In Short
The Development: China's Supreme People's Court ("SPC") recently released a Judicial Interpretation of Several Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct ("the New Judicial Interpretation"). The New Judicial Interpretation replaces its May 2012 predecessor to align with 2022 amendments to China's Anti-Monopoly Law ("AML") and seeks to reconcile administrative and judicial enforcement of the AML.
The Result: The New Judicial Interpretation makes it easier for private antitrust plaintiffs to pass initial hurdles for their cases to reach substantive stages, something that previously has proven difficult. It also offers more detailed guidance on potential defense strategies.
Looking Ahead: The New Judicial Interpretation may encourage a wave of private antitrust actions in Chinese courts by reducing the evidentiary burden for plaintiffs. Companies are encouraged to evaluate their vulnerability to potential antitrust litigation in China and take precautions as needed.
Background
One unexpected caveat to the rise of private antitrust litigation in China following the birth of the AML in 2008 was the consistently low success rate for plaintiffs. This low success rate is believed to result from the heavy evidentiary burden and complex economic analysis required of plaintiffs, who typically are individuals lacking sufficient resources, information, and expertise.
The landmark New Judicial Interpretation unveiled on June 26, 2024, seeks to change that by, among other means, facilitating follow-on litigation through reliance on administrative findings; adjusting or shifting the burdens of proof in cases involving claims for abuse of market dominance, concerted action, or resale price maintenance; and clarifying a structure to analyze reverse payments in the health care industry. The SPC stated in its press conference announcing the New Judicial Interpretation that the judicial system "will take this opportunity to continue to strengthen antitrust justice."
Follow-on Litigation
The New Judicial Interpretation allows plaintiffs to rely upon findings in final administrative penalty decisions without needing to provide additional evidence. The SPC previously took this position in its decision in a 2020 case related to the automobile industry, recognizing findings in the Chinese antitrust agency's prior administrative penalty decision. Before that, very few follow-on proceedings for damages resulting from violations of the AML had been filed in China, because courts had required plaintiffs separately to prove the alleged violations without reliance on existing penalty decisions.
On the other hand, it appears that defendants or potential defendants in follow-on litigations may benefit from filing administrative lawsuits challenging the penalty decisions, as claimants are not able to rely on contested decisions.
The New Judicial Interpretation further stipulates that the courts may require antitrust agencies to provide related evidence or explanation on their administrative decisions for use in the follow-on court proceedings, alleviating plaintiffs' evidence collection burden.
Abuse of Dominance
Similarly, most private abuse of dominance claims have been dismissed for plaintiffs' failure to define a proper relevant market and/or establish defendants' dominant market position. The New Judicial Interpretation now facilitates such claims by permitting plaintiffs to skip those requirements under certain conditions. Specifically, plaintiffs may no longer need to define relevant markets, if they can prove either that defendants have dominant market positions or their conduct has eliminated or restricted competition.
In addition, according to the New Judicial Interpretation, plaintiffs may not need to prove market shares to establish dominance, if they alternatively can show that the defendant is able to maintain a price above the competitive level (or similarly reduce quality) over an extended time period and in a market lacking competitive constraints. This is consistent with the SPC's decision in Qihoo v. Tencent (2013), where the SPC stated that a clear market definition is "only a tool but not the goal" for competition analysis in abuse of dominance cases, and as a result is not always necessary. This alternative approach permits plaintiffs to choose potentially easier routes that rely on empirical evidence to prove dominance, especially in markets where prices are relatively transparent.
Concerted Action
The New Judicial Interpretation also introduces a shift of the burden of proof in cases alleging concerted action, after plaintiffs meet their initial burden of proof, if they can successfully demonstrate similar conduct by the defendants, along with one of two additional factors: (i) exchange of information between the defendants; or (ii) that market structure and dynamics do not support legitimate parallel action. According to the New Judicial Interpretation, after plaintiffs meet those initial burdens, defendants are required to substantiate their actions as being independently driven by market conditions.
RPM
Another key development in the New Judicial Interpretation is its approach to resale price maintenance ("RPM"). As detailed in our previous White Paper, the courts and antitrust agencies long have disagreed over how to apply the "prohibition + exemption" framework for RPM under the AML. The State Administration for Market Regulation ("SAMR") and its predecessor agencies have viewed RPM as automatically or "per se" illegal, while the courts have preferred a "rule of reason" balancing test. Amendments to the AML in 2022 sought to reconcile both approaches by setting forth a rebuttable presumption of illegality for RPM. The New Judicial Interpretation also adopts this approach, stating that, once plaintiffs prove conduct constituting RPM, the burden of proof shifts to defendants to demonstrate the absence of anticompetitive effects from such conduct.
The New Judicial Interpretation also introduces the so-called "agency exception" to China's assessment of RPM, clarifying that price restrictions on sales agents—who act on behalf of the manufacturer or supplier without bearing substantive commercial or operational risks—do not constitute illegal RPM. This exception first appeared in China's Anti-Monopoly Guidelines for the Automobile Industry, but it had not been clear whether it would extend to other industries. The New Judicial Interpretation now clarifies that this exception applies generally, consistent with similar rules in other global jurisdictions.
Reverse Payments in the Health Care Industry
The SPC's landmark decision in AstraZeneca v. Jiangsu Aosaikang (2021) confirmed that reverse payment arrangements in the health care industry, in which patent holders pay generic drug applicants to avoid challenges to the validity of their patents or to delay the generic's market entry, are subject to antitrust scrutiny. In particular, the SPC noted that, in assessing the legality of reverse payment arrangements, courts should assess whether the patent in question would have been invalidated absent withdrawal of the invalidity proceeding by the generic drug manufacturer.
The New Judicial Interpretation clarifies that, to prove an illegal reverse payment agreement, a plaintiff need not prove the patent would have been found invalid, so long as the plaintiff can show unreasonable monetary or other benefits offered by the patentholder to the generic drug applicant, combined with the generic applicant's promise not to challenge the patent or to postpone its market entry.
Three Key Takeaways
- The SPC's New Judicial Interpretation levels the playing field for plaintiffs and defendants in private antitrust litigations in China, by allowing courts to recognize findings in unchallenged administrative penalty decisions, removing portions of plaintiffs' evidentiary burdens, and shifting some other burdens of proof to defendants, among other changes.
- On the other hand, defendants retain the ability to defend themselves on the substantive aspects of private antitrust claims, and indeed now have some additional angles for defense provided in the New Judicial Interpretation.
- Companies currently or potentially subject to antitrust investigations and litigations in China should closely review these changes to determine how they affect their optimal strategies and risk assessments.
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