Corporate & Securities Law

Private Civil Lawsuits Under China Anti-Monopoly Law

By Sheppard Mullin Richter Hampton, LLP

The Anti-monopoly Law of China (“AML”) will come into effect soon and accompany the approaching Beijing Olympics.  As preparation for this highly significant law , the Implementation Rules of AML (“Implementing Rule”) have been extensively discussed within the anti-monopoly authorities.  These Implementation Rules will be an essential part for implementing and enforcing the AML.  In particular, Implementing Rules are expected to clearly define some vague clauses of 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. Article 50 of AML

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 to 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. Right to Sue of Consumers and Competitors

In absence of clear guidance by AML, any individual and legal entity is allowed to file lawsuit according the Civil Procedure Law.  Applying such rule to the anti-monopoly lawsuit, 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 the implementation of individual consumers will be one of the most important goals of implementing AML.

However, it is questionable whether competitors, regardless registered inbound or outbound, 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. Current Debate of Legislators

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

4. Comment

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 entirely until the potential procedural abuses are resolved, and the scope of the AML itself is more established.

Authored by:

Michael X.Y. Zhang

86.21.2321.6000

mzhang@sheppardmullin.com

Full post as published by Antitrust Blog Review on April 07, 2008 (boomark / email).