On December 18, 2009, the Beijing No. 1 Intermediate Court issued a ruling in a private lawsuit brought under the PRC Anti-Monopoly Law (AML) denying the plaintiff’s claims for failure to satisfy its burden of proof. This case, together with two other private lawsuits decided two months ago (one dismissed and one ending with a nominal settlement), provide certain insights regarding private actions filed under China's AML in China. This briefing first introduces the three recent cases, then discusses our observations, and finally presents our recommendations for companies seeking to comply with China’s AML regime.

Introduction of Three Recent Cases THE BAIDU-RENREN CASE

Tangshan Renren Information Co., Ltd. (Renren) filed this action against Baidu Company (Baidu) in the Beijing No. 1 Intermediate Court on January 6, 2009. Renren operates a medicine information website www.qmyyw.com. Baidu is a leading domestic online search engine provider that directly competes with Google in China through its search engine www.baidu.com. In order to promote its website www.qmyyw.com, Renren had subscribed to Baidu’s paid listing service, under which Baidu charged websites fees for inclusion in its search engine index. Under the paid listing service, size of the fee paid by the subscriber had a direct correlation to the ranking in which the subscribers’ website was listed in response to a user search. Specifically, the more a subscriber paid, the higher the subscriber’s ranking in search results for searches performed on www.baidu.com. At some point Renren reduced the amount of fee it paid Baidu to be included in the paid listing service. Renren claimed that Baidu blocked the website www.qmyyw.com from search results of its organic listings in retaliation to Renren’s reducing its financial input into Baidu’s paid listing service (a claim Baidu disputed) and brought suit, claiming that Baidu had a dominant position in China’s search engine market and that such action was an abuse of Baidu’s position. Renren requested inclusion of its website in the search index and compensation in the amount of RMB 1,106,000 for its losses.

In response to Renren’s complaint, Baidu admitted that it blocked Renren’s website in the organic listing search results, but explained that it did so because the plaintiff’s website contained numerous “junk links”, which the defendant explicitly prohibits. Baidu further explained that its blocking measures had no relationship with RenRen’s reduction of its payment for the input-based rankings. In addition, the defendant argued that the plaintiff did not provide sufficient evidence to prove that the plaintiff held a dominant market position in the market.

Although in its December 18 2009 opinion the court agreed with Renren on the market definition issue, defining the relevant market in this case as “China’s search engine market,” it stated that the evidence Renren provided as to Baidu’s position in this market failed to state a claim for market dominance. Specifically, Renren provided to the court only two press reports in respect of the Baidu’s market position, and failed to provide any other evidence, such as specific calculation methods, measures and relevant basic data, which would have lead to a more accurate and objective analysis of Baidu’s market position. As such, the court ruled that the Renren failed to prove that Baidu held a dominant position in China’s search engine market. As to Baidu’s ban on “junk links,” the court held that such a mechanism can ensure the authenticity and reliability of search results, and thus operates for the interest of all users. The court also stated that the evidence provided by Renren did not prove that the measures taken by Baidu were coercive. Therefore, the court ruled that it was reasonable for Baidu to restrict the plaintiff’s website because of the “junk links”, and that Baidu’s acts did not constitute abusive acts. For these reasons, the court denied Renren’s requests for cessation of blocking and compensation. Neither of the parties has yet indicated whether it intends to appeal to a higher court.

THE SHANDA-SHUSHENG CASE

Beijing Shusheng Electronic Technology (Shusheng), an online digital book website operator, brought this claim against Shanda Interactive Entertainment Limited (Shanda) and its subsidiary Shanghai Xuanting Entertainment Information Technology (Shanghai Xuanting). Shusheng operates its e-book website at www.du8.com. Shanda is a NASDAQ-listed company specializing in online games and entertainment; together with its subsidiary, Shanghai Xuanting, it co-manages a literature website at www.qidian.com. According to Shusheng, after it commissioned two writers to write a sequel to a popular novel that had been published on the defendants’ website, the defendants “coerced” Shusheng’s writers to stop writing the sequel, and to apologize on the defendants’ website for infringing the defendants’ copyright of the novel by writing the sequel without the defendants’ prior permission. Shusheng claimed that the defendants’ conduct constituted an abuse of a dominant market position in China’s online literature market, and demanded a public apology and compensation in the amount of RMB 16,820 for its losses.

On October 23, 2009, the Shanghai No. 1 Intermediate People’s Court dismissed Shusheng’s claim on the grounds that it failed to present sufficient evidence to establish the defendants’ dominance in the online literature market. As evidence of the defendants’ market dominance, Shusheng cited both the defendant’s website and third party websites which state that the defendants control more than 80 percent of the online literature market. However, the court refused to treat such promotional marketing materials, or “puffery”, as evidence sufficient to assess the defendants’ market share.

The court also found that even if Shusheng could prove that the defendants collectively held a dominant market share, the defendants were justified in preventing the plaintiff’s two writers from continuing to write because such prevention thwarted Shusheng’s wrongful misleading of the public. The court viewed the two writers’ acts as leveraging popularity of the original novel published on the defendants’ website to attract online readers’ attention to their sequel. Under the facts of the case, the court deemed defendants’ conduct as appropriate enforcement of intellectual property rights, i.e., legitimate conduct, as opposed to abuse of dominant position.

THE CHINA MOBILE CASE

This action was filed by a Beijing lawyer against China Mobile, the world’s largest phone company as measured by number of subscribers, on March 30, 2009. The plaintiff, a customer of China Mobile, alleged that China Mobile had abused its dominant position in the China cellular telephone service market by charging customers monthly rental fees in addition to regular charges. The customer sought damages equal to his basic mobile fees for the last year and an order requiring China Mobile to stop charging him monthly service fees. The case was filed in the Beijing Dongcheng District People’s Court. Two months after the filing, the case was transferred to the Beijing No. 2 Intermediate People’s Court. On October 23, 2009, the customer and China Mobile reached a settlement, pursuant to which (1) China Mobile allowed the customer to change from the phone service he had been using to another type of services that does not incur monthly service fees, and (2) China Mobile paid the customer RMB 1000 (approximately U.S. $146.00). China Mobile explained that the payment constitutes an acknowledgment of the company’s gratitude for the customer’s suggestions, rather than compensation. The customer withdrew his lawsuit from the court after the parties reached this settlement.

IMPLICATIONS

The only provision of the AML dealing with civil lawsuits is Article 50, which states that business operators engaged in monopolistic practices which consequently cause damages to others are subject to civil liabilities. To facilitate judicial enforcement of this provision of the AML, the Supreme Court is considering setting forth a set of specific rules to govern antimonopoly trials arising under this provision. In July 2009, the Supreme Court shared a preliminary Draft of the Provisions of the Supreme People’s Court on Several Issues Concerning Monopoly-Related Civil Cases (Draft Provisions) with selected recipients for comment.1 Although the Draft Provisions have not been finalized to date, a high-ranking judge of the Supreme Court has indicated on several official occasions that the Draft Provisions already reflected the consensus reached among courts at various levels on certain issues with respect to civil lawsuits brought under the AML, such as jurisdiction, evidential requirements, and forms of remedies and damages. As such, the Draft Provisions may serves as an indication of China’s future landscape of AML private litigation. Notably, the methodology that the courts used on certain issues in the above-mentioned three cases is consistent with some approaches as proposed in the Draft Provisions, which means that the courts have widely accepted and will stick to some principles and rules stipulated in the Draft Provisions.

ALLEGED MONOPOLISTIC ACTS

Interestingly, each of the above three cases addressed alleged abuses of market dominant positions, rather than cartels or concentration transactions. This may be due to lack of knowledge of cartel activity (usually only a finite number of parties, such as the parties to the cartels and possibly its competitors, industry associations will know of the existence of cartels) and the limited effect of any recent transactions. Investigations into alleged cartels and alleged failures to make filings for concentration transactions are usually initiated through whistleblowing by competitors and public investigations. In contrast, large companies’ business activities (providing products and services, cooperating with business partners, etc.) often directly impact a variety of potential plaintiffs. For example, market dominance can enable a company to engage in behavior that will wrongly eliminate smaller competitors, unfairly restrict profitability and viability of upstream and downstream business partners, and ultimately result in unfairly high prices for consumers. As such, potential plaintiffs such as competitors, upstream and downstream partners, and consumers can more easily become aware of the existence of possibly abusive acts, and can more easily collect the prima facie evidence needed to initiate lawsuits. Therefore, during the early stages of the AML’s implementation, individuals and entities will reasonably most often allege abuse of market dominant position as their causes of action in private actions.

These recent cases also suggest that the courts might be willing to broadly interpret the scope of acts that might constitute abuses of market dominant positions to include activities not enumerated under Article 17 of the AML. Specifically, as prescribed by Article 17 of the AML, prohibited abusive acts include:

  1. setting unfairly high selling prices or low buying prices;
  2. predatory pricing without justification;
  3. refusal to deal without justification;
  4. requiring a party do deal exclusively without justification;
  5. tying and discriminatory treatment without justification; and
  6. other abusive behavior as determined by the Anti-Monopoly Enforcing Agencies (AMEAs).

In the Baidu-Renren case, the plaintiff alleged that the defendant limited the number of links to the plaintiff’s website shown in search results because the plaintiff opted to take up a cheaper search ranking service offered by the defendant. Although the plaintiff did not specify in its claims the defendants’ conduct fall under which of the specifically listed activities of Article 17(1) through 17(5), nor the court addressed this issue in its ruling, we believe that the alleged acts of Baidu did not match any of the circumstances of Article 17(1) through 17(5). Rather, it seems that the court in the trial of this case deemed that the last “catch-all” item could encompass the alleged acts. The fact that the court in the Baidu-Renren case accepted and reviewed Renren’s claims demonstrates that courts might consider allegations based on a wide range of alleged exploitations of dominant market position as long as they are “abusive” in nature.

JURISDICTION

The Shanda-Shusheng case was brought to and decided by the Shanghai No. 1 Intermediate People’s Court; the China Mobile case was first filed in the Dongcheng District Court, which transferred it to the Beijing No. 2 Intermediate Court. Prior to these two cases, certain indications already existed that only courts of intermediate level or higher may hear private actions brought under the AML:

  1. The Beijing High People’s Court published an internal circular stipulating that AMLrelated intellectual property disputes will fall under the jurisdiction of the Beijing municipal intermediate courts;
  2. Some local intermediate-level courts established special panels to hear AML cases. For example, the Shanghai No. 2 Intermediate Court recognized that AML cases might require a particular type of expertise to help ensure quality and consistency of judgments, so it set up an AML panel to hear antimonopoly cases;
  3. The first wave of private cases under the AML in the past two years, including cases filed against Chongqing Insurance Association and China Netcom, were transferred from local or basic courts of first instance to their corresponding intermediate courts for trial.

In light of the complexity of the economic and legal analysis that usually accompanies AML cases, the Supreme Court is considering stipulating that anti-monopoly civil cases, even at the first instance, may only be heard by courts at least as high as intermediate courts in the location of provincial-level governments or other courts designated by the Supreme Court. One reason is that concern exists that lower-level courts might not be adequately equipped to try anti-monopoly cases, while the higher-level courts might be better staffed and have more adequate expertise to try anti-monopoly cases.

BURDEN OF PROOF

The Baidu-Renren and Shanda-Shusheng cases not only show a general reluctance by the courts to support private claims brought under the AML when the cases do not meet the necessary evidentiary standards, but also demonstrate that private litigants, without the assistance of professional third parties, might face significant difficulties in presenting evidence satisfactory to the courts to support their claims.

As a general rule under China’s Civil Procedure Law (CPL), plaintiffs in civil lawsuits for allegedly monopolistic acts bear the burden of proving that the alleged acts took place, and that such acts effectively eliminated or restricted competition, thus causing damage to the plaintiffs. Under this burden of proof rule, in the Shanda-Shusheng case, the plaintiff alleging abuse of market dominance by the defendants needed to prove (i) the defendants held a dominant market position at the time of their acts; and (ii) the defendants acted unreasonably, meaning defendants abused their market dominance, to the detriment of the plaintiffs. The court denied the plaintiff’s claim on the grounds that (i) it failed to show sufficient evidence of the defendants’ dominance in the online literature market, and (ii) the defendants’ conduct was justified to prevent the plaintiff from misleading the public.

Notably, most plaintiffs may find it difficult or impossible to meet the above-listed two requirements - in particular the first one - without the aid of third parties in forms such as obtaining prior administrative rulings or presenting testimony of economics or antitrust law experts. Nevertheless, it seems the Supreme Court will still apply the general CPL rule for allocating burden of proof.

On the other hand, in response to the difficulties in proving certain issues (such as the existence of market dominance), the Supreme Court is considering acknowledging 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 previous valid court judgment, the court should accept such facts as true unless the opposing parties present evidence sufficient to refute them. This rule also applies to facts acknowledged in effective decisions by AMEAs regarding existence or reasonable presumption of monopolistic acts.

CONCLUSIONS

The availability of standalone private lawsuits to enforce the AML means parties need not await administrative decisions before pursuing satisfaction when damaged. However, the pace at which China’s courts are developing clear and predictable rules and procedures regarding private actions brought under the AML remains substantially slower than, for example, the growing sophistication of MOFCOM, which plays an active role in reviewing pre-concentration notifications. In the absence of specific implementing rules for private actions brought under the AML, only a handful of cases have been reported, and the results of these cases (unaccepted, dismissed, or nominally settled) might discourage potential litigants from bringing private actions at this stage.

Although no successful private actions have been reported to date, it is likely that the first finding of an AML violation is just around the corner, as long as a plaintiff can collect strong and sufficient evidence to establish that the defendant holds a dominant market position and that the defendant abused its dominance without justification and to the detriment of the plaintiff.

Multinational companies, as well as leading Chinese companies, should take AML enforcement seriously and ensure a comprehensive compliance strategy by carefully reviewing their business practices (such as IP licensing arrangements) in China. Taking precautions can help minimize the risk of becoming subject to various types of litigation (even class actions) under the AML. In the meantime, any party intending to initiate actions against the monopolistic acts of an alleged violator must prepare well by collecting and presenting sufficient evidence and strong arguments to the court.