Authored by Michael Gu (firstname.lastname@example.org)
On 8 May 2012, the PRC Supreme People’s Court (“Supreme Court”) issued the long-awaited Provisions on Certain Issues Concerning the Application of Law in Hearing Cases Involving Civil Disputes Arising out of Monopolistic Behaviors (“Judicial Interpretation”), which will become effective on 1 June 2012.Being the first interpretation on antitrust litigations, it lays the foundations of the antitrust litigation legal framework in China. The Judicial Interpretation provides guidance to the courts’ precise application of the Anti-Monopoly Law (“AML”), the undertakings’ compliance and avoidance of the legal risks in their business operation, or consumers’ initiation of antitrust litigations.
The drafting and issuance of the Judicial Interpretation has gone through an extremely lengthy process. The Supreme Court started the drafting in 2009, at the beginning of the AML’s implementation. After numerous rounds of amendments, the Supreme Court released the draft of the Judicial Interpretation for public consultation on 25 April 2011. Although the Judicial Committee of the Supreme Court has approved the Judicial Interpretation on 30 January 2012, the text of the Judicial Interpretation was not publicly released until more than three month later. The extraordinary long process and delayed issuance might indicate that the Judicial Interpretation has raised exceptional disputes during its drafting process, and that the Supreme Court shows a prudent attitude towards the Judicial Interpretation in terms of the content and timing.
The AML contains only one article (i.e. Article 50) with respect to the civil litigation, which provides that “any undertaking who engages in monopolistic act resulting in losses to another person, it shall bear civil liabilities according to law”. The Judicial Interpretation not only supplements the AML and addresses many procedural issues regarding the civil litigations; it also throws light as to how the Tort Liability Law, the Contract Law and Civil Procedure Law may apply in dealing with the antitrust civil disputes. The Judicial Interpretation clarifies certain matters related to the antitrust litigations, such as the filing, acceptance, jurisdiction, evidence rules, civil liabilities and time limit of case filing. Compared with its consultation draft released earlier, the Judicial Interpretation is simplified to 16 articles with approximately 2,000 words in total. By dropping the controversial articles and stating only the general principles for some issues, the final version of the Judicial Interpretation is more aligned with existing laws while ensuring that it remains flexible to deal with unforeseen situation that may arise in the future.
In general, the Judicial Interpretation has relieved the burden of proof for the plaintiff of antitrust litigations while relatively increased the burden of proof for the defendant. This may change the landscape of the antitrust civil litigation in China. Previously, it is close to impossible for the plaintiff to win an antitrust case due to the excessive difficulty to collect evidence and to prove the monopolistic act. After the implementation of the Judicial Interpretation, enterprises suspected to be monopolistic, especially those suspected to abuse their market dominant position would face more challenging civil litigation risks. This article will discuss the main points of the Judicial Interpretation and provide recommendations for enterprises to manage risks associated with potential antitrust litigations.
II. MAJOR CONTENTS AND ANALYSES OF THE JUDICIAL INTERPRETATION
1. The Qualified Plaintiff and Filing for Litigations
Article 1 of the Judicial Interpretation stipulates that, any natural person, legal person or other organization who suffers harm as a result of any monopolistic conduct, or is involved in any dispute over the violation of the AML by any contract, articles of association of any industry association, may initiate a civil litigation to the court. This implies that an antitrust litigation could be based on contractual dispute or tort damage where there is no such contractual relation between the parties. According to the Judicial Interpretation, eligible plaintiffs may include undertakings and consumers who have transacted with the alleged infringer of the AML, as well as the competitors, potential competitors or indirect consumers who have no transaction relationship with the enterprise.
The Judicial Interpretation stipulates that a court shall accept a stand-alone civil litigation (i.e. before any findings have been made by the antitrust law enforcement agency) directly filed by a plaintiff, or a civil case followed by a valid decision of infringement of the AML by the antitrust law enforcement agency. Therefore, the administrative enforcement is not a precondition of the acceptance of antitrust civil litigation.
The above provisions reflect the basic principal of the PRC Civil Procedure Law (the court shall accept the filing of litigation whenever the conditions under Article 108 of the Civil Procedure Law are satisfied), and are also in line with the common practice in the matured jurisdictions. The Judicial Interpretation has paved the way for the various market participants to exercise their right to bring antitrust cases. The wide range of the qualified plaintiffs coupled with flexible ways to bring litigations would turn those market participants into a significant source of power to supervise and deter the monopolistic conducts.
Given that antitrust litigations usually involve professional knowledge, complicated fact finding and often attract significant media attention, the Judicial Interpretation has set up a centralized judicial system for antitrust civil cases. According to the Judicial Interpretation, first-instance cases shall be heard by the intermediate people’s courts in cities separately designated in the state plan, those in the cities where the provincial governments, autonomous regions and municipalities directly under the central government are located, and those designated by the Supreme Court (under special circumstances, basic-level people’s courts may exercise jurisdiction over first-instance cases upon approval by the Supreme Court). Such stipulations are in line with the current legal practice of antitrust civil litigation in China. Under such centralized judicial system, antitrust cases will be heard by the courts in big cities with more resources and experience, thus ensuring the quality and consistency of the courts’ decisions.
3. Allocation for the Burden of Proof and Other Evidence Rules
The key element of the antitrust civil litigation is in the allocation of the burden of proof. The practice in the last three years has demonstrated that the difficulties faced by the plaintiff in gathering the evidence and proving the monopolistic conduct have been the major obstacles to launching a successful antitrust action. In line with the judicial practices in the recent years, the Judicial Interpretation clarifies issues such as the allocation for the burden of proof, facts exempted from proving, expert testimony, etc.
The Judicial Interpretation adopts different rules on the allocation for the burden of proof for different types of monopolistic conducts. For example, if the alleged monopolistic conduct falls into any of the monopoly agreements described under Article 13 of the AML, the plaintiff will only need to prove the existence of the horizontal monopoly agreement and is not obliged to prove the anti-competition effect of the agreement. However, as to litigations regarding the abuse of market dominant position, the plaintiff must not only prove the existence of a dominant position but also the alleged abusive behavior, while the defendant shall prove the legitimacy of its conduct if it denies the plaintiff’s claims. In the earlier draft of the Judicial Interpretation, the same rule on allocation for the burden of proof applied to both cases involving horizontal monopoly agreements and vertical monopoly agreements. Unfortunately, the relevant provisions have been deleted from the released version of the Judicial Interpretation. Therefore, the burden of proof in cases regarding vertical monopoly agreement is left blank, and the plaintiffs may still need to prove the effect of excluding or restraining competition of the vertical monopoly agreement, as in accordance with the principle of the Civil Procedure Law, i.e. the burden of proof is upon the plaintiff.
Two highlights in the Judicial Interpretation are particularly favorable to the plaintiff. The first is that if the monopolistic conduct falls under the circumstance of abusing one’s market dominant position by a public utility enterprise or other undertakings with lawful exclusive status, the relevant court may assume that the defendant is dominant in the relevant market. The second is that the defendant’s publicly disclosed information or propaganda may be directly quoted as evidence to prove the market dominant position. For example, the contents disclosed by an enterprise in its website or annual report claiming that it is “the leader of the industry” or “has the largest market share” may be deemed as evidence of a market dominant position by the court. Such provisions significantly relieve the plaintiff’s burden of proof, and the burden will be shifted to the defendant if the latter raises objection. It is suggested that enterprises should implement a more stringent compliance program, raise the alarm and prevent exaggerated propagandas, in order to avoid any adverse impact on the potential antitrust litigations.
Moreover, the Judicial Interpretation encourages the parties to assist the court by providing expert as testifier, or providing expert opinions such as economic analysis report. The induction of such measures has the positive effect to relieve the burden of proof on the plaintiffs.
4. Areas to be Improved or Clarified
The above evidence rules are generally favorable to the plaintiff, and will largely enhance and encourage antitrust litigations filed by individuals or small and medium entities with limited resources. However, the improved evidence rules are still inadequate and inefficient. For example, it has not adopted the system of “evidence disclosure” initially proposed under the draft Judicial Interpretation. Since much of the crucial evidence necessary for proving antitrust damages or antitrust behavior is usually held or concealed by the defendant, the plaintiff, particularly the consumers and smaller entities, have no means of knowing the detailed facts necessary for his/its case. Therefore, if the plaintiff cannot apply the court to enforce the defendant to disclose certain evidence (e.g. the market competition situation, the market share of the defendant), the victim of the monopolistic conducts will still be put in a disadvantaged position when confronting large enterprises. The Judicial Interpretation also remains silent on some other issues that caused intense discussions during the public consultation period and drafting process, such as whether the facts determined by the effective judgment of the court could be deemed as the valid evidence, or whether enterprises’ commitment during an antitrust investigation could be treated as the evidence proving the existence of the monopolistic conduct.
In addition, the Judicial Interpretation fails to provide guidance on how to determine the loss caused by monopolistic conducts and in particular, the calculation method of the amount of the compensation. Without a clear and predictable compensation method, the plaintiff would still hesitate to bring the action due to the uncertainty of being fully compensated.
It is hoped that these issues would be clarified either by way of judicial practice or future judicial interpretation.
In conclusion, the Judicial Interpretation has positive impact in promoting the market competition, deterring the monopolistic conducts, and facilitating the antitrust litigations. As to the burden of proof, the Judicial Interpretation has made some reasonable allocation and presumptions for different types cases based on the basic principal that “the burden of proof is on the party who claims”. The burden of proof of the plaintiff is largely relieved. It will be easier for the victims of the monopolistic conducts, either normal consumers or relevant enterprises, to exercise their right to claim damages against the big-name offenders under the new antitrust civil litigation regime. Large companies shall be cautious on its language use and behavior since any inappropriate language or behavior may lead to a series of civil litigations with high amount of compensation. The time cost of the litigation and damage on the reputation may result in significant business losses even if the company wins the case. It is suggested that large companies (especially public utility companies such as companies in industries of water supply, energy supply or heat supply, or a companies with law exclusive operational status such as tobacco sales company or salt sales company, or any enterprise with a high market share) should consider to put in place an enhanced compliance training program on antitrust laws, and establish the risk management mechanism against antitrust litigations.
It is expected that there might be more antitrust litigations against large companies soon after the Judicial Interpretation becomes effective. The court’s practice will not only affect the interests of relevant parties, but also influence the development of public enforcement of the AML. Therefore, the coordination and cooperation between the courts and the administrative enforcement agencies is also critical to avoid conflict in implementing the AML and ensure an effective and fair system of antitrust litigation.