China’s courtrooms becoming battleground for antitrust disputes

6 January 2015. By MLex Staff.

China’s courts are becoming an increasingly important corporate battleground for antitrust disputes, with the number of cases rising sharply in 2014 and the court system showing more sophistication and nuance in handling antitrust cases.

Last year saw a surge in private antitrust litigation, including a number of high profile cases involving abuse of market dominance disputes between Internet rivals and fights over standard essential patents. Some courts are taking a more activist role in handling antitrust challenges against state-owned companies. And the reasoning and analysis in essential patent disputes by a court in Shenzhen are starting to shape the antitrust landscape in the country.

But there are still enormous challenges to winning private antitrust litigation in China, given the heavy evidentiary burden and the difficulty of proving dominance and market abuse conduct by big companies, especially in the fast-changing Internet sector.

-Supreme court’s first antitrust decision-

In October 2014, China’s Supreme People’s Court issued its first antitrust decision in the landmark lawsuit between two Internet giants, dismissing Qihoo 360’s antitrust claims against Internet giant Tencent.

The highest court’s ruling put an end to the most significant civil antitrust case in China, and the effect based approach and complex reasoning it used to assess market share, dominant position and abuse behavior in the Internet sector could provide important guidance to the practice of future antitrust litigation.

Some lawyers said the SPC’s ruling reflected the difficulty of determining market dominance in the Internet sector, and may discourage consumers and small companies from filing antitrust suits against big companies, while others lawyers said the ruling on market share is significant for Internet giants seeking to defend themselves against suits in the future.

In the wake of the SPC’s ruling, mobile apps company Emiage accused Qihoo of abusing its market dominance and engaging in unfair competition by blocking the plaintiff’s two mobile apps. On Dec. 31, the Beijing Second Intermediate People’s Court rejected all claims by the plaintiff, adopting a similar approach to that used by the SPC.

A boom in patent wars

China’s courtrooms, especially those in the southern province of Guangdong, are also evolving to become a key place to solve the patent wars that have raged between key technology companies, and the courts are showing an enthusiasm for intervening in these disputes.

This year, the Shenzhen Intermediate Court is set to hold hearings and will likely publish its decisions on the antitrust complaint filed last August by Chinese telecom equipment company ZTE against US patent firm Vringo. The court hearing was scheduled to occur last year, but was delayed due to jurisdiction challenges.

In addition, the Shenzhen court is also positioned to hold hearings this year on the abuse of dominance complaint against US wireless-technology company InterDigital’s licensing practices filed by ZTE. The hearing was scheduled last September, but was also delayed due to jurisdiction challenges.

Elsewhere, the Jiangsu High Court is also likely to take up the antitrust lawsuit filed last September by Taiwan-based phone maker Arima and its mainland subsidiary against InterDigital. The plaintiff is seeking compensation of 120 million yuan.

The three cases are centered on abuse of market dominance behavior through excessive patent licensing charges. They come in the wake of a highly unusual ruling by the Shenzhen Intermediate Court on essential wireless patents, in a dispute between Huawei and InterDigital in February 2013.

The Shenzhen court found that charging excessive royalties and failing to comply with fair, reasonable and non-discriminatory, or Frand, terms to be a violation of the Antimonopoly Law. It also set a royalty rate for InterDigital’s essential patents at 0.019 percent. In October 2013, the Guangdong High Court upheld the first-instance decision.

Targeting SOEs and administrative agencies

The court system is also seeing an increasing number of antitrust cases brought against state-owned companies and administrative agencies, especially over the issue of administrative monopolies.

In December 2014, the Kunming Intermediate People’s Court in southern China’s Yunnan province issued a landmark ruling against state oil company Sinopec for abuse of dominance in a case brought by a private company.

This was the first antitrust case in the province, and also the first victory in China in an antitrust dispute with the state oil sector. Sinopec said it would appeal the ruling.

In June 2014, the Guangzhou Intermediate Court heard a lawsuit filed by software company Shenzhen Tsinghua Sware Software Hi-Tech Co. against Guangdong Provincial Education Department over alleged abuse of administrative power to restrict competition.

Last September, the Nanjing Intermediate Court dismissed China’s first lawsuit opposing decisions by the antitrust regulator against three concrete companies in Jiangsu province. The court held two hearings on the case, but later dismissed it because the time limit for litigation had expired. The court also accused one lawyer representing the plaintiffs of committing perjury.

Difficulty of winning antitrust cases

Despite the flurry of cases, it is still difficult for plaintiffs to win antitrust suits, and most are rejected due to the heavy evidentiary burden and the complexities of economic analysis and reasoning, particularly in the high technology sector, said Qiu Yongqing, a judge at the Guangdong High Court who was the chief judge in the antitrust lawsuit between Huawei and InterDigital.

In January 2014, the Zhengzhou Intermediate Court issued a ruling in favor of a local state electricity supply company in an abuse of dominance lawsuit brought by an individual plaintiff, despite objections from Henan’s provincial procurator.

And in October 2014, the Shaanxi High People’s Court upheld first-instance decisions and ruled that three public enterprises providing taxi services and the city’s transport regulatory agency didn’t engage in abuse of market dominance.

	Eliot Gao