Litigation Risks of Multi-Nationals Under China Anti-Monopoly Law

The Anti-Monopoly Law (“AML”) will come into effect soon and accompany the approaching Beijing Olympics.As preparation for this highly significant law, the Implementation Rules of the AML (“Implementing Rule”) have been extensively discussed within the anti-monopoly authorities.These Implementing Rules will be an essential part of implementing and enforcing the AML.In particular, the Implementing Rules are expected to clearly define several vague clauses of the AML.Among these vague clauses, the right to file the private anti-monopoly litigation has received substantial attention from many leading multi-national companies in various industries.

1. AML: Private Lawsuits Are Permitted

Article 50 of AML states that “The undertakings that violate the provisions of this Law and cause damage to others shall bear civil liability.”This clause clearly opens the window for private civil lawsuits against monopolistic conduct in China under the AML.As a direct interpretation of the wording, once a company’s business activity is deemed as “monopolistic activity” which violates the AML, and the harmed party has evidence of actual damages or loss, such harmed party should have the right to sue the company under the AML.

As the AML is deemed as more substantive rather than procedural in the nature, it does not define many important procedural issues relating to private action, including who has standing or is otherwise permitted to file a private anti-monopoly lawsuit.

2. Consumers and Competitors

In the absence of clear guidance by the AML, any individual and legal entity is allowed to file lawsuits according to the Civil Procedure Law.Thus, consumers are undoubtedly granted the right to sue multi-national companies, which has been confirmed by most key legislators and judges.A leading legislator commented in an antitrust conference held in Beijing early this year that enabling individual consumers to initiate civil lawsuits will be one of the most important goals of implementing the AML.

However, it is questionable whether competitors, domestic or foreign, will have the right to sue multi-national companies in China under the cause of action for monopolistic activities.In many countries, competitors are often the party harmed by a company with a dominant position in an industry and therefore do have standing to sue.It is also true, however, that competitor standing to sue sometimes results in abusive and expensive litigation which may not promote competition at all. The United States, for example, imposes limits on competitor standing through the antitrust injury requirement coupled with the oft-stated mantra that the antitrust laws protect competition, not competitors.

3. Different Voices

In fact, there was a debate within the legislation departments before the issuance of the AML. The Standing Committee of National People’s Congress was concerned with the risk that anti-monopoly litigation could be abused by companies in attacking state-owned enterprises or growing privately owned companies.In previous drafts of the AML before the final version, the “party with interest” is entitled to file lawsuits under AML.As discussed in various conferences before the issuance of the AML, such “party with interest” did include competitors and gave them standing to sue under the AML.However, such term was changed in the final version of the AML.From such approach, it is a clear signal that the AML is considered as substantive law instead of procedural law, and the issue of competitor standing is left for judicial interpretation by the Supreme Court.

According to various sources, the legislative members of AML concluded that it should initially close the window for competitor standing.Further, according to the legislation rules, the Supreme Court has the power to define procedural matters under any law, including the AML.At the present time, Supreme Court has not yet issued anyinterpretation or otherwise provided guidance on this issue.

In the current system of Chinese courts, the jurisdiction over any anti-monopoly case might eventually be set as intermediate court level.However, due to the existence of local protection and difference of professional capacity of judges in different geographic areas, it is still risky that abuse of anti-monopoly litigation by certain local competitors might greatly impact not only state owned enterprises,but foreign companies as well.For example, if competitor standing is permitted, it is possible that some companies may file separate anti-monopoly lawsuits in different provinces at different time points against the same company. The AML should be very cautious in granting the right to sue to competitors, and perhaps withhold that right entirely until the potential procedural abuses are resolved, and until the scope of the AML itself is more established.

Authored by:

Michael X.Y. Zhang

86.21.2321.6000

mzhang@sheppardmullin.com