On July 9 and 10, 2009, the Supreme People’s Court of China (the Supreme Court) hosted a Seminar on Judicial Interpretations of Civil Litigation under the Anti-Monopoly Law (AML) (the Seminar). Hogan & Hartson attorneys were the only representatives from an international law firm to attend the Seminar. The Seminar, which focused on determining the appropriate governing rules for civil lawsuits brought under the AML, demonstrated the Supreme Court’s efforts to prepare Chinese courts for such suits. In this edition of the China Antitrust Update, we will brief you on the highlights of the Seminar and the signals it sends to the business community regarding anti-monopoly practice in China.
Among the attendees to the Seminar were judges from the Supreme Court’s intellectual property tribunals, provincial-level high courts, and intermediate courts of major cities in China. As the judicial enforcement sought in civil lawsuits regarding monopolistic practices brought under the AML may dovetail closely with administrative enforcement, officials from the Legal Affairs Committee of the Standing Committee of the National People’s Congress, National Development and Reform Commission (NDRC), Ministry of Commerce (MOFCOM), and State Administration for Industry and Commerce (SAIC) also attended the Seminar. In China, NDRC, MOFCOM and SAIC are currently the Anti-Monopoly Enforcement Authorities (AMEAs) designated by the State Council.
The only provision in the AML dealing with civil lawsuits is Article 50, which generally states that businesses engaged in monopolistic practices which consequently cause damages to others are subject to civil liabilities. To facilitate judicial enforcement of the AML, the Supreme Court has released a series of rules intended to govern anti-monopoly trials arising under this provision. First, in April 2008, the Supreme Court promulgated the Provisions on the Causes of Action of Civil Lawsuits, which groups anti-monopoly disputes and unfair competition disputes into a single cause of action. Second, in July 2008, the Supreme Court issued the Circular on Carefully Studying and Implementing the AML, which stated that an aggrieved party may file an anti-monopoly civil lawsuit directly with a court, as opposed to first lodging a complaint with an administrative authority, and that the court must hear the case provided that it meets certain conditions set out in both the Civil Procedure Law (CPL) and the AML. To date, this guidance, while helpful, has offered few substantive rules. In response to calls for more clarity around procedures and substantive standards surrounding anti-monopoly litigation, the Supreme Court plans to issue a set of judicial interpretations intended to equip Chinese courts with clearer directions regarding hearing and considering anti-monopoly civil cases. In April 2009, Xiaoming Xi, Deputy President of the Supreme Court, suggested at an official event that the Supreme Court would enact the judicial interpretations by the end of 2009. The purpose of the Seminar held in July was to facilitate discussion among judges and officials from AMEAs on key issues covered in the proposed judicial interpretations; consequently the end product will likely reflect the consensus reached at the Seminar.
At the Seminar, the judges focused on a series of issues, including jurisdiction; appropriate parties to a civil lawsuit under the AML; collective actions; the relationship between administrative enforcement and litigation; evidences; civil remedies and liabilities; and the statute of limitation.
Key Issues at the Seminar
Some experts have expressed doubt that Chinese courts are adequately equipped to try antimonopoly cases in light of the complexity of the economic and legal analysis that usually accompanies them. Due to this concern, most of the judges attending the Seminar suggested that only intermediate courts in the location of provincial-level governments, or other courts designated by the Supreme Court, be allowed to try anti-monopoly civil cases of first instance. One reason is that these courts may be better staffed and have more expertise in trying these cases. The attendees also proposed that the territorial jurisdiction for disputes over tortious acts and contracts arising from monopolistic acts be determined in accordance with the general rules of the CPL.
APPROPRIATE PLAINTIFFS AND DEFENDANTS
Judges attending the Seminar widely agreed that consumers, not just business operators, should be able to sue parties engaged in monopolistic practices. Specifically, persons damaged by monopolistic acts, including both business operators and consumers, should be allowed to file a civil lawsuit with a court under the AML, and the court should accept the case provided that the conditions under Article 108 of the CPL are met. In other words, a court should accept a complaint filed under the AML if:
- the plaintiff is a citizen, legal person or any other organization having a direct interest in the case;
- there is a specific defendant;
- there is a concrete claim, a factual basis for such claim, and a cause of action; and
- the lawsuit is within the scope of civil lawsuits, and the court has jurisdiction over it.
Additionally, attendees to the Seminar agreed that the defendants in civil disputes over monopolistic acts should be persons allegedly conducting monopolistic acts. Therefore, possible defendants may include:
- business operators that entered into monopolistic agreements or abused their dominant market positions;
- industry associations that have organized business operators to enter into monopolistic agreements, and business operators that are parties to these agreements;
- business operators that have conducted concentration transactions that have or may have the effect of eliminating or restricting competition; and
- business operators that have been designated or forced to receive illegal benefits by administrative authorities or organizations that manage public affairs.
FORMS OF ACTION
Attendees at the Seminar decided that plaintiffs in civil disputes over monopolistic acts should be able to file a lawsuit either alone, i.e., as a single plaintiff, or collectively, i.e., as party of a group of plaintiffs.1 Specifically, when several lawsuits are filed with the same court regarding the same monopolistic act committed by the same defendant, and when the lawsuits include both single-plaintiff and collective lawsuits, the court may consolidate the proceedings. In addition, the court may combine two or more collective lawsuits into one collective lawsuit. When plaintiffs file lawsuits regarding the same monopolistic act committed by the same defendant with several different courts, the court in which the first case was filed has precedence and the courts in which later cases are filed should, upon discovering that the first court has accepted the case, transfer the case to the first court for a combined trial.
The Seminar attendees disagreed on whether consumer and industry associations may file class actions on behalf of consumers or association members. Some suggested that as long as the associations are able to fairly and sufficiently represent aggrieved consumers or their members, they should be able to file lawsuits on their behalf and the court should make a public announcement within seven days after accepting such a case. Under this view, any eligible consumers or association members would be able to register with the court within 30 days following the public announcement if they do not want to participate in the lawsuit. However, other judges expressed the opinion that because China is still in the early stages of AML enforcement, allowing consumer and industry associations to file class action lawsuits would only create chaos and clog the judicial system.
Since the AML took effect, it has not been clear whether a business operator or consumer has the right, without first having sought and exhausted administrative remedies from an AMEA, to sue another business operator who has allegedly engaged in monopolistic acts.
Given the complexity of anti-monopoly civil cases, many experts have speculated that Chinese courts will not agree to hear such cases unless an administrative decision has already been rendered to guide their decision. However, the Supreme Court has stated in its previous opinions and circulars that judicial enforcement of the AML is independent from administrative enforcement. At the Seminar, many of the judges reiterated the view that in regard to monopolistic acts that do not involve administrative monopoly, courts should not precondition the initiation of anti-monopoly civil lawsuits on any administrative decision, and that the courts should review the case independently from any such decision. Even if the AML enforcement authorities determine that an alleged monopolistic act does not constitute a monopolistic act, a court should still fully review the complaint and make its own decision.
Nonetheless, some judges attending the Seminar expressed the opinion that, under certain circumstances, plaintiffs should only be allowed to file civil lawsuits after AMEAs have verified the illegality of the alleged monopolistic acts. Specifically, they argued that an administrative decision should be a precondition for filing a civil lawsuit if administrative authorities or organizations managing public affairs have abused their administrative power to require entities or individuals to sell, purchase or use the products of their designated business operators, or otherwise forced business operators to conduct monopolistic acts.
Most attendees at the Seminar agreed that, as a general rule, plaintiffs in a civil lawsuit regarding monopolistic acts should bear the burden of proving that the alleged acts took place, effectively eliminated or restricted competition, and caused damages to the plaintiffs. Once the plaintiff has made this showing, defendants should bear the burden of proving that their acts were not monopolistic, and may do so by arguing that their monopolistic agreements are exempted, that there are legitimate reasons for their abuse of their dominant market position, or that the assertion that they possess a dominant market position is false. In addition, if defendants claim that the parties allegedly damaged by the monopolistic acts have fully or partially passed on their losses to others, the defendants must provide proof for such claim.
Attendees also agreed that the courts should acknowledge certain facts without reviewing any evidence. For example, if the facts claimed by parties to a civil lawsuit regarding monopolistic acts have already been confirmed in a valid court judgment, the court should accept these facts as true unless the opposing parties have sufficient evidence to refute them. This rule also should apply to facts that are acknowledged in an effective decision by AMEAs on the existence or reasonable presumption of monopolistic acts. However, no conclusion as to the existence of monopolistic acts should be made solely based on the steps that a business operator takes during the process of investigation to cease the monopolistic acts.
While emphasizing the importance of conducting an independent judicial review, the judges appreciated the role of AMEAs and experts in the trial of anti-monopoly civil cases. A majority of the judges agreed that the courts should allow the parties to a case to request the testimony of an expert in economics or antitrust laws on specialized issues at the requesting party’s expense. Upon a case’s conclusion, the court should, based on the connection between the expert testimonies and the success of the plaintiffs’ claims, allow the plaintiffs to recover the relevant expenses from the defendants.
In addition to allowing expert testimony as requested by parties, a court should also, if necessary, consult with AMEAs regarding any specialized issues involved in a case. While the resulting opinions should not be used as evidence for or the basis of the ruling of the case, they should be disclosed to the parties.
CIVIL REMEDIES AND LIABILITIES
Judges attending the Seminar reached general agreement on several issues regarding civil remedies and liabilities. One such issue relates to the specific forms of the losing party’s civil liabilities. According to a majority of the judges, a court should order the losing party to cease the monopolistic acts that violate other party’s rights if such acts persist at the time of the judgment, either to eliminate the possibility that the losing party will cause further damages to others in the future or to remedy existing damages.
As for the amount of damages, most of the attendees to the Seminar agreed that damages should be calculated based on the losses of the injured party. If the injured party proves that its losses are the result of monopolistic acts, but cannot ascertain the specific amount of losses, the court should determine an appropriate amount of damages based on the nature, seriousness and duration of the monopolistic acts. In calculating the amount of damages to award, the court should consider the following factors:
- The product prices, operating costs, profits and market shares in the relevant market before and after the monopolistic acts;
- The product prices, operating costs, and profit margins in similar and relevant markets that are not affected by the monopolistic acts;
- The product prices, operating costs, profits and market shares of the injured party, as well as those in similar markets that are not affected by the monopolistic acts; and
- Other factors that may prove or reasonably denote the effect of the monopolistic acts on the injured party.
However, the attendees to the Seminar also were divided on several issues. Regarding preliminary measures, some judges proposed that a plaintiff should be entitled to preliminary measures. Specifically, the judges maintained that if a plaintiff proves that the defendant is conducting or will conduct monopolistic acts that will cause irreparable harm to the plaintiff, and if the plaintiff provides an adequate guarantee, the plaintiff should be allowed to ask the court to order the defendant to cease the acts or to take other measures to prevent further damages. To avoid misuse of preliminary measures, the plaintiff should compensate the defendants for any damages caused by a wrongful request.
Other judges argued that it would be premature to prescribe such a rule for preliminary measures. First, the AML does not expressly authorize courts to order preliminary measures. Second, preliminary measures, once granted, may negatively impact the defendant’s business operations, and be unfairly requested to disrupt the normal business operations of its competitors.
Another hotly debated issue at the Seminar was whether punitive damages should apply in horizontal cartel cases. Some proposed that because horizontal monopolistic agreements usually cause more severe anti-competitive effects, courts should award an amount of damages up to twice the injured party’s actual losses. Other judges argued, though, that courts should not award damages in excess of the injured parties’ actual losses.
STATUTE OF LIMITATION
The judges at the Seminar generally agreed that the statute of limitation for anti-monopoly claims should be two years, the same as other civil claims. The two years should begin on the date on which the injured party knows or should have known the losses caused by the monopolistic acts, or the date on which the injured party knows or should have known the definitiveness of AMEA’s decision regarding the monopolistic acts.
When an injured party brings an action regarding monopolistic practices that are still occurring after the statute of limitation has expired, the court should order the defendant to cease the acts, and the amount of damages should include the losses that have accrued during the two years preceding the date on which the injured party brought the civil action.
Additionally, the judges maintained that the statute of limitation should stop running on the date on which the injured party reports suspected monopolistic acts to an AMEA. The statute of limitation should restart on the date on which the injured party knows or should have known the AMEA’s decision to dismiss the case, revoke the case, or suspend the investigation.
On the whole, the Seminar signals that the Supreme Court is taking steps to gear up for judicial reviews of cases filed under the AML. Discussions at the Seminar covered a wide range of issues relating to anti-monopoly civil lawsuits, including the independence of the courts in reviewing anti-monopoly cases, jurisdiction over civil lawsuits brought under the AML, proper plaintiffs and defendants, the relationship between individual and collective actions, the allocation of the burden of proof, the confidentiality obligation of the courts, civil remedies and liabilities, and the statute of limitation for civil lawsuits brought under the AML.
On many of these issues, the judges and officials who attended the Seminar reached a consensus that portends which specific rules will ultimately be incorporated into the judicial interpretations. Moreover, it is reasonable to expect that the specific rules on these issues will not undergo significant changes before their incorporation into the judicial interpretations, since one of the purposes of the Seminar was to preemptively air and resolve major disagreements among lawmakers regarding civil lawsuits brought under the AML. These rules are essential to the courts’ effective enforcement of the AML, and once finalized, will significantly impact the anti-monopoly civil litigation practice.
Notably, certain sensitive issues, such as class actions, preliminary measures and punitive damages, remain unresolved. Since the specific rules on these matters may have a significant impact on business operators, the Supreme Court may act cautiously, and refrain from including stringent rules on these issues in the first set of judicial interpretations on civil litigation under the AML. As the Supreme Court speeds up its drafting of the much-anticipated judicial interpretations, we will closely track relevant developments and keep you updated.