At the Cutting Edge of PRC AML Private Litigation

 Authored by Dr. Zhan Hao (zhanhao@anjielaw.com) and Song Ying (songying@anjielaw.com) at AnJie Law Firm

 

I. INTRODUCTION 

On August 1, 2008, China launched the Anti-Monopoly Law (“AML”), establishing a dual enforcement system comprising both public and civil enforcement measures. Article 50 of the AML provides the legal basis for private anti-monopoly enforcement and states that undertakings that violate the provisions of the AML and cause damage to others shall bear civil liability.

In contrast to the activity surrounding public enforcement cases, China’s private antitrust enforcement regime remained relatively quiet during its first four years. From 2008 to 2012, a total of 143 cases concerning monopolistic conducts were accepted by the courts. Since then, however, an increasing level of private antitrust enforcement action in China, accompanied by some high-profile cases, has prompted an increased level of attention and scrutiny. Over the last four years to date, more than 300 antitrust cases have been brought before the courts. Considering that China as a jurisdiction has not traditionally hosted a competition or pro-litigation culture, these statistics are surprising to everyone, even within Chinese competition circles.

Generally speaking, Chinese courts are still at an early stage in implementing the AML.

Nevertheless, they have garnered a great deal of experience in the intervening eight years since implementation began, and are now stepping up the pace. This is evidenced by the advent of several landmark cases addressing increasingly more complicated facets of competition law, such as two-sided markets, Standard Essential Patents (“SEPs”),  resale price maintenance, refusal to deal and essential facilities.

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THE LIMITATION OF "ACCESSORY PRINCIPAL" IN THE CONTEXT OF SURETY BONDS

Authored by Dr. Zhan Hao (zhanhao@anjielaw.com) and Wan Jia (wanjia@anjielaw.com) at AnJie Law Firm

The surety bond market has developed significantly for insurers in China since this year, and it has become one of the most important methods for financial guarantee. Due to the lack of clear judicial interpretations issued by the Supreme Court of PRC, however, the applicable laws pertaining to surety bonds issued by insurers in China, and their nature, are still highly controversial. This article seeks to analyze the very specific question of whether the “accessory principal” prescribed by the Guarantee Law of PRC, is applicable to surety bonds issued by the insurers in China. 

 
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When the Arbitration Clause Leaves the Number of Arbitrators Implied

 Authored by Arthur Dong (dongxiao@anjielaw.com) and Darren Mayberry (darren.mayberry@anjielaw.comat AnJie Law Firm                                                             

 

What happens when the parties to a contract have chosen an arbitration institution, but not specified the number of arbitrators to resolve the dispute? In effect, the parties have already chosen the number of arbitrators, because arbitration institutions have provisions for choosing the number of arbitrators when the arbitration clause is silent. If the parties adopted a summary/expedited procedure, they have elected a single arbitrator.

Institutions take varied positions on the implied number of arbitrators assigned to a tribunal. All authorities agree that the choice is only between one and three arbitrators. 

The graph below displays the positions taken by the rules of four institutions, CIETAC, BAC, SIAC, and HKIAC, as well as the UNCITRAL rules. The implied number of arbitrators are given, and whether the determinate implication of number is presumptive or firm is indicated. Note that the implied number below do not reflect separate and distinct Summary/Expedited Procedures.

China Highly Likely to Recognize SIAC Awards Based on Early Dismissal

Authored by Arthur Dong (dongxiao@anjielaw.com) and Darren Mayberry (darren.mayberry@anjielaw.comat AnJie Law Firm                                                             

 On October 27, 2016, the Singapore International Arbitration Centre (SIAC) held its annual China Roadshow in Shanghai. SIAC is a premier global arbitration forum and institution that caters particularly to Chinese, Indian, and other ASEAN legal users. The initial panel included arbitration luminaries such as Chan Hock Seng, Steven Lim, John Zou, SIAC’s Deputy Registrar Kevin Nash, and AnJie Law Firm Partner and specialist on arbitration enforcement Arthur Dong. 

SIAC’s China Head, Sophia Feng, convened the distinguished panel to discuss SIAC’s innovations in its 2016 Rules, particularly its bold Early Dismissal provision. Rule 29 permits the Tribunal to dismiss claims or defenses which are “manifestly” either “without legal merit” or “outside the jurisdiction of the Tribunal.” Drawn from ICSID, SIAC is nonetheless the first arbitration institution to enact an Early (or Summary) Dismissal provision in its commercial arbitration institutional rules. 

The other panelists eagerly requested Arthur’s professional outlook on whether Chinese courts would be willing to recognize an Award anchored in a resolution by Early Dismissal. In short, Arthur is optimistic. Arthur noted that China is a signatory to the New York Convention. As such, China takes its obligations to enforce foreign Awards very seriously. Arthur reminded that China has a strong track record on enforcement. Furthermore, China will avoid delving into the substantive merits underlying any arbitration Award. Chinese courts respect that the Tribunal’s Award is the last word on the application of the facts to the law in any arbitration. Therefore,  Chinese courts will respect Awards where the Early Dismissal provision had a major impact.

The distinguished panelists considered enforcement issues globally. Although summary judgment features prominently in common law jurisdictions, particularly in the United States, civil law countries rarely exhibit any examples of such an early dismissal device. The panelists considered the danger of Early Dismissal in light of the New York Convention’s requirement that parties be afforded a “fair opportunity to present their cases.” Reassurance came, at least to an extent, by attention to the limiting language of Early Dismissal: the remedy of dismissal could only apply to matters of pure law or jurisdiction, and the standard required “manifest” burden. Any admixture of fact and law would require treatment of the issue under a full hearing. There was some concern about the vagueness of what might prove ‘manifest.’

In any case, SIAC Deputy Registrar Kevin Nash anticipates that few resolutions of the Early Dismissal procedure would entirely dispose of any matter, except perhaps when jurisdiction or legal grounds were facially and clearly wrong. This expectation appears sound. Early Dismissal was designed to narrow the issues before the hearing. As such, it would prove an absolute bar to only the most frivolous or mistaken claims. 

In addition to Early Dismissal, the panel discussed the Emergency Arbitrator provision. Arthur Dong pointed out that these will be useful to China-based users. Normally, interim measures are unavailable in China, unless the host institution is also based in China. Therefore, the breadth and scope of SIAC’s Emergency Arbitrator provisions may allow China-based users to accomplish what they otherwise might not through interim measures. 

Overall, Arthur Dong remains optimistic that Chinese courts will respect and enforce SIAC Awards, even when they rely on innovations under SIAC’s 2016 Rules. 

 

 

Merchandising rights in China: judicial protection for commercial interests

 Authored by Mr. He Jing (hejing@anjielaw.com) and Ms. Lyu Pei (lvpei@anjielaw.com) at Anjie Law Firm

Precis: Ground-breaking decisions have made merchandising rights a useful tool in the battle against bad-faith trademarks

Many rights holders have had frustrating experiences when it comes to fighting bad-faith trademark squatters in China. However, several recent cases have made use of a highly effective new weapon: the merchandising right. 

In a trademark opposition case involving the famous film *Kung Fu Panda* (*Gao Xing (Zhi) Zhong* No 1969 (2015) 高行 (知) 终字第1969号), the Beijing High People’s Court confirmed in its final judgment that DreamWorks Animation SKG, Inc. (“DreamWorks”) enjoyed prior merchandising rights over KUNG FU PANDA and rejected an attempt by a third party to register this mark.  

The case sparked extensive debate because merchandising rights are not explicitly set out in Chinese law. A number of people have expressed serious concerns that the judges in these cases are making laws rather than interpreting them. 

However, despite this controversy, the judgment has been hailed as an innovative attempt to secure more comprehensive protection for rights holders. In a broader context, innovation has been heavily promoted in China at all levels as a driver for economic, political and cultural development. The judicial support for merchandising rights seems to echo this policy. Given this, a discussion on merchandising rights is timely not only because they are so relevant to the ongoing battle against bad-faith trademarks, but also because they offer a cutting-edge perspective on ongoing legal reforms in China.

Third-Party Funding in Arbitration Favoured by UK Court

 

In a judgment handed down on 15 September 2016, the Honourable Judge Waksman QC, sitting in the High Court in London, ruled that arbitration courts could award third-party financing costs as “other costs” collectible under the Arbitration Act of 1996. The full circumstances and facts surrounding the opinion are currently unavailable, as we await release of a detailed and final decision.

Here is what we do know. The case involved a contract dispute concerning operation of an offshore drilling platform. The two parties were Norscot Rig Management and Essar Oilfield Services. Norscot applied for third-party financing to fund its action against Essar. The arbitration Tribunal awarded Norscot at least part of its third-party financing costs. 

Prior decisions in other common law jurisdictions have approved the existence and validity of third-party funding generally in the context of litigation. In Bayens v Kinross Gold Corporation, 2013 ONSC 4974, the trustee plaintiffs, acting on behalf of the Musician’s Pension Fund of Canada, moved for approval of an underlying litigation funding agreement designed primarily to protect the class counsel from the risk of an indemnity where the Defendant won an award on adverse costs. The Ontario Superior Court approved the legality of the agreement, specifying that in litigation all such arrangements would need to be disclosed and receive court approval. The recent London High Court ruling took the matter a step further, awarding some portion of the applicant’s costs for the expense of the third-party funding arrangement itself. 

As we await the final published decision, we anticipate Judge Waksman’s reasoning might in some way addresses one of the following three questions.

Questions: 

1) Since the United Kingdom is a leading ‘costs-follows-the-event’ jurisdiction, would that make its High Court justices more likely to acknowledge the reasonableness of recovery of third-party funding costs? Will higher courts from ‘bear-your-own-costs’ jurisdictions (such as the United States) wind up approaching third-party funding costs more skeptically?

2) Are third-party costs presumptively unreasonable, but only available in specific cases where the facts especially merit their recovery? Or will third-party funding costs be seen as an increasing reality in a world where transactional financing costs are already prevalent and recoverable?

3) Should a Tribunal’s award of third-party funding costs be explicitly subject to appeal, such that a party awarded third-party funding fees must know that this award will become a roadblock to immediate enforcement? And if so, should courts of the seat of the arbitration bifurcate enforcement of the ‘normal’ and special ‘third-party funding’ costs awards, and allow enforcement of the rest of the award while the third-party funding portion of the award awaits and undergoes the lengthy. and also perhaps expensive process of judicial review?

4) Will Chinese courts actively support third-party funding schemes? Third-party financing arrangements have already made an appearance, particularly in off-shore arbitrations where the fees are relatively high. Will courts view it as beneficial to resolve more commercial disputes? Or, will courts believe it would encourage more litigation/arbitration or perhaps discourage settlement?

 

New Review System Milestone for Fair Market Competition

 Authored by Michael Gu (michaelgu@anjielaw.com) and Sun Sihui (sunsihui@anjielaw.com) at AnJie Law Firm

Introduction

On June 1 2016 the State Council published its Opinions on Establishing a Fair Competition Review System in the Development of the Market Regime, signalling the formal establishment of China's fair competition review system. The fair competition review system is a major initiative to ensure fair play among participants in the Chinese market. It is also a significant instrument for promoting the development of China's socialist market economy and the reform of its economic system from the top down.

The opinions represent a key step towards establishing the competition policy and implementing the State Council's measures to streamline administration and delegate more power to lower-level governments. The opinions will also:

• have a profound influence on the supervision and regulation of government activity;

• promote market-oriented policy development;

• stimulate creativity and vitality among market players; and

• foster fair market competition.

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China Intensifies Antitrust Enforcement in the Pharmaceutical Industry: NDRC Issues Ruling in its First Concerted Practice Case

 Authored by Michael Gu (michaelgu@anjielaw.com) at AnJie Law Firm

Introduction

Since the implementation of the Anti-Monopoly Law (the “AML”) in August 2008, those industries particularly affecting the populous’ quality of life have been the major focus of the antitrust authorities’ enforcement agenda. Targeted industries include those such as automobile, consumer goods, insurance, construction materials, tourism, tobacco, telecoms and public utilities, etc. In particular, the National Development and Reform Commission (the “NDRC”) has launched several rounds of “antitrust storms” upon the auto industry, which attracted wide attention in recent years. In the meantime, enforcement upon the pharmaceutical industry has been relatively light, even though it is a critical sector affecting quality of life. In spite of some discussion and various rumors, neither the NDRC nor the State Administration for Industry and Commerce of the PRC (the “SAIC”) had penalized any pharmaceutical enterprises over the past few years. However, during a single month period in the beginning of 2016, both the SAIC and the NDRC respectively published penalty decisions against pharmaceutical companies, i.e. the Chongqing Qingyang Pharmaceutical Monopoly case  and the Allopurinol Drug Cartel case . The nearly parallel actions evidence an accelerated enforcement targeting the pharmaceutical industry.

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Concurrences Review Event on Multinationals Deals in a World of Non-Convergence

Concurrences Review, in partnership with George Washington University Law School, will hold the 4th edition of their annual joint conference “120 Merger Regimes: Multinationals Deals in a World of Non-Convergence: US, EU, Brazil, China... on Monday, September 19, from 14:00 to 18:30, at George Washington University School of Law, 2000 H Street, NW, Washington, DC. 

Speakers include:
  • William E. Kovoacic, Professor, George Washington University Law School
  • Sir Philip Lowe, Senior Advisor, FTI Consulting
  • George Rozanski, Partner, Bates White
  • Michael Keeley, Partner, Axinn, Veltrop & Harkrider
  • Rosie Lipscomb, Senior Competition Counsel, Google
  • Yong Huang, Director, Competition Law Center, Uni. of Int'l Business & Econ
  • John Harkrider, Partner, Axinn, Veltrop & Harkrider
  • Aviv Nevo, Senior Advisor, Cornerstone Research
  • Carles Esteva-Mosso, Deputy Director General, DG COMP
  • Elaine Ewing, Partner, Cleary Gottlieb Steen & Hamilton
  • Michael Ray, Executive Vice President, Western Digital Corporation
  • George Cary, Partner, Cleary Gottlieb Steen & Hamilton
  • Jonathan Orszag, Senior Managing Director, Compass Lexecon
  • Ian Simmons, Partner, O’Melveny & Myers
  • Sharis Pozen, VP, Global Competition and Antitrust, General Electric
  • Richard Parker, Partner, O'Melveny & Myers
  • Randolph W. Tritell, Director, Office of International Affairs, US Federal Trade Commission
There will be three panels:
  • Lack of Consistency: Navigating an Unharmonized World of Merger Regimes
  • A Call for Harmonization: Towards Regional Regulators or Comity?
  • Does the Bureaucratic Model Work? Advocacy Before the Agencies and the Courts
You can find the detailed program on the dedicated website: multinational-mergers.eventbrite.com
 

Supreme Court Reforms Patent Lawsuit Rules

Authored by Mr. He Jing (hejing@anjielaw.com) and Mr. Liu Liangyong (liuliangyong@anjielaw.com) at Anjie Law Firm

The Supreme Court of China released a new set of judicial interpretations governing the patent infringement lawsuits in March, which has entered into force on April 1 2016. The new judicial interpretation is intended to further enhance and clarify the way patent infringement lawsuits are done in China. Before going into the details, it may helpful to note that the Supreme Court is taking active steps to ensure the courts are playing dominant roles in handling patent disputes, as the State Intellectual Property Office is openly calling for more powers to enforce patents through administrative routes. The dual-track enforcement system in China, which was never given too much attention the past, is somehow a topic in today’s China patent world. Some aspects of the new rules clearly give the courts a bigger say in driving the patent litigation proceedings. 

The new rules made by the Supreme Court addresses a wide scope of issues, such as claim construction, impact of validity proceeding, design patent protection, determination of damages, standard essential patents.