On March 30, 2009, the Supreme Court of the People’s Republic of China (PRC) issued a set of opinions addressing a number of issues involved in the implementation and enforcement of China’s intellectual property (IP) strategy, some of which relate to anti-monopoly civil lawsuits brought under the Anti- Monopoly Law (AML). This edition of Antitrust Update highlights the portions of the Opinions relating to the AML, discusses other developments from the Supreme Court regarding the enforcement of the AML, and details several representative anti-monopoly civil lawsuits.
The nexus between IP rights and anti-monopoly issues is not without precedent within the Chinese legal system. Indeed, before the enactment of the AML, many anti-monopoly cases brought under the Anti-Unfair Competition Law involved IP rights, and consequently were tried by the IP tribunals of the Chinese courts. As a result, the IP tribunals developed an expertise in unfair competition claims. This expertise was recognized in a series of rules issued by the Supreme Court last year. First, in April 2008, the Supreme Court enacted the Provisions on the Causes of Action of Civil Lawsuits, a rule that groups antimonopoly disputes and anti-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 reiterating the IP tribunal’s responsibility for trying both anti-monopoly civil cases involving the infringement of IP rights and other general anti-monopoly civil cases.
Highlights of the Opinions
As an initial matter, the Opinions reiterate that Chinese court should hear anti-monopoly civil lawsuits that meet the conditions set forth in the Civil Procedure Law (CPL) as well as those set out in the AML. This is consistent with the Supreme Court’s position since the enactment of the AML on August 1, 2008.
The Opinions also address the issue of what constitutes a proper remedy for an aggrieved party. Since the AML took effect, it has not been clear whether a business entity has the right to, without having sought and exhausted all administrative remedies from an anti-monopoly enforcement authority (AMEA), sue another business operator who has allegedly undertaken monopolistic acts. Under Article 50 of the AML, businesses engaged in monopolistic practices who therefore cause damages to others are subject to civil liabilities. However, this provision does not explicitly allow a business or consumer to bring a civil lawsuit directly against the business entity allegedly engaged in monopolistic practices.
The Supreme Court has tried to address this ambiguity. As mentioned above, the Supreme Court issued a Circular in July 2008, in the Circular the Supreme Court made it clear that antimonopoly civil litigation is independent of administrative enforcement against anti-monopoly acts. According to the Circular, an aggrieved party may file an anti-monopoly civil lawsuit directly with a court, and the court must hear the case so long as it meets certain conditions under the CPL, for accepting a case, and the AML, for initiating of a lawsuit. The Opinions reiterate this view. Under the CPL, in order for a court to hear a case, the plaintiffs must have a direct interest in the case, and the case must have specific defendants, facts, grounds and a petition for relief, and must be within the court’s civil jurisdiction. Unfortunately, it is not entirely clear what the Supreme Courts means by meeting “the conditions for initiating a lawsuit under the AML” as the AML does not define the conditions upon which the successful initiation of a civil lawsuit depends. A reasonable interpretation is that the plaintiff must establish that the defendant’s alleged violation falls under the AML.
The Opinions also state that the Supreme Court will issue additional judicial interpretations regarding the procedures to be followed in anti-monopoly civil litigation, and will centralize jurisdiction over anti-monopoly cases. We understand that the Supreme Court is considering the following issues for anti-monopoly cases.
Trends of Certain Issues regarding Anti-Monopoly Litigation
The Opinions state in general terms that Chinese courts are working to design a better system for dealing with anti-monopoly litigation, but do not reveal any specific rules under consideration. In a recent high-profile seminar on anti-monopoly issues held in Beijing by the Chinese Academy of Social Science and the University of International Business and Economics, Xiangjun Kong, senior judge of the Intellectual Property Tribunal of the Supreme Court, provided some details regarding the specific rules which the Supreme Court is drafting to facilitate the AML’s enforcement through anti-monopoly civil litigation. The highlights of Justice Kong’s speech are summarized below.
Cause of Action
In the Circular, the Supreme Court states that the AML is closely related to the protection of IP rights, and that both the AML and the Anti-Unfair Competition Law fall within the scope of competition law. As a result, the Supreme Court includes disputes related to monopolistic practices and those related to unfair competition within the larger category of IP disputes. At the seminar, Justice Kong reiterated that anti-monopoly civil lawsuits, parallel with unfair competition civil lawsuits, asserts causes of action that fall under the wider scope of IP cases.
Given the complexity of the economic and legal analysis which usually accompanies antimonopoly civil cases, some experts have expressed doubt that Chinese courts are adequately equipped to try these cases, and others suspect that the courts will not agree to hear such cases unless an administrative decision has been rendered to guide the courts in making their decisions. At the seminar, Justice Kong firmly stated that the courts will not condition the initiation of anti-monopoly civil lawsuits on any administrative decision, and that the courts’ judicial review will be independent from any administrative decision.
Justice Kong stated that the general rules governing who may initiate a civil lawsuit also apply to anti-monopoly civil lawsuits. For instance, the plaintiffs in anti-monopoly civil lawsuits must have a direct interest in the claim. However, he also stated that the Supreme Court is still drafting specific rules on plaintiff qualifications to guide business operators and consumers. Justice Kong stressed that consumers, not just business operators, will be able to sue business operators engaged in monopolistic practices.
As a general rule for civil lawsuits, a plaintiff must provide to the court sufficient evidence regarding the alleged monopolistic acts and the consequent damages to the plaintiff. In antimonopoly civil litigations, the plaintiff also bears the burden of proof of establishing a prima facie case. According to Justice Kong, plaintiffs may submit various forms of evidence, such as economic analysis reports or expert testimony, to fulfill this requirement.
Justice Kong indicated that general civil liabilities also apply to anti-monopoly civil cases. Specifically, courts may demand that the losing party cease the infringement or compensate the prevailing party for the actual damages. As to whether statutory damages should be set in cases where the actual damages are difficult to determine, Justice Kong said that the Supreme Court is considering using the limitation on damages in IP cases as a reference point. If this becomes the rule, in future anti-monopoly civil cases, where the actual losses of the plaintiff cannot be determined, the court may order damages of up to RMB500,000 depending on the seriousness of the case.
Given the characteristic complexity of anti-monopoly civil cases, Justice Kong suggested that only intermediate and high-level courts should have jurisdiction over anti-monopoly civil cases. In addition, since cases relating to business concentrations (such as a merger) are usually more complex, it is possible that the Supreme Court will create special jurisdiction rules for such cases.
In summary, according to Justice Kong, the Supreme Court is focusing on procedural rules, rather than substantive rules, because the former involve less controversy and are more urgently needed.
Relevant Private Actions
Before the issuance of the Circular and the Opinions, a number of private parties in China had filed several high-profile lawsuits against allegedly monopolistic parties acting in violation of the AML. In handling these cases, the courts have been criticized for their inappropriate application of existing procedural rules, and it has become increasingly evident to observers that this line of litigation calls for more specific procedural rules. Indeed, several of these lawsuits were brought by prominent lawyers with the intention of using private actions to make a larger statement on the anti-monopoly litigation regime in the hope of affecting progressive changes in Chinese courts.
On August 1, 2008, the same day the AML took effect, private parties filed at least three antimonopoly cases under the AML. In one of these cases, which was filed against the General Administration of Quality Supervision, Inspection and Quarantine (GAQSIA), four privatelyowned companies in Beijing accused the government watchdog of using its administrative monopoly to promote a certain fee-based electronic quality tracking system that was developed by a company in which the GAQSIA has a stake. In the weeks following the suit, an additional four privately-owned companies outside of Beijing joined the lawsuit against the administration. In September, the First Intermediate People’s Court of Beijing refused to accept the filing, claiming that since the GAQSIA started its promotion of the tracking system in April 2005, the two-year statute of limitations had expired. The Court’s ruling has been widely criticized. Some critics claim that a ruling on the statute of limitations should only be made after the court has accepted the filing, since the CPL does not require as a precondition for acceptance of a filing showing that statute of limitations has not yet run. The plaintiffs’ counsel also argued that if the court’s view on the statute of limitations was correct and the clock started running when the allegedly monopolistic act first began, it would be impossible to prosecute many ongoing monopolistic acts.
In spite of this defeat, the plaintiffs’ attorney in the GAQSIA case persevered. In early March 2009, he filed a suit against China Mobile Group in Beijing for abusing its dominant market position with regard to the packages for its cell phones. The plaintiff alleges that when he signed up for his package, he was charged a monthly service fee of RMB50 that he continues to pay, even though China Mobile has subsequently offered other service plans that are free of the monthly fee. The court accepted the filing in late March and may move forward to hear the case on its merits.
Similarly, on August 1, 2008, a lawyer who lives in Beijing without a Beijing residence permit (or hukou in Chinese) sued China Netcom, an internet service provider, for discriminatory pricing based on residence permit. The court accepted the filing in September, which was the first time a Chinese court has accepted a case filed under the AML. There have been no reports on recent developments in the case. The plaintiff in this case is a renowned public interest lawyer, who sued China Netcom in May 2007 for excessive Internet connection fees under the Anti-Unfair Competition Law.
On the whole, the courts have not delivered any far-reaching rulings on the merits of private actions under the AML, but they seem to be preparing to entertain a range of civil lawsuits filed under this statute. Recently, the Supreme Court addressed several key issues relating to antimonopoly civil lawsuits, and has reiterated that judicial enforcement of the AML should be independent from administrative enforcement by the AMEAs. While the Supreme Court is drafting specific rules to guide Chinese courts, we will track the developments in judicial enforcement of the AML and keep you informed of the current situation.