In August 2008, China revamped its competition laws, which cover merger control, monopolistic and cartel behaviour, and discriminatory practices. While merger control decisions, such as Coca Cola/Huiyuan, InBev/Anheuser Busch, GM/Delphi and Pfizer/Wyeth, have dominated headlines until now, two recent high-profile legal decisions and settlements have raised the profile of other antitrust areas.
China Mobile, the world's largest mobile phone group, agreed to pay $146 (the cost of refunding a charge on the plaintiff's bill) to settle a lawsuit filed by a customer who claimed it had abused its monopoly position in order to gain unfair revenue from subscribers. And a Shanghai court threw out a case against Nasdaq-listed Shanda Interactive Entertainment stating that the plaintiff had insufficient evidence to prove its allegations. We talk to Beijing counsel Ninette Dodoo of Clifford Chance about the implications of these cases on competition law in China.
The China Mobile case involved a civil rights lawyer who demanded the phone company refund a charge because he claimed it was "unfair" extra monthly charge. China Mobile settled without accepting liability, but do you think this could trigger copy cat cases against other Chinese utilities?
The copy cat cases are already out there, and most cases follow a similar pattern to those you mention -- a lawyer keen to test out the new laws, an individual or small company as plaintiff, and a large multinational or domestic brand name as defendant. Many of these cases deal with issues that could fall under consumer protection or small claims laws in other countries.
Other countries have experienced this rush to the courts once private litigation is introduced into competition law.
It's important to note that those reported so far are all private cases -- we have yet to see formal central investigations by the authorities responsible for policing monopolistic and discriminatory practices, the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC).
We hear from clients that both agencies are starting to make enquiries about monopoly issues raised by complainants, a sign that they are gearing up for potential full investigations.
In the Shanda case a smaller company alleged that Shanda abused its dominant position but the court said the plaintiff didn't have enough evidence to sustain the case. These are just the tip of the iceberg of a number of companies that are facing legal actions alleging breaches of competition law. What are some of the other cases out there? And do any of them stand out as far more significant?
None of the cases stand out as far more significant -- and the reasons for failure in the Shanda case may be the undoing of others. The vast amount of evidence required to prove an abuse of dominant position in any market may be beyond the means of smaller plaintiffs. A few cases are pending against large companies such as CNC, Baidu, and Sinopec. The gating issue will be the number of successful cases as opposed to the number of actual cases brought to the courts.
What should foreign companies keep in mind -- that may be new -- when doing business in China, based on the new regime of competition laws that were introduced last August?
Foreign companies now need to treat China like any other country with a competition regime. Competition compliance is understood by companies operating in countries with established competition regimes such as in the US, Europe or Australia.
The mindshift will actually be greater for companies unused to competition regimes and those companies may take longer to train their staff in compliance techniques.
Competition compliance is tricky as it needs proper attention outside the legal function; senior and frontline staff in sales, purchasing, marketing and pricing need to be just as aware of the laws as the legal team.
Is China any different from other developed countries in the world with regard to competition laws, i.e. this is just the normal process, isn't it? So how long will it likely take before we have real clarity and predictability with the laws?
China has made good progress in releasing regulations, staffing agencies, and preparing the judicial system to consider cases. However, as with any new law, there won't be real clarity and predictability until the authorities build up precedents, including judgments, investigations and cases on which we can rely.
However, this is no reason to delay making your operations competition-compliant in China. You can be sure that the authorities will pick strong high-profile cases that they can win to set these precedents -- and you don't want your company to be that precedent.
What these recent cases do show, is that complainants can be vociferous in China. Companies, large or small, facing complaints will need to take strategic decisions as to whether to opt for settlement or to expose themselves to judicial or other scrutiny.
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