Cartels 2020

Last Updated June 12, 2020

China

Law and Practice

Authors



AnJie Law Firm has an antitrust/competition law team consisting of more than 20 highly experienced partners and associates, most of whom have worked for many years in top international law firms or have international backgrounds. Key offices are located in Beijing, Shanghai, Shenzhen and Hong Kong. The team has expertise and abundant experience in all fields of antitrust investigation, private antitrust litigation, merger filing and antitrust compliance consultancy. Key representations include: defended SINOPEC in the first antitrust private litigation of China’s oil and gas sector and obtained a complete victory, defended a Japanese electronics company in the auto parts investigation, and filed a merger filing for the ChemChina/Syngenta deal.

Article 13 of the Anti-Monopoly Law (AML) stipulates that undertakings having competitive relationships are prohibited from reaching the following agreements:

  • fixing or changing commodity prices;
  • restricting the amount of commodities manufactured or sold;
  • splitting the sales market or the purchasing market for raw and semi-finished materials;
  • restricting the purchase of new technologies or equipment, or the development of new technologies or products;
  • jointly boycotting transactions; and
  • other monopoly agreements determined as such by the authority for enforcement of the AML under the State Council.

Article 13 is considered as the statutory basis for challenging cartel behaviour in China. Although not specifically provided for in the AML, bid rigging is also a form of cartel recognisable by the AML and was identified as price fixing and splitting the sales market by the NDRC (the former AML enforcer) in the roll-on roll-off shipping cartel case in 2015.

It should be noted that on 26 June 2019, the State Administration for Market Regulation (the current AML enforcer, SAMR) officially released the Temporary Provisions on Prohibiting Monopoly Agreements (“the New Provisions”), which further clarifies the rules on monopoly agreement. The NEW Provisions came into force on 1 September 2019, and had replaced the Provisions of the National Development and Reform Commission on Anti-Price Monopoly and the Provisions of the State Administration for Industry and Commerce on Prohibiting Monopoly Agreements. In the meanwhile, the Provisions of the State Administration for Industry and Commerce on Prohibiting the Abuse of Intellectual Property Rights to Exclude or Restrict Competition continues to be valid until new regulations is released by SAMR for replacement.

SAMR and its provincial branches became the only public enforcement agencies of China since 2019.

Currently, cartel violations are not punishable under the criminal law, even some experts call for the change of AML legislature. Like the EU, China adopts an administrative-oriented enforcement approach, and administrative sanctions that can be applied to cartel violations include cessation of violation, confiscation of illicit gains, and fines. In antitrust civil proceedings, the court may also order civil liabilities, including behavioural injunctions and compensation for damages.

However, it should be noted that, on 2 January 2020, the SAMR released a draft amendment of the AML to solicit public opinions. In the draft amendment, Article 50 provides that if the monopolistic conduct constitutes a crime, the criminal responsibilities shall be affixed. That means cartel violations may be subject to criminal liabilities if this provision is included in the final version of AML amendment in future.

The Supreme People's Court issued Provisions on Certain Issues Relating to the Application of Law in Hearing Cases Involving Civil Disputes Arising out of Monopolistic Acts (the Antitrust Judicial Interpretations) in 2012, Article 2 of which provides that: “A court shall accept a civil lawsuit directly filed by a plaintiff, or filed by a plaintiff after the decision affirming the relevant act as constituting a monopolistic act by the anti-monopoly law enforcement agency concerned has become legally effective, as long as such lawsuit satisfies other case acceptance conditions prescribed by law”. Therefore, cartel behaviour can be challenged in courts as either stand-alone or follow-up actions.

The prohibition of cartel conduct is defined by statute and can be found in Article 13 of the AML. See 1.1 Statutory Bases for Challenging Cartel Behaviour/Effects.

Not all joint actions between competitors will violate the AML. Depends on the nature of the joint actions, the co-operation between competitors which does not amount to the behaviours that are specifically prohibited by Article 13 of the AML as well as the co-operation would not lead to impairment of competition is allowed.

In addition to provisions in the AML, the Temporary Provisions on Prohibiting Monopoly Agreements (“the New Provisions”) interpret the conduct of monopoly agreements (including cartel conduct) to a further degree. Specifically, Article 7 to Article 14 of the New Provisions elaborate further each kind of cartel conduct specified in the Article 13 of the AML.

According to Article 56 of the AML, provisions in the AML do not apply to the association or co-operation of agricultural producers or rural economic organisations in their business activities of production, processing, sale transportation, and storage of farm products, etc.

The limitation period for public enforcement actions against cartel conduct is two years. Article 29 of the Administrative Penalty Law of the People’s Republic of China (APL) provides that, if an illegal act is not discovered within two years, an administrative penalty shall no longer be imposed, except as otherwise prescribed by the law. Since penalties such as confiscation of illegal gains and fines imposed by antitrust agencies are classified as administrative penalties, and there is no specific rule governing the statute of limitation under the AML, the principles prescribed by Article 29 of the APL apply to cartel conduct as well.

In principle, the two-year limitation in antitrust enforcement cases will be calculated from the date on which the cartel conduct is committed. If the cartel conduct is of continual or continuous nature, the two-year limitation will be counted from the date the cartel conduct is terminated. It should be noted that enforcement agency views the illegal conduct as being continuous if the outcome or effects resulting from the illegal conduct are lasting. In practice, however, it is not very clear from when the two-year limitation should be calculated. For instance, in both the auto parts case and the shipping case investigated by the NDRC, behaviours happened more than two years prior to the investigations were penalised.

From 1 October 2017 the limitation period for private litigation change from two to three years, with the limitation of action being calculated from the date on which the right holder becomes aware or should be aware of the damage of his rights and who is the obligor. The Court does not protect these rights if it has been over 20 years since the tort was committed; however, under special circumstances, the Court may decide to extend the limitation of action according to the application by the right holder.

As commonly recognised, antitrust litigation initiated by the private undertakings or individuals is a type of civil litigation and there is no specific rule governing the limitation period for private litigation caused by monopolistic acts, so the general principles on the limitation period for civil procedures should apply (namely, the General Rules of the Civil Law of the People’s Republic of China). 

Furthermore, according to Article 16 of the Antitrust Judicial Interpretations, the limitation period for requesting compensation for damage caused by monopolistic acts is to start from the date on which a plaintiff becomes aware or should have become aware of the infringements on their rights and interests.

According to Article 195 of the General Rules of the Civil Law of the People’s Republic of China, the statute of limitation for private litigation shall be discontinued and limitation of action shall be calculated anew from the date of the discontinuance or termination of the following relevant procedures:

  • the right holder requests the obligor to fulfil obligations;
  • the obligor agrees to fulfil obligations;
  • the right holder files a lawsuit or applies for arbitration; or
  • other circumstances that have the same effect as the filing of a lawsuit or an application for arbitration.

Theoretically, China’s antitrust regime has adopted the doctrine of extraterritorial effect. Article 2 of the AML provides that the Law is applicable not only to monopolistic conduct in economic activities within the territory of the People’s Republic of China (PRC), but also to monopolistic conduct outside the territory of the PRC, provided that such conduct has the effect of eliminating or restricting competition in the domestic market of China.

There is no specific provision in China’s antitrust legal framework that addresses the issue of the principle of comity. In practice, the situation where a case was or is being investigated in other jurisdictions does not necessarily mean that the case will not face public antitrust enforcement actions in China. In practice, China’s antitrust enforcement agencies sometimes initiate follow-up investigations, such as in the LCD case, the capacitor case and the auto parts case.

Nevertheless, the fact that there are no provisions on the legal principle of comity does not mean that the SAMR does not consider comity in the process of enforcement against cartels. It is believed that the principle of comity may affect the decision-making and the discretion of Chinese antitrust enforcement agency in specific cases, although it is difficult to clarify at this time to what extent and in which cases the SAMR may choose to apply this principle.

In practice, the authority usually will conduct a preliminary inspection to verify the suspected cartels before any official investigation begins. For this preliminary inspection, SAMR may either carry it out itself or delegate the task to relevant provincial branch or the relevant industry association. In the event of a report/whistle-blowing, the agency will usually review the documents and the information provided by the reporter at first. Experience shows that, in general, the agency will only formally initiate an investigation where there is adequate evidence to suggest that a cartel exists.

According to Article 39 of the AML, the Chinese antitrust enforcement agency has the right to carry out dawn raids or surprise visits, and it is largely relied on when investigating cartels for obtaining evidence. The Benz case in 2014, Medtronic case in 2016, the ongoing DRAM case against Micron, Samsung Electronics and SK Hynix, among others, are notable examples of dawn raids.

During a dawn raid, the investigated party and its employees are obliged to cooperate with the antitrust enforcement agency. The agency may also interview employees, review and duplicate documents, seizure and detain evidence, etc. Normally, PRC-qualified lawyers with proper documentation are allowed to accompany the investigated party and its employees onsite during the investigation.

The AML and relevant regulations authorise Chinese antitrust enforcement agency the administrative power to inspect the business premises, access to computers, copy work emails, seize contract and financial documents, check the bank account of the investigated company, and even detain original items such as work computers, notebooks, original business contracts, etc, if they consider it is necessary. The investigated party and its employees shall cooperate during the investigation. Although it is not explicitly provided in the AML and relevant regulations that there are any restrictions on the dawn raids, we understand that personal premises (such as private household) would not fall in the scope of investigation in practice.

Article 39 of the AML stipulates that, when conducting investigations into suspected monopolistic conduct, the enforcement authority can take the following measures under the AML:

  • conduct an inspection of the business places or the relevant premises of the undertakings (which includes the branch offices) under investigation;
  • make inquiries of the undertakings under investigation, the interested parties, and/or other units or individuals involved, and request them to provide explanations;
  • consult and duplicate the relevant documents and materials of the undertakings under investigation, the interested parties and other relevant units and individuals, such as bills, certificates, agreements, account books, business correspondence and electronic data;
  • seal up or seize relevant evidence; and
  • inquire about the bank accounts of the undertakings under investigation.

In order to take these measures, a written report shall be submitted for approval to the principal leading person of the authority for enforcement of the AML.

According to Article 52 of the AML, if the investigated business operators refuse to provide related materials and information, provide fraudulent materials or information, conceal, destroy or remove evidence, or refuse/obstruct the inspection and investigation by the antitrust enforcement agency in other ways, the antitrust enforcement agency shall order them to make rectification and impose a fine of less than CNY20,000 on individuals, and/or a fine of less than CNY200,000 on entities; in serious circumstances, the authority may impose a fine of CNY20,000 to CNY100,000 on individuals, and/or a fine of CNY200,000 to CNY1 million on entities. Where a crime is committed, the relevant business operators shall assume criminal liabilities.

According to Article 39 of the AML, the antitrust enforcement agency can make inquiries of the undertakings under investigation, the interested parties, or other departments or individuals involved, and request them to provide explanations. Before the inquiries, the investigator must submit a written report for approval to the leading person of the antitrust enforcement agency.

Article 40 of the AML provides that, “for [the] antitrust enforcement agency to conduct [an] investigation into suspected monopolistic conducts, there shall be at least two law-enforcement officers, who shall produce their law enforcement papers. The law-enforcement officers shall make written records when conducting [the] inquiry and investigation, which shall be signed by the persons after being inquired or investigated”.

Under the AML, refusal to co-operate can lead to a fine of up to CNY100,000 for interviewees.

There are no concrete stipulation in AML to address this issue, but the relevant answers could be found in PRC Lawyer Law, In practice, the situations vary in individual cases. The antitrust enforcement agency sometimes allowed PRC lawyers or company counsel to accompany the officers/employees during the investigation, but sometimes did not allow – it has no clear rules and depends situations in individual cases. If the interviewee is a foreigner, other colleagues are allowed to accompany as the interpreter. Except dawn-raid time, PRC lawyers are allowed to accompany the officers/employees to participate the hearing, meeting or case discussion.

As mentioned above, according to Article 52 of the AML, the antitrust enforcement agency shall impose a fine of less than CNY20,000 on individuals, and a fine of CNY20,000 to CNY100,000 in the case of serious circumstances. In August 2018, the first case in China that the individual was imposed fines for refusal to co-operate with SAMR during the antitrust investigation. SAMR imposed a fine of CNY12,000 and CNY8,000 on the Legal Representative and the General Manager of Guangzhou Qingfeng Toyota respectively. In this regard, while there is no statutory requirement, we would expect that in practice, individuals have the right to engage separate counsel if it considers necessary.

In practice, defence counsel can participate in the investigation, communicate with the antitrust enforcement agency regarding their concerns, sometimes assist the company/individual that is under interview, prepare relevant documents for client to defend or to apply suspension, accompany client to have meeting with the agency, represent client in the hearing procedure and/or administrative review procedure, and so forth.

The Chinese antitrust enforcement agency can normally obtain documentary evidence or testimony via the following channels:

  • reports by any person or entity before the initiation of the investigation according to Article 38 of the AML;
  • investigation and interviews in accordance with Articles 39 and 40 of the AML; and
  • the evidence provided by the cartel members during the investigation.

According to Article 39 of the AML, the law enforcement officers must submit a written report for approval to the leading person of the antitrust enforcement agency in order to investigate to obtain documentary evidence or testimony. According to Article 40 of the AML, there shall be at least two law enforcement officers present, who shall produce their law enforcement papers. After the interview, the law enforcement officers must ask the interviewee to review the records of the testimony and sign for verification.

In addition, subject to Article 26 and Article 27 of the Interim Provisions on the Procedures for Administrative Punishments for Market Supervision and Administration (promulgated on 21 December 2018 and effective on 1 April 2019), investigators are entitled to inquire the parties and other relevant entities and individuals respectively. Transcripts shall be made for inquiries and inquiry transcripts shall be handed over to the inquired person for verification; and the inquiry transcripts shall be read to those who have difficulty in reading. Where there is any error or omission in the transcript, correction or supplement shall be allowed.

The altered part shall be affixed with signature or seal of the inquired person or be confirmed by other means. Upon verification, the inquired person shall affix signatures or seals to the transcripts page by page or conduct confirmation by other means. See 3 Procedural Framework for Cartel Enforcement - When Enforcement Activity Proceeds.

According to Article 39 of the AML and Article 20 of the Interim Provisions on the Procedures for Administrative Punishments for Market Supervision and Administration (promulgated on 21 December 2018 and effective on 1 April 2019), the antitrust enforcement agency can also obtain e-mails and digital data during the investigation, after the enforcement officers receive approval from the leading person of the agency. For example, in the PVC case, the NDRC used “WeChat” records as evidence. In Microsoft case, it was reported that the SAIC, the former AML enforcer, took the working computers of Microsoft employees away in order to obtain the electronic data.

When the antitrust enforcement agency requires the company or individual being investigated to provide documents or other evidence, the company or individual is obligated to cooperate, according to Article 42 of the AML, as long as they have access to such documents or other evidence, even if located in another jurisdiction or in the cloud. In practice, for information that needs to be sent into the jurisdiction, the antitrust enforcement agency will sometimes set a deadline for the company or individual being investigated to provide such information.

There is no law or regulation regarding attorney-client privilege in China. Even though Article 38 of the Lawyer Law requires attorneys to keep their clients’ trade secrets confidential, in practice the antitrust enforcement agency does not have a strong consciousness on the attorney-client privilege in their investigation activities. Until now, there has been no case in which the enforcement agency forced PRC lawyers to disclose the communication with their clients or the relevant documents received from their clients.

According to Article 42 of the AML, a company or individual must cooperate with the antitrust enforcement agency during the investigation and shall not refuse to provide the information required by the agency, nor hinder the investigation. Therefore, there are limited privileges recognised under the Chinese legal system. Article 38 of the Law of the People's Republic of China on Lawyers stipulates that “a lawyer shall keep confidential the secrets of the State and commercial secrets that he or she comes to know during his or her legal practice and shall not divulge the private affairs of the parties concerned. He or she shall keep confidential the information and situations that come to his or her knowledge during practicing activities and that the clients or others do not want to divulge, unless the information and situations are about the facts that the clients or other persons prepare to commit or are currently committing crimes that endanger national security or public safety, or seriously jeopardise the personal safety of others”.

If a firm or an individual resists initial requests for information, it may be punished by the antitrust enforcement agency in accordance with Article 52 of the AML. Therefore, initial requests for information are not commonly resisted by individuals or firms, although they are allowed to communicate with the antitrust enforcement agency regarding the initial requests and check whether it is possible for them to not provide information that is irrelevant or that they are unable to provide. 

Article 52 of the AML stipulates that “If business operators refuse to co-operate with the enforcement agency’s requests, the enforcement agency shall order them to make rectification, impose a fine of less than CNY20,000 on individuals, and a fine of less than CNY200,000 on entities; and where the circumstances are serious, the enforcement agency may impose a fine of CNY20,000 or up to CNY100,000 on an individual, and a fine of CNY200,000 up to CNY1 million on an entity; where a crime is constituted, the relevant business operators shall be investigated for the criminal liabilities”.

In accordance with Article 41 of the AML, “the antitrust enforcement agencies and their staff shall have the obligation to keep confidential the business secrets, which they obtain when enforcing the law”. Targets of enforcement actions and third parties can obtain such protection subject to this provision. In practice, it is suggested specifically marking the confidential information in the submitted documents, with the view to protecting company’s trade secrets to the maximum extent possible.

The defence counsel can raise legal and factual arguments to the enforcement agency through various forms before the agency issues the Prior Notice of Administrative Penalty Decision, such as submitting written opinions and applying for face-to-face meeting with the agency.

After receiving the Prior Notice of Administrative Penalty Decision, the investigated is entitled to apply for a hearing or submit written defence documents to the enforcement agency within three days. In this sense, the defence counsel could assist client with submitting such written defence documents, or apply for the hearing for the client and represent the client in the hearing.

Article 46 of the AML and the Interim Provisions for Prohibiting Monopoly Agreements (effective on 1 September 2019) provide general rules on the leniency program. The Interim Provisions for Prohibiting Monopoly Agreements regulates that the first whistle blower could be exempted from the all or no less than 80% of the penalty. For the second reporter, 30% to 50% of the penalty may be exempted. For the third reporter, 20% to 30% of the penalty may be exempted by the antitrust authority.

On 2 February 2016, the National Development and Reform Commission (NDRC, the former enforcer) published the Guidelines on the Application of Leniency System for Horizontal Monopoly Agreements (Draft Interim) to solicit public opinions. Although it has not yet entered into force, it would be expected that the newly established authority SAMR is reviewing and making further adjustments, and to be released soon this year.

The investigating authority may seek information directly from company employees. Under Article 39 of the AML, this includes, “making inquiries of ... the individuals involved and requesting them to provide relevant explanations”. In order to conduct investigations into suspected monopolistic conduct under this article, “a written report shall be submitted for approval to the principal leading person of the authority for enforcement of the AML”.

Based on Article 26 and Article 27 of the Interim Provisions on the Procedures for Administrative Punishments for Market Supervision and Administration (promulgated on 21 December 2018 and effective on 1 April 2019), case handling personnel may inquire the parties and other relevant entities and individuals. Inquiries shall be conducted respectively. Transcripts shall be made for inquiries and inquiry transcripts shall be handed over to the inquired person for verification; and the inquiry transcripts shall be read to those who have difficulty in reading. Where there is any error or omission in the transcript, correction or supplement shall be allowed to be made.

The altered part shall be affixed with signature or seal of the inquired person or be confirmed by other means. Upon verification, the inquired person shall affix signatures or seals to the transcripts page by page or conduct confirmation by other means. Case handling personnel shall affix signatures to the transcripts. Case handling personnel may request the parties and other relevant entities and individuals to provide supporting materials or other materials relevant to the acts suspected of violating laws within a certain time limit, and the materials providers shall affix signatures or seals to the relevant materials.

Based on Article 39 of the AML, the investigating authority can seek documentary information directly from the target company or others, such as competitors, trade partners, industry associations, etc, either during a dawn raid or by issuing Request for Information (RFIs) to the target company or others.

Based on Article 26 and Article 27 of the Interim Provisions on the Procedures for Administrative Punishments for Market Supervision and Administration, case handling personnel may inquire the parties and other relevant entities and individuals. Inquiries shall be conducted respectively. Transcripts shall be made for inquiries and inquiry transcripts shall be handed over to the inquired person for verification; and the inquiry transcripts shall be read to those who have difficulty in reading. Where there is any error or omission in the transcript, correction or supplement shall be allowed to be made.

The altered part shall be affixed with signature or seal of the inquired person or be confirmed by other means. Upon verification, the inquired person shall affix signatures or seals to the transcripts page by page or conduct confirmation by other means. Case handling personnel shall affix signatures to the transcripts. Case handling personnel may request the parties and other relevant entities and individuals to provide supporting materials or other materials relevant to the acts suspected of violating laws within a certain time limit, and the materials providers shall affix signatures or seals to the relevant materials.

If the entities are located outside China, the antitrust enforcement agency will usually seek information from their Chinese affiliates. If the entities haves no Chinese affiliates, the enforcement agency may seek information directly from the entities located outside the jurisdiction through issuing RFIs.

Based on Article 24 of the Interim Provisions on the Procedures for Administrative Punishments for Market Supervision and Administration, the evidence sourced outside the territory of the People's Republic of China shall specify the source, be proved by a notary's office in the country of source, be authenticated by the consulate or embassy of the People's Republic of China stationed in the country, or undergo the proving formalities prescribed in the relevant treaty concluded between the People's Republic of China and the country where the evidence is sourced. The evidence obtained in the Hong Kong Special Administrative Region, the Macao Special Administrative Region and the Taiwan Region of the People’s Republic of China shall undergo the proving procedures in accordance with the relevant provisions. Documentary evidence, audio-visual materials and other evidence in foreign languages shall be annexed with correct Chinese translations provided by institutions with translation qualifications or other translators, and be affixed with the seals of the translation institutions or signatures of the translators.

Prior to the consolidation of three antitrust enforcement agencies before March 2018, the enforcement power was split into three parts and performed respectively by MOFCOM, NDRC and former SAIC.

In 2018, the newly established SAMR completed unification and reorganisation of the three previously separate government agencies regarding AML enforcement and became the sole antitrust and competition authority in China. Notably, the integration of antitrust enforcement agencies has resulted a better allocation of administrative enforcement resources.

In July 2011, the NDRC, the SAIC and the MOFCOM signed a Memorandum of Understanding (MOU) with the Federal Trade Commission and the US Department of Justice, laying out the framework for long-term co-operation between the antitrust agencies from both sides.

In September 2012, the NDRC and the SAIC signed an MOU with the Directorate-General for Competition of the European Commission, to enhance co-operation and co-ordination on antitrust matters between China and the EU.

The NDRC has also separately entered into MOUs with the (former) Office of Fair Trading of the UK, the Korea Fair Trade Commission, the Japan Fair Trade Commission and the Administrative Council for Economic Defence. Separately, the SAIC has signed MOUs with the antitrust agencies of the UK, Korea, Russia, Australia, Brazil, Kazakhstan and Chile. In May of 2019, SAMR signed MOUS with the antitrust agencies of Korea and Japan and negotiated with the Philippine Competition Commission on signing an antitrust cooperation memorandum. In September of 2019, SAMR signed MOUS with the antitrust agencies of Russia and Belarus.

Currently, most of the co-operation focuses on general matters, such as communicating on competition policies and jointly organising competition-related conferences or forums. With some MOUs, such as those with the US and the EU, the agencies have agreed to exchange information and co-ordinate their enforcement activities directly.

China also participates actively in international competition co-operation activities held by multinational organisations such as UNCTAD, the WTO and OECD. Unofficially, the officials of China antitrust agencies may exchange their views with officials of other antitrust agencies in academic conferences.

The co-operation between China’s antitrust enforcement agencies and foreign antitrust authorities remains on a general level, with a focus on macro antitrust policies, and cooperation in specific cases is still limited.

At present, no criminal liability can be imposed on cartel violations under the rules of the AML in China.

Article 50 of the AML provides that where the monopolistic conduct of an undertaking has caused losses to another person, it shall bear civil liabilities according to law. Article 2 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in Hearing Civil Cases Caused by Monopolistic Conducts further clarifies that where a plaintiff directly files a civil lawsuit with the people's court or files a civil lawsuit with the people's court after a decision of the anti-monopoly law enforcement authority affirming the existence of monopolistic conduct comes into force, if the lawsuit satisfies other conditions for lawsuit acceptance as prescribed by law, the people's court shall accept the lawsuit.

Based on Article 3 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in Hearing Civil Cases Caused by Monopolistic Conducts, the first instance of civil dispute cases on monopoly belongs to the jurisdiction of the Intermediate People’s Courts of provincial capital cities, autonomous region capital cities, municipalities directly under the Central Government and municipalities with independent planning status, and Intermediate People’s Courts designated by the Supreme People’s Court. With approval of the Supreme People’s Court, Primary People’s Courts may have jurisdiction over the first instance of civil dispute cases on monopoly.

Based on the provision of the Decision of the Standing Committee of the National People's Congress on Several Issues Concerning the Proceedings of Patent Cases and Other Intellectual Property Cases (effective as of 1 January 2019), where a party lodges an appeal, if not satisfied with a first-instance judgment or ruling rendered for an IP-related civil case involving professional technologies including a patent for invention, utility model patent, new variety of plants, layout design of integrated circuit, know-how, computer software and monopoly, the Supreme People's Court shall accept and try the appeal.

The plaintiff shall submit the complaint to the court. The complaint shall include basic information about the plaintiff and the defendants, the plaintiff’s claims and the facts and grounds on which the claims are based, the evidence and source of the evidence, and the name and address of the witness.

As civil litigation on cartels belongs to an action instituted for a tort, the plaintiff shall file the action before the court at the place where the tort occurs or at the place of domicile of the defendants. The court usually arranges a pre-trial evidence exchange, and the plaintiff and the defendants present cross-examination opinions.

For evidence that a party and its agent ad litem are unable to collect for objective reasons (for instance, evidence held by the enforcement agency or third parties) the party may apply in writing to the court for investigation and collection before the expiry of the term for producing evidence.

As cartel cases involving multiple competitors belong to joint tort, civil actions involving cartels are typically brought against multiple parties. Based on Article 52 of the Civil Procedure Law, in a civil action the actions can be consolidated when one or both parties consist of two or more persons, whose subject matter of action is the same or is in the same category, with the consent of the parties.

Based on the above provision, if the court deems that the disputes cannot be consolidated or if all the parties do not agree to consolidate, the parties can pursue separate actions.

In civil litigation, the plaintiff bears the burden to prove that there is a competitive relationship between the defendants, that the defendants conducted a cartel, that the plaintiff suffered losses, and that there is causation between the cartel and the losses suffered by the plaintiff.

The defendants shall bear the burden of proof that such an agreement does not have the effect of excluding and restricting competition.

There are no criminal proceedings regarding monopoly agreements in China.

In civil litigation concerning cartels brought before a Chinese court, the judge acts as the finder of facts and applies the law to the facts.

The AML and other relevant antitrust rules and regulations do not clearly stipulate the extent to which evidence collected using investigative powers may be discoverable in court. However, since private antitrust actions fall within the scope of civil actions, judicial interpretations of the Civil Procedure Law apply in practice.

According to Article 64 of the Civil Procedure Law, a people's court shall investigate and collect evidence that a party and its agent ad litem are unable to collect for objective reasons, or which the people's court deems necessary for trying a case. According to Article 94 of Interpretations of the Supreme People's Court on the Application of the Civil Procedure Law, such evidence includes the following:

  • evidence kept by relevant State departments, which the party concerned and the agent ad litem thereof are not entitled to inspect and retrieve;
  • evidence involving State secrets, commercial secrets or personal privacy; and
  • other evidence that the party concerned and the agent ad litem thereof are unable to collect on their own due to objective reasons. 

For evidence that a party and its agent ad litem are unable to collect for some objective reasons, the party may apply in writing to request the competent people's court to investigate and collect such evidence before the expiry of the term for producing evidence.

In accordance with these provisions, if the antitrust agencies have conducted relevant investigations in a private antitrust lawsuit, the court may request that the agencies provide related documents and information, such as agreements, accounting books, business correspondences, and electronic data.

In the event that national or commercial secrets, or those of an individual, are involved in a private antitrust lawsuit, in accordance with Article 11 of the Supreme People’s Court on Several Issues Concerning the Application of Law in Hearing Civil Cases Caused by Monopolistic Conducts, the courts may take protective measures such as hearing the case in closed sessions, restricting or prohibiting the reproduction of the evidence, presenting the evidence only to the lawyers engaged, or ordering the parties concerned to sign confidentiality agreements.

As the AML and other relevant antitrust rules and regulations do not make specific provision for evidence collected through the leniency program, the articles referred to above are applicable.

However, the Draft Leniency Guidelines (published in 2016 but yet to enter into force at the time of writing) provide that the materials submitted by the suspected companies for the leniency program shall not be used in civil litigation. However, it is not yet certain whether the official version of the Guidelines will include this rule.

There are no existing laws and regulations in China explicitly stipulating anything that can be drawn from cartel investigations in other jurisdictions for use in Chinese courts. Despite the absence of prescriptive laws in this regard, the use of evidence sourced from overseas is implicitly recognised by Article 11 of the Provisions of the Supreme People’s Court on Evidence in Civil Proceedings, which provides that any evidence submitted by the parties that is sourced from outside China shall be certified.

In a civil litigation, the plaintiff bears the burden of proof that there is a competitive relationship between the defendants, that the defendants conducted a cartel, that the plaintiff suffered losses and that there is a link between the cartel and the losses suffered by the plaintiff. 

The defendants shall bear the burden of proof that the agreement does not have the effect of eliminating and restricting competition.

According to Article 12 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in Hearing Civil Cases Caused by Monopolistic Conducts, the parties may apply to the people’s court to have one or two specialists with relevant knowledge appear in court to make explanations on specialty issues about the case. Furthermore, the parties may apply to the people’s court to retain specialist institutions or specialists to issue market study or economic analysis on specialty issues about the case. The retention is not limited to economists.

It is also an accepted practice to retain experts, especially economists, in investigations or merger reviews.

See 2.12 Attorney-Client Privilege and 2.13 Other Relevant Privileges.

According to Article 38 of the AML, any entity or individual may report suspected monopolistic conduct to the anti-monopoly enforcement authority, which shall conduct the necessary investigations for those reports that are in written form and contain relevant facts and evidence.

According to Articles 1 and 2 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in Hearing Civil Cases Caused by Monopolistic Conducts, any natural person, legal entities or other organisations that suffer losses through monopolistic conduct may file a civil action directly before the courts, or bring a civil action before the court after the determination of the anti-monopoly enforcement authority on the identification of monopolistic conducts becomes legally effective.

In theory, if the plaintiff brings a civil action before a court and meanwhile reports the suspected monopolistic conduct to the anti-monopoly enforcement authority, there may be multiple or simultaneous proceedings involving the same or related facts.

The investigatory agency can impose sanctions itself directly. In accordance with Article 46 of the AML, the enforcement agency can instruct the business operator to cease the violation and confiscate the business operator’s illicit gains, and may impose on a company a fine ranging from 1% to 10% of the turnover it achieved in the previous year. If the monopoly agreement has not been implemented, the company may not be fined more than CNY500,000. Where industry associations violate the AML, the fines will amount to no more than CNY500,000; if the circumstances are severe, the business licence of an industry association may be revoked.

As mentioned in 1.2 Public Enforcement Agencies and Scope of Liabilities, Penalties and Awards, the draft amendment of the AML provides modifications towards the sanction sections of the AML. For instance, the punishment for the operator who has not implemented the monopoly agreement is advised to raise from no more than CNY500,000 to no more than CNY50 million. And the punishment to industry associations is also advised to raise from CNY500,000 to CNY5 million. Obviously, the draft amendment intends to increase the sanctions imposed to the operators who violate the AML.

China has similar procedure for settlement which is named the commitment system. Article 45 of the AML and Article 21 of the Interim Provisions on Prohibiting Monopoly Agreements provides that the subject of investigation could apply for suspension of the investigation and undertake to take specific measures to eliminate the influence of the act (commitment) within the period recognised by the enforcement agency.

After the suspension period, if the enforcement agency determines that the subject of investigation has fulfilled its commitment, it may decide to terminate the investigation and make a final decision. However, for cartel behaviour, price fixing, market partitioning and restriction of sales are not allowed to apply the commitment system.

If liability or responsibility is established, there are no collateral effects as a matter of law, but the company may not thereafter qualify for participation in governmental bidding processes.

At the same time, in accordance with the Interim Provisions on the Disclosure of the Information on Administrative Punishments concerning Industrial and Commercial Administration, “Information concerning the administrative punishment decisions made by SAMR and its branches according to general procedures shall be made public. Information subject to disclosure mainly includes written decisions on administrative punishments and summaries of administrative punishment information”. Therefore, the punishment may have a negative effect on the business operator, especially if it has plans to go public.

Criminal liability is not currently applicable under the Chinese antitrust law framework. At present, under the rules of the AML in China, criminal liability cannot be imposed on the employees of a company that is party to a monopoly agreement.

However, as mentioned in 1.2 Public Enforcement Agencies and Scope of Liabilities, Penalties and Awards, the draft amendment of the AML intends to introduce criminal liability to the cartel conduct. The proceeding of the modification of the AML should continue to be watched.

Because the administrative agencies rather than the courts make the decisions on public enforcement actions in the Chinese antitrust law system, sanctions and penalties in civil proceedings are not currently applicable in this regard, but business operators that carry out monopolistic conduct that causes damage to others bear civil liability separately, according to Article 50 of the AML. Repeated offences may be an aggravating factor in determining fines.

Under the Chinese antitrust law framework, there is no specific legal basis for considering a company’s “effective compliance programmes” as a factor when imposing sanctions and penalties. However, an “effective compliance programmes” can effectively mitigate risks of violation and may, at the enforcement agencies’ discretion, be considered as a factor in mitigating sanctions and penalties in practice.

In the LCD panel case in 2013, the business operators were requested to pay back money to the consumers. Such practice has not been witnessed in other cases so far. In accordance with Article 50 of the AML, “The business operators that carry out the monopolistic conducts and cause damages to others shall bear the civil liability according to law”.

It should be emphasised that the antitrust enforcement agency rather than the courts make decisions in public enforcement actions in the Chinese antitrust law system. 

Companies penalised for cartel conduct by public enforcement action may apply to have the agencies’ decisions reviewed. Under Article 20 of the Temporary Provisions on Prohibiting Monopoly Agreements, a company may apply for administrative review or resort to an administrative action before the courts if it is dissatisfied with the decisions made by the agency.

Although it is not common, there have been such reviews of decisions issued by the former agencies SAIC and NDRC in practice, such as 25 Certified Public Accountants of Shandong v Shandong Administration for Industrial and Commercial, Yutai Co, Ltd v Hainan Provincial Price Bureau, and Nanjing Concrete Association and Nanjing Jia Hao New Building Materials co Ltd v Jiangsu Provincial Price Bureau.

Any private firms or individuals who have been harmed by cartel behaviours have the right to bring an action in the court. Article 50 of the AML provides that, “[w]here the monopolistic conduct of an undertaking has caused losses to another person, it shall bear civil liabilities according to law.” No special threshold requirement exists for a private action.

The Supreme People’s Court further clarifies that, “[w]here a plaintiff directly files a civil lawsuit with the people's court or files a civil lawsuit with the people's court after a decision of the anti-monopoly law enforcement authority affirming the existence of monopolistic conduct comes into force, if the lawsuit satisfies other conditions for lawsuit acceptance as prescribed by law, the people's court shall accept the lawsuit.” See Article 2 of Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct (“Antitrust Judicial Interpretations”).

With respect to how and where to bring such an action, the applicable general rules are set out in:

  • The Antitrust Trial Provisions;
  • Provisions of the Supreme People’s Court on Several Issues concerning the Intellectual Property Tribunal;
  • The Civil Procedure Law; and
  • Interpretations of the Supreme People’s Court on the Application of the Civil Procedure Law.

From Jan 1, 2019 onwards, the IP Tribunal of the Supreme People’s Court began to hear all antitrust appeals from first-instance judgments and rulings with a view to enhancing the quality of judgments and harmonising the doctrines applied in antitrust trials. 

In sum, the current procedural framework for bringing private antitrust actions is set as follows:

  • First-instance trials are generally heard by special IP courts, intermediate courts located at provincial capital cities or cities under separate state planning, or by intermediate courts designated by the Supreme People's Court;
  • Appeals on first-instance judgments or rulings and applications for retrials are heard by the IP Tribunal of the Supreme People’s Court.

In addition, the Supreme People’s Court held in a 2019 case, Huili . Shell, that antitrust claims are not arbitrable (case number: (2019) Zui Gao Fa Zhi Min Xia Zhong No. 47).

Under Article 14 of the Antitrust Judicial Interpretations, the court may award damages and injunctive relief based on the plaintiff’s claims and findings of fact. The court may also award reasonable costs incurred by the plaintiff in investigating and stopping monopolistic conduct. There is, however, no statute that allows for treble or punitive damages to be awarded in private antitrust litigations.

Among private actions, collective actions are available in China in the form of representative actions under Articles 53 and 54 of the Civil Procedure Law, which are similar to class actions in the US Article 53 of the Civil Procedure Law provides that, “[w]here the parties on one side of a joint action is numerous, such parties may recommend a representative or representatives to participate in the action …” Article 54 of the Civil Procedure Law provides that, “[w]here the subject matter of an action for each party is of the same kind, the parties on one side of the action are numerous, but the exact number of such parties is uncertain when the action is brought, the people's court may publish a notice to describe the case and claims and notify right holders to register with the people's court within a certain period of time. The right holders which have registered with the people's court may recommend a representative or representatives to participate in the litigation …”

However, collective actions are not common either in antitrust disputes or in other causes of action. This is because the law has not provided clear guidance as to some key issues in representative actions, such as the necessary elements for bringing a representative action, the allowable type of cases, the division of damages awarded among the plaintiffs, and the appeals mechanism. Hence, no antitrust collective action has been brought in China yet.   

See 3.8 Enforcement Against Multiple Parties.

No antitrust laws or regulations in China explicitly address the issues of indirect purchasers or passing-on defences. In a private suit brought by a consumer against a milk powder producer and retailer, the Beijing IP Court acknowledged the right of indirect purchasers to recover for damages suffered (case number: (2014) Jing Zhi Min Chu Zi No 146). The court noted that one of the purposes of the AML is to protect consumer welfare.

As the ultimate bearers of monopolistic overcharge, consumers would be treated unfairly if they were deprived of the right to seek damages. Moreover, indirect consumer purchasers are not excluded from antitrust plaintiffs under Article 1 of the Antitrust Judicial Interpretations, which provides that, “[f]or the purposes of these Provisions, "civil dispute cases arising from monopolistic conduct" means civil lawsuits filed with the people's courts by natural persons, legal persons, and other organisations for disputes over losses caused by monopolistic conduct or violations of the Anti-Monopoly Law by contractual provisions, bylaws of industry associations, and so on”.

However, there are no judicial or administrative enforcement cases in China where the passing-on defence has been successfully invoked or acknowledged yet.

Evidence obtained from governmental investigations may be admitted in court proceedings. For example, in the Guangming Trade Co v Hankook Tyre case, the Shanghai Intellectual Property Court collected and admitted evidence obtained from Shanghai antitrust agency’s investigation into Hankook prior to the civil litigation.

In practice, however, evidence from governmental proceedings is seldom admitted in court. This is because, apart from general rules of evidence, the law does not specify what type of evidence from governmental proceedings may be admitted, especially during a parallel ongoing investigation, and how to obtain such evidence. Although Article 64 of the Civil Procedure Law provides that a court shall investigate and collect evidence which a litigant is unable to collect by itself for objective reasons or evidence which the court deems necessary for trying the case, court rarely invokes this provision in antitrust cases either on its own initiative or by application from the litigants. In addition, it is understood that there are no formal cooperative arrangements or established conventions between antitrust agencies and courts in this regard.

According to open sources, there have been relatively few claims regarding cartels in China. Whether claims proceed to completed litigation or are dismissed or settled depends on the circumstances of each case.

As for the timeframe, first-instance trials are subject to a six-month time limit, while second-instance trials are limited to three months. The time limit can be extended subject to due approvals. However, such time limits are not binding on foreign-related proceedings. In practice, most antitrust actions can take much longer due to the complex nature of the facts involved and the evidence presented.

Reasonable costs incurred by the plaintiff, including attorneys’ fees, may be compensated. The burden is on the plaintiff to prove that it incurred costs for investigating and stopping monopolistic conduct, and that the costs are reasonable.

Unsuccessful claimants are not obliged to pay defence costs or attorneys’ fees incurred by the defendants.

Any plaintiff could appeal if he or she is unsatisfied with the first-instance ruling. A plaintiff could also petition the Supreme People’s Court for retrial if he or she is unsatisfied with the final civil ruling, according to the Notice of the Supreme People's Court on Issuing Several Opinions on Accepting and Examining the Petitions for Retrial of Civil Cases (“Opinions on Retrial Petitions”). However, the standard for petitioning for re-trial of civil cases is strict, with details specified in the Opinions on Retrial Petitions, and few such antitrust cases have been accepted by the Supreme People’s Court for retrial.

See 5.1 Private Right of Action.

There is no further relevant information in this jurisdiction.

The Guidelines on Price-related Conduct of Trade Associations was issued by the NDRC on 20 July  2017.

The Guidelines on Price-related Conduct of Undertakings Dealing in Drugs in Shortage and Active Pharmaceutical Ingredients was issued by the NDRC on 16 November 2017.

The two sets of guidelines will remain effective until repealed or modified by the SAMR.

On 5 April 2020, SAMR released an Announcement of Anti-monopoly Enforcement in Support of Epidemic Prevention and Control and Resumption of Production. It is provided in the announcement that the enforcement agencies will investigate and deal with, in a strict, harshly and quick manner, monopolistic behaviours which impede the prevention and control of epidemic and resumption of production and damage the interests of consumers in accordance with the law.

The focus of enforcement rests on cartels such as co-ordinated price increases, limited production, market segmentation, and boycotts involving Epidemic Prevention and Control materials and raw and auxiliary materials such as masks, medicines, medical devices, and disinfection supplies, public utilities such as water supply, power supply, gas supply and other industries and fields which are closely related to people's livelihoods. Typical cases will be publicly exposed in time.

It is also understood in the announcement that SAMR will grant exemption to co-operative agreements pursuant to the AML, if the agreements reached by business operators is for the purpose of epidemic prevention and control and resumption of production, which are conducive to technological progress, improving efficiency, realising the public interest and protecting the interests of consumers and realising other efficiencies.

In summary, SAMR announced it will strictly and rigorously investigate and deal with cartel activities that hinder epidemic prevention and control and resumption of production. With regard to the co-operative agreements between operators involved in epidemic prevention and control and resumption of production which meet the exemption requirements of AML, SAMR will grant the exemption pursuant to the AML.

AnJie Law Firm

19/F, Tower D1
Liangmaqiao Diplomatic Office Building
No 19 Dongfangdonglu
Chaoyang District
Beijing 100600
Peoples Republic of China

+86 10 8567 5988

+86 10 8567 5999

zhanhao@anjielaw.com www.anjielaw.com
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Law and Practice

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AnJie Law Firm has an antitrust/competition law team consisting of more than 20 highly experienced partners and associates, most of whom have worked for many years in top international law firms or have international backgrounds. Key offices are located in Beijing, Shanghai, Shenzhen and Hong Kong. The team has expertise and abundant experience in all fields of antitrust investigation, private antitrust litigation, merger filing and antitrust compliance consultancy. Key representations include: defended SINOPEC in the first antitrust private litigation of China’s oil and gas sector and obtained a complete victory, defended a Japanese electronics company in the auto parts investigation, and filed a merger filing for the ChemChina/Syngenta deal.

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