In one of the most notable decisions at the end of last year, the Beijing High Court rejected an appeal in China’s first follow-on private action in Junwei Tian v. Beijing Carrefour Shuangjing Store and Abbott Shanghai. The claim followed the decision in 2013 of China’s National Development and Reform Commission (NDRC) to fine six infant formula suppliers, including Abbott, for engaging in resale price maintenance (RPM). Three other companies were granted immunity from fines. The Beijing High Court’s ruling, handed down in August 2016 but published in November 2016, confirms the judgment of the court of first instance and is instructive for two main reasons. First, it is the first published judgment in China involving a follow-on private action. Second, it sets a high burden for plaintiffs to discharge even in circumstances where a Chinese agency has already found an antitrust infringement in separate administrative proceedings.
Background to the proceedings
In February 2013, the plaintiff purchased a tin of Abbott’s infant formula at a Carrefour supermarket in Beijing. Six months later, in August 2013, the NDRC fined Abbott and certain other suppliers of infant formula for entering into RPM agreements with distributors and retailers.
Relying on the NDRC’s decision, the plaintiff claimed that Abbott and Carrefour had engaged in illicit conduct which resulted in him paying a higher price for his tin of infant formula. The plaintiff sought damages of around RMB10 (approximately EUR1.5), a symbolic amount but which he claimed represented the overcharge he had paid. The Beijing IP Court (which also has jurisdiction over antitrust cases) dismissed the plaintiff’s claim at first instance in December 2015, citing lack of evidence to support both the existence of, and loss caused by, the alleged anti-competitive agreement. This ruling has now been confirmed by the Beijing High Court.
The Beijing High Court judgment in Junwei Tian v. Beijing Carrefour Shuangjing Store and Abbott Shanghai
The Beijing High Court agreed with the Beijing IP Court that the plaintiff had failed to adduce sufficient evidence to support his claim and rejected the action.
No evidence of the alleged anti-competitive agreement. The Beijing High Court confirmed that the plaintiff had not provided sufficient evidence to support the existence of an anti-competitive agreement between Abbott and Carrefour. In rejecting the plaintiff’s claim, the Beijing High Court noted that while the NDRC decision named Abbott as having engaged in RPM, it did not specify which distributors or retailers were allegedly involved in the illicit conduct. In short, it found that the NDRC’s decision alone was insufficient evidence that Abbott and Carrefour had allegedly concluded an anti-competitive agreement.
The Beijing High Court also concluded that the plaintiff had failed to adduce sufficient evidence to prove the existence of an illicit agreement by other means. In the first instance proceedings, the Beijing IP Court had compelled Abbott and Carrefour to produce the agreement governing their relationship at the time the plaintiff bought the tin of infant formula in February 2013. In response to this, both Abbott and Carrefour had produced a contract which was signed in November 2013 (i.e. three months after the NDRC decision and several months after the purchase of the tin of infant formula), but with effect from 1 January 2013. However, this contract only included non-binding price recommendations, i.e. no clauses that amounted to RPM. Neither the Beijing IP Court nor the Beijing High Court challenged the reasons behind the delayed execution of the contract but concluded that it was not implausible that Abbott and Carrefour had only formalised their commercial relationship at a later stage with its effectseing back dated. The Beijing High Court specifically noted that this approach did not breach Chinese Contract Law.
The Beijing High Court also rejected the plaintiff’s contention that the existence of an anti-competitive agreement between Abbott and Carrefour should be presumed in circumstances where Abbott and Carrefour were unable to produce a contract that had already been signed at the time the plaintiff bought his infant formula tin.
Private antitrust enforcement in China: a growing trend but facing some hurdles
The first judgment on how Chinese courts would treat the standard and burden of proof in follow-on actions has been long-awaited given the popularity of damages claims in the courts of other major antitrust law jurisdictions following on from infringement decisions issued by the antitrust agencies in those jurisdictions. The high levels of enforcement by China’s antitrust agencies mean the attitude of the Chinese courts to the reliance of plaintiffs on infringement decisions in subsequent follow-on damages actions has significant implications for antitrust enforcement generally in China.
This judgment confirms the high standard of proof of anti-competitive conduct that plaintiffs must meet in private antitrust litigation in China even in circumstances where an agency has already found an antitrust infringement on the same facts in separate administrative proceedings. In particular, the judgment confirms that plaintiffs cannot necessarily rely on a prior agency infringement decision as proof of an infringement – the plaintiff must itself prove the anti-competitive conduct it alleges.
The particular difficulty faced by the plaintiff in this case was due to the fact that the NDRC’s decision did not identify the distributors and retailers to whom the RPM clauses allegedly applied. In addition, the plaintiff was disadvantaged compared to some other antitrust claims in that the burden of proof remained with it and not on the defendant. In this instance, the Beijing IP Court clarified again that the Judicial Interpretations published by the Supreme People's Court (SPC), which reverse the burden of proof in private antitrust litigation, only cover agreements between competitors and not agreements between companies operating at different levels of the supply chain.
However, the ruling is nevertheless unlikely to be a material deterrent to future damages cases. The latest figures published by the SPC suggest that the overall number of private antitrust law suits in Chinese courts has seen a marked increase in recent years – from around 70 cases in 2014 to over 150 cases in 2015, with numbers for 2016 expected to rise even further. Unlike in the EU and US where follow-on actions are common-place, they have been rare in China, with the very few such claims brought to court ultimately either ending in settlement or withdrawal. The vast majority of antitrust cases in China so far have related to stand-alone private actions where there has been no prior administrative probe. However, with few notable exceptions (such as Ruibang’s successful stand-alone private action against Johnson & Johnson involving RPM and Huawei’s stand-alone private action against InterDigital involving standard essential patents), plaintiffs have rarely been successful to date owing to the high burden and standard of proof. Accordingly, while observers might have expected a significant increase in antitrust court cases in China had the Beijing High Court ruled in favour of the plaintiff in this case, there is anyway an upward trend for standalone antitrust cases in the country notwithstanding the limited success rates at trial to date.
Follow-on private actions and the road ahead in China
The Beijing High Court’s judgment shows that the success of follow-on damages claims may be heavily influenced by the precise findings at the administrative stage and the evidence included in the agency’s decision. In this regard, it is noteworthy that the decisions of the Chinese antitrust agencies are generally very short (in particular when compared to decisions of the EU Commission). This means that plaintiffs wishing to establish a claim are likely to need to adduce additional evidence in support. This is a notable difference to the EU, where decisions of the European agencies are often detailed and binding on the court as to liability, so that the plaintiff can focus on proving causation and quantification of its loss.
One question, which the judgment did not address, is whether the NDRC could have been compelled to produce any evidence from its file. It remains to be seen whether the plaintiff could have asked the court to compel such documents to be produced and whether the antitrust agencies would be obliged to disclose documents from their case file. General civil procedure rules allow a plaintiff to request the court to collect evidence if the plaintiff is unable to do so for reasons beyond its control. Such requests are mainly limited to instances where documents are held by the state, a reason that could technically have been applicable to this case. However, other (non-antitrust law related) cases in which such requests have been submitted to courts show that it is difficult for plaintiffs to prove that there is no alternative way to obtain the relevant evidence.
While the number of private litigation suits in China is on the rise, this judgment further confirms that this is not a an easy route for plaintiffs to follow. In particular, litigation may be costly and time-consuming, and the absence of a disclosure regime will make successful litigation difficult. At this stage, the bar to success for plaintiffs is considerably higher than in other regimes, such as the EU or US.
In any event, where an antitrust problem arises, it remains important for defendants to consider their defence strategy from both a regulatory as well as a litigation perspective in China. In this regard, defendants also need to be aware that private antitrust litigation is often not limited to one jurisdiction, which frequently raises complex questions as to whether evidence used in administrative proceedings in one jurisdiction can be used for private litigation in another.