the time limit for concluding trails specified in the Civil Procedure Law of the PRC can also be applied to the antitrust cases.
As stipulated in the Civil Procedure Law of the PRC: “A people's court shall complete the trial of a case under formal procedure within six months after the case is docketed. If an extension of the period is necessary under special circumstances, the period may be extended for six months with the approval of the president of the people's court; and any further extension shall be subject to the approval of the superior of the people's court” (Article 149); and “[a] people's court shall complete the trial of an appeal case against a judgment within three months after the appeal is docketed. Any extension of the aforesaid period under special circumstances shall be subject to the approval of the president of the people's court. A people's court shall issue a final ruling for an appeal case against a ruling within 30 days after the appeal is docketed” (Article 176).
Furthermore, as stipulated in Some Rules Set Forth by the Supreme People's Court for Strictly Abiding by the Time Limits for Case Hearing and Execution: “The time limit is six months for hearing by using the ordinary procedure civil cases of the first instance. If extension is needed, upon approval of the President of the Court, the time limit can be extended for six months. If further extension is needed, upon approval by the President of the People's Court at a higher level, the time limit can be extended for another three months”; “[t]he time limit is three months for hearing civil cases of the second instance. If extension is needed, upon approval of the President of the Court, the time limit can be extended for three months”; and “[t]he time limit is thirty days for hearing civil cases of the second instance concerning a civil order” (Article 2).
According to the aforesaid Law and its judicial interpretation, antitrust cases including damages actions generally can take from six months to approximately two years. However, if once the case goes into the trail supervision procedure, the time the case will take might be twice as long as the ordinary occasion according to the Civil Procedure Law of the PRC. If either the claimants or the defendants are foreign natural persons or foreign legal entities, there is no time limit for the Court to close the case.
8 What funding options are available for (i) claimants and, (ii) defendants, in your jurisdiction?
There are no funding options established by the laws and regulations in China. If a claimant or a defendant has difficulties in brining cases to Court, he or she can get financial support through a loan offered by debtor. The debtor on this occasion certainly does not share profits or bear the risks of the litigation.
9 Do you anticipate any significant increase in damages actions in your jurisdiction over the next year or two? If so, where and why do you anticipate these increases coming?
We anticipate that there might be a significant increase in antitrust damages actions in China over the next year or two. The following chart shows the antitrust cases processed and adjudicated from 2009 to 2015. [See PDF for chart.]
10 your opinion, what are the key changes (if any) required in your jurisdiction to improve the effectiveness of private enforcement of competition law?
In order to improve the effectiveness of private enforcement of competition law, the changes required in China are as follows:
1. The judicial proceedings and evidence rules should be improved to reduce the claimant’s burden of proof in the antitrust litigation. The claimants in antitrust litigations always have great difficulties in collecting evidence and proving monopolistic practices. Due to the serious asymmetry of information between the claimant and defendant, claimants in antitrust litigation always lose their cases. The simple application of the principle – “the burden of proof shall be upon the claimant” – to divided responsibility must be moderated to relieve the claimant’s burden.
2. Both claimant and defendant should be encouraged to introduce economic analysis and expert opinion into the antitrust proceedings. Economic analysis is essential for antitrust cases. To allow experienced economists to appear before the judge for cross examination and to answer questions is helpful for the Court to understand the market definition, market power and harm to the competition and damages.