Highlights of the revised Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Monopoly Civil Dispute Cases (Exposure Draft)

On November 18, 2022, the Supreme People’s Court of the People’s Republic of China (SPC), released the Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Monopoly Civil Dispute Cases (Exposure Draft) (Draft Provisions) to solicit public comment.

Compared with the Provisions of the Supreme People's Court on Several Issues Relating to the Application of Law in the Trial of Monopoly Civil Dispute Cases (Old Provisions) released in 2012 and amended in 2021, the Draft Provisions adjust and add procedural and substantive provisions in reference to the latest amendments of the Anti-monopoly Law of The People's Republic of China (AML) and past judicial practices. This is to enhance the private enforcement of the AML and improve cohesion between public and private enforcement, as well as strengthen the deterrent effect of civil liability for monopoly conduct and maintain fair competition.

In this article, we sort out the main revisions of the Draft Provisions and analyze and discuss the key points.  

I.  Procedural Revision Highlights

• Improve the cohesive mechanism between public and private enforcement

The Draft Provisions give an affirmative response to Article 11 of the AML, which calls for the “improvement of the cohesive mechanism between public enforcement and private enforcement”. Specifically, Article 14 of the Draft Provisions provides that, “[F[or alleged monopolistic conduct under investigation by an antitrust enforcement agency, the court may rule to suspend the lawsuit in light of the specific circumstances of the case.” Article 14 will help to prevent an undertaking under investigation from being confronted with civil litigation for the same behavior simultaneously and avoid possible inconsistencies between administrative enforcement and judicial decisions.

Article 15 of the Draft Provisions provides that “[W]here, in the trial of a civil dispute case, the court discovers that the relevant conduct of a party is suspected of a violation of the AML or finds that the alleged monopolistic conduct is in violation of the AML and may be subject to administrative punishment, but no administrative investigation has been launched, it may refer evidence regarding the alleged illegal conduct to the antitrust enforcement agency.” This provision is an attempt to establish mechanisms to connect administrative law enforcement with justice and bridge cooperation between the two branches.

Finally, Article 11 of the Draft Provisions clearly stipulates that where a plaintiff establishes monopolistic behavior based on a penalty decision by an antitrust enforcement agency, they are not required to adduce additional evidence, unless there is evidence to the contrary. This provision confirms the validity of antitrust administrative penalty decisions as evidence, reducing the plaintiff’s burden of proof in follow-on civil litigation.

• Categorization of rules for allocating the burden of proof

The Draft Provisions categorize the parties’ burden of proof in different types of cases. Overall, a plaintiffs’ burden of proof is released, which may solve the practical predicament of insufficient judicial remedies due to the plaintiffs’ heavier burden. Meanwhile, the Draft Provisions provide further guidance on the defendants’ burden of proof and defenses to help them exercise their litigious rights.

a) Clarification on the validity of antitrust administrative decisions as evidence in monopoly civil cases

As mentioned above, Article 11 of the Draft Provisions is applicable to follow-on civil litigation. Where an administrative penalty decision finds monopolistic conduct has not been subject to administrative litigation within the statutory time or has been finally confirmed by the court, the plaintiff is not required to provide additional evidence and the court may proceed to rule that the monopolistic conduct was constituted, unless the defendant’s evidence to the contrary is sufficient to overturn the administrative penalty decision.

The Old Provisions are silent on the burden of proof in follow-on litigation. Despite this, we did notice that in some follow-on litigation previously, courts held that if antitrust enforcement agencies had ascertained some facts in a valid administrative decision which concluded that a specific behavior constituted a monopoly, the plaintiff who claimed the matters in follow-on litigation generally was not required to adduce additional evidence, unless the defendant’s evidence was sufficient to overturn the administrative decision. Such holdings are in accordance with Article 114 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China which provides that, “Matters stated in documents prepared by State agencies within the scope of its official powers shall be presumed to be true, unless there is evidence to the contrary.” Article 11 of the Draft Provisions codifies this principle, which further reduces the litigation costs for victims of monopolistic behavior and helps undertakings obtain judicial remedies based on the administrative decisions.

b) Categorization of the burden of proof for defining relevant market based on the type of monopoly

Article 16 of the Draft Provisions clarifies the burden of proof for relevant market definitions as follows:

Defining the relevant market is generally regarded as the prerequisite for analyzing competitive effects. Allocation of the burden of proof for market definition is not clearly stipulated in the Old Provisions. As illustrated in the chart above, Article 16 of the Draft Provisions clarifies the principle of allocating the burden of proof for the first time, which largely reflects the SPC’s analytical approach in past cases, some of which are groundbreaking.

(1) With respect to horizontal agreements, in the Kindergartens Cartel Case,¹ the SPC held that “the horizontal agreements listed in Article 13(1) of the Anti-Monopoly Law (2008) generally have obvious anti-competitive effects and thus the overall harm is more serious among various monopoly conduct. Therefore, it is generally not necessary to define the relevant market precisely in determining whether the undertakings enter and implement agreements listed in Article 13(1).”

(2) With respect to vertical agreements, the principle that “plaintiffs do not bear the burden of proof for the definition of the relevant market” is consistent with the AML.

(3) With respect to other agreements in Article 17(1)(vi) and Article 18(1)(iii) of the AML, Article 16 of the Draft Provisions provides that plaintiffs generally bear the burden of proof for market definition. Such rules also apply to the abuse of dominance, which is consistent with the SPC’s holdings in the “3Q War Case”.²

(4) In addition to the general rules, the Draft Provision also provides two exceptions, that is, if the plaintiff’s evidence is sufficient to directly prove that (i) the defendant has significant market power; or (ii) the alleged behavior has anti-competitive effects, the plaintiff will not bear the burden of proof to define the relevant market. The SPC has conducted similar analysis in the “3Q War Case”,³ considering that “relevant market definition is the tool rather than the purpose for assessing the market power and the competitive effects. Without clear relevant market definition, the defendant’s market position and the competitive effects of the behavior can still be assessed based on the direct evidence of elimination or restriction on competition. Therefore, it is not necessary to define the relevant market clearly and unambiguously in every abuse of dominance case.” The Draft Provisions absorbs such a view and stipulates the certain circumstances in which the plaintiff is not required to define the relevant market.

c)  Supplements on the burden of proof in litigation arising from monopoly agreements

（1）Burden of proof for other concerted actions

Burden of proof for other concerted actions stipulated in Article 20 of the Draft Provisions is allocated as follows:

Unlike agreements and decisions, other concerted actions are more elusive. Major antitrust jurisdictions such as the EU and US therefore provide a lower standard of burden of proof for other concerted actions. While the Old Provisions are silent on this issue, the SPC has noted that, in cases involving other concerted practices, plaintiffs should provide prima facie evidence for (i) the consistency in the market activities of the undertakings; (ii) communication of intention or information exchange between the undertakings; and (iii) the market structure, competition landscape, market changes and other information of the relevant market.⁴ Article 20 of the Draft Provisions further narrows down the scope of the plaintiffs’ burden based on the above judgment.

It should be noted that, as mentioned above, if the monopoly agreements are expressly listed⁵ in Article 17 or Article 18 of the AML, the plaintiff will not bear the burden of proof for market definition. However, if the agreements in such cases are other concerted actions and the plaintiff provides prima facie evidence by applying the second approach, i.e., by evidence of market structure, competition landscape, market changes and other information of the relevant market, then the plaintiff may still need to define the relevant market.

（2）Burden of proof for competitive effects on vertical monopoly agreements

Article 25 of the Draft Provisions allocates the burden of proof for competitive effects on vertical monopoly agreements as follows:

There is a long-standing debate about the burden of proof of competitive effects in vertical cases among antitrust enforcement agencies, judicial departments and scholars. Article 18 of the AML stipulates that RPM is presumed to have anti-competitive effects and undertakings shall bear the burden of proving that such an agreement does not have such anti-competitive effects. Since Article 18 does not specify other types of vertical agreements, it is generally assumed that the antitrust enforcement agency or plaintiffs should bear such burden of proof. Moreover, under the safe harbor rule clarified in Article 18, plaintiffs bear the burden of proof of the anti-competitive effects of the relevant agreement. To sum up, Article 25 of the Draft Provisions closely keeps pace with the revisions of the AML, classifying vertical agreements into three types: (i) RPM, (ii) other vertical agreements and (iii) applicable safe harbor rules, and allocating the burden of proof in the aforesaid three types of cases respectively.

It is worth noting that in accordance with the latest revisions of the AML and by reference to foreign legislation and practice, Article 27 of the Draft Provisions lists the three situations where the court "presumes the legality" of the vertical agreement, namely (i) where the defendant and its counterparty constitute an agency relationship, (ii) where the defendant meets the applicable conditions of safe harbor stipulated by the antitrust enforcement agency under the State Council and (iii) where the implementation of the agreement is to incentivize the counterparty to promote new products within a reasonable period of time. If defendants can prove that the alleged agreement falls into one of above, the court can draw a preliminarily conclusion that the agreement does not constitute a vertical monopoly agreement prohibited by the AML.

（3）Burden of proof in exemptions of monopoly agreement (referred to as “exemptions”)

Exemptions are stipulated in Article 20 of the AML. However, the Old Provisions were silent on the burden of proof, while ever since the promulgation of the AML, there have been few cases where exemptions have been successfully applied. According to Article 29 of the Draft Provisions, defendants shall provide evidence to prove the following facts when raising an exemption defense: (i) the monopoly agreement is necessary to achieve the relevant purpose or efficiency, (ii) the monopoly agreement can achieve the relevant purpose or efficiency, (iii) the monopoly agreement will not significantly restrict competition in the relevant market, and (iv) consumers can share the benefits arising therefrom.

Article 29 of the Draft Provisions is basically consistent with the SPC’s opinion in the Driving School Case⁶. In its decision, SPC held that undertakings "should prove three critical facts: (i) the relevant agreement meets one of the five statutory circumstances; (ii) the agreement is necessary to achieve one of the five statutory circumstances mentioned above and therefore does not significantly restrict competition in the relevant market; (iii) the agreement allows consumers to share the benefits arising therefrom. For the above three facts, the undertaking shall provide sufficient evidence to prove that the relevant agreement has a pro-competitive effect or economic and social effect referred to under one of the above five statutory circumstances, which is specific and realistic, rather than relying solely on general speculation or abstract presumption."

d) New evidentiary requirements for overturning the presumption of collective  dominance

Article 36 of the Draft Provisions introduce overturning the presumption of collective dominance. In case where there is substantial competition between two or more undertakings, or where those undertakings are subject to effective competitive constraints from other undertakings in the relevant market, the court may overturn the conclusion of collective dominance presumed according to Article 24(1) of the AML.  This provision further refines Article 24(3) of the AML, which states that an undertaking presumed to have market dominance shall not be identified if there is evidence to the contrary. Nevertheless, further judicial guidance on the determination of "substantial competition" and "effective competitive constraints" is required. In the case of "Malijie v. China Mobile Communications Group Henan Co., Ltd."⁷, the SPC analyzed collective dominance for the first time and held that the consistency of undertakings’ behaviors could be considered to determine whether there is "substantial competition" among undertakings. If multiple undertakings in the relevant market take different actions on the same business, it is often the normal performance because of market competition. It is only necessary to consider collective dominance when multiple undertakings in the relevant market consistently adopt the same behavior for the same business.⁸

• Arbitrability of monopoly civil dispute cases

Article 3 of the Draft Provisions stipulates that if a plaintiff brings a civil lawsuit in accordance with the AML, and the defendant raises an objection on the grounds that there is a contractual relationship between them whereby an arbitration agreement has been reached, the court will not be affected in accepting the dispute. However, if the court finds that it does not belong to a monopoly civil dispute case, then it may dismiss the lawsuit according to the law. This provision means that the existence of an arbitration clause in a contract does not affect the court's acceptance of monopoly lawsuits brought by relevant parties.

Previously, this issue was highly controversial, and courts at all levels made different judgments on the justiciability of monopoly civil disputes where there was an arbitration clause in the contract. For instance, in the abuse of dominance case between Shanxi Changlin Industrial Co., Ltd and Shell (China) Co., Ltd, the court finally ruled that the dispute between the two parties should be subject to the arbitration clause and rejected the appeal.⁹ However, in the case of Baicheng Xinniuruye Co., Ltd and the Market Dominance Abuse case between Shanghai Youzu Information Technology Co., Ltd. and The Walt Disney Company (China) Limited, the courts held that the AML had an obvious public law nature, and the identification and treatment of monopolistic behavior went beyond the rights and obligations between the parties in a contract. The arbitration clause stipulated the contract cannot be on an ex officio basis for excluding the jurisdiction of the court.

• Specification of territorial jurisdiction of offshore monopolistic behaviors

Article 7 of the Draft Provisions specifies the territorial jurisdictional rules in civil litigation against defendants with no domicile in China. According to this article, if monopolistic behavior outside China has an anti-competitive effect on the Chinese domestic market, and a party brings a civil action under the AML against a defendant who has no domicile in China, the jurisdiction shall be exercised by the court in the place where the domestic market competition has a substantial impact; if the place of the outcome is difficult to determine, the jurisdiction shall be exercised by the court located where there is appropriate contact with the dispute or where the plaintiff has their domicile. This provision accords with Article 2 of the AML, which states that the present Law shall also apply to monopolistic practices outside the territory of China if it eliminates or restricts market competition in China. In addition, the provision specifies factors for determining the jurisdiction when the defendant has no domicile in China, namely, the place where the result occurs, the place where other appropriate contact exists and the plaintiff's domicile.  Overall, the provision is conducive for courts to exercise jurisdiction over foreign monopolistic behaviors and facilitates litigation brought against foreign market players with no domicile in China.

II.  Substantive Revision Highlights

• Introduction of a “single economic entity”

Article 21(2) of the Draft Provisions introduced the concept of a “single economic entity”, which stipulates that where two or more undertakings should be regarded as a single economic entity, they shall not constitute competing undertakings as mentioned in the preceding paragraph. In making such a judgment, the court shall, considering the specific case, consider such factors as whether one undertaking has control over or can exert a decisive influence over other undertakings, and whether two or more undertakings are under the control or decisive influence exerted by the same third party.

The concept originates from the legislation and enforcement practice of EU and US competition laws. The scope of a single economic entity is determined mainly by considering whether one undertaking can control or exert decisive influence over another. Although there is no explicit stipulation of this concept in either the AML or the relevant regulations, it has existed in practice. For example, it is generally required to collect the data of all affiliates controlled by or under the decisive influence of the ultimate controller when calculating the turnover and market share in filing cases of concentration of undertakings. The Draft Provisions explicitly introduce this concept for the first time, which aligns with international practices. The introduction of this concept will ensure that the court can more accurately apply the AML on one hand and provide undertakings with clearer guidance on the other hand.

• Clarifying factors in the determination of reverse payment clauses for pharmaceutical patents as a monopoly agreement

For the first time, the Draft Provisions explicitly stipulate that the reverse payment agreement of pharmaceutical patents may constitute a monopoly agreement and gives instructions on how the court should determine the nature of such an agreement.  Article 23(1) of the Draft Provisions enumerate factors in determining whether a reverse payment clause constitutes a monopoly agreement, namely: (i) whether the patentee of the reference listed drug (RLD) transfers or guarantees to transfer the generic drug applicant a large amount of money or other forms of compensation and (ii）whether the generic drug applicant guarantees not to challenge the validity of the patent of the RLD or delay its entry into the relevant market of the RLD. The mechanism is essentially like its EU counterparts, whose considerations also include high value transfers and whether to restrict generic drug enterprises from entering the market. Article 23(2) provides further exceptions. Specifically, if there is evidence to prove that the above-mentioned compensation is only to compensate for the cost of solving the patent dispute or other legitimate cause, the court may conclude that it does not violate Article 17 of the AML. In general, this article constructs the analytic framework of “prohibition in principle + exemption” for reverse payment agreement for pharmaceutical patents.  Notwithstanding that "legitimate cause" awaits further specification, this clause is of great significance for determining whether a reverse payment agreement constitutes a monopoly agreement.

• Factors to determine whether a vertical agreement has anti-competitive effects

Article 26 of the Draft Provisions establishes an analytical framework on how to determine whether a vertical monopoly agreement has anti-competitive effects, and specifies the factors that can be considered comprehensively, including（i）whether the defendant has significant market power in the relevant market，（ii）whether the agreement has anti-competitive effects on market entry and inter-brand competition, etc., and（iii）whether the agreement has pro-competitive effects such as preventing free-riding or promoting competition. If the defendant has significant market power in the relevant market and the proven pro-competitive effects does not outweigh the anti-competitive effect, the court shall hold that the agreement has the effect of eliminating or restricting competition. This provision is broadly in line with the rules of the EU and other major jurisdictions. However, given that the concept of "significant market power" is rarely used in China’s anti-monopoly legal regime, especially in high-level legal documents, it is still unclear as to its judgement criteria, factors for consideration and the allocation of burden of proof. Such ambiguity needs to be addressed in the revision at the end of the public comment phase.

• Refinement of rules in the determination of “organizer” or “undertaking providing substantive assistance”

Article 28 of the Draft Provisions echo the “hub-and-spoke agreement” added in Article 19 of the AML, which states that undertakings who organize or provide substantive assistance to reach monopoly agreements should be held with joint and several legal liabilities. Furthermore, the article clarifies the criteria in determining "organize" and "substantive assistance", details relevant circumstances of violation, and provides clear guidance for both the courts and the undertakings to comply with. Compared with the criteria set out on the Provisions on Prohibition of Monopolistic Agreements (Exposure Draft) by SAMR, the core of this provision is basically the same. However, the description in the Draft Provisions is more specific and detailed. Whether the two documents will integrate the contents of their respective provisions in the future is still subject to internal communication and coordination between the courts and enforcement agencies.

• Clarification of standards for abuse of market dominance in judicial practice

Articles 37 to 43 of the Draft Provisions offer clear-cut instruction for the court to identify abuse of market dominance as stipulated in Article 22 of the AML and aligns with administrative enforcement, with reference to multiple documents, including the Provisions on Prohibition of the Abuse of Market Dominance and its Exposure Draft (Market Dominance Provisions), Anti-monopoly Guidelines on Platform Economy (Platform Economy Guidelines), Provisions on Prohibition of Abuse of Intellectual Property Rights to Exclude and Restrict Competition and Anti-monopoly Guidelines for the Field of Intellectual Property Rights. Material content of the Draft Provisions is basically in line with the above-mentioned provisions and guidelines, whereas more specific and detailed supplements are made. The Draft Provisions also introduce the experience of foreign jurisdictions such as the EU. For example, in determining price below cost sales, Article 38 introduces "average avoidable cost" as a benchmark to examine whether the price is lower than the cost to make up for the error of “average variable cost” under certain circumstances.

III.  Revision Highlights on the Field of Platform Economy

In response to the AML, the Platform Economy Guidelines and the rapid development of the digital economy, the Draft Provisions stipulate specific regulations in the platform economy area, including (i) relevant market definition, (ii) monopoly agreement, (iii) abuse of market dominance and (iv) interconnection with the E-commerce Law of the People's Republic of China (E-commerce Law).

• Guidance on the analytical framework of the MFN clause

In the digital economy era, the Most Favorable Nation (MFN) clause has broken through its original concept in international trade and has been widely used in e-books, e-commerce and online tourism, etc. While diminishing transaction costs and reducing consumers’ risks, the MFN clause also tends to create foreclosure effects and facilitates collusion among undertakings.

To provide guidance in analyzing the MFN clause, Article 24 of the Draft Provisions states that the MFN clause agreed between platforms and in-platform undertakings could be analyzed under a framework of (i) horizontal monopoly agreement, (ii) vertical monopoly agreement and (iii) abuse of market dominance as stipulated by the AML and E-commerce Law. Such an arrangement is consistent with Article 7(2) of Platform Economy Guidelines and connects to the E-commerce Law with analysis on a case-by-case basis.

The analytical framework as above aligns with EU and US practice, that the MFN clause shall be investigated and regulated under an antitrust regime, which helps enforcement agencies and courts to decide whether an MFN clause in the digital economy area should be deemed as illegal monopolistic behavior.

• Inter-operability among platforms

Article 39(2) of the Draft Provisions specifies that refusal of undertakings with market dominance to be inter-operable be analyzed under the framework of refusal to deal, together with a series of factors for consideration: (i) feasibility of inter-operability or opening-up, (ii) substitutability and rebuilding costs of platforms or software systems, (iii) degree of dependence of upstream and downstream undertakings, (iv) impact of refusal of inter-operability or openness on the innovation and launch of new commodities, (v) whether the refusal of inter-operability or openness substantially eliminates or restricts effective competition and (vi) the impact to the undertakings' own business activities and legitimate rights and interests.

Unlike the Draft Provisions, previous disputes about the legitimacy of inter-operability in the digital economy were discussed under the principle of essential facilities, which holds the same attitude as the Platform Economy Guidelines and the Market Dominance Provisions i.e., that refusal of implementing essential facilities shall be deemed as refusal to deal. The Draft Provisions, however, avoid the controversial principle of essential facilities with the replacement of listing all circumstances under which refusal of inter-operability and openness constitutes refusal to deal.

IV. Revision Highlights regarding civil liability

Firstly, Article 4 of the Draft Provisions provides that plaintiffs may raise civil lawsuits against undertakings who benefit from an administrative monopoly, seeking civil liability with a prerequisite that the relevant behavior constitutes abuse of administrative power to exclude or restrict competition decided by the court.

Secondly, Article 28(1) & (2) of the Draft Provisions includes a more detailed definition of “hub-and-spoke”, which states that undertakings, undertaking groups or any other entity who “organizes” or “provides substantive assistance” for reaching or implementing a monopoly agreement shall be jointly and severally liable for such behavior.

Thirdly, Article 44 of the Draft Provisions introduces behavioral remedies to monopolistic behavior on a basis that the cessation of such behavior is insufficient to eliminate the anti-competitive effects. The court may raise behavioral remedies in accordance with the plaintiff’s claim and on a case-by-case analysis.

Fourthly, Article 45 and Article 47 of the Draft Provisions clarify segmentation and calculation of losses due to monopolistic behaviors. Specifically, both articles confirm that overall losses shall include direct losses and reduced acquirable interest, with factors to consider including: (i) relevant market; (ii) prices, costs, profits and market shares in comparison between markets and undertakings on the basis of whether they were affected by the monopoly; (iii) the nature, extent, duration and gains derived from the alleged monopoly when the specific amount of the loss is difficult to be determined; (iv) whether multiple alleged monopolies are combined or independent, and whether overall losses could be determined separately and (v) whether the plaintiff has transferred all or part of the losses suffered by others.

Fifthly, Article 48 of the Draft Provisions reconfirms that cartel participants have no legal standing for compensation of losses during the period of participation in the cartel against other participants, which is consistent with recent judicial practice.

V. Summary

Compared to the Old Provisions, the Draft Provisions make significant modifications from both procedural and substantive perspectives. It summarizes not only previous judicial practices but reflects the latest antitrust legislative changes as well as enforcement practices, with some groundbreaking views included. We expect that the final document will provide institutional guarantees to promote the private enforcement of antitrust civil actions and provide clear guidance for the judicial path to maintain fair market competition.

[1] (2021) Zui Gao Fa Zhi Min Zhong No.2253.

[2] (2013) Min San Zhong No.4.

[3] (2013) Min San Zhong No.4.

[4] (2021) Zui Gao Fa Zhi Min Zhong No.1020.

[5] Items 1-5 of Article 17, Items 1 and 2 of Article 18(1) of the AML.

[6]（2021）Zui Gao Fa Zhi Min Zhong No. 1722.

[7]（2021）Zui Gao Fa Zhi Min Zhong No. 1977.

[8]（2021）Zui Gao Fa Zhi Min Zhong No. 1977.

[9] Since SPC has already transferred jurisdiction of this case to itself, there remains the possibility of a subsequent revision of the final judgment.