McDermott Will & Emery has a strategic alliance with MWE China Law Offices, a separate law firm based in Shanghai. This China Law Alert was authored by MWE China Law Offices lawyers Henry (Litong) Chen, Frank Schoneveld and Michael Xu.
Reacting to the perceived inadequate treatment of civil actions for breach of the country’s Anti-Monopoly Law, China’s Supreme People’s Court recently issued a draft regulation that seeks to build a judicial framework for these types of disputes. If introduced as proposed, the regulations will likely result in increased corporate risk of private civil claims. Public comments can be submitted until 1 June 2011.
Since the introduction of the China Anti-Monopoly Law (AML) two years ago, similar to the EU competition and US antitrust laws, Chinese courts have experimented with various methods of civil anti-monopoly dispute adjudication. In general, China’s courts have typically lacked sufficient judicial experience to deal adequately with such cases. A number of civil cases have been introduced before the courts but very few, if any, have resulted in a successful judgment against a corporation for breach of the AML.
Reacting to the perceived inadequate treatment of civil actions for breach of the AML, on 25 April 2011, China’s Supreme People’s Court (SPC) issued a call for comments on a draft regulation, Relevant Issues Concerning the Application of Law in the Trial of Civil Monopoly Dispute Cases (Draft Regulation). The proposed Draft Regulation seeks to build a working judicial framework for civil anti-monopoly disputes.
Centralized Jurisdiction to Create Uniform Standard
Article 1 of the Draft Regulation makes it clear that the SPC shall designate various Intermediate People’s Courts located in provincial capitals and other designated cities as having first instance jurisdiction for civil anti-monopoly disputes.
According to SPC officials, civil anti-monopoly disputes are highly specialized, complex and influential. Adjudication of these disputes is fairly new, with most courts lacking sufficient understanding of the procedure and laws associated with them. However, it is clear the SPC is modelling the administration of anti-monopoly disputes on the established system of adjudication of intellectual property (IP) disputes. As with IP disputes, which aim to improve judicial competency and efficiency, the SPC wants civil anti-monopoly disputes to be handled by specially designated courts to better guarantee judicial quality and uniform application of the law.
In addition, the SPC considers all civil disputes that rely upon the AML—even if only raised in a counterclaim—as civil anti-monopoly disputes. Article 3 of the Draft Regulation states that even in civil disputes where the original matter does not relate to the AML, if the court determines the defence or counterclaim relies upon the AML and the court does not have jurisdiction for AML cases, the case must be transferred to the People’s Court with jurisdiction for civil anti-monopoly disputes.
Consumers May File Civil Anti-Monopoly Lawsuits
Article 4 of the Draft Regulation defines parties with legal standing as natural persons, legal persons and other organisations that have suffered harm from monopolistic (anti-competitive) conduct.
This broad definition of legal standing, which follows Article 50 of the AML, gives the victims of illegal monopolistic conduct the right to claim civil damages from the perpetrator. Article 4 does not set any other restrictions to legal standing. Theoretically, direct or intermediate victims, including business operators or consumers, all have legal standing to file a civil anti-monopoly lawsuit. According to SPC officials, this will empower consumers, who are often the victims, to discover and prevent illegal monopolistic behaviour.
Plaintiff May Wait Until After Administrative Decision or File Lawsuit Immediately
Article 6, Section 1, of the Draft Regulation allows the plaintiff to file a legal action with the People’s Court immediately, or to wait until a formal decision is published by the relevant anti-monopoly regulatory agency.
In this context it will be noted that China has introduced two mechanisms, administrative and judicial, for enforcing the Anti-Monopoly Law. These two mechanisms have their own distinctive procedures and are intended to complement each other. Often during a civil anti-monopoly dispute, the plaintiff lacks the ability to collect evidence or has no professional expertise to properly assess evidence. If a regulatory agency, such as the National Development and Reform Commission or State Administration for Industry and Commerce, has already published a decision sanctioning a party for monopolistic behaviour, the plaintiff can rely upon the expertise and evidence of the relevant administrative decision to help the plaintiff’s civil lawsuit.
For monopolistic conduct that has not been investigated by a regulatory agency, the plaintiff can still bring a lawsuit directly to a court having jurisdiction. If an administrative action and a judicial procedure occur simultaneously, the court, depending on the circumstances, may decide to suspend the judicial proceeding pending the outcome of the administrative procedure. In any event, a court of competent jurisdiction will have the authority to issue a civil anti-monopoly decision without any administrative action having been initiated.
Draft Regulations Concerning Evidence and Burden of Proof
During the time the AML has been in force (since 1 August 2008), plaintiffs in civil proceedings have often encountered significant obstacles when attempting to prove their cases. This Draft Regulation provides additional guidance for the collection of evidence and the burden of proof.
Regarding the burden of proof, the Draft Regulation deals with different forms of monopolistic behaviour and the corresponding burden of proof. For example, in Article 8 of the Draft Regulation, in respect to monopolistic agreements that are obviously intended to eliminate or restrict competition (monopolistic agreements that satisfy the conditions stipulated in Article 13, paragraph 1(1)–(5) and Article 14 (1)–(2) of the AML), the aggrieved party does not bear the burden of proof to show that the effect of the alleged monopolistic agreement eliminates or restricts competition, unless the defendant has provided sufficient proof to the contrary. Similarly, in Article 9 of the Draft Regulation, once the plaintiff has proven the relevant market, the dominant position of the defendant and the monopolistic conduct (monopolistic actions that satisfy the conditions stipulated in Article 17, paragraph 1(1)–(7) of the AML), the defendant then bears the burden of proof to show the legitimacy of and/or justification for its actions.
The Draft Regulation also provides guidance regarding the submission of evidence by the defendant and sanctions for obstruction of justice. For example, the plaintiff is empowered to use expert witnesses to help investigate and prove its case. This will likely allow the use of economists and other experts to assist the courts in their assessment of a civil anti-monopoly case. The SPC, through these reforms, intends to reduce the plaintiff’s current difficulty in discharging its burden of proof.
Potential Implications for Business in China
If this Draft Regulation is introduced as proposed, the barriers currently limiting private civil anti-monopoly actions in China will be significantly lowered. This will, in turn, very likely result in significantly increased corporate risk of private civil claims relating to enforcement of the AML. Compliance with the Anti-Monopoly Law, and implementing an effective compliance program to mitigate such risks, becomes even more compelling once the Draft Regulation is in force.
Comments by the public on the Draft Regulation can be submitted by e-mail until 1 June 2011. The SPC may make changes to the Draft Regulation in the light of those comments.
The MWE China Difference
MWE China lawyers can assist in the submission of comments regarding the Draft Regulation. Please contact your regular attorney or either author. We will continue to monitor and report on the proposed new rules on civil anti-monopoly actions.