Antitrust Alert: PRC Courts Beginning to Establish Procedural Framework for Anti-Monopoly Litigation
Courts in the People's Republic of China recently have taken several steps to clarify enforcement procedures under the new Anti-Monopoly Law ("AML"). These actions signal that China's courts are actively developing judicial mechanisms to enforce the AML and are preparing both to accept private (civil) litigation and to handle judicial review of administrative decisions and enforcement brought against the governmental Antimonopoly Enforcement Authorities ("AMEAs"). We briefly discuss several courts' actions below, starting with the most recent.
Anti-Monopoly Panel Established Within Shanghai No. 2 Intermediate Court
On December 22, 2008, the Shanghai No. 2 Intermediate Court announced the establishment of a new specialized combined panel of judges (called the "反垄断案件专项合议庭" in Chinese, and referred to below as the "Specialized AML Panel") dedicated to hearing AML lawsuits and related actions. The Specialized AML Panel includes seven experienced judges from the court's Intellectual Property and Administrative Tribunals and is the first panel to handle both civil and administrative AML suits. The creation of this expert panel reflects the Shanghai court's recognition of the complexity and importance of AML cases and the need to prepare to handle both private litigation and judicial review of administrative enforcement by the AMEAs.
Normally, civil cases are handled by the courts' Civil Tribunals (including IP Tribunals, which previously have been designated to hear private AML cases), while appeals from administrative decisions are handled by Administrative Tribunals, each according to different procedural laws. Reversal rates are generally low in administrative cases relating to IP matters. IP litigants also have complained that the lack of a national appellate court (litigants generally are limited to one appeal heard by the next-higher court, typically the provincial Higher People's Court) makes IP cases potentially subject to excessive local influence. China generally is moving away from specialized courts or tribunals, while at the same time permitting increased local experimentation. However, some IP Tribunals have been experimenting for several years in combining civil, criminal and administrative jurisdiction over IP disputes, based on substantive expertise rather than procedural rules, including combined decisionmaking over some patent matters in Beijing.
The Shanghai No. 2 Intermediate Court expects AML lawsuits to increase and views the creation of such expert panels as an important step in properly allocating resources to handle emerging legal issues arising under the AML. Chief Judge Kong Xiangjun of the IP Tribunal of the Supreme People's Court of China (the "SPC") has stated that the establishment of the specialized Shanghai panel is a creative experiment intended to help ensure quality and consistency of judgments in AML cases. It also is consistent with Shanghai's efforts to become a forum of choice for important litigation. Shanghai already enjoys a relatively good reputation with litigants from outside of Shanghai and overseas and, for example, has a high percentage of foreign-related cases in its civil IP docket.
SPC Q&A re AML Disputes
Further information about administrative lawsuits challenging AML enforcement decisions by AMEAs was provided in November 2008 through a series of questions and answers provided by the Judge of the Chinese Supreme People's Court in charge of its Administrative Tribunal, titled Strengthening AML Judicial Review and Protecting Fair Competition (the "Q&A"). Although not binding, the Q&A provides some guidance on how the court will deal with administrative AML cases. Such documents are a common way for heads of courts or enforcement agencies to voice positions on issues that later may develop into legally binding judicial interpretations.
In particular, the Q&A indicates that administrative AML cases will be handled by the intermediate people's courts (or in some cases, the higher people's courts) having jurisdiction over actions challenging administrative acts of departments under the State Council (such as the AMEAs) or provincial governments. Such lawsuits will not be handled by the first-level or basic people's courts, notwithstanding jurisdictional thresholds that otherwise would apply.
The Q&A also makes clear that lawsuits will be accepted only regarding "specific" administrative decisions in individual matters, and not for "general" challenges to AML-related rules or regulations or AMEA enforcement practices. Accordingly, only the AMEAs — and not the coordinating and policy making Anti-Monopoly Commission ("AMC") — can be named as defendants in administrative AML lawsuits.
Finally, the Q&A gives defendants (i.e., the administrative agency making the challenged decision) the burden of proof on most issues. In normal circumstances, defendants must submit evidence supporting their decisions within 10 days of receipt of the complaint — a very tight deadline. The Q&A also describes other protections for private parties, such as requiring that the administrative record "evidence" relied upon by the administrative agency be from the actual case file used in its decision-making process and not supplemented with materials not considered during the challenged administrative process. The Q&A appear to underscore the importance of developing a clear case record for appeals.
Other Court Notices and Regulations Regarding AML Disputes
In July 2008, just before the effective date of the AML, the Supreme People's Court issued a Notice on the Study and Adjudication of AML Disputes (the "SPC Notice") clarifying that IP Tribunals would have jurisdiction over civil AML cases.
This was consistent with an earlier Regulation on Causes of Action in Civil Cases (the "SPC Regulation") categorizing AML disputes as a subset of intellectual property right ("IPR") disputes. As noted above, IP Tribunals usually reside within the Civil Tribunals of certain Intermediate or Higher People's Courts, although some basic-level local courts also have jurisdiction over IPR civil cases subject to other jurisdictional requirements.
As for hierarchical jurisdiction, several additional recent developments appear to indicate that intermediate level courts will have first-instance jurisdiction over civil (i.e., private) AML litigation. First, a regulation published by the Beijing High People's Court regarding the Hierarchical Jurisdiction over Cases of the First Instance of IPR Civil Disputes states that AML-related IPR disputes will fall under the jurisdiction of the Beijing municipal intermediate courts. Second, the Specialized AML Panel established by the Shanghai No. 2 Intermediate Court also places jurisdiction over AML disputes at the intermediate court level. Finally, the first wave of cases under the AML, including cases filed against the Chongqing Insurance Association and China Netcom, have been transferred from local or basic courts of first instance to their corresponding intermediate courts for trial. More detailed rules on the handling of AML-related civil litigation are expected from the Supreme People's Court in the future.
Actual Litigation and Court Decisions
These developments appear promising for the development of a more uniform approach to Chinese antitrust litigation, whether administrative or civil. However, as with IPR cases, the lack of a single highest national appellate court risks inconsistent decisionmaking between the higher courts of various provinces, as well as undue influence by local or provincial governments, and may thus result in forum-shopping.
In addition, both the AML itself as well as these court-developed rules will need to be tested in actual litigation. The results of the first few cases under the AML may provide some clues as to how these rules will be implemented in practice, but in most cases the information publicly available is quite limited. Most AML cases filed to date have been dismissed at very early stages and thus have not produced decisions providing many insights of general applicability.
For example, a highly publicized case filed against the General Administration of Quality Supervision, Inspection and Quarantine ("AQSIQ," a department of the central government) — alleging that it had abused its administrative power to restrict competition by requiring companies to purchase services from a company selected by and related to the agency — was dismissed on statute of limitations grounds, even though the cause of action did not exist before the AML became effective in August 2008. Another case alleging that the Chongqing Insurance Association fixed premiums for automobile insurance was withdrawn by the plaintiff after the defendant immediately adopted revised Articles of Association addressing the AML issues raised by the complaint. Although those cases did not generate judgments that could give more insights into the courts' interpretation of the AML's substantive provisions, they can be seen as fulfilling the goals of the statute in the sense that the defendants voluntarily abandoned their allegedly anticompetitive conduct after being sued. Litigation against China Netcom, a state-owned telecom company in Beijing for alleged abuse of dominance is still pending in the Beijing No. 2 Intermediate Court.
In most jurisdictions, court decisions play an important role in the development of antitrust jurisprudence. This is expected to be especially true in China, where the AML and the very concept of competition law are so new, and the statute's provisions so general. Although China lacks a system of precedential case law, well-informed judgments and especially model cases will help to inform prospective litigants of the substantive and procedural tenets of the law, as well as to educate the public about the importance of competition in Chinese markets.
However, as is true in all jurisdictions with antitrust litigation, these early cases also suggest that defendants in AML cases are more likely to settle than proceed to judgment, presumably to avoid the costs and unpredictability of litigation, to avoid unnecessary controversy, and to minimize the potentially detrimental effects of an adverse judgment on the prestige of the company. For these reasons, it is likely to take years before there is a sufficient body of jurisprudence, model cases, judicial interpretations, judicial notices, regulations and other guidance to give companies a clear view of the courts' interpretation of the AML.
- For more information on the establishment of the Specialized AML Panel, see http://big5.xinhuanet.com/gate/big5/www.xinhuanet.com/ (in Chinese).
- For more details about the SPC Notice and SPC Regulation, please see the Jones Day Commentary, Filing Antitrust Suits in Chinese Court,at https://www.jonesday.com/pubs/pubs_detail.aspx?pubID=S5380.
- Regulation by the Beijing Higher People's Court on the Hierarchical Jurisdiction over Cases of the First Instance of IPR Civil Disputes is available in Chinese at http://big5.chinalawinfo.com/vip.chinalawinfo.com/NewLaw2002/SLC/slc.asp?db=lar&gid=17010217.
- Information on the rules on the handling of AML-related civil litigation that are being drafted by the Supreme People's Court is available at http://www.chinacourt.org/html/article/200811/05/328794.shtml.
Details of the Q&A are available in Chinese at http://www.chinacourt.org/html/article/200811/03/328394.shtml.
- Information about the withdrawal of the Chongqing Insurance Association case is available at http://www.chinacourt.org/html/article/200812/09/334699.shtml.
For a discussion of the pending telecom litigation, please see http://www.chinacourt.org/html/article/200810/29/327718.shtml.
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Peter J. Wang