Preamble

On November 18, 2022, the Supreme People’s Court of the People’s Republic of China (the “SPC”) published an announcement soliciting public comments on the draft of Provisions of the Supreme People’s Court of the People’s Republic of China on Several Issues concerning the Application of Law in the Trial of Monopoly-related Civil Dispute Cases (the “Draft”). Compared with the Provisions of the Supreme People’s Court of the People’s Republic of China on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct (the “2012 Interpretation”) issued by the SPC in 2012, which is the first judicial interpretation on China’s antitrust law, the Draft encompasses 52 articles and provides much more detailed interpretations on lots of procedural and substantive matters involved in antitrust civil litigation. When the Draft is formally adopted and comes into effect in the future, the 2012 Interpretation will be voided.

The key changes in the Draft can be divided into four categories: (1) provisions introduced or amended for being in alignment with the amendment to the Anti-monopoly Law of the People’s Republic of China (the “AML”) in 2022; (2) provisions reflecting the judicial opinions held by the people’s court in the antitrust jurisprudence; (3) provisions drawing on the provisions issued by China’s antitrust law enforcement authority; (4) provisions with groundbreaking content to some extent. The Draft includes responses to multiple complex and controversial issues in judicial practice. This article intends to introduce the key changes in the Draft with two parts, the procedural matters (Part I: Changes to Procedural Matters) and the substantive matters (Part II: Changes to Substantive Matters).

Brief regarding the changes to substantive matters: Articles 16 to 19, Articles 20 to 29, and Articles 30 to 43 of the Draft separately set out the provisions on the definition of the relevant market, the determination of monopoly agreement, and the determination of abuse of dominance, which include specified provisions on key issues in the fields of platform economy and intellectual property. In addition, the Draft introduces detailed provisions on civil liability from Articles 44 to 50.

1. Specifying the methods of defining the relevant market in monopoly civil dispute case.

Articles 17 to 19 of the Draft provide on how to define the relevant market in monopoly civil dispute case, and the provisions drawing on the content of the Guidelines on the Definition of Relevant Market issued by the Anti-monopoly Commission of the State Council and the Anti-monopoly Guidelines of the Anti-monopoly Commission of the State Council in the Field of Platform Economy (the “Guideline for Platform Economy”). The key provisions include the following:

Paragraph 1 of Article 17 of the Draft provides: “When defining the relevant product market and the relevant geographic market in which the undertaking compete with each other with respect to specific products or services (hereinafter collectively referred to as the “Products”) during a certain period, the people’s court may, on the basis of the specific products directly involved in the alleged monopolistic conduct, conduct a demand substitution analysis from the perspective of the demanders; if the competitive constraint caused by supply substitution on undertakings is similar to that of demand substitution, the people’s court may also conduct a supply substitution analysis from the perspective of the suppliers.” This article clarifies the principle and basic method of defining the relevant market in a monopoly civil dispute case, i.e., a demand substitution analysis and/or supply substitution analysis may be conducted on the specific products directly involved in the alleged monopolistic conduct.

Paragraph 2 of Article 17 of the Draft provides: “The people’s court may adopt the analysis method of the hypothetical monopolist test when defining the relevant product market and the relevant geographic market, and generally choose the hypothetical monopolist test method of price rising; and if the competition between undertakings is mainly shown in terms of quality, diversity, innovation and other non-price competition, the hypothetical monopolist test method of quality declining and cost rising may be adopted.” This article provides for different hypothetical monopolist test methods based on whether the competition between undertakings concerned is mainly shown in terms of price.

Before the issuance of the Draft, the people’s courts have already applied the hypothetical monopolist test (the “HMT”) in the context of non-price competition. For example, In Qihoo v. Tencent, the SPC held that the HMT, as a kind of analysis method to define the relevant market, is generally applicable, but the choice of HMT method needs to be determined on a case-by-case basis. In the fields where product differentiation is very obvious, and quality, service, innovation, consumer experience, and other non-price competition have become the important methods of competition, it is inappropriate to adopt the test of “small but significant and non-transitory increase in price” (the “SSNIP”). Under such circumstances, alternative methods of HMT shall be adopted, such as the test of “small but significant non-transitory decrease in quality” (the “SSNDQ”).

2. Introducing provisions on the determination of competitive relationship and the theory of “Single Economic Entity”.

(1) Specifying how to determine the competitive relationship between undertakings.

Article 17 of the Anti-monopoly Law of the People’s Republic of China (the “AML”) sets forth the provisions regarding horizontal monopoly agreement, that is, the undertakings with competitive relationship reaching an agreement, decision or other concerted practice to exclude or restrict competition. Therefore, to determine whether undertakings have reached or implemented a horizontal monopoly agreement, the first thing is to determine whether they have a “competitive relationship”. For undertakings with no “competitive relationship”, even if the agreement reached by them may have the effect of excluding or restricting competition, it shall not fall within the scope of horizontal monopoly agreements prohibited by Article 17 of the AML.

Paragraph 1 of Article 21 of the Draft provides: “Undertakings with a competitive relationship as provided for in Article 17 of the Anti-monopoly Law refer to two or more actual or potential undertakings that are at the same stage of production and operation, provide products with close substitution relationship, make independent business decisions, and assume legal liability.”

This new provision of the Draft specifies how the people’s courts determine the competitive relationship between undertakings. Actually, before the issuance of the Draft, the people’s courts have already adopted the above methods and principles in precedents. For example, in Shanghai Huaming v. Wuhan Taipu, the SPC held that, the competitive relationship under the Anti-monopoly Law is defined as two or more undertakings at the same operation stage of production or distribution of products, that provide substitutable products or have a realistic possibility of entering into the same relevant market. (Note: For a detailed introduction, please see, Why Settlement Agreements in Patent Litigation were Deemed as Monopoly Agreements? — — Analysis Of the Judgement and Criteria for Determining Monopoly Agreement by the Supreme People’s Court)

(2) Introducing the theory of “Single Economic Entity”.

Paragraph 2 of Article 21 of the Draft provides: “Two or more undertakings that shall be deemed as a single economic entity do not constitute an undertaking with a competitive relationship as mentioned in the preceding paragraph. To make a judgment, the people’s court shall take into account the specific situation and consider factors such as whether the undertaking has control over other undertakings concerned or can exert a decisive influence on them, whether such two or more undertakings are controlled by the same third party or have decisive influence thereon.”

This is the first time that the SPC explicitly indicates that the theory of “Single Economic Entity” can be applied to determine whether undertakings have a competitive relationship in an anti-monopoly dispute case. The Draft does not specify how to identify “control” or “decisive influence”, but based on the anti-monopoly law enforcement practice, especially in the merger control review cases, the determining factors are not limited to the factors for the identification of control under the company law, the security law or the financial audit regulation. All of the relevant factors such as the equity structure, the appointment of senior management, and the control of business and financial arrangements may be identified as determining factors of “control” or “decisive influence”.

For example, in the penalty decision against three calcium gluconate active pharmaceutical ingredient (“API”) suppliers — Shandong Kanghui Medicine (“Kanghui”), Weifang Puyunhui Pharmaceutical (“Puyunhui”) and Weifang Taiyangshen Pharmaceutical (“Taiyangshen”) — for abuse of dominance imposed by the State Administration for Market Regulation (the “SAMR”) on 9 April 2020, the SAMR identified a de facto controlling relationship among the three API suppliers even if they have no equity relationship, with each registered as an independent legal entity. The SAMR held that both Puyunhui and Taiyangshen were controlled by Kanghui and carried out their business under the instructions of Kanghui: (1) Kanghui regarded Puyunhui and Taiyangshen as its departments and coordinated relevant matters through work contact forms; (2) when Kanghui took the inventory of API products, the inventories of Puyunhui and Taiyangshen were also counted; (3) Kanghui carried out its business by sending instructions to Puyunhui and Taiyangshen and exerted a full control of the transactions of API products distributed by Puyunhui and Taiyangshen.

Where two or more undertakings are deemed as a single economic entity, it may not only affect the judgment on whether the agreement reached by them constitutes a horizontal monopoly agreement, but also affect the judgment on whether they have dominant position in the relevant market considering that their market share will be aggregated as that of one single economic entity. For example, in the above-mentioned penalty decision against the three API suppliers, when the SAMR determined the dominance of the three API, their market share in the relevant market were aggregated as a single economic entity.

3. Amending the provisions on the determination of monopoly agreement.

(1) Specifying the determining factors of “other concerted practices”.

Article 16 of the AML provides: “For the purposes of this Law, monopoly agreement refers to agreement, decision or other concerted practice that excludes or restricts competition.” According to Article 5 of the Interim Provisions on Prohibition of Monopoly Agreements (the “Provisions on Monopoly Agreements”) issued by the SAMR, “… other concerted practice refers to a practice carried out by undertakings in the absence of a definite agreement or decision between undertakings which nevertheless has been coordinated in substance.”

Paragraph 1 of Article 20 of the Draft provides: “The people’s court shall consider the following factors when determining other concerted practice under Article 16 of the AML: (1) whether there is consistency or relative consistency in the market conducts of undertakings; (2) whether there has been communication or exchange of information between undertakings; (3) market structure, competition status, market changes and other situations in the relevant market; and (4) whether the undertakings can provide reasonable explanations on the consistency or relative consistency of their conducts.” Paragraphs 2 and 3 of Article 20 of the Draft introduce the provisions on the burden of proof. (Note: For more details, please see, Part I: Changes to Procedural Matters)

The factors for determining “other concerted conducts” listed in the Draft are basically the same as the provisions in Article 6 of the Provisions on Monopoly Agreements. Actually, before the issuance of the Draft, the people’s courts have already determined whether the defendants have carried out “other concerted conduct” based on the above-mentioned factors in precedents. For example, in Li Bingquan v. Xiang Pin Tang, the SPC determined whether the five defendants had carried out “other concerted conduct” from the following aspects: (1) the purchase records submitted by the plaintiff could prove that the five defendants had sold the same water product at the same price; (2) a preliminary assumption that the undertakings concerned had exchanged information or intentions could not be made only based on the fact that the similarity of prices of the same water product in the limited area; (3) the plaintiff failed to provide evidence regarding the market structure, competition status, market change and other circumstance of the relevant market. Considering the factors such as the similarity of the water product concerned, the limited area where the undertakings concerned sold the products, the transparency of product price, and the limited number of undertakings, the SPC determined that the existing evidence submitted by the plaintiff is insufficient to exclude the possibility of independent pricing by the five defendants.

(2) Specifying how to determine whether the vertical monopoly agreements have the effect of excluding or restricting competition.

Paragraph 1 of Article 18 of the AML provides: “Conclusion of any of the following monopoly agreements between undertakings and their trading counterparts is prohibited: (1) fixing the price of products for resale to a third party; (2) restricting the minimum price of products for resale to a third party; and (3) any other monopoly agreement as determined by the anti-monopoly law enforcement authority of the State Council.” In practice, the first two monopoly agreements are generally referred to as “Price-related Vertical Monopoly Agreements” or “Resale Price Maintenance Agreements” (the “RPM agreement”), while the third circumstance is generally referred to as “Non-price Vertical Monopoly Agreements”.

The amendment to the AML adds a new provision as Paragraph 2 on the determination of the RPM agreement: “An agreement specified in Item (1) or (2) of the preceding Paragraph shall not be prohibited if the undertakings concerned can prove that such agreements do not have effects of excluding or restricting competition.” Based on the amendment to the AML, the undertakings can argue that the agreement with the content specified either in Item (1) or Item (2) of Paragraph 1 of Article 18 of the AML does not constitute the RPM agreement prohibited by the AML if they can prove that such agreement does not have effects of excluding or restricting competition.

Article 26 of the Draft provides: “When reviewing and determining whether an alleged monopolistic conduct has the effect of excluding or restricting competition in accordance with Paragraph 1 of Article 18 of the Anti-monopoly Law, the people’s court may comprehensively consider the following factors: (1) whether the defendant has significant market power in the relevant market; (2) whether the agreement has adverse competition effects such as raising the entry barrier to market, hindering more efficient distributors or distribution models, or restricting inter-brand competition; and (3) whether the agreement has favorable competition effects such as preventing free-riding, promoting inter-brand or intra-brand competition, safeguarding brand image, improving pre-sale or after-sale service levels, or promoting innovation. Where the defendant has significant market power in the relevant market, the favorable competition effects that can be proved by the documented evidence are insufficient to outweigh the adverse competition effects, the people’s court shall rule that the agreement has the effect of excluding or restricting competition.”

This provision specifies how to determine whether the vertical monopoly agreements have the effect of excluding or restricting competition. The theoretical bases of the determining factors such as preventing free-riding and the promotion of inter-brand competition are the same as those set out in the Anti-monopoly Guidelines of the Anti-monopoly Commission of the State Council for the Automobile Industry (the “Guideline for Automobile Industry”).

(3) Circumstances where the people’s court may preliminarily determine that the agreement concerned does not constitute a vertical monopoly agreement.

Article 27 of the Draft provides: “If the defendant can prove any of the following circumstances, the people’s court may preliminarily determine that agreement concerned does not constitute a monopoly agreement stipulated in Paragraph 1 of Article 18 of the Anti-monopoly Law: (1) the transaction counterparty of the agreement is an agent of the undertaking, and does not bear any substantive commercial or operational risks; (2) the defendant’s market share in the relevant market is lower than the standard established by the anti-monopoly law enforcement authority of the State Council, and it also satisfies the other conditions specified by the anti-monopoly law enforcement authority of the State Council; or (3) the agreement is implemented within a reasonable period to incentivize the transaction counterparty to promote new products.”

In addition to specifying the application of the “Safe Harbor” rule in vertical monopoly agreement disputes (Note: For more details, please see, Part I: Changes to Procedural Matters), the Draft also involves two other circumstances where the people’s court may preliminarily determine that the relevant agreement does not constitute a vertical monopoly agreement. These circumstances are also included in the Guideline for Automobile Industry. Specifically, Part (2) of Article 6 of the Guideline for Automobile Industry lists the common situations where undertakings in the automobile industry may apply for exemption of resale price restrictions on a case-by-case basis pursuant to the AML, including:

• Short-term restrictions on sub-sale price of new energy vehicles. In order to conserve energy, protect the environment and avoid “service free rider”, the short-term fixing of sub-sale price and specifying the minimum sub-sale price of new energy vehicles are necessary for encouraging the dealers to strive to promote the new energy products, make greater sales efforts, and expand the market demands for the new products, which may promote the successful release of new products into the market and give the consumers more choices.
• Sub-sale price restrictions in sales by a dealer that only plays the role of an intermediary party. Sale by a dealer that only plays the role of an intermediary party refers to the sales where the auto supplier and a particular third party or a particular end customer directly agree on the sales price, and only have the dealer to complete the vehicle delivery, funds collection, invoice issuing or other parts of selling steps. In such transactions, the dealer assists in completing the transaction by playing the role of the intermediary party only, different from the dealer in the general sense.

Article 18 of the AML stipulates that the vertical monopoly agreement is a monopoly agreement concluded between the undertaking and its counterparty, but it does not provide for the definition of the “counterparty”. In practice, vertical monopoly agreements are usually concluded either between the manufacturer and the wholesaler/retailer or the wholesaler and the retailer. Item (1) of Article 27 of the Draft specifies that the people’s courts may preliminarily determine that the agreement concerned does not constitute a vertical monopolistic agreement if the counterparty is an agent and does not bear any substantive commercial or operational risks. In determining whether the counterparty shall be deemed such an agent, the key considerations may include whether the counterparty is responsible for the costs of the supply of goods, the storage of goods, the damages caused to third parties, and certain investments for selling the goods.

(4) Introducing provision on the determination of the organizer and facilitator of monopoly agreement, and the joint and several liability borne by them.

The amendment to the AML introduces new provision under Article 19 stating that “An undertaking shall not organize other undertakings to reach a monopoly agreement or provide substantive assistance for other undertakings to reach a monopoly agreement.” In addition to the provisions on horizontal monopoly agreements (i.e., monopoly agreements concluded between competitive undertakings) and vertical monopoly agreements (i.e., monopoly agreements concluded between undertaking and its trading counterparty), the amendment introduces the above provisions on circumstance theoretically referred to as “Hub and Spoke Conspiracy”. In addition, the amendment to AML keeps the provisions on the prohibition against the industry associations from organizing undertakings to conduct monopolistic conducts.

Paragraph 1 and 2 of Article 28 of the Draft introduces provisions that the plaintiff has the rights to claim that the undertaking or organization of undertakings which conduct organization or provide substantive assistance for other undertakings to conclude or implement a monopoly agreement bear the joint and several liability for the damages caused by the monopoly agreement concerned. Paragraph 3 and 4 of Article 28 of the Draft separately provides how to determine “organize other undertakings to reach a monopoly agreement” and “provide substantive assistance for other undertakings to reach a monopoly agreement” stipulated in Article 19 of the AML.

According to Paragraph 3 and 4 of Article 28 of the Draft, (1) “organize” refers to conducts such as forming, leading, planning, manipulating, directing and initiating that play a decisive or dominant role in concluding or implementing a monopoly agreement; (2) “provide substantive assistance” refer to conducts such as guiding the occurrence of illegal intent, providing convenience, serving as an information channel and assisting in imposing punishments, which play a direct and important role in promoting the conclusion or implementation of a monopoly agreement. The Provisions on Prohibition of Monopoly Agreements (Draft for Comments) published by the SAMR on June 27, 2022, also sets forth provisions on how to determine “organize” and “provide substantive assistance”. The key factors and theoretical basis of the provisions under this document are basically the same as that of the Draft, but this document has not been formally adopted either.

4. Amending the provisions on the determination of market dominance and abuse of dominance.

(1) Introducing provision on the determination of market dominance which includes rebutting the assumption of collective dominance.

The Draft introduces provisions on the determination of market dominance of the undertakings concerned in monopoly dispute cases under Article 30, Article 32, Article 34, Article 35 and Article 36. The provisions are basically consistent with the relevant content of the Interim Provisions on the Prohibition of Abuse of Dominant Market Position (the “Provisions on Abuse of Dominant Market Position”), the Provisions of the State Administration for Market Regulation on the Prohibition of Abuse of Intellectual Property Rights to Exclude or Eliminate Competition (the “Provisions on the Abuse of Intellectual Property Rights”) and the Guideline for Platform Economy and the opinions formed in administrative enforcement. These new and amended provisions reflect the connection between administrative enforcement and judicial practice. Limited to the length of this article, we will not elaborate on this section, but only introduce the provisions on rebutting the assumption of collective dominance.

Article 36 of the Draft provides: “Where the people’s court presumes that two or more undertakings collectively have dominant market position in accordance with Item (2) and (3) of Paragraph 1 of Article 24 of the Anti-monopoly Law, such presumption may be rebutted if the undertaking has evidence to prove either of the following circumstances: (1) there is substantial competition between such two or more undertakings; or (2) such two or more undertakings, as a whole, are subject to effective competitive constraints from other undertakings in the relevant market.” These are detailed interpretations of the provisions under Paragraph 3 of Article 24 of the AML, which stipulates that “Where an undertaking presumed to hold a dominant market position is able to provide evidence that it does not hold such a dominant market position, it shall not be deemed to hold the dominant market position.” Although “substantial competition” and “effective competitive constraints” are yet to be further clarified by the people’s court, the opinions held by the people’s court in precedents can be used for reference.

In Ma Lijie v. China Mobile Communications Group Henan, the SPC for the first time mentioned the factors and standards for determining the collective market dominance. The SPC held that “Based on the common sense regarding the market operation, if multiple undertakings in the relevant market adopt different behaviors in respect of the same business, this is usually a normal result of market competition among the undertakings, and thus it is unnecessary to consider determining the collective market dominance. Therefore, only when multiple undertakings in the relevant market adopt the same behaviors in respect of the same business which reflects the consistency of behavior, it is necessary to consider determining the collective market dominance. For this reason, to determine whether multiple undertakings have formed a collective market dominance, in addition to examination of their market shares, factors such as the consistency of their behaviors also need be considered.”

(2) Introducing provision on the determination of abuse of dominance.

The Draft introduces provisions on the determination of abuse of dominance conducted by the undertakings concerned in monopoly dispute case under Article 37 to 43. The provisions draw on the content of with the relevant content of the Provisions on Abuse of Dominant Market Position, the Guideline for Platform Economy, the Provisions on the Abuse of Intellectual Property Rights, the Anti-Monopoly Guidelines of the Anti-Monopoly Commission of the State Council in the Field of Intellectual Property Rights (the “Guideline for Intellectual Property Rights”), and the opinions formed in administrative enforcement. These new and amended provisions reflect the connection between administrative enforcement and judicial practice. Limited to the length of this article, we will not elaborate on this section.

5. Introducing provisions on the key issues in the field of platform economy.

The Draft provides specified provisions on the key issues in the field of platform economy which draw on the content of the Guideline for Platform Economy, and the opinions formed in administrative enforcement. In addition, the Draft introduces reference provisions to the relevant provisions of the E-commerce Law of the People’s Republic of China (the “E-commerce Law”). Limited to the length of the article, we will not elaborate on this section of the content, but only introduce the provisions on the Most-Favored-Nation Clause and interconnection issues in the field of platform economy.

(1) Introducing provisions on Most-Favored-Nation Clause.

Article 24 of the Draft provides: “Where the agreement between an undertaking operating internet platform and an undertaking using the internet platform requires that the undertaking using the internet platform provides the same or more preferential transaction conditions on the internet platform as other transaction channels, the people’s court may, according to the plaintiff’s claims and the specific circumstances of the case, handle the case as follows: (1) where there is a competitive relationship between the undertaking operating internet platform and the undertaking using the internet platform, the people’s court shall review the case in accordance with Article 17 of the Anti-monopoly Law; (2) where there is no competitive relationship between the undertaking operating internet platform and the undertaking using the internet platform, the people’s court shall review the case in accordance with Article 18 of the Anti-monopoly Law; (3) where the plaintiff claims that the undertaking operating internet platform abuses the dominant market position, the people’s court shall review the case in accordance with Article 22 of the Anti-monopoly Law and Article 22 of the E-commerce Law; and (4) where the plaintiff claims that the undertaking operating internet platform violates Article 35 of the E-commerce Law, the people’s court shall review the case in accordance with the provision of this article.”

The above new provisions of the Draft set forth how to determine whether the Most-Favored-Nation Clause (the “MFN Clause”) in the field of platform economy constitutes illegal monopolistic conduct. MFN Clause is originally a term used in international economic trade which means the “best available terms”. With the development of the digital economy, the MFN Clause has been used more widely in digital publishing, e-commerce, online travel, online insurance and other sectors. On the one hand, the MFN Clause helps to reduce transaction costs and buyer risks, but on the other hand, it may also have a foreclosure effect and facilitate the collusion between undertakings. Therefore, the MFN Clause falls under the scope of antitrust regulations in lots of key antitrust jurisdictions such as the United States and the European Union. Before the issuance of the Draft, Paragraph 2 of Article 7 of the Guideline for Platform Economy also set forth provisions on the MFN Clause: “If an undertaking operating internet platform requires the undertaking using the internet platform to provide the platform with transaction conditions equal to or more favorable than those provided to other competitive platforms in terms of price, quantity, or other aspects of the product, it may constitute a monopoly agreement or abuse of the dominant market position.”

So far, China’s antitrust enforcement authorities and people’s courts have not determined whether the MFN Clause constitutes monopolistic conduct in any published precedents. In the penalty decision against Eastman (China) for abuse of dominance imposed by the Shanghai Administration for Market Regulation (the “Shanghai AMR”), the Shanghai AMR identified that the MFN Clause concerned as a method to impose transaction restriction but did not mention whether the MFN Clause itself constituted monopolistic conduct.

According to the above new provisions of the Draft and the relevant provisions of the E-commerce Law, when determining whether the MFN Clause in the field of platform economy constitute illegal monopolistic conduct, the people’s court shall, according to the plaintiff’s claims and the specific circumstances of case, conduct the following analysis methods:

• Based on whether there is a competitive relationship between the undertaking operating internet platform and the undertaking using the internet platform, the people’s court shall review the case in accordance with the relevant provisions on horizontal monopoly agreements or vertical monopoly agreements under the Anti-monopoly Law.
• If the plaintiff claims that the undertaking operating internet platform abuses its market dominance, the people’s court shall review the case in accordance with the relevant provisions on the abuse of dominance under the Anti-monopoly Law, and also Article 22 of the E-commerce Law which provides that “The E-commerce undertaking which owns market dominance due to its technical advantages, number of users, ability to control related industries, and other undertakings’ dependence on such E-commerce undertaking in terms of transactions, it is not allowed to abuse its market dominance to exclude or restrict competition.”
• If the plaintiff claims that the undertaking operating internet platform violates Article 35 of the E-commerce Law which provides that “The undertaking operating E-commerce platform shall not use the service agreement, transaction rules, technology or other means to impose unreasonable restrictions or conditions on the transactions, the transaction price and transactions with other undertakings of the undertakings who use the platform, or to charge unreasonable fees from the undertakings using the platform”, the people’s court shall review the case in accordance with the provision of this article.

(2) Introducing provisions on interconnection issues in the field of platform economy.

In recent years, China’s authority has been greatly promoting the interconnection between the platforms due to its importance for the development of national economy and the protection of consumer welfare. The Provisions on Abuse of Dominant Market Position and the Guideline for Platform Economy stipulate that refusing other undertakings to use essential facilities may constitute abuse of dominance and provide the considerations for determining essential facilities.

The Draft also set forth provisions regarding the interconnection between the platforms, which provides that the refusal to make one’s products, platforms or software systems compatible, and the refusal to share one’s technologies, data or platform interface may be deemed as monopolistic conducts. Paragraph 2 of Article 39 of the Draft provides: “Where an undertaking having a market dominance refuses to make its products, platforms or software systems, etc. compatible with other certain products, platforms or software systems, etc. provided by other undertakings without justified reasons, or refuses to share its technologies, data or platform interface, the people’s court may comprehensively consider the following factors and make the determination in accordance with Item (3) of Paragraph 1 of Article 22 of the Anti-monopoly Law: (1) the economic, technical and legal feasibility of the undertaking to implement compatibility or share its technologies, data or platform interface; (2) the substitutability of the products, platforms or software systems and the reconstruction costs of platforms or software systems; (3) the degree of dependence of other undertakings on the products, platforms or software systems of the undertaking concerned to carry out effective competition in the upstream market or downstream market; (4) the impact of refusal of compatibility or sharing on the innovation and introduction of new products; (5) whether refusal of compatibility or sharing substantially excludes or restricts the effective competition in the relevant market; and (6) the impact of implementation of compatibility or sharing on the business activities, legitimate rights and interests of the undertaking concerned.”

6. Introducing provisions on the key issues in the field of intellectual property.

The Draft provides specified provisions on the key issues in the field of intellectual property which draw on the content of the Provisions on the Abuse of Intellectual Property Rights, the Guideline for Intellectual Property Rights, and the opinions formed in administrative enforcement. Limited to the length of the article, we will not elaborate on this section of the content, but only introduce the provisions on the Reverse Payment Agreements.

Article 23 of the Draft provides: “Where the agreement reached and implemented by the drug patent right holder and the generic drug applicant meets all the following conditions, the people’s court may preliminarily determine that it constitutes a monopoly agreement as provided in Article 17 of the Anti-monopoly Law: (1) the drug patent right holder gives or promises to give the generic drug applicant a large amount of benefits compensation in monetary or other forms; and (2) the generic drug applicant promises not to challenge the validity of the patent right of the generic drug or delay to enter the relevant market of the generic drug. Where there is evidence that the benefits compensation referred to in the preceding paragraph is only made up for the cost of resolving the dispute relating to the patent of the generic drug or there are other legitimate reasons, the people’s court may determine that it does not constitute a monopoly agreement as provided in Article 17 of the Anti-monopoly Law.”

The above-mentioned provision specifies how to determine whether the Reverse Payment Agreements, also known as the “Pay-for-delay Agreements”, constitute illegal monopolistic conducts in judicial practice. Prior to the insurance of the Draft, people’s courts have clarified in precedents that the Reverse Payment Agreements may have the effect of excluding or restricting competition and constitute the monopoly agreement regulated by the AML.

On December 17, 2021, the SPC ruled on the application for withdrawal of appeal in AstraZeneca v. Jiangsu Aosaikang Pharmaceutical and for the first time made a preliminary antitrust review on the “reverse payment agreement of pharmaceutical patents”. In the process of reviewing the withdrawal of the appeal application, the SPC found that the settlement agreement in question was in line with the appearance of a “reverse payment agreement of pharmaceutical patents”, i.e. the drug patent right holder promises to compensate the generic applicant for direct or indirect benefits (including disguised compensation such as reducing the generic applicant’s non-benefits), and the generic applicant promises not to challenge the validity of the drug-related patent rights or delay entering the market of the patented drug. The applicant promises not to challenge the validity of the patent right of the drug or delay the entry into the market of the patented drug. The SPC pointed out that such agreements may have the effect of excluding or restricting competition and thus constitute the monopoly agreement prohibited by the AML. In this case, the SPC specified the method of conducting an antitrust review on the “reverse payment agreement of pharmaceutical patents”: by comparing the actual situation where the agreement was signed and fulfilled with the hypothetical situation where the agreement was not signed or fulfilled, the people’s court may focus on the possibility that drug-related patent rights are invalid due to the request for invalidation where the generic drug applicant does not withdraw that, and then, based on this possibility, analyze whether and to what extent relevant agreement causes harm to competition on the relevant market.

7. Specifying that plaintiff may bring lawsuit against the undertaking who benefits from the administrative monopolistic conducts.

Article 4 of the Draft provides: “Where the plaintiff files a civil lawsuit with a people’s court in accordance with the Anti-monopoly Law against the undertaking that benefits from the suspected abuse of administrative power to exclude or restrict competition by an administrative authority or an organization authorized by laws or regulations to administer public affairs, and requests the undertaking to bear civil liability, if the administrative conduct concerned has been legally identified as the abuse of administrative power to exclude or restrict competition, the people’s court shall accept the case.”

Chapter V of the AML sets forth the provisions on the conduct of abuse of administrative power to exclude or restrict competition (“administrative monopolistic conduct”), and Paragraph 1 of Article 61 of the AML provides that “Where administrative authorities and organizations authorized by laws and regulations to administer public affairs abuse their administrative powers to exclude or restrict competition, the superior authorities shall order them to make corrections; the directly liable persons in charge and other directly liable persons shall be punished.” However, the above provisions do not clarify whether an undertaking benefiting from an administrative monopolistic conduct (e.g., where the administrative authorities abuse their administrative power to request all the entities to buy the relevant products from certain undertaking) shall be held liable for any liabilities.

According to Article 4 of the Draft, where there is effective ruling that the administrative conduct concerned constitute an abuse of administrative power to exclude or restrict competition, the plaintiff may file a lawsuit against the undertakings who have benefited from the administrative monopolistic conduct. It remains to be further clarified in relevant regulations and judicial practices regarding how to determine the civil liability of the undertaking who benefit from the administrative monopolistic conduct.

8. Specifying that the people’s court may request the defendant to conduct certain acts to restore the market competition status.

Article 44 of Paragraph 2 of the Draft provides: “Where ruling that the defendant ceases the alleged monopolistic conduct is not sufficient to eliminate the effect of excluding or restricting competition, the people’s court may, based on the plaintiff’s claims and the specific circumstances of the case, order the defendant to take the legal liabilities of making specific acts to restore competition.”

According to the above provisions, in addition to legal liabilities such as compensating the plaintiff for the economic damages, if the defendant is found to have conducted illegal monopolistic conducts, the people’s court may rule that the defendant needs to take certain actions to restore competition, which will improve the effectiveness of judicial remedies. According to China’s antitrust law enforcement practice, we understand that the conducts ordered by the people’s court to restore competition in judicial practice may include terminating the exclusive agreement, terminating the additional unreasonable transaction conditions, terminating the discriminative transaction clauses, and guaranteeing the supply of products to the downstream enterprises, etc.

9. Specifying how to calculate the damages suffered by the plaintiff from the alleged monopolistic conduct.

Article 45 and 47 of the Draft introduce provisions on how to calculate the damages suffered by the plaintiff from the alleged monopolistic conduct, the main contents of which are as follows:

Firstly, the damages suffered by the plaintiff due to the alleged monopolistic conduct include direct damages and reduced acquirable benefits. The following factors may be referred to in determining the damages suffered by the plaintiff due to the alleged monopolistic conduct: (1) product prices, operating costs, profits, market shares, etc. in the relevant market before, after and in the course of implementation of the alleged monopolistic conduct; (2) product prices, operating costs, profits, etc. in comparable markets that are not affected by the monopolistic conduct; (3) product prices, operating costs, profits, market shares, etc. of comparable undertakings that are not affected by the monopolistic conduct; and (4) other factors that can reasonably prove the damages suffered by the plaintiff due to the alleged monopolistic conduct.

Secondly, if the defendant can prove that the plaintiff has transferred all or part of the damages to others, the people’s court may deduct the transferred damages when determining the amount of compensation. The newly added provisions of Paragraph 4 of Article 45 of the Draft are based on the “Passing-on” theory for the compensation in anti-monopoly civil dispute, that is, a circumstance where an undertaking suffering from monopolistic conducts transfers its damage to other entities. Based on the anti-monopoly practices and theories, a buyer (e.g., being forced to purchase a product at an unfairly high price) suffering damages from monopolistic conducts can “pass on” the damages to its downstream undertakings or consumers by resale of the products, raising prices or other means. In such a case, if such a buyer brings an action to claim against the undertaking who conducts the monopolistic conducts, the damages already passed on to other undertakings shall be deducted from compensation claimed for by the buyer. As for the “passed on” damages, the downstream undertakings or consumers may file a lawsuit against the monopolistic conducts concerned claiming for compensation.

Third, where the plaintiff has evidence to prove that the alleged monopolistic conduct has caused damages to it, but the amount is difficult to be determined, the people’s court may determine a reasonable compensation amount based on the plaintiff’s claim and evidence, and taking into account the nature, extent, duration and benefits obtained of the alleged monopolistic conduct. It is often very difficult to determine what specific effect of excluding or restricting competition is caused by monopolistic conducts on the relevant market (for example, what proportion of rise in the price of the products is due to the monopolistic conducts). In light of that, the Draft provides that if the plaintiff has proved that it has suffered from the alleged monopolistic conduct, the people’s court may determine a reasonable compensation amount based on the specific circumstances.

Fourth, where multiple alleged monopolistic conducts are combined with each other and cause indivisible overall damages to the plaintiff in the same relevant market, the people’s court shall take into account the overall damages when determining the damages. Where multiple alleged monopolistic conducts are independent from each other and cause damages to the plaintiff in different relevant markets, the people’s court may take into account such conducts separately when determining the damages.

10. The participants of a horizontal monopoly agreement are not entitled to claim for damages caused by that but can still claim for compensation of “reasonable expenses spent for the investigation and stopping of monopolistic conduct”.

Article 48 of the Draft provides: “Where an undertaking of a horizontal monopoly agreement files a claim against the other undertakings who have reached or implemented the agreement for compensation of damages incurred during the period of participating in the agreement in accordance with Article 60 of the Anti-monopoly Law, the people’s court shall not uphold the claim.”

The provisions added here in the Draft set forth the opinion held by people’s court in judicial practice, that is, the participants of horizontal monopoly agreement are not entitled to claim for damages caused by the implementation of such agreement. However, it should be noted that, according to the opinion held by people’s court in precedents, participants of horizontal monopoly agreement can still claim for the damages of the reasonable expenses for investigating and stopping the monopolistic conduct. For example, in Shanghai Huaming v. Wuhan Taipu, the SPC rejected the appellant’s claim for economic damages but upheld the appellant’s claim for compensation of reasonable expenses incurred due to bring the lawsuit. In this case, the SPC held that upholding the reasonable expenses claimed for by the plaintiff for bringing the lawsuit against horizontal monopoly agreement are conducive to disclosing and stopping monopolistic conduct, which shall be taken into consideration. (Note: For a detailed introduction, please see, Why Settlement Agreements in Patent Litigation were Deemed as Monopoly Agreements? — — Analysis Of the Judgement and Criteria for Determining Monopoly Agreement by the Supreme People’s Court)

*Thanks Liu YAN and Yuanyuan LIU for their contributions in this article.

[1]Case Number: (2013) Min San Zhong Zi No.4
[2] Case Number: (2021) Zui Gao Fa Zhi Min Zhong No. 1298.
[3]Case Number: (2021) Zui Gao Fa Zhi Min Zhong No. 1020.
[4]Case Number: (2021) Zui Gao Fa Zhi Min Zhong No. 1977.
[5]Case Number: (2021) Zui Gao Fa Zhi Min Zhong No. 388.
[6][1]Case Number: (2013) Min San Zhong Zi No.4
[2] Case Number: (2021) Zui Gao Fa Zhi Min Zhong No. 1298.
[3]Case Number: (2021) Zui Gao Fa Zhi Min Zhong No. 1020.
[4]Case Number: (2021) Zui Gao Fa Zhi Min Zhong No. 1977.
[5]Case Number: (2021) Zui Gao Fa Zhi Min Zhong No. 388.
[6]Case Number: (2021) Zui Gao Fa Zhi Min Zhong No. 1298.

Preamble

On November 18, 2022, the Supreme People’s Court of the People’s Republic of China (the “SPC”) published an announcement soliciting public comments on the draft of Provisions of the Supreme People’s Court of the People’s Republic of China on Several Issues concerning the Application of Law in the Trial of Monopoly-related Civil Dispute Cases (the “Draft”). Compared with the Provisions of the Supreme People’s Court of the People’s Republic of China on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct (the “2012 Interpretation”) issued by the SPC in 2012, which is the first judicial interpretation on China’s antitrust law, the Draft encompasses 52 articles and provides much more detailed interpretations on lots of procedural and substantive matters involved in antitrust civil litigation. When the Draft is formally adopted and comes into effect in the future, the 2012 Interpretation will be voided.

The key changes in the Draft can be divided into four categories: (1) provisions introduced or amended for being in alignment with the amendment to the Anti-monopoly Law of the People’s Republic of China (the “AML”) in 2022; (2) provisions reflecting the judicial opinions held by the people’s court in the antitrust jurisprudence; (3) provisions drawing on the provisions issued by China’s antitrust law enforcement authority; (4) provisions with groundbreaking content to some extent. The Draft includes responses to multiple complex and controversial issues in judicial practice. This article intends to introduce the key changes in the Draft with two parts, the procedural matters (Part I: Changes to Procedural Matters) and the substantive matters (Part II: Changes to Substantive Matters).

Brief regarding the changes to procedural matters: Articles 1 to 15 of the Draft address the procedural matters which mainly include the clarification that the arbitration agreement cannot be deemed the natural basis for excluding the jurisdiction of the people’s courts over monopoly civil disputes, the issues regarding the jurisdiction of the people’s courts over monopoly civil disputes, and the relationship between administrative enforcement and private litigation. In addition, the Draft introduces provisions on the parties’ burden of proof on the substantive issues.

1. Clarifying that arbitration clause cannot automatically exclude the statute jurisdiction of the people’s courts over monopoly civil disputes.

Article 3 of the Draft provides: “Where a plaintiff files a civil lawsuit with a people’s court pursuant to the Anti-monopoly Law, and the defendant raises an objection citing the existence of a contractual relationship and an arbitration agreement between parties, this shall not affect the acceptance of a monopoly civil dispute case by the people’s court. However, where the people’s court determines that the case is not a monopoly civil dispute case after acceptance, the people’s court may rule on rejection on this case pursuant to the law.”

The arbitrability of monopoly civil dispute has been a controversial topic in China for a long time. Neither the AML nor the Arbitration Law of the People’s Republic of China provides clear provisions on this issue, and the SPC has held different opinions on this issue in judicial practice. Article 3 of the Draft clarifies that the arbitration clause shall not affect the acceptance of a monopoly civil dispute case by a people’s court, even if that case arises from a contractual dispute which contains arbitration clause; and if the people’s court finds that it is not a monopoly civil dispute case after acceptance, the people’s court can dismiss the case accordingly. After the people’s court dismisses the case, the parties can resolve their disputes pursuant to the arbitration clause.

In multiple precedents (for example, Beijing Longsheng. v. Honeywe), the SPC ruled that arbitration clause could not be deemed the natural basis for excluding the jurisdiction of the people’s courts over monopoly civil disputes. The SPC held that in cases where the identification and handling of monopolistic conduct go beyond the rights and obligations relationship between the relevant parties, the content of such disputes and the object of trial are far beyond the scope of the agreed arbitration clauses. Therefore, the people’s courts have the statute jurisdiction over the case even if there are valid arbitration clauses.

Based on case research accessible to the public, only in one precedent, Shanxi Changlin v. Shell, did the SPC rule that the monopoly civil dispute should be governed by the valid arbitration clauses agreed by the parties and thus dismissed the case. However, according to a 19 September ruling posted on 15 November by the SPC, the SPC decided to review this case due to the protest lodged by the Supreme People’s Procuratorate (the “SPP”). According to the ruling posted by the SPC, the SPP concluded that this case falls under the circumstances specified in the sixth item of Article 207 of the Civil Procedure Law of the People’s Republic of China (the “Civil Procedure Law”) — which provides that a people’s court should retry a case if there is a mistake in the application of laws in the original ruling or adjudication — and lodged the protest. There is possibility that the original ruling on Shanxi Changlin v. Shell will be invalid if the people’s court rules that there are mistakes in the application of laws, thus solving the inconsistency of judicial opinions in precedents.

2. Further strengthening the centralized jurisdiction of people’s courts as the court of first instance over monopoly civil disputes.

Article 5 of the Draft provides: “The intellectual property court or the intermediate people’s court designated by the Supreme People’s Court shall have jurisdiction over civil monopoly dispute cases as the court of first instance.”

In light of the complexity of monopoly civil disputes, China’s judicial system has been strengthening the centralized jurisdiction over monopoly civil disputes, which includes having certain courts of first instance to exercise the jurisdiction. Since 2017, the National People’s Congress has successively decided to establish intellectual property courts in Beijing, Shanghai, Guangzhou, and Hainan, and the SPC has subsequently agreed to establish intellectual property tribunals inside the intermediate people’s courts in Chengdu, Nanjing, Suzhou and other more than twenty cities. The intellectual property courts/tribunals have cross-regional centralized jurisdiction over the monopoly civil dispute cases as the court of first instance.

The 2012 Interpretation, after the revision in 2020, provides that there are three kinds of people’s court as the court of first instance: 1) the intellectual property court; 2) the intermediate people’s court designated by the SPC; 3) the intermediate people’s court of a city where the people’s government of a province, autonomous region, or municipality directly under the Central Government is located or a city under separate state planning.

The Draft deletes the third kind of people’s courts and provides that only the first two kinds of people’s court have the jurisdiction over civil monopoly dispute cases as the court of first instance: 1) the intellectual property court; 2) the intermediate people’s court designated by the SPC, further strengthening the centralized jurisdiction over monopoly civil disputes. It is foreseeable that if the above changes are officially adopted, more intellectual property tribunals or intellectual property courts will be established in China to exercise centralized jurisdiction over monopoly civil disputes.

3. Introducing provision on the territorial jurisdiction of the people’s courts over the monopolistic conducts that occurred outside the territory of China.

Article 7 of the Draft provides: “Where a monopolistic conduct occurred outside the territory of the People’s Republic of China has the effect of excluding or restricting domestic market competition, and a party concerned files a civil lawsuit in accordance with the Anti-Monopoly Law against the defendant who has no domicile within the territory of the People’s Republic of China, the lawsuit shall fall under the jurisdiction of the people’s court at the place where the domestic market competition is directly and materially affected and the result occurs; if it is difficult to determine the place where the result occurs, the lawsuit shall fall under the jurisdiction of the people’s court at the place that has other appropriate connection with the dispute or at the domicile of the plaintiff.”

Before the release of the Draft, the SPC has already determined in multiple precedents, especially in precedents involving the licensing of standard essential patents (the “SEP”), that where a party files a lawsuit in China for damages suffered from the monopolistic conduct occurred outside the territory of China, the place where the alleged monopolistic conduct has the effect of excluding or restricting competition within the territory of China can be a connecting point for the determination of the jurisdiction over the case.

• For example, in TCL v. Ericsson, the SPC held that in light of the special features of the SEP licensing market, the relevant negotiations and disputes in foreign jurisdictions might directly, substantively, and significantly exclude or restrict TCL Shenzhen’s participation in the market competition within the territory of China, and the domicile of TCL Shenzhen, namely Shenzhen, Guangdong Province, can be regarded as the place where the infringement results occurred, and therefore, Guangdong Shenzhen Intermediate People’s Court has jurisdiction over this case.

4. Amending the provisions on opinions of professional institutions/experts on specialized issues.

Article 12 of the Draft amends the provisions of the 2012 Interpretation on opinions of professional institutions/experts on specialized issues, mainly including the following aspects:

Paragraph 1 of Article 12 of the Draft provides: “The parties may apply to the people’s court for one or two persons who have the relevant expertise in the fields involved, economics and other fields to attend the court trial and explain the specialized issues relating to the case”, which provides for a detailed interpretation on “have the relevant expertise” in the 2012 Interpretation. In light of the characteristics of monopoly disputes, this article specifies that the professional institutions/experts mainly refer to the experts in the relevant market and economists.

Paragraph 2 of Article 12 of the Draft provides: “… the professional institution or experts may be determined by the parties through negotiation; if no agreement is reached, the people’s court shall make the designation …” and deletes “upon the consent of the people’s court” in the 2012 Interpretation, specifying the principle that the parties are free to choose experts and carry on the responsibilities on their own.

Paragraph 3 of Article 12 of the Draft provides: “Where a party entrusts of its own accord the relevant professional institution or experts to provide market research or economic analysis opinions with respect to specialized issues of the case, and such opinions lack of reliable facts, data or other necessary basic information, or lack of reliable analysis methods, or the evidence or reasons provided by the other party are sufficient to rebut such opinions, the people’s court shall not accept such opinions.” Although expert opinions have been frequently used in monopoly civil litigation, there are no explicit provisions on the examination standard of such opinions. This article indicates that the people’s courts shall adopt a stricter examination standard where a party entrusts of its own accord the relevant professional institution or experts to provide opinions; it also explains that the people’s court’s examination standards on opinions of professional institutions/experts include reliable facts, data, basic information, and methods of analysis.

5. Clarifying the relationship between public and private enforcement.

After being revised in 2022, Article 11 of the AML provides: “The State shall improve the anti-monopoly regulatory system, strengthen anti-monopoly regulatory power, enhance regulatory capacity and the modernization level of regulatory system, strengthen the public and private enforcement of Anti-monopoly Law, hear monopoly cases in a lawful, fair and efficient manner, improve the mechanism for connecting administrative enforcement with the judicial practice, and maintain the fair competition order.” On 17 November 2022, the SPC held a press conference of the judicial practice regarding anti-monopoly and anti-unfair competition, with a focus on the need to “continue to strengthen communication and cooperation with administrative enforcement departments”. There are multiple articles in the Draft clarifying the relationship between public and private enforcement.

Article 11 of the Draft provides: “Where a determination decision made by an anti-monopoly law enforcement authority on monopolistic conduct is not subject to administrative litigation within the statutory period or has been confirmed by an effective ruling of the people’s court, the plaintiff who claims for the constitution of such monopolistic conduct in the relevant civil monopoly dispute case does not bear the burden of proof regarding that, unless there is sufficient evidence to the contrary. Where necessary, the people’s court may require the anti-monopoly law enforcement authority who has made the determination decision to provide an explanation on the relevant information.” This article clarifies that the antitrust administrative decision can be used as evidence in private litigation, which reduces the plaintiff’s burden of proof and litigation costs, and thus will to some extent encourage relevant entities to file following-on civil actions after the anti-monopoly law enforcement authority makes the administrative decision.

Article 14 of the Draft provides: “If an anti-monopoly law enforcement authority is investigating an alleged monopolistic conduct, the people’s court may, depending on the circumstances of the case, rule to suspend the trial proceed of this case.” It should be noted that, different from the circumstances stipulated in Article 153 of the Civil Procedure Law where the people’s court “shall” rule to suspend the trial proceed, this article provides that the people’s court “may” rule to suspend the trial proceed, meaning that the people’s court has the discretion to make the decision based on the circumstances of the case, and the ongoing anti-monopoly administrative investigation does not necessarily trigger a suspension of the trial proceed of relevant case.

Pursuant to the provisions of AML, the competitor, the upstream/downstream undertaking, the end consumer and other relevant entities who claim for the damages due to monopolistic acts have the right to file a lawsuit to the people’s court, requesting the undertaking who conduct monopolistic acts to bear civil liability. However, in practice, it is often difficult for the plaintiff to provide sufficient evidence to prove either the constitution of monopolistic conduct or the damages suffered from that. To improve the possibility of being effectively remedied, it is common for a claimant to consider filing a report with the anti-monopoly law enforcement authority while filing a lawsuit with the people’s court on the monopolistic conduct concerned at the same time. Based on Article 14 of the Draft, under the circumstance where an anti-monopoly administrative investigation and a civil lawsuit proceed concurrently, the people’s court may use its discretion to determine whether suspending the trial proceed.

Article 15 of the Draft provides: “When hearing a civil dispute case, if the people’s court finds that relevant conduct of a party is suspected of violating the Anti-monopoly Law, or deems that the alleged monopolistic conduct is in violation of the Anti-monopoly Law which may be subject to administrative penalty, and the anti-monopoly law enforcement authority has not initiated an investigation, the people’s court may forward the clues of the suspected illegal conduct to the anti-monopoly law enforcement authority.” This new provision strengthens the connection between public and private enforcement, and the trial of monopoly litigation will become a more important channel for the AML enforcement authority to obtain clues of illegal monopolistic conducts.

6. Amending the provisions on the parties’ burden of proof regarding multiple issues.

Articles 16 to 19, Articles 20 to 29, and Articles 30 to 43 of the Draft separately set out the provisions on the definition of the relevant market, the determination of monopoly agreement, and the determination of abuse of dominance. With respect to the burden of proof regarding these issues, on the basis of the principle of “the burden of proof lies with the party asserting a proposition” in civil litigation, the Draft provides detailed provisions as follows:

(1) Differentiated provisions on the plaintiff’s burden of proof for market definition depending on the type of alleged monopolistic conduct.

Article 16 of the Draft differentiates provisions on the party’s burden of proof for market definition depending on the type of alleged monopolistic conduct.

Alleged monopolistic conduct	Plaintiff’s burden of proof for market definition
Abuse of dominance	Where the plaintiff claims that the party alleged to have engaged in monopolistic conduct has significant market power or dominant market position on the ground of its market share in the relevant market, the plaintiff shall define the relevant market and provide evidence or reasons.
Horizontal monopoly agreements listed in Items (1) to (5) of Article 17 of the AML.Vertical monopoly agreements listed in Items (1) and (2) of Article 18 of the AML	The plaintiff has no burden of proof for the definition of the relevant market.
Exceptions	If the evidence provided by the plaintiff is sufficient to directly prove that the undertaking has significant market power, the undertakings alleged for abusing dominance has the market dominant position, or the alleged monopolistic conduct has the effect of excluding or restricting competition, the plaintiff will no longer bear the burden of proof for the definition of the relevant market.

These new provisions of the Draft reflect the judicial opinions held by the people’s court on the burden of proof for market definition in different kinds of monopoly disputes. The below cases can be taken as examples:

• In Art Kindergarten v. Liujiayi Kindergarten, the SPC held that “as the horizontal monopoly agreements listed in Paragraph 1 of Article 13 of the AML generally have the obvious effect of excluding or restricting competition, and the harmful consequences are generally relatively serious among various types of monopolistic conduct, and it is generally not necessary to clearly and precisely define the relevant market in determining whether the undertakings have reached and implemented the horizontal monopoly agreements listed in Paragraph 1 of Article 13 of the AML.”
• In Qihoo v. Tencent, the SPC held that “even if the relevant market is not clearly defined, the direct evidence of excluding or restricting competition can be used to analyze the market position of the defendant and the influence of the alleged monopolistic conduct on the market. Therefore, it is not necessary to explicitly and clearly define the relevant market in every case involving abuse of dominant market position.”

(2) Burden of proof on the determination of monopoly agreement.

a  For the determination of “other concerted practices”, the plaintiff only bears the burden of proof for some but not all of the determining factors.

Article 16 of the AML provides: “For the purposes of this Law, monopoly agreement refers to agreement, decision or other concerted practice that excludes or restricts competition.” According to Article 5 of the Interim Provisions on Prohibition of Monopoly Agreements (the “Provisions on Monopoly Agreements”) issued by the State Administration for Market Regulation (the “SAMR”), “… other concerted practice refers to the practice carried out by undertakings in the absence of a definite agreement or decision between undertakings which nevertheless has been coordinated in substance.”

Paragraph 1 of Article 20 of the Draft provides: “The people’s court shall consider the following factors when determining other concerted practice under Article 16 of the AML: (1) whether there is consistency or relative consistency in the market conducts of undertakings; (2) whether there has been communication or exchange of information between undertakings; (3) market structure, competition status, market changes and other situations in the relevant market; and (4) whether the undertakings can provide reasonable explanations on the consistency or relative consistency of their conducts.”

According to the provisions on burden of proof set forth in Paragraph 2 and 3 of Article 20 of the Draft, after the plaintiff has provided preliminary evidence proving the two items either of Item (1) and (2) or Item (1) and (3) of Paragraph 1, the burden of proof shall be shifted to the defendant, and the defendant bears the burden of proof for the reasonable explanation on the consistency or relative consistency of relevant conducts (i.e., Item (4) of Paragraph 1). It should be noted that, although it is generally not necessary to clearly and precisely define the relevant market when determining whether undertakings have reached horizontal monopoly agreements, since Item (3) of Paragraph 1 involves “market structure, competition status, market changes and other situations in the relevant market”, where the plaintiff claims that the defendant has carried out “other concerted practice” based on the Item (1) and (3) of Paragraph 1, the plaintiff may need to bear the burden of proof on definition of the relevant market.

Compared with the monopoly agreement reached in the form of an agreement or decision, “other concerted practice” is highly concealed which makes it highly difficult for the plaintiff to provide sufficient evidence on the determination of such conduct. Therefore, compared with other kinds of monopoly agreement, a lower standard of evidence is adopted for the determination of the concerted practice. In Li Bingquan v. Xiang Pin Tang, the SPC clarified for the first time that the plaintiff only needs to provide preliminary evidence for the first three factors in consideration of “other concerted practice” which include “first, whether the market conducts of the undertakings are coordinated and consistent; second, whether there has been communication or exchange of information between the undertakings; third, the market structure, competition status, market changes and other situations in the relevant market.” The above new provision in the Draft further clarifies and reduces the plaintiff’s burden of proof for “other concerted practice”.

b New provisions introduced on the burden of proof for vertical monopoly agreements in alignment with the amendment to the AML.

Paragraph 1 of Article 18 of the AML provides: “Conclusion of any of the following monopoly agreements between undertakings and their trading counterparts is prohibited: (1) fixing the price of products for resale to a third party; (2) restricting the minimum price of products for resale to a third party; and (3) any other monopoly agreement as determined by the anti-monopoly law enforcement authority of the State Council.” In practice, the first two monopoly agreements are generally referred to as “Price-related Vertical Monopoly Agreements” or “Resale Price Maintenance Agreements” (the “RPM agreement”), while the third circumstance is generally referred to as “Non-price Vertical Monopoly Agreements”. The amendment to the AML adds new provision as Paragraph 2 of Article 18 on the determination of the RPM agreement: “An agreement specified in Item (1) or (2) of the preceding Paragraph shall not be prohibited if the undertakings concerned can prove that such agreements do not have effects of excluding or restricting competition.”

Before the issuance of the amendment to the AML, the anti-monopoly law enforcement authority adopted the principle of per se illegal to identify the RPM agreement, which means if the undertakings concerned reach or implement an agreement with the content specified either in Item (1) or Item (2) of Paragraph 1 of Article 18 of the AML, the authority may directly determine that such agreement constitute the RPM agreement prohibited by the AML, without the need to prove that it has an effect of excluding or restricting competition. After the amendment to the AML came into effect, the undertakings can argue that the RPM agreement concerned does not constitute the RPM agreement prohibited by the AML if they can prove that such agreement does not have effects of excluding or restricting competition.

Paragraph 1 and 2 of Article 25 of the Draft provide: “Where the alleged monopolistic conduct is a monopoly agreement as listed in Item (1) or (2) of Paragraph 1 of Article 18 of the Anti-monopoly Law, the defendant shall bear the burden of proof that such agreement does not have an effect of excluding or restricting competition. Where the alleged monopolistic conduct is a monopoly agreement as provided in Item (3) of Paragraph 1 of Article 18 of the Anti-monopoly Law, the plaintiff shall bear the burden of proof that such agreement has the effect of excluding or restricting competition.” These new provisions clarify the burden of proof for vertical monopoly agreements in alignment with the amendment to the AML.

c  New provisions introduced on defendant’s burden of proof where it claims for the application of “Safe Harbor” rule in alignment with the amendment to the AML.

The amendment to the AML provides new provision as Paragraph 3 of Article 18: “If the undertaking is able to prove that its market share in the relevant market is lower than the standard established by the anti-monopoly law enforcement authority of the State Council, and it also satisfies the other conditions specified by the anti-monopoly law enforcement authority of the State Council, the agreement shall not be prohibited.” This provision establishes the “Safe Harbor” rule for vertical monopoly agreements based on market share and other conditions. The Provisions on Prohibition of Monopoly Agreements (Draft for Comments) published by the SAMR on June 27, 2022, stipulates the conditions for the application of the “Safe Harbor” rule, but this document has not been formally adopted yet and thus there is still no valid provisions regarding the conditions for the application of the “Safe Harbor” rule yet.

Paragraph 3 of Article 25 of the Draft provides: “Where the alleged monopolistic conduct is a monopoly agreement stipulated in Paragraph 1 of Article 18 of the Anti-monopoly Law, and the defendant can prove that its market share in the relevant market is lower than the standard established by the anti-monopoly law enforcement authority of the State Council, and it also satisfies the other conditions specified by the anti-monopoly law enforcement authority of the State Council, the plaintiff shall bear the burden of proof that the alleged agreement has the effect of excluding or restricting competition.” Item (2) of Article 27 of the Draft provides: “If the defendant can prove any of the following circumstances, the people’s court may preliminarily determine that the agreement concerned does not constitute a monopoly agreement stipulated in Paragraph 1 of Article 18 of the Anti-monopoly Law: … (2) the defendant’s market share in the relevant market is lower than the standard established by the anti-monopoly law enforcement authority of the State Council, and it also satisfies the other conditions specified by the anti-monopoly law enforcement authority of the State Council.”

These new provisions of the Draft clarify for the party’s burden of proof for the application of the “Safe Harbor” rule in alignment with the amendment to the AML: after the defendant provides evidence that its market share in the relevant market is lower than the standard, and it also satisfies the other conditions, the burden of proof shifts to the plaintiff; the plaintiff needs to provide evidence that the alleged agreement has the effect of excluding or restricting competition to rebut the defendant’s claim.

d New provisions introduced on defendant’s burden of proof where it claims for the application of exemption rule.

Article 20 of the AML establishes the exemption rule for monopoly agreements under statutory circumstances. Article 29 of the Draft provides: “Where the party alleged to have engaged in monopolistic conduct defends itself according to Items (1) to (5) of Paragraph 1 of Article 20 of the AML, it shall provide evidence to prove the following facts: (1) the alleged monopoly agreement is necessary to achieve relevant purposes or effects; (2) the alleged monopoly agreement can achieve relevant purposes or effects; (3) the alleged monopoly agreement will not seriously restrict competition in the relevant market; and (4) consumers can share the benefits arising therefrom.”

This article of the Draft specifies the defendant’s burden of proof in applying the exemption rule for monopoly agreements, and the four elements provided for in the Draft are basically consistent with the provisions in the Provisions on Monopoly Agreements and the standards adopted by anti-monopoly law enforcement authority in practice.

(3) Introducing provision on the defendant’s burden of proof to rebut the assumption of collective dominance.

Article 24 of the AML lists the circumstances where undertakings can be presumed to have a dominant market position based on its market shares, and Item (2) and (3) of Paragraph 1 of Article 24 stipulate the circumstances where two or more undertakings collectively hold the dominant market position. Paragraph 3 of Article 24 of the AML provides: “Where an undertaking presumed to hold a dominant market position is able to provide evidence that it does not hold such a dominant market position, it shall not be deemed to hold the dominant market position.”

Article 36 of the Draft provides: “Where the people’s court presumes that two or more undertakings collectively have dominant market position in accordance with Item (2) and (3) of Paragraph 1 of Article 24 of the Anti-monopoly Law, such presumption may be rebutted if the undertaking has evidence to prove either of the following circumstances: (1) there is substantial competition between such two or more undertakings; or (2) such two or more undertakings, as a whole, are subject to effective competitive constraints from other undertakings in the relevant market.”

According to the above-mentioned provisions, where the plaintiff provides evidence to prove that the defendant’s market share meets the standard for the presumption of collective dominance, the burden of proof shifts to the defendant. The defendant may rebut the presumption of collective dominance by providing evidence that there is substantial competition between two or more undertakings concerned, or that two or more undertakings concerned, as a whole, are subject to effective competitive constraints from other undertakings in the relevant market. (Note: For more details, please see, Part II: Changes to Substantive Matters)

7. Other novel and amended provisions on procedural matters.

(1) The same plaintiff shall file lawsuit as one case for the same alleged monopolistic conduct.

Article 10 of the Draft provides: “The same plaintiff shall file in one lawsuit for the same alleged monopolistic conduct. Where more than one lawsuit is filed to split the same alleged monopolistic conduct based on factors such as the geographical region of impact, duration, circumstance of implementation and scope of damage without justified reasons, the people’s court shall only hear the case which is accepted first and shall not accept the other cases; where the people’s court has accepted the other cases, the people’s court shall rule on rejection of that.”

The same monopolistic conduct may have effects in different geographical regions (for example, selling products at an unfairly high price in multiple provinces), may last for different periods (for example, there are interruptions in the implementation period of the same conduct), may have been implemented in different circumstances (for example, reaching the same RPM agreement with the same distributor in online platforms and physical stores), and may have a broad scope of damage (for example, the undertakings may not only be deprived of the right to choose other platforms but also punished by the same “choose one” rule).

If the plaintiff splits up the same alleged monopolistic conduct and files a number of lawsuits separately, it will not only waste judicial resources but also may constitute duplicate lawsuits. Therefore, the Draft provides that the same plaintiff shall file in one lawsuit for the same alleged monopolistic conduct. However, it should be noted that if the plaintiff files a lawsuit against the defendant on different monopolistic conducts, it does not apply for this article, but for such cases, the people’s court may decide to conduct a joint trial if the relevant provisions apply.

(2) New provisions introduced on the civil public interest litigation in alignment with the amendment to the AML.

Article 13 of the Draft provides: “Where the monopolistic conduct of undertaking damages social and public interest, the people’s procuratorate at or above the level of city with subordinate districts may file a public interest civil lawsuit with the people’s courts, and the Interpretation of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in Procuratorial Public Interest Litigation Cases shall apply. However, where there are special provisions on the jurisdiction of civil monopoly disputes under this interpretation, such special provisions shall apply.”

The amendment to the AML provides in Paragraph 1 of Article 60 that where the monopolistic conduct of undertaking damages social and public interest, the people’s procuratorate at or above the level of city with subordinate districts may file a public interest civil lawsuit with the people’s courts, thereby clarifying for the first time the application of civil public interest litigation in anti-monopoly cases at the legalization level. The Draft introduces Article 13 to keep in alignment with the amendment to the AML. With the introduction of provisions on the anti-monopoly procuratorial public interest litigation, there are likely to be more and more anti-monopoly procuratorial public interest litigation cases in the near future, especially in the fields closely related to the people’s livelihood such as platform economy, public utilities and medicine. (Note: For a detailed introduction, please see, Prosecutorial Civil Public Interest Litigation of Antitrust Case under the New China’s Anti-monopoly Law)

(3) Clarifying how the AML applies before and after the amendment took effect.

Article 51 of the Draft provides: “When hearing monopoly civil cases, the people’s court shall apply the laws effective at the time when the alleged monopolistic conduct takes place. Where the alleged monopolistic conduct occurred before the implementation of the Decision of the Standing Committee of the National People’s Congress on the Revision of the Anti-monopoly Law of the People’s Republic of China and continues after the implementation of that, the revised Anti-monopoly Law shall apply.”

*Thanks LiuYANand Yuanyuan LIU for their contributions in this article.

[1] Case Number: (2022) Zui Gao Fa Zhi Min Zhong No. 1276.
[2]Case Number: (2019) Zui Gao Fa Min Shen No.6242, (2019) Jing Min Jie Zhong No.44.
[3]Case Number: (2019) Zui Gao Fa Zhi Min Zhi Zhong No. 32.
[4]Case Number: (2021) Zui Gao Fa Zhi Min Zhong No. 2253.
[5]Case Number: (2013) Min San Zhong Zi No.4
[6]Case Number: (2021) Zui Gao Fa Zhi Min Zhong No. 1020.

Welcome to Our Yearend Antitrust Practice Review

Standing at the beginning point of the new year, we take the opportunity to deliberate  and reflect on the last twelve months. 2022 has been an extremely busy and productive year for AnJie Broad Antitrust Team. Together, we have accomplished several milestones and have much to be proud of. Whilst against a challenging macro-economic and geopolitical backdrop, we are pleased to highlight the significant accomplishments and encouraging momentums the team has achieved.

Merger Control

In 2022, China’s antitrust authority SAMR has conditionally approved 5 deals in total; they are Siltronic/GWC, Xilinx/AMD, Coherent/II-IV, Avinex/Eastern Air Logistics and Asiana/Korean Air. Among these 5 cases, the team had deep participation in 4 of them. In Siltronic/GWC and Asiana/Korean Air, the team, as the filing party’s counsel, successfully secured  clearance from SAMR for the clients.

Antitrust Private Litigation

With the revised Anti-Monopoly Law (2022) specifically advocating the enhancement of antitrust judicial practice, the team also observed the increasing number of antitrust private actions being lodged before Chinese courts. In 2022, the team represented the parties in 16 antitrust private litigations. Among them, 2 have been closed with the second instance judgment being handed down within the year; 14 cases are still pending, in which 6 were appealed to the Supreme People’s Court and 8 are still under the first instance trial. As to the cause of action, abuse of market dominance accounts for the majority in cases the team handled in 2022, 14 out of 16; and the remaining 2 were related to horizontal monopoly agreements. Echoing the global enforcement trend against digital economy, 4 cases the team represented in the year were against Chinese internet giants. Notably, the case Huaming v. Taipu (Docket No.:(2021) Zui Gao Fa Zhi Min Zhong No.1298) was selected as Top Ten Typical Antitrust Cases by the Supreme People’s Court. Generally speaking, PRC courts handle around 40 antitrust private litigation annually. In 2022, the antitrust litigations handled by the team involve the intermediate people’s courts and high people’s courts in Beijing, Shanghai, Harbin, Huhhot, Changchun, Yinchuan, Ningbo and Wuhan, as well as the Supreme People’s Court. The team has also been assisting a domestic company with responding to an US antitrust class action in 2022.  

Government Investigation

We have been continuously and diligently assisting clients with responding to the antitrust authority in 6 antitrust investigations in 2022, 4 of which were commenced before 2022. Among them, 3 investigations were against horizontal monopoly agreements, 1 against abuse of dominant market position, and 1 against price resale maintenance (RPM). The cases that the team defended in the year extended to automobile, public utility, construction, electronics and manufacturing. One investigation was initiated after the revised Anti-Monopoly Law entered into force, thereby several novel and challenging issues were touched for the first time, such as application of new law or old law, how to apply the “rule of reason” in RPM pursuant to the new law, and how to apply the “safe harbor” before supplementary rules are released.

Government Support

In 2022, the team has been actively contributing to support the antitrust authority’s work. Specifically, in the Calcium gluconate case, the ever first antitrust administrative litigation solely against SAMR up to date, the team represented SAMR before Beijing Higher People’s Court in the first instance trial. In several investigation initiated by a provincial antitrust regulator, the team provided comprehensive legal advice. The team’s partner Dr. Zhan Hao was engaged by Beijing AMR and Shandong AMR as the antitrust expert of their pools; another partner of the team Ms. Song Ying was also engaged by Beijing AMR as the supporting antitrust expert.

Competition Compliance

As China has been actively advocating the competition compliance, strengthening the approach of pre-regulation, we observed that a growing number of businesses attached more importance to the establishment and improvement of its competition compliance system. In the year, the team spared no effort to back companies in conducting the competition compliance due diligence review, drafting competition compliance manuals, implanting compliance requirements into the business workflow, devising compliance toolkits, conducting mock dawn raids, delivering competition compliance trainings and providing other compliance assistance. The team’s competition compliance work in the year covered diverse sectors, to name a few, e-commence, consumer goods, new energy, oil & gas, food, pharmaceuticals, insurance, automobile, aviation, public utility and etc.

Publications

In 2022, the team continues to be industrious in contributing to various Chinese and global publications in the competition law field, with the intention to spread and share the practical experience and observations as much as possible. For instance, we were invited to contribute the China Chapter of Dominance and Monopolies, Legal 500 Comparative Guide on Competition Litigation, Lexology GTDT Market Intelligence Merger Control, Global Legal Insights: Merger Control and Global Legal Insights: Cartel. The team also delivered its comprehensive analytical articles on the Amended Anti-Monopoly Law and the draft Antitrust Judicial Interpretations for consultation, in the first hours after they were released. For years, the team has been operating an academic and professional e-publication platform through a WeChat Official Account (see the QR code below), through which to release the freshest competition law news, enforcement decisions, judicial judgements or academic and practitioner articles on a daily basis. By the end of 2022, this platform has around 8000 followers in total.

Awards and Accolades

Leading organizations in China and abroad continued to widely recognize the team in Antitrust/Competition field in 2022, which include but not limited to the following: Chambers & Partners and LegalBand rated the team’s partner Dr. Zhan Hao as “Band one PRC Antitrust/Competition Lawyer”. Who’s Who Legal and LegalBand awarded Dr. Zhan as “leading PRC antitrust lawyer”. China Intellectual Property Forum rated Dr. Zhan as “Top 10 Renowned Antitrust Lawyer”. Another partner of the team Ms. Song Ying was also recommended as the leading PRC antitrust lawyer by Chambers& Partners, Who’s Who Legal and LegalBand in 2022. Other partners have also won multiple awards. In the 2022 list of Global Recommended Firms and Lawyers in Competition Law published by Global Competition Review (GCR), the firm once again was recognized as a “Highly Recommended Law Firm.” Notably, Dr. Zhan was honored by ICC Competition Commission as the “China ambassador” to bridge the competition law communication and exchange between China and the world. In 2022, Beijing Digital Economy and Digital Governance Rule of Law Research Association was set up. Because of our forward-looking research on antitrust in the digital economy, Dr. Zhan Hao was elected as the Vice President.

Acknowledgements

Together we continued to focus on the work of creating meaningful value to our clients and the whole competition law society in 2022. We are proud of our valued team members and hope each of them takes a moment to reflect on what we’ve accomplished – without their hard work, none of it would be possible. We would be remiss if we didn’t recognize our partners in other countries as well. Our close collaboration with our counterparts in other jurisdictions such as the US, EU, South Korea, Japan, UK and Canada, allows us to provide full-fledged high-quality service to our clients operating globally. We would also like to extend this opportunity to thank our clients, antitrust regulators, judges, scholars and lawyer fellows in the competition law field. Working with each of you bestows us the opportunity to learn more and become better. Looking ahead to 2023, AnJie Broad Antitrust Team will continue to dedicate to providing the first-tire antitrust legal services to our clients, and we will bear the persistent commitment of sharing and spreading our practical experience and contributing to the whole competition community. As always, thank you for your always support and look forward to seeing you again in the promising 2023.