Tag: compliance and regulatory-antitrust and anti unfair competition
Preface
In July 2024, the Supreme People’s Court of the People’s Republic of China (SPC) implemented an updated Judicial Interpretation on the Anti-Monopoly Law.[1] Consisting of six sections and fifty-one articles, the new Judicial Interpretation significantly expands and refines the previous version by introducing substantial improvements across multiple substantive areas, including relevant market definition, monopoly agreements, abuse of market dominance, and civil liabilities.
Following the implementation of the new Judicial Interpretation, there has been a notable increase in the number of antitrust cases accepted and concluded by the SPC. According to official data released by the SPC, from January 2019 to August 2024, the SPC accepted a total of 256 antitrust cases (including both civil and administrative cases) and concluded 191 cases.[2] By December 2024, these numbers had risen to 282 cases accepted and 243 cases concluded.[3] This means that in the last four months of 2024 alone, the number of antitrust cases handled by the SPC nearly matched the annual volume of such cases across China in earlier years.
What factors drove the introduction of this new Judicial Interpretation? What do past developments indicate about the future of antitrust litigation in China? This article explores these questions, providing insights into the evolving landscape of antitrust litigation in China and its potential implications moving forward.
I. A Brief Recap of China’s Antitrust Litigation System
China’s first Anti-Monopoly Law (AML) was enacted in 2008, establishing a legal framework that remains in effect today. The AML covers horizontal and vertical monopoly agreements, abuse of market dominance, abuse of administrative power to exclude competition, and merger control. In August 2022, the AML underwent its first amendment since its implementation, introducing optimizations in merger control, increased penalties, and a stronger focus on regulating the digital economy. For a detailed analysis of the revised AML, please refer to our article Interpretations of the “New AML”: New Laws and New Challenges. Nevertheless, the amendment did not introduce fundamental structural changes to the original framework.
In 2012, the SPC issued its first Judicial Interpretation on the Anti-Monopoly Law. Comprising 16 articles, this document primarily addressed procedural matters, including jurisdiction (designating intermediate courts as the first-instance courts), litigation and trial procedures, statutes of limitations, and basic rules regarding the burden of proof. In 2020, the SPC made minor adjustments to this Judicial Interpretation. Notable updates included clarifying that in regions with specialized IP courts, these courts would have jurisdiction over first-instance antitrust cases (aligning with the establishment of specialized IP courts) and extending the statute of limitations for antitrust litigation to three years (in response to changes introduced by the Civil Code).
Regarding IP courts, they are specialized courts within China’s judicial system, responsible for handling intellectual property and antitrust-related cases. Generally, China’s court system consists of four levels: primary courts (district level), intermediate courts (municipal level), high courts (provincial level), and the SPC (national level). IP courts are positioned at the same hierarchical level as intermediate courts.
In principle, primary courts handle the majority of first-instance cases unless a case exceeds a certain monetary threshold or holds certain significance, warranting its elevation to a higher-level court for the first-instance trial. China follows a two-instance final appeal system, meaning most cases conclude at the second-instance trial, typically at the intermediate court level. However, antitrust cases differ in that they are always tried at least at the intermediate court level for the first instance. Furthermore, regardless of the level of the first-instance court, all second-instance antitrust cases are exclusively handled by the SPC. For instance, a case may be heard in the first instance by the Beijing IP Court (equivalent to an intermediate court), but its appeal would go directly to the SPC. This reflects the SPC’s effort to centralize the adjudication of antitrust cases at the national level, ensuring consistency and uniformity in decisions on such cases. Moreover, this indicates that the antitrust case is always challenging, and appealing in the second-instance to the SPC ensures the most comprehensive review.
II. Key Updates of the New Judicial Interpretation
The new Judicial Interpretation consists of 51 articles, structured into six sections: Procedural Provisions, Relevant Market Definition, Monopoly Agreements, Abuse of Market Dominance, Civil Liability, and Appendix. Among these 51 articles, 9 articles largely retain the provisions from the previous Judicial Interpretation, 5 articles have undergone substantial revisions or additions, and 37 articles are newly introduced.
1. Procedural Provisions (Articles 1-13)
This section sets out procedural rules regarding filing lawsuits, jurisdiction, and trial procedures. The first notable highlight is Article 3, which clarifies that an arbitration agreement in a contract does not preclude courts from accepting antitrust litigation, aligning with previous judicial practice.
Another key update is Article 10, which specifies that if an antitrust enforcement agency has already imposed a penalty for monopoly behavior, the facts determined in the penalty decision can be directly referenced in litigation, and the plaintiff is not required to provide further evidence. This provision paves the way for follow-on litigation by plaintiffs. In past judicial practice, local courts varied in their approach to recognizing the factual determinations made by administrative agencies. The new Judicial Interpretation now provides clear guidance on this issue, enhancing legal certainty for antitrust litigants.
Additionally, this section improves the coordination between administrative enforcement and civil litigation. For instance, the second paragraph of Article 10 provides that, when necessary, courts may request the antitrust enforcement agency that issued the decision to provide further explanations regarding the case, helping to break down information barriers between administrative enforcement and judicial proceedings in antitrust matters. Furthermore, Article 13 states that if an antitrust enforcement agency has already initiated an investigation into the alleged monopolistic conduct, the court may rule to suspend the civil lawsuit. In practice, there are cases where an affected party files a civil lawsuit while the enforcement agency simultaneously conducts an investigation into the same conduct. Compared to affected parties, antitrust enforcement agencies have greater access to evidence, better resources to establish case facts, and the authority to determine illegality. Thus, this provision helps conserve both judicial and enforcement resources while minimizing inconsistencies between administrative penalty decisions and civil litigation outcomes. In other words, although the affected party cannot seek relief through both methods simultaneously, prioritizing administrative enforcement undoubtedly increases the chances of success.
2. Relevant Market Definition (Articles 14-17)
This section provides clarification on the methods for defining the relevant market, including demand substitution, supply substitution, and the hypothetical monopolist test. It also specifies the need to determine whether the relevant market should be defined as a unilateral market, a multi-sided market, or an overall market in the context of platform economies. This marks the first time the SPC has introduced these market definition methods in the form of a Judicial Interpretation, although they have already been widely accepted and applied in practice.
One noteworthy point is Article 14, which clarifies that in monopoly agreement cases, although the relevant market still needs to be defined to establish a horizontal or vertical relationship, plaintiffs may not be required to provide evidence for market definition. This aligns with previous judicial practice. Additionally, if the plaintiff can directly prove that (i) the alleged participants in the monopoly agreement hold significant market power, (ii) the alleged dominant firm has market dominance, or (iii) the alleged monopolistic conduct has anticompetitive effects, then further evidence on relevant market definition may not be required. However, how plaintiffs can directly establish these elements remains to be further clarified by the SPC itself.
3. Monopoly Agreements (Articles 18-27)
This section introduces several significant updates, including the criteria for determining concerted practices, the single economic entity doctrine, pay-for-delay agreements, the burden of proof for vertical monopoly agreements, the identification of agency agreements, the liability and identification of organizers or facilitators of monopoly agreements, among others.
(1) Concerted Practices
Under the AML, concerted practices refer to coordinated conduct between undertakings that, while not explicitly established through agreements or decisions, effectively results in parallel behavior. Given the absence of explicit agreements, such conduct is inherently difficult for plaintiffs to detect or prove.
Article 18 of the new Judicial Interpretation provides much-needed clarification. It states that if a plaintiff provides preliminary evidence demonstrating parallel market behavior among undertakings, and further presents initial evidence of either (i) communication, exchange, or transmission of information between undertakings; or (ii) relevant market structure, competition conditions, and market changes suggesting a high likelihood of coordination, the burden of proof shifts to the defendant. The defendant must then provide sufficient evidence or reasonable explanations to justify its parallel behavior.
This provision is particularly innovative as it explicitly recognizes market structure, competition conditions, and market changes as factors that can independently serve as indicators of concerted practices, alongside direct evidence of communication or information exchange. This significantly lowers the evidentiary burden for plaintiffs.
(2) Single Economic Entity
For the first time in China, Article 19 introduces the concept of a single economic entity. It provides that when an undertaking obtains control over, or has decisive influence on, another undertaking, or when two or more undertakings are controlled or decisively influenced by the same third party, they shall be regarded as a single economic entity and therefore not considered competitors.
The direct implication of this provision is that agreements between undertakings within a single economic entity may not be considered horizontal monopoly agreements due to the lack of competitive relationships between them. However, certain ambiguities remain in the wording of this article. For instance, it is unclear whether the terms “control” and “decisive influence” carry the same meaning as in the merger control context, and most importantly whether joint control situations are included. These uncertainties will require further clarification through judicial practice.
(3) Pay-for-delay
Following the approach taken in the US, Article 20 introduces provisions on pay-for-delay agreements. Specifically, if a patent holder promises to provide an unjustifiable benefit to a generic drug applicant, and in return, the generic drug applicant commits not to challenge the validity of the patent or agrees to delay its market entry, the court will preliminarily determine that the agreement constitutes a monopoly agreement.
Since July 2021, China has implemented a 12-month market exclusivity period for the first generic drug applicant that successfully challenges a patent and obtains marketing approval.[4] This means that if a generic drug company successfully invalidates a patent, it can secure substantial commercial benefits without the risk of other generic companies free-riding on its patent challenge efforts. Under this policy framework, if a patent holder enters into a pay-for-delay agreement with a generic drug applicant, it raises concerns that such an agreement unjustifiably extends the patent holder’s exclusivity period and effectively delays or restricts competition from generics, resulting in the transfer of monopolistic profits. This regulatory background provides the necessary foundation for China’s antitrust scrutiny of pay-for-delay agreements, making it a relevant and enforceable mechanism in the country’s pharmaceutical sector.
(4) Vertical monopoly agreements
First, Article 21 clarifies that the party that establishes an RPM agreement bears the burden of proving that the agreement does not have anticompetitive effects. In the previous Judicial Interpretation, no such provision existed, resulting in a disconnect between civil litigation and administrative enforcement approaches toward RPM. In early judicial practice, courts followed the general rule that “whoever claims bears the burden of proof,” meaning that the plaintiff was responsible for proving that the challenged RPM agreement had anticompetitive effects. While, antitrust enforcement agencies presumed that RPM agreements had anticompetitive effects without requiring additional proof. Now, this inconsistency has been resolved.
Next, Article 22 provides guidance on how courts should assess the anticompetitive effects of RPM agreements. Specifically, if the evidence shows that the pro-competitive effects of an RPM agreement significantly outweigh its anticompetitive effects, the court should determine that the agreement does not have anticompetitive effects. In other words, defendants can justify their RPM agreements not only by proving that the agreement has no or only weak anticompetitive effects but also by demonstrating that the agreement has pro-competitive effects that outweigh its negative effects. Furthermore, Article 22 lists the potential anticompetitive effects of RPM agreements, which may include (i) cumulative effects, (ii) raising market entry barriers or hindering more efficient business operators or business models, (iii) restricting either inter-brand or intra-brand competition, among others. At the same time, the provision also identifies possible pro-competitive effects, which may include preventing free-riding, promoting inter-brand competition, maintaining brand image, improving pre-sale or after-sales service quality, and encouraging innovation, among others.
Finally, Article 23 establishes that if an agreement qualifies as a Genuine Agency Agreement between an undertaking and its counterparty, and the agent does not bear any substantial commercial or operational risk, the agreement is not considered a vertical monopoly agreement under the AML.
The concept that Genuine Agency Agreements fall outside the scope of vertical monopoly agreements regulated under the AML first appeared in the 2015 Draft Antitrust Guidelines for the Automobile Industry. A Genuine Agency Agreement, in essence, is an agreement in which the agent does not bear significant commercial risk in the resale process. According to the 2015 Draft Antitrust Guidelines for the Automobile Industry, an agreement may be preliminarily recognized as a Genuine Agency Agreement if ownership of the contract goods does not belong to the agent, the agent does not provide contract services independently, and all of the following seven conditions is met:
- The agent does not bear the costs of supplying or purchasing contract goods or services, including transportation costs, unless the principal requests the agent to provide transportation services at the principal’s expense.
- The agent does not bear the costs or risks of storing the contract goods, including inventory financing or inventory loss costs. The agent can return unsold goods to the principal without incurring costs, except where the agent is responsible for losses due to negligence (e.g., failing to take reasonable security measures to prevent inventory losses).
- The agent does not assume product liability for damages caused by sold goods to third parties, unless the agent is at fault as an intermediary.
- Apart from losing commission income, the agent does not bear liability for customer default, unless the agent is responsible for the default.
- The agent is not directly or indirectly required to invest in promotional activities, such as sharing advertising costs with the principal.
- The agent does not bear market-specific investment costs, such as expenditures on equipment, premises, or personnel training, unless the principal fully reimburses such costs.
- The agent is not required to engage in other activities in the same product market at the principal’s request, unless the principal fully reimburses the agent for such activities.
Although the final version of the Antitrust Guidelines for the Automobile Industry[5] did not retain these provisions on Genuine Agency Agreements, their criteria for identifying Genuine Agency Agreements have now been incorporated into the new Judicial Interpretation. Moving forward, businesses assessing whether their agency agreements meet the criterion under Article 23 can refer to these seven conditions for guidance.
(5) Organizers or Facilitators of Monopoly Agreements
Similar to hub-and-spoke agreements, under the AML, organizers or facilitators of monopoly agreements bear the same administrative liability and joint civil liability as the direct participants in the agreement. This means that plaintiffs may consider including more defendants in litigation, increasing the risks for those who organize or assist in monopoly agreements. Article 26 of the new Judicial Interpretation provides a clear definition of what constitutes facilitate/substantial assistance, including actions that have a direct and significant effect on the formation or implementation of a monopoly agreement, such as producing the illegal intent, providing convenience, serving as an information channel, or assisting in imposing penalties. Given this clarification, businesses must be cautious in their daily operations to avoid inadvertently facilitating monopolistic agreements. For instance, when communicating with distributors, a company should avoid becoming the “hub” through which competitively sensitive information is exchanged among them, as this could expose it to liability as a facilitator.
4. Abuse of Market Dominance (Articles 28-42)
This section sets out provisions on the methods for determining market dominance and the specific criteria for identifying various forms of abuse of market dominance. While most of these provisions summarize practices that have been widely accepted, one major breakthrough is Article 29, which introduces a new approach to proving market dominance.
Article 29 clarifies that if the plaintiff can directly prove either (i) the defendant has maintained prices significantly above competitive market levels for an extended period, or product quality has significantly declined over a long period without substantial user attrition, and the relevant market clearly lacks competition, innovation, and new entrants; or (ii) the defendant has maintained a significantly higher market share than its competitors for an extended period, and the relevant market clearly lacks competition, innovation, and new entrants, then the court may preliminarily determine that the defendant holds a dominant market position, unless there is sufficient evidence to rebut this presumption. This approach effectively allows plaintiffs to establish the defendant’s market power directly, bypassing the traditional reliance on market share as the primary method of proof.
5. Civil Liability (Articles 43-49)
The updates in this section mainly cover the calculation of damages and the validity of agreements that violate the AML.
One notable highlight is Article 44, which states that if the plaintiff can prove that the defendant’s monopolistic conduct caused damage but has difficulty determining the exact amount of damages, the court may exercise discretion to determine a reasonable compensation amount. This prevents courts from automatically ruling against plaintiffs for failing to provide precise evidence of damages, thereby reducing the plaintiff’s burden of proof. Additionally, Article 47 clarifies that participants in horizontal monopoly agreements cannot claim damages against each other. This is designed to prevent participants from using litigation as a disguised means of redistributing monopolistic profits.
Article 48 addresses the validity of agreements, organizational charters, or resolutions that violate the AML. It specifies that if certain clauses in these documents are deemed invalid due to AML violations, the court may also invalidate other closely related clauses that lack independent significance or facilitate the implementation of the monopolistic conduct in question. In judicial practice, courts often rely on this principle to determine whether other contractual obligations agreed upon by the parties - beyond the monopolistic provisions themselves - should also be rendered invalid.
6. Appendix (Articles 50-51)
This section primarily addresses the applicability of laws between the old and new rules. Specifically, courts adjudicating civil antitrust disputes shall apply the AML that was in effect at the time the alleged monopolistic conduct occurred. If the alleged monopolistic conduct took place before the amended AML came into effect (i.e., before August 2022) but continued or resulted in harm after its implementation, the amended AML shall apply. Additionally, the new Judicial Interpretation shall apply to first-instance and second-instance cases that were still under trial as of its implementation in July 2024.
III. The Driving Factors behind the New Judicial Interpretation and its Implications
1. Factors Contributing to the Update of the Judicial Interpretation
The implementation of the new Judicial Interpretation is largely driven by two key factors: the accumulation of judicial experience in antitrust adjudication and China’s continuous progress in antitrust compliance.
On one hand, since the enactment of China’s first AML in 2008, courts have spent 16 years familiarizing themselves with antitrust adjudication, identifying practical challenges, and developing experience in resolving these issues. This long-term accumulation of judicial expertise provided the foundation for the substantive updates in the new Judicial Interpretation, allowing it to effectively address many concerns encountered in practice.
On the other hand, it is essential to acknowledge China’s public policy commitment to continuous pursuit of an evolving and improving antitrust compliance framework. One clear illustration of this can be seen in the SPC’s practice of publishing representative antitrust cases, which serves as a mechanism to release landmark cases in specific areas, providing nationwide guidance on handling similar cases.
The SPC’s first publication of representative antitrust cases occurred in 2018, a full decade after the AML was implemented. Since then, the SPC has accelerated the release of such case, publishing its second batch in 2021, followed by the first amendment to the AML in 14 years in 2022. After the AML amendment, the SPC released its third batch of representative antitrust cases in the same year and has since maintained a consistent annual practice of releasing these case compilations. By 2024, coinciding with the update to the Judicial Interpretation, the SPC published two batches of representative antitrust cases within the same year. These examples reflect China’s continuous progress in antitrust compliance, in parallel with the increasing emphasis on antitrust enforcement and compliance in other major jurisdictions, such as the EU and the U.S.
2. The Impact of the New Judicial Interpretation since its Implementation
Although there are no publicly available statistics on antitrust cases currently under trial, several high-profile cases are currently being heard by the SPC, and insights can be drawn from the SPC’s published representative antitrust cases. As of now, the SPC has published six batches of 37 representative antitrust cases. Among them, 16 cases (including one repeated case) involve civil disputes related to abuse of market dominance, 9 cases involve civil disputes regarding horizontal monopoly agreements, 4 cases (including one repeated case) involve civil disputes related to vertical monopoly agreements, 1 case involves a civil dispute over hub-and-spoke agreements, 3 cases involve jurisdictional disputes, and 4 cases involve administrative disputes. In terms of plaintiff demographics, 9 cases were initiated by natural persons, while 24 cases were brought by companies. Regarding defendant composition, 26 cases involved Chinese companies, while 7 cases had foreign companies as defendants.
Moreover, thanks to the new Judicial Interpretation paving the way for the burden of proof in follow-on damages claims, it is foreseeable that such claims will become more common in the future. For instance, among the SPC’s representative antitrust cases, two involve follow-on damages lawsuits. One case involves an individual consumer suing the implementers of RPM, seeking compensation for the price difference between the RPM price and the lower price he could have obtained without RPM. The other involves a company with market dominance restricting its customers to purchasing only its own products, and the company’s competitors suing for compensation for the damages caused. In both cases, the SPC supported the plaintiffs and fully accepted the facts already determined in the prior administrative enforcement without requiring additional proof from the plaintiffs.
For businesses already operating in or planning to enter the Chinese market, the new Judicial Interpretation undoubtedly serves as a wake-up call, warning companies against engaging in monopolistic conduct that violates the AML. However, and more importantly, this is by no means a targeted witch-hunt against any specific group. At its core, China’s antitrust enforcement aims to protect competition and foster innovation. In this new era of heightened regulatory scrutiny, businesses should adopt a more holistic approach to compliance, extending beyond antitrust to cover international trade, data protection, privacy, and other key regulatory areas to ensure long-term, sustainable operations in China.
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