Cartels and Dominance: New Risks and Opportunities for Companies in China

by Orrick, Herrington & Sutcliffe LLP

[author: Veronica Lockyer]

China’s Supreme People’s Court recently provided guidance on procedural issues and important aspects of China’s Antimonopoly Law (AML) that will affect private enforcement of the law. The Supreme People’s Court Provisions on Several Issues concerning the Application of the Law in Trials of Civil Dispute Cases Arising from Monopolistic Acts (the SPC Provisions), which came into force on June 1, 2012, outlines recent significant changes to the rules regarding burden of proof in antitrust cases in China. These new rules are expected to lead to an increase in private enforcement of the AML by companies in the courts.

Agreements to fix prices, allocate markets and/or customers, allocate procurement inputs, restrict new technology or jointly boycott customers or suppliers are [reported to be] common in China. Allegations of abuse of dominance are widespread. All are illegal under the AML.

Although China’s AML specifically provides for private enforcement, in practice relatively few actions have been brought before the courts in the four years since it came into force. Companies and individuals who have brought actions before the courts have had little success; based on publicly available information, the courts have so far ruled in favor of the defendant. There are a number of reasons for this lackluster enforcement, including an absence of procedural guidance for the courts, making them reluctant to accept jurisdiction over antitrust cases, and the difficulty plaintiffs have had in discharging their burden of proof.

The SPC provisions make some important changes to the normal rules regarding burden of proof. It is now easier for plaintiffs to prove infringement and claim damages for loss incurred as a result of cartels and abuse of dominance. In particular: 

  1. Cartels: Once a plaintiff has proved the existence of an agreement between competitors to fix prices, restrict output, divide markets, restrict the use of new technology or implement a joint boycott, the defendant has the burden of proving that the agreement does not have an anti-competitive effect. 
  2. Dominance: A plaintiff may rely on information publicly released by the defendant as (rebuttable) evidence to substantiate that the defendant has a dominant market position. If the defendant is a state-owned enterprise or has exclusive rights to operate in a particular sector, the court may take this as evidence of a dominant position.

The SPC provisions also allow parties to use up to two expert witnesses to assist in explaining their case in court. This is a further step in reducing the plaintiff’s difficulty in discharging its burden of proof in cases involving complex legal and economic arguments.

The SPC Provisions also clarify that the existence of an investigation or decision by an administrative enforcement body is not a prerequisite to pursuing private action in court against an individual or company and confirm that stand-alone actions are possible.

The number of private actions under the AML had already begun to increase and the amount of damages claimed by plaintiffs is rising. The SPC provisions can only facilitate this trend.

Companies should review their business collaborations, price-setting policies and global purchase and supply channels to ensure that they do not contain illegal provisions, and avoid the use of dominance-type language in promotional materials and websites.

We help clients audit existing agreements to ensure that they do not contain illegal provisions, advise on potentially anticompetitive provisions in new agreements, and advise on the risk and opportunities involved in defending or bringing actions involving competitors or trading counterparties whose illegal agreements are harming your business.

We have deep experience and a network of local counsel with whom we cooperate closely if needed.

Please contact us for further advice.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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