Under China’s New Anti-Monopoly Law, Private Lawsuits Begin To Find Their Legs

Two recent antitrust cases in China indicate that country may be inching its way toward fulfilling its potential as a modern economy by embracing competition law.

It was only in August 2008 that the world’s third largest economy joined the ranks of countries with private competition law regimes with China’s adoption of its new Anti-Monopoly Law (AML).

The AML generally resembles the basic framework of the American and European antitrust regimes, in the sense that it sets forth broad guidelines for dominant-firm conduct, collusion and mergers and acquisitions.  And it allows private parties – not just the government – to enforce the law through lawsuits.  Recent outcomes in two such cases suggest that private litigation under the AML will be robust, giving Chinese lawyers no shortage of work.

The Shanda-Sursen case, decided on October 23, 2009, produced the first court decision interpreting the AML’s dominant-firm provisions.

Under the AML, a firm with a “dominant market position” may not “abuse” it to “eliminate or restrict competition.”  A dominant position is defined as one that permits its holder to control price or the quantity of products or other trading terms in a market, or to restrict or affect other firms’ entry into a market.  A dominant position may be shown by a market share of 50 percent or more; a firm’s actual, demonstrated ability to control a market; the extent to which other firms depend on the firm in question; or by other economic considerations such as entry barriers.

In Shanda-Sursen, the plaintiff and defendants each operated websites that published popular literature.  The plaintiff allegedly commissioned a sequel to a novel that had appeared on the defendants’ website.  The defendants allegedly coerced the plaintiff’s writers to stop work on the sequel.  This, according to the plaintiff, was an abuse of the defendants’ dominant market position in the online literature market.  But the court denied the claim, holding that the defendants did not have a dominant position in the market.  The plaintiff argued that the defendants’ website and third-party websites said that the defendants had over 80 percent of the online literature market.  But the court held that these statements were mere promotional claims, not proof of dominance.  Moreover, the court noted, the plaintiff’s website said that the plaintiff itself had the biggest electronic literature website.  In short, the evidence failed to support a finding of dominance.  The decision suggests that Chinese courts will proceed cautiously in assessing claims of dominant positions.

Another significant private lawsuit was the China Mobile case.  There, a consumer sued his mobile-phone company – the state-owned China Mobile, the world’s largest mobile provider – for abusing its dominant position.  He alleged that the network charged multiple fees for substantially similar services, and sought damages equaling his basic mobile fees for two years.  On October 23, 2009, the same day that the court decided Shanda-Sursen, the China Mobile parties settled for an amount slightly less than the plaintiff had sought.  The defendant, which denied wrongdoing, called the payment a “bonus” for helping it improve its service.  Nonetheless, the plaintiff, who is a lawyer, predicts that his case will prompt similar actions against China Mobile.

Only one private lawsuit so far has reached a decision on the merits under China’s new AML.  Several others have been dismissed on statute of limitations grounds, settled or otherwise withdrawn.  But the number of private cases filed under the new law does appear to be increasing.  As such, China seems likely to be a fertile ground for competition jurisprudence well into the 21st century.

Tagged in: International Competition Issues, Monopolization,