China Law Vision : China Insurance & Anti-Trust Lawyer : Dr. Zhan Hao : Grandall Legal Group : Anti-Monopoly & Competition Law : China Law Vision Blog

The fact that the case was ultimately settled and that the uncertainty as to how the AML will be applied in practice remains, is of great importance to individual consumers with private actions against prominent business operators in China, and to other parties who have made claims under the AML (including those who have brought similar discriminatory pricing cases against state-owned enterprises).

One should attempt to understand the reasoning behind the settlement of the case. It is likely that in making such a decision, China Mobile took into account of the uncertainties in the application of the AML. Moreover, as a state-owned enterprise (SOE), while certain Articles of the AML has been interpreted to exempt state-owned enterprises (SOEs), it may be argued that the AML may be interpreted as exempting China Mobile from the AML prohibitions. Therefore, China Mobile’s willingness to settle the case may indicate that it considers its consumer pricing activities to be outside the scope of such exemptions. Hence, the consequences of a defeat for such a prominent company was likely to have been considered by China Mobile, namely that it could lead to a regulatory investigation and a fine of up to 10 per cent of its business turnover, and more importantly, potential major damage to its brand and ‘floodgate’ opening for similar claims.

Going forward, it is hoped that such cases may urge the Chinese courts and regulatory authorities to finalize and implement certain AML procedural rules to increase the transparency in the application of the law, and the certainty in the hearing and investigation of AML claims.

The case spurred intense debate and optimism regarding China's Anti-monopoly private litigation, and the media deemed it as a fantastic start to a long series of private litigation. However, the court cited a factor that the plaintiffs filed litigation after its validity period expired as the reason for turning down the case.

Under the AML, there are no detailed provisions regarding private litigation.Article 50 of the AML states:

"The business operators that implement the monopolistic conduct and cause damages to others shall bear the civil liability according to law."

However, through this simple provision, Chinese customers and competitors cannot get real compensation through private anti-monopoly litigation at the present time.

The reasons are diversified:

First, Chinese courts are not prepared deal with anti-monopoly civil cases. According to the internal arrangement of Supreme Court, No 3 Civil Division, which focuses on IP, have responsibility for anti-monopoly cases. Thus, Chinese judges lack the adequate experience in the field of anti-monopoly, and especially lack the ability to analyze microeconomics. In China, Chinese judges seldom put such knowledge and analytic approach into use. For most judges, monopolistic competition, oligopoly, transaction cost, game theory and contestable market are simply theoretical principles.

Secondly, there are many unsolved problems regarding AML enforcement. Traditionally, Chinese economics is based on central planning, the AML is unable to find strong foundation in such basis and competition law is quite strange to Chinese society.

If a Chinese judge faces an anti-monopoly civil case, their first challenge is in identify; opportunity, efficiency, justice, prosperity, harmony and freedom, which will be the prevailing value in Chinese ligation? Without a mature understanding of the AML, verdicts will conflict. Notwithstanding measurement of the concentration degree of the relevant market is a basic step for the AML, but there is no common understanding. Thus market share is not used as a standard in the concentration notification regulation. Therefore it is hard to imagine that Chinese courts could make a judgment before reaching agreement on basic ideas surrounding the AML.

Thirdly, according to the custom of the court, the Supreme Court should make an explanation on using the AML to guide lower courts. So far there has been no concrete announcement. Due to the absence of such explanation, a court cannot properly judge the scope of plaintiffs, the cause or calculate appropriate compensation.

Considering the reasons above, you can understand that suing monopoly power in civil cases is near impossible under the current framework.
 

In accordance with practice, under certain civil litigation which concerns administrative procedure, Chinese courts prefer to accept the civil litigation after the administrative departments issue a decisions. For example, a case concerning misrepresentation damage and the stock market, involved the Chinese Securities Regulatory Commission (CSRC) promulgating its punishment; only after did the courts permit the plaintiffs to file their civil cases. However, the Chinese Supreme Court has now announced an administrative decision is not a precondition to civil litigation. This is somewhat unexpected and will likely result in conflict. If a civil process and an administrative process proceed simultaneously, we must question how to avoid conflicts between their results.

Additionally, judicial explanation must proceed slowly as courts lack experience and typical cases, therefore, it is fundamentally difficult for the Chinese Supreme Court to draft a practical explanation. However, enforcement of AML consumes tremendous fiscal and human resources of both administrative and judicial forces. How to avoid waste and increase efficiency during the parallel processes is a conundrum for the system designer. Such issues are more complicated than the simple announcement of permission to AML litigation.

Compared with their administrative counterparts, becoming familiar with the AML is an urgent matter for Chinese judges. Inasmuch as there are no detailed guidelines or specific regulations, administrative organs could delay their action temporally. However for courts, there is no excuse and courts must provide a remedy for damages even without a specific provision.

Courts also face the immediacy of AML enforcement. In Chongqing, plaintiffs sued insurance companies in the local court. Organized by an insurance guild, some insurance companies set a bottom line for car insurance premiums. Consumers perceived the agreements as price fixing. In Beijing, a litigator sued CHINANET, the main telecommunication provider in China; clients with Beijing ID cards enjoyed telephone service priority and clients without local ID cards argue such deeds violated the discriminative treatment stipulation of the AML. Presently the details of the proceedings have not been disclosed.

At first, many within the Chinese professional circle expected a breakthrough in AML enforcement by administrative institutions, although such optimism could not be upheld long. After three months, the actual actions of administrative organs have been seldom heard. Surprisingly, the courts appear determined to enforce the AML quickly.

If the statement by the Chinese Supreme Court is not simply theory, the first real AML attempt would be trigged by anti-monopoly litigation, and will bring many surprises to AML enforcement.