Responding to several hotly debated issues in civil monopoly disputes, the Supreme People’s Court (SPC) has issued new Provisions on Several Issues concerning the Application of Law in the Trial of Civil Monopoly Disputes (Draft for Comment).
In this article, the authors introduce and analyse key updated interpretations and changes proposed in the draft provisions, announced on 18 November 2022.
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Jingtian & Gongcheng
Clarifying that arbitration clause in contract cannot exclude court’s jurisdiction over anti-monopoly disputes. Current legislation is unclear over whether anti-monopoly cases may be resolved via arbitration, which has led to different directions in judicial practice.
Article 3 of the draft now clarifies that arbitration clauses cannot exclude the court’s jurisdiction over civil monopoly cases. However, frequently asked questions about arbitrability of such disputes, as well as the handling of jurisdictional objections raised during arbitration, remain unanswered.
Refining rules over delineating the relevant market in anti-monopoly cases. Firstly, the draft clarifies that generally in anti-monopoly cases, the plaintiff should be the party that delineates the relevant market and accordingly bears the burden of proof.
Furthermore, after taking into account accumulated experience from judicial practice – as well as referencing foreign approaches – articles 16.3 and 16.4 set out two exceptions under which the plaintiff is not required to offer proof to support the delineation of the relevant market.
Namely, these are either when it can submit evidence to directly prove the market force, market dominant position or any effect of precluding or restricting competition; or when it has initiated anti-monopoly cases over a horizontal monopoly agreement or resale price maintenance.
In fact, such a scenario has previously been included in the SPC’s verdict in a case concerning abuse of dominant market position, 360 v Tencent (2016). The verdict stated that “even if a relevant market is not delineated, the market position of the defendant and the market effect of the accused monopolistic conduct can still be evaluated with evidence directly supporting an exclusion or restriction of competition”.
Zhu Li, a judge of the SPC Intellectual Property Court, points out in the book Twelve Years of Chinese Antitrust: Retrospect and Prospects that the case promoted the development of new approaches to hearing cases involving abuse of market dominant positions; namely “market dominance – effect on competition” and “conduct – effect on competition”, which was a step beyond the traditional analysis method, “relevant market – market dominance – effect on competition”. The trend has been further reflected in the draft.
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Jingtian & Gongcheng
Shedding light on conditions for pay-for-delay agreements to trigger horizontal monopoly. In AstraZeneca v Aosaikang Pharmaceutical (2021), over a disputed drug patent, the SPC clarified that courts should review the legality of contracts or agreements that bear a semblance to “pay-for-delay” agreements.
Article 23 of the draft further clarifies methods and standards to judge whether such agreements constitute horizontal monopoly agreements. If the agreement fulfils both the ostensible content and traits under the clause, it is deemed a horizontal monopoly agreement. However, courts may decide otherwise if evidence proves that compensation of benefits under the pay-for-delay agreement only serves to cover the costs of dispute resolution relating to the generic drug patent, or have other valid reasons.
Further clarifying and refining the identification of vertical restraint. Prior to amendment to the Anti-Monopoly Law (AML), administrative enforcement and judicial practice had long diverged in their standards for vertical restraint, especially retail price maintenance.
According to articles 16 and 18 of the amended AML, standards on the determination of retail price maintenance remain strict. Specifically, it is illegal. But operators may be exempted if they can prove there is no effect of excluding or restricting competition.
Identification of other types of vertical restraint follows the “rule of reason”; as in the plaintiff should prove the effect of excluding or restricting competition. Additionally, article 18 of the AML set out the exemption principle of “safe harbour”.
The draft now provides further subdivision. Firstly, it specifies the distribution of burden of proving the effect of excluding or restricting competition in each type of vertical restraint (articles 25.1 and 25.2).
Secondly, on top of the safe harbour regulation, the AML provides that even after applying safe harbour, the plaintiff may still submit evidence to prove the effect of excluding or restricting competition.
Lastly, the draft offers further details on how to assess the effect of vertical restraint on competition (article 26).
Emphasis on analysis of the effect on competition. Emphasis on analysing the impact on competition is a highlight of the draft. As mentioned, the draft introduced this concept into the determination of vertical restraint, which is especially prominent in cases over abuse of market dominant position.
Articles 37 to 42 now respectively list in detail conditions and considerations corresponding to the five manners of abuse under article 22.1 of the AML, each with analysis on the effect of such conduct on competition.
Refined determination of civil liability. In terms of determining civil liability, article 4 of the draft adds the civil liability of beneficiaries of administrative monopolistic conduct. In particular, the victim to the conduct may, after such conduct has been deemed illegal, take court action to hold the beneficiary operator civilly liable.
Article 45 now clarifies the scope of damages of the monopolistic conduct and factors for the calculation of loss. The “loss deduction” defence is affirmed valid if the defendant can prove that all or part of the plaintiff’s losses was passed on to others. Any amount transferred may be deducted from the damages.
Finally, the draft includes new requirements on a number of other issues, including the connection between anti-monopoly administrative enforcement and judiciary, and anti-monopoly measures regarding online platforms.
Ryan Fang is a partner and Simon Shi is a counsel at Jingtian & Gongcheng
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