Félix E. Mezzanotte and Liyang Hou. Abstract. We examine the use and effects of the presumptions of market dominance in antitrust litigation

Transcription

1 The Role of Presumptions of Market Dominance in Civil Litigation in China Felix E. Mezzanotte; Liyang Hou Journal of Antitrust Enforcement, 2015, 0, 1 24 doi: /jaenfo/jnv008 The Role of Presumptions of Market Dominance in Civil Litigation in China Félix E. Mezzanotte and Liyang Hou Abstract We examine the use and effects of the presumptions of market dominance in antitrust litigation in China (Article 19 Antimonopoly Law). To this end, thirteen court decisions in cases of abuse of market dominance were analyzed. We found that the presumptions are mentioned in eight cases. The presence of the presumptions, however, did not influence the court s rationale and findings in a meaningful way. In those cases in which the presumptions are cited and market dominance found (three cases), the court s views were guided less by the logic underlying the presumptions than by the fact that the defendants held a monopoly position due to patent holdings or exclusive rights. In the other five cases that cite the presumptions, the defendants operated in a competitive market and dominance was not found. Here, the plaintiffs Assistant Professor, School of Accounting and Finance, Hong Kong Polytechnic University. Address: M610, Li Ka Shing Tower, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong. affemezz@polyu.edu.hk. I thank Ms Jiayang ZHANG and Ms Mingyi BI for their valuable research assistance. Financial support by the Hong Kong Polytechnic University is gratefully acknowledged. Claims and errors are the sole responsibility of the authors. Associate Professor, Assistant Dean, Koguan Law School, Shanghai Jiao Tong University, Huashan Road 1954, Xuhui District, Shanghai , China. liyang.hou@sjtu.edu.cn. Telephone: +86 (0) Corresponding author. 1

2 systematically failed to satisfy the requirements of the presumption due to problems of market definition and measurement of market shares. In terms of effects, the possibility that the presumptions connote a shift in the burden of proof from the plaintiff to the defendant remains unclear, and further guidance from the Chinese courts on this issue is critical. Keywords: enforcement, civil litigation, Antimonopoly Law, China, monopolization, abuse of market dominance, presumptions, burden of proof JEL codes: K21, K41, K42, L41, L43 Introduction Civil antitrust litigation in China has become increasingly important. In the first four years of the implementation of China s Antimonopoly Law (AML) the courts resolved 53 cases, and this number is growing. 1 A large fraction of these civil actions have been cases of abuse of market dominance under art. 17 AML which, at first sight, suggests that good progress has been made in the private enforcement of the art. 17 AML prohibition. 2 A closer look at these cases, however, reveals a very different reality. Litigation under art. 17 AML has proved a fruitless venture for plaintiffs as they lost in nearly all the cases. Scholars have identified plausible reasons for this 1 Press Release of the Supreme People's Court of China, 8 May The Chinese courts resolved 53 cases out of a total of 61 cases received < > accessed 1 August 2014; Li ZHU, Taking a Close Look at the Supreme People s Court s Guidance for Private Antitrust Enforcement in Adrian Emch and David Stallibrass (eds) China s Antimonopoly Law: The First Five Years (Wolters Kluwer 2013) ch 17, 290 (mentioning that between 1 August 2008 and the end of 2012 the local courts in China accepted a total of 116 private antitrust lawsuits at first instance and resolved a total of 102 cases). The China s Antimonopoly Law came into effect on 1 August Private enforcement has been allowed by art. 50 AML, and by the 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, art 2 (hereinafter Judicial Interpretation). The judicial interpretation was promulgated the 3 May 2012 and became effective in 1 June ibid. 2

3 litigation outcome including the limited use by plaintiffs of economic evidence, the existence of insufficient rules of discovery, 3 and the presence of unmeritorious claims. 4 To some scholars the burden of proof has been too onerous to discharge. 5 In some sectors, especially the internet industry, the problems of market definition have posed formidable challenges. 6 In this article we add to the understanding of the current problems in civil antitrust litigation in China by examining the role that presumptions of market dominance have thus far played in the enforcement of art.17 AML cases. Presumptions of market dominance are not rare. Several countries have adopted them in their competition laws. A study conducted by the International Competition Network (ICN) surveyed the competition laws of 35 countries (China was not included in this survey) and found the presence of presumptions of single-firm market dominance in 15 of these countries. At least 9 out of the 15 countries created the presumption through statute including, among others, Brazil, 3 Zhiyong LIU and Yue QIAO, Abuse of Market Dominance Under China s 2007 Anti-Monopoly Law: A preliminary Assessment (2012) REV IND ORGAN 41, , and 94-97; James Modrall, Matthew Bachrack and Cunzhen Huang, Antitrust Litigation in China A Step Forward (2012) CPI Asia Antitrust Column, 6-7 < accessed 1 August Liyang Hou, An Evaluation of the Enforcement of China's Anti-Monopoly Law in (2013) < accessed 13 December Ross Lester, Litigation Under China s Antimonopoly Law 2010 CPI Journal 1; Peter WANG, Yizhe SHANG and Sébastien Evrard, Chinese Enforcement Against Abuses of Dominance Ramps Up (2012) CPI Asia Antitrust Column 1(3) < accessed 1 August 2014; Jessica Hua SU, The Dongfeng Nissan Case and the Gaps of China s Competition Law Regime in Tackling Vertical Restraints December 2011 < accessed 1 August Among others, Bu SHOU, The Determination of Abusing the Dominant Position on Internet Market (2012) Jinan Journal (Philosophy and Social Sciences) 10; Li HU, Identification of Dominant Position of Internet Companies and Reconstruction of the System: Reflection from the Theoretical Perspective (2013) Modern Law Science 35 (2); Sulun ZHANG, Determination of Dominant Market Position of Internet Service (March 2013) Hebei Law Science 31(3); Xianming HOU and Peng SUN, Thinking of Recognizing the Dominant Market Position of Internet Enterprises (2013) Tianjin Legal Science 3; Lin YUE and Suqin TANG, The Determination and Challenges in the Analysis on Relevant Market and Dominant Position of Cloud Computing (2013) Electronics Intellectual Property 6. 3

4 Germany, Israel, South Korea, South Africa and Pakistan. 7 In other jurisdictions the presumptions emerged from court decisions, such as the AKZO presumption in EU competition law. 8 The purpose of having these presumptions has seemingly been increasing enforcement efficiency by reducing investigative burden and increasing legal certainty for businesses. 9 In some jurisdictions the presumptions of market dominance have covered scenarios of both monopoly and oligopoly, such as in the EU, 10 South Korea, 11 Indonesia, 12 Vietnam, 13 and Thailand, 14 among other jurisdictions. 7 International Competition Network, Report on the Objectives of Unilateral Conduct Laws, Assessment of Dominance/Substantial Market Power, and State-Created Monopolies, prepared by the Unilateral Conduct Group, May 2007, and 94 Annex D < accessed 8 October 2012 (hereinafter ICN study). 8 ibid. Also Case C-62/86 AZKO Chemie BV v. Commission, [1991] ECR I-3359, para 60; Case 85/76 Hoffmann-La Roche v. Commission [1979] ECR 461, para 41; Case T-30/89 Hilti v. Commission, [1991] ECR II-1439, paras 90-92; Case T-221/95 Endemol v. Commission, [1999] ECR II-1299, para 134; Case T-340/03 France Télécom v. Commission [2007] ECR II-107, paras Also, R. Whish and D. Bailey, Competition Law (7 th edn, Oxford University Press 2012), 47 and 182; A. Jones and B. Sufrin, EC Competition Law (4 th edn, Oxford University Press 2011), ICN study (n 7) Case T-395/94, Atlantic Container Line B and others v. Commission, [2002] ECR II-875, paras ; Whish (n 8) 47; Jones & Sufrin (n 8) 333; Félix E Mezzanotte, Presumptions, Market Dominance and Oligopoly in Europe and China: A Comparison 36 W Comp Monopoly Regulation and Fair Trade Act, art 4 < > accessed 1 August Law no.5 of 1999 Concerning the Prohibition of Monopolistic Practices and Unfair Business Competition, art 25(2)(b) < accessed 1 August Law on Competition No. 27 (2004), art 11(2) < accessed 1 August Trade Competition Act [BE 2542 (2009)], arts 3 and 25 < accessed 1 August 2014; Notification of Trade Competition Commission On Criteria for Business Operator with Market Domination, effective 8 February Also Tilleke &Gibbins, Trade Competition Act: Application and Pitfalls 22 October 2010, < accessed 1 August 2014; Tilleke & Gibbins, Market dominance under the competition law 22 January 2008, < accessed 1 August

5 Along this line, the Chinese legislators created a set of presumptions in art.19 AML with the purpose of increasing legal certainty in, and ensuring the better administration of, the process of proof of market dominance. 15 The literature has clearly identified the key features of these presumptions which (1) rely on quantitative measures of a firm s market share, (2) cover situations of both single (monopoly situation) and joint (oligopoly situation) market shares, and (3) can be rebutted (they allow contrary evidence). 16 Less is known, however, about how these presumptions have operated in the practice of enforcement. More particularly, the extent of their use and their workings in existing cases has been unclear, as have been their effects on the burden of proof of market dominance. In order to shed new light on these issues, in this article we examine systematically 13 cases of abuse of market dominance in civil litigation in China. For each case we ask whether or not a presumption of market dominance has been used; if used, we enquire into the presumption s outcome and legal effects in the case. 15 The Office for Economic Law of the Legislative Affairs Commission of the National People s Congress (eds), Antimonopoly Law of China, Explanatory Provisions, Legislative Reasons and Relevant Provisions (Peking University Press 2007) (describing the purpose of these presumptions as created to save costs of, and foster a more effective, enforcement). 16 To cite a few, Niu RUI (ed), Research on Problems of Antimonopoly Law (University Press, Liaoning 2010) (in Chinese) 114; Susan NING, China Anti-Monopoly Law Guide (CCH 2010) 111; H. Stephen Harris, Peter J. WANG, Yizhe SHANG, Mark A. Cohen and Sebastien J. Evrard, Anti-Monopoly Law and Practice in China (Oxford University Press 2011) ; Mark Furse, Antitrust Law in China, Korea and Vietnam (Oxford University Press 2009) , 88-89; Roberto Pardolesi, Monopoly Agreements and Abuse of Dominance: Some Remarks About the Substantive Rules in Michael Faure and Xinzhu ZHANG (eds) Competition Policy and Regulation: Recent Developments in China, USA and Europe (Edward Elgar 2011) , ; Carl W. Hittinger and John D. Huh, The People s Republic of China Enacts Its First Comprehensive Antitrust Law: Trying to Predict the Unpredictable 4 N.Y.U. J.L. & BUS. 245 ( ), ; Shang MING, Antitrust in China A Constantly Evolving Subject (2009) 5 COMPETITION L. Int l. 4, 7; Thomas R. Howell, Alan Wm. Wolff, Rachel Howe and Diane Oh, China s New Anti-Monopoly Law: A Perspective from the United States (2009)18 PAC. RIM L. & Pol Y J. 53, 65-82; Adrian Emch, Abuse of Dominance in China: a paradigmatic shift? (2008) 29(11) ECLR 615, 617; Yin ZHOU, China s Anti-Monopoly Law: Insights from U.S. and EU Precedents on Abuse of Dominance and IP exemption Provisions (2009) 32 HASTINGS INT L & COMP. L. REV. 711, ; Nathan BUSH, The PRC Antimonopoly Law: Unanswered Questions and Challenges Ahead October 2007, 7-8 < accessed 17 February 2012; LIU and QIAO (n 3)

6 There are good reasons to learn more about the art. 19 AML presumptions. From the perspective of legal process, a shift in the burden of proof from one party to the other is a critical implication of presumptions and can influence the outcome of the litigation. 17 From the perspective of international practices, a better understanding of the operation and effects of the art. 19 AML presumptions will provide a basis for comparative studies between China and other relevant jurisdictions. This article starts by explaining, in section II, the basic rules and principles governing the presumptions of market dominance in art. 19 AML. Section III lists the cases of abuse of market dominance that were retrieved from our search. It also offers a description of each case s characteristics and outcomes. Sections IV and V present our findings and discussion. In general, we conclude that although the art. 19 AML presumptions were cited in the majority of cases in our sample (eight out of 13 cases) the presumptions have ultimately played a very limited role in the enforcement of art. 17 AML. The obstacles to their successful application were particularly evident in those cases where the defendant operated in a more competitive market. In these cases the plaintiffs failed to satisfy the basic requirements of the presumption because they had defined the market inadequately and/or wrongly measured market shares. From the text of the cases we could not observe that the presumptions connote a shift in the burden of proof, yet this is not a conclusive finding and further guidance from the courts is needed on this issue. This article provides valuable insights for those members of the legal community, public officials, regulators, and enforcers in China and internationally who are interested in the prohibition of abuse of market dominance and its enforcement. 17 Eric L Talley, Law, Economics, and the Burden(s) of Proof in J. Arlen (ed) Research Handbook on the Economics of Torts (Edward Elgar 2013) 305. Also, Hodge M. Malek (general ed), Phipson on Evidence (16 th ed. Sweet & Maxwell 2005) (hereinafter Phipson). 6

7 I. Presumptions of Market Dominance under Article 19 AML: Basic Rules and Principles The prohibition of abuse of market dominance has been adopted by many countries around the world having competition laws. 18 This has also been the case in China following the enactment of the Chinese AML. More specifically, art. 17 AML states that business operator(s) which occupy a position of market dominance must not commit abusive conduct such as charging predatory prices, using price discrimination or refusing to supply, among other acts. The enforcement of the prohibition under art. 17 AML demands that a plaintiff or competition agency satisfy two different legal tests: first, the legal test of the existence of a position of market dominance and, subsequently, the legal test of the existence of abusive conduct. 19 The proof of market dominance is therefore a necessary requirement for the application of art. 17 AML to a given case. In this context, the presumptions of market dominance matter insofar as they influence the process of establishing in law that a firm occupies a position of market dominance. Article 19 AML has created such presumptions, which rely on quantitative measures of a firm s market share. 20 Article 19 AML states as follows: 18 ICN study (n 7). Also, Keith N. Hylton and Fei DENG Antitrust Around the World: An Empirical Analysis of the Scope of Competition Laws and Their Effects (2007) 74 Antitrust L. J. 271, 315; Mark R. A. Palin, The Worldwide Growth of Competition Laws: An Empirical Analysis (1998) 43 Antitrust Bull. 105, 109. A more elaborated treatment of the prohibition of abuse of market dominance can be found in competition law textbooks including R. Whish and D. Bailey (n 8) and A. Jones and B. Sufrin (n 8). 19 China s Antimonopoly Law (AML), arts A few passages in this section describing the characteristics of the art. 19 AML presumptions have been featured in an earlier publication, Mezzanotte (n 10). The reader may also refer to the said article for a more extensive examination into the art. 19 AML presumptions in the context of oligopoly. 7

8 Under any of the following circumstances, a business operator may be presumed to have a dominant market position: 1. The market share of one business operator accounts for 1/2 or more in the relevant market; 2. The joint market shares of two business operators account for 2/3 or more in the relevant market; or 3. The joint market shares of three business operators account for 3/4 or more in the relevant market. Under the circumstances prescribed in Item 2 or 3 of the previous paragraph, if any of the business operators has a market share of less than 1/10, that business operator shall not be considered to have a dominant market position. A business operator that has been presumed to have a dominant market position shall not be considered as having a dominant market position if the operator can provide opposite evidence. A presumption is a rule of evidence. 21 It can be defined as [a] legal inference or assumption that a fact exists [presumed fact], based on the known or proven existence of some other fact or group 21 B.A. Garner (chief ed), Black s Law Dictionary (7 th edn, West Group1999) (search term: presumption). 8

9 of facts [basic fact(s)] 22 The rationale underlying the presumptions listed in art. 19 AML indicates that following proof of a basic fact (market shares) another fact (market dominance) can be taken to have been established in the absence of contrary evidence. In this sense, market dominance can be presumed where one firm supplies half or more of the market, or where either two or three firms supply in aggregate at least two-thirds or three-quarters, respectively, of the market. We also learn from the last paragraph of art. 19 AML that the presumptions are rebuttable. If a presumption of market dominance is rebuttable it signifies that the firm against which it operates can defend itself by adducing contrary evidence. No such contrary evidence is allowed, however, where a presumption is conclusive (or irrebuttable). 23 At least two issues have remained unclear in relation to the art. 19 AML presumptions. The first issue looks at their practical relevance. More particularly, to what extent these presumptions have been used in existing cases has not been evident. The second issue is related to the legal effects of the presumptions. By looking at the text of art. 19 AML and other complementary rules one cannot tell with reasonable assurance whether and how the presumptions connote a shift in the burden of proof of market dominance from the plaintiff to the defendant. 24 Let us elaborate further on the latter issue. 22 ibid (straight brackets added). 23 Garner (n 21) (search term: conclusive presumption); Phipson (n 17) The ICN study reports that most of the countries that have presumptions of market dominance created rebuttable presumptions. Some countries, such as Israel and South Africa did differently. As the ICN study reports, in these two countries a market share of above 50 percent and 45 percent, respectively, render the presumption conclusive or irrebuttable, ICN Study (n 7) 48. There is not a general rule in relation to the legal effects apportioned to the presumptions. For this reason their effects need not be the same for all countries, [t]he practical effect of the dominance/smp presumption is to provide some form of relief of the agency s or the plaintiff s burden of proof. The extent to which the burden of proof is relieved may differ across jurisdictions and may also depend on the specific market share level at hand. ibid. 9

10 The burden of proof can be defined as the duty of a party in the legal or administrative process to produce evidence and prove, to a requisite legal standard (eg more likely than not) a disputed fact or assertion. 25 In China the rules on the burden of proof guide the judges in apportioning, among the parties holding this burden (either the plaintiffs or the defendants), the risk of insufficient evidence to prove a given fact. 26 In the context of the AML, the provisions of the Judicial Interpretation have set down a general rule on the allocation of the burden of proof in cases of abuse of market dominance under which it is for the plaintiff to establish the existence of both market dominance and abusive conduct: Article 8 Where the alleged monopolistic conduct is an abuse of a dominant market position as described in Article 17.1 of the Anti-Monopoly Law, the plaintiff shall assume the burden to prove that the defendant has a dominant position in the relevant market and has abused its dominant market position. The defendant shall assume the burden to prove a defense of justification of its conduct Garner (n 21) (search term: burden of proof). 26 Supreme People s Court China, Judicial Interpretation on Evidence in Civil Procedure FASHI [2001] 33, art.2; Mo ZHANG and Paul J Zwier, Burden of Proof: Developments in Modern Chinese Evidence Rules (2003) TULSA J. COMP. & INT L L.10(2), Judicial Interpretation (n 1), art 8. 10

11 The rule above allows for one specific situation in which the burden of proof is shifted. After the plaintiff has discharged its burden of proving the existence of market dominance and anticompetitive conduct, the burden will shift to the defendant who now has the duty to justify the legitimacy of its behaviour. 28 But the Judicial Interpretation has made no reference to art. 19 AML. The question therefore remains whether and to what extent the rebuttable presumptions based on market shares in art. 19 AML shift the burden of proof of market dominance from the plaintiff to the defendant. In an effort to understand better both the use and effects of these presumptions we searched for and analyzed available decisions in civil litigation cases of abuse of market dominance (art. 17 AML) in Chinese courts, following three steps: First step: we searched for civil litigation cases in the typical law databases in China, including the websites of the Supreme People s Court, provincial courts, Chinalawinfo and a number of law firms. The search did not include antimonopoly investigations by the Chinese agencies because access to those investigations is more restricted. Second step: for each case we recorded its name and final outcome. The outcome of the case included that of the legal test of the existence of market dominance and the legal test of abusive conduct. We also looked at the court s rationale on market definition and dominance in order to identify the key factors guiding the analysis. Third Step: for each case we searched for any reference in the text of the decision to art. 19 AML or to the presumptions of market dominance. We read the relevant paragraphs in 28 This approach is consistent with how the Supreme People s Court had allocated the burden of proof in previous draft document, Draft Regulation on the Relevant Issues Concerning the application of Law in the Trial of Civil Monopoly Dispute Cases of Supreme People s Court, People s Republic of China (26 April 2011), arts 7 and 9 (file with the author). 11

12 order to identify any element in the court s rationale indicative of the way that the presumption operated in the case and of the effects of the presumption, especially in terms of the shifting of the burden of proof. In the subsequent sections of this article we present the findings and discuss them. II. Basic Characteristics of Article 17 AML Cases and Their Outcomes We found 13 civil litigation cases of abuse of market dominance. The cases are listed in Table no.1 below. [Add Table no.1] The number of cases found is far below the total number of cases that have been reported as lodged in the Chinese courts (footnote 1 above) suggesting that the public access to the decisions of the Chinese courts nationwide is still limited. Among the 13 cases found, 11 cases were decided by the courts of first instance and, later on, by the courts of appeal, and 2 cases were resolved only by the courts of first instance with no appeal. In some cases we could not find the judgments of the courts of first instance and, for this reason, our subsequent discussion relied only on the final judgments. As shown in Table no. 2, the cases concerned a variety of alleged abusive conduct including discrimination (5 allegations), bundling (4 allegations), exclusive dealing (3 allegations), refusal to deal (3 allegations), and excessive pricing (1 allegation). In relation to the 12

13 case outcomes, the plaintiffs won in only 2 cases (Huawei v Inter Digital and Zhijian ZOU v Guangxi Yunde Automobile). In Huawei v Inter Digital the plaintiff successfully proved its claim that the royalty fees charged by InterDigital were excessive, which limited Huawei s ability to compete. In Zhijian ZOU v Guangxi Yunde Automobile, the defendant enjoyed an exclusive position in the management of all the buses from and to Chongzuo. The plaintiff, a private passenger bus operator, had claimed that the defendant s conduct produced foreclosing effects, thereby excluding him from the relevant market. The case was ultimately settled. Apart from these two cases, the plaintiffs lost in all the other cases. Some of the unsuccessful claims of abusive conduct were deemed to be unmeritorious. To mention a few, in Baocheng v Huarun the plaintiff claimed that the defendant had refused to sale gas for its modified cars. However, the court observed that the plaintiff should have brought the action under contract law, but not under the AML, since the refusal was not discriminatory but instead caused by the defendant s limited capacity during the relevant time period. In Yongming FENG v Fujian Expressway, the plaintiff argued that the defendant had charged excessive fees for the use of the express toll collection system. The court held that the fees had been approved by the government, and thus the claim was groundless within the scope of antitrust civil proceedings. All in all, the outcomes shown in Table no. 2 confirm what the literature has already suggested: that the plaintiffs in abuse of dominance cases have achieved a very poor success rate. The table also shows that plaintiffs added much cost to gain little benefit by appealing the dismissal decisions of the first level courts. Among the cases in which we found an appeal decision, the appeal courts affirmed such dismissals in all except one case, Xiaoqin Wu v Shaanxi 13

14 Radio and TV Media. In this latter case the Shaanxi Higher People s Court reversed an earlier finding that Shaanxi Radio had committed abusive conduct. [Add Table no. 2] In relation to the test of market dominance, the plaintiffs did establish the defendants positions of market dominance in 46 percent of the cases (6/13) suggesting that the proof of market dominance has not been an irredeemable obstacle to the enforcement of art. 17 AML. In the rest of the cases in our sample (7/13) the plaintiffs failed to satisfy the test. Surprisingly, in all the cases where the plaintiff established that the defendant dominated the market, the defendant occupied a monopoly position. In contrast, varying degrees of market competition existed in all those cases where the plaintiff failed to prove market dominance. As a result, we observed two clearly distinct groups of cases as far as the test of market dominance is concerned. In the first group of cases the defendant enjoyed a position of monopoly in the relevant market and the plaintiff s claim was successful. In the second group of cases the defendant operated in a market showing a degree of competition and the plaintiff s claim of market dominance was dismissed. In the first group of cases, the monopoly position emerged either from monopoly rights (5 cases) or from the holding of a standard essential patent (Huawei v Inter Digital). In the five legal monopoly cases exclusive rights were granted to provide cable television services in Shaanxi Province (Xiaoqin WU v Shaanxi Radio and TV Media), to operate and manage expressways in Fujian Province (Yongming FENG v Fujian Expressway), to operate and manage bus services from and to Chongzuo (Zhijian ZOU v Yunde Automobile), to supply gas filling 14

15 services in Xuxi (Baocheng v Huarun), and to provide termite control services in Huzhou (Termite Prevention Service v Termite Control Research Institute). 29 The 7 cases in which the market showed some degree of competition concerned roughly three industrial sectors, notably online media (Qihu v Tencent, Renren v Baidu and Sursen v Shanda), car dealers (Dahua Liu v Dongfeng Motor and Liang XU v Qingdao Tongbao Automobile) and telecom services (Fangping LI v China Netcom and Haibo DAI v China Telecom). The first two sectors have been completely liberalized. Although the third sector (eg telecoms) is still subject to special rights, it has been able to present three competitive operators, namely China Mobile, China Telecom and China Unicom. In these markets characterized by some degree of rivalry the plaintiffs faced particular trouble to define the market and measure the size of market shares. More particularly, in this group of cases not a single plaintiff was able to provide a definition of the market that fully satisfied the courts, which ended up either enlarging the scope of or rejecting the proposed definition. More problems for the plaintiffs emerged as they tried to convince the courts, unsuccessfully, of the size of the defendants market share because problems of evidence and methodology in the plaintiff s submissions abounded. The size of the defendant s market share remained ultimately undetermined in a high number of cases (in Table no.2 this is shown as unclear market share). Problems of market definition and of measurement of market share haunted the evaluation of market dominance and, as we will see in the next section of this article, also frustrated the operation of the presumptions based on market shares This type of legal monopoly cases are now regulated by art 9 of the Judicial Interpretation (n 1). 30 Although the problems of market definition and measurement of market shares can be examined further in the context of the assessment of market dominance, we will conveniently treat these problems in the narrower context of presumptions (section IV of this article). A deeper examination of the reasons why most of the plaintiffs failed to establish their allegations of market dominance and/or allegations of abuse goes beyond the scope of this article. 15

16 Table 2 shows that the Chinese courts made explicit reference in the text of their decisions to the phrase article 19 AML or presumptions (of market dominance) in 62 percent of the cases (8/13). Only three of these cases had more than one defendant. We will utilize the next two sections of this article to shed further light on the role and effects of these presumptions in the determination of market dominance. As part of the analysis, we look at the content of the pertinent court decisions. We cite relevant paragraphs extracted from the decisions in order to add transparency and strength to our analysis and also, we hope, help the reader gain direct contact with the court s rationale. III. The Use of Presumptions of Market Dominance In order to facilitate the analysis, Table no.3 synthesizes the case information described in the previous section. The presumptions of market dominance are mentioned in 8 cases out of a total of 13 cases in our sample. In 3 of the cases mentioning the presumptions, market dominance was found and the defendants enjoyed a monopoly position (Baocheng v Huarun, Huawei v Inter Digital and Zhijian ZOU v Yunde Automobile) (box AA). In the other 5 cases in which the presumptions are mentioned the defendants operated in a market that showed some degree of competition and market dominance was not found (Renren v Baidu, Sursen v Shanda, Liang XU v Qingdao Tongbao Automobile, Fangping LI v China Netcom, and Qihoo v Tencent) (box AB). The same categorization is possible for the remaining 5 cases that did not mention the presumptions. In 3 of these cases (Xiaoqin Wu v Shaanxi, Yongming Feng v Fujian Expressway and Termite Prevention Services v Termite Control Research Inst.) the defendant had a monopoly position and a finding of market dominance existed (box BA). The defendant carried 16

17 on business in a competitive context and did not possess market dominance in the other 2 cases (Haibo Dai v China Telecom Chongqing and Dahua Liu v Dongfen Motor) (box BB). [Add Table no. 3] Categorizing the cases this way helps us draw attention to a number of issues. Let us start with the cases from the AA box. In these 3 cases the presumptions were mentioned and market dominance was found. Due to the presence of these two elements one would initially expect that in these cases art. 19 AML provided the basic analytical framework guiding the court s assessment of market dominance. This expectation was met in the Baocheng v Huarun case where the court s analysis relied heavily on the application of art. 19 AML. In this case the judge reasoned as follows: According to the provisions of the AML, without existence of contrary evidence, an operator is assumed to have market dominance if its market share exceeds 50%. Huarun Co. is the only company that provides gas filling services in downtown Wuxi. Without contrary evidence, it can be concluded that Huarun Co. has market dominance in the Wuxi s gas filling market Baocheng v Huarun, decision of second instance, 3 (case cited in Table no.1). 17

18 But in the other two cases, namely Zhijian ZOU v Yunde Automobile and Huawei v Inter Digital the reliance by the court on art. 19 AML as opposed to art. 18 AML was not totally evident. Although art. 19 AML was mentioned in each of these two cases, it is not apparent that the court s analysis was guided by this provision. The analytical framework used by the court in these two cases does not allow the reader to distinguish clearly whether the analysis derived from the application of 19 AML or, instead, art. 18 AML to the facts of the case. In Huawei v Inter Digital, for example, even when InterDigital occupied a monopoly position due to the holding of a standard essential patent, the court felt that its analysis needed to stretch beyond market share and examined whether the market power of InterDigital would be constrained by countervailing buying power. This evaluation was carried out solely on the court s initiative and InterDigital s market dominance was established not before the court was sufficiently convinced that other undertakings on the buyer side were unable to restrain the market power of InterDigital. It is not apparent from the case that the analysis of factors other than market share stemmed from the defendant s submission of contrary evidence as required by art. 19 AML. The analysis did not differ much from that sought for under the typical art. 18 AML s framework by which the evaluation of market dominance requires the court to assess a plurality of factors including market shares. More puzzling, in half of the cases in which market dominance was found to exist such a finding was made without any reference to art. 19 AML (box BA) even though (1) the conditions were suitable for the application of the presumptions (the defendants held 100 percent market share) and (2) the judgments were delivered during roughly the same period of time as those in which the court mentioned the presumptions (box AA). In the Xiaoqin WU v Shaanxi Radio and TV Media case, for example, the court did not stop at the fact that Shaanxi Radio and TV Media 18

19 enjoyed an exclusive right to provide TV transmission services but rather went on to analyze whether barriers to market entry would exist were the exclusive rights eliminated. The court concluded that regardless of the presence of exclusive rights such barriers would not only exist but also be high. Consequently, the defendant was found to occupy a position of market dominance. The court so concluded without any reference in the case to the art. 19 AML presumptions. Nor were the presumptions cited in the Yongming Feng v Fujian Expressway and Termite Prevention Services v Termite Control Research Inst. cases, even when the key if not the only factor weighed by the courts to establish the existence of market dominance in those two cases was the defendant s market share. The above suggests that the courts have not constructed art. 19 AML as imposing a necessary requirement and, therefore, the use of the presumptions by the courts has fallen short of being systematic across cases. It also suggests that the outcome of the determination of market dominance in these cases has most likely been driven by the monopoly position of the defendants in the relevant market, the actual impact of the art. 19 AML presumptions in such a determination being unclear. This is not to say, however, that the presumptions cannot or will not play an important role in antitrust cases in China. Unlike the situation in which the defendant has the whole market, the presumptions in art. 19 AML can play a more prominent role in markets showing a degree of competition, markets in which the proof of market dominance tends to be more difficult. Yet for diverse reasons such a potential has not yet materialized. In 2 cases there was seemingly no sound basis for bringing the presumptions into play (box BB). In Dahua Liu v Dongfeng Motor the defendant had only a small fraction of the market due to the existence of other suppliers in the relevant market. In Haibo Dai v China Telecom Chongqing there was a clear presence of substitute products and the plaintiff produced no solid 19

20 evidence of the defendant s market share. Astonishingly, the claim by plaintiffs that the defendant s position of market dominance had to be presumed was rejected by the courts in all the cases where the defendant was not a monopolist (box AB). Let us elaborate on this latter situation more extensively. The Renren v Baidu case provides a very specific illustration of a court rejecting the plaintiff s argument for a presumption of market dominance under art. 19 AML. The court emphatically dismissed Renren s measurement of Baidu s market share as unsubstantiated insofar as this measure had relied on inadequate and unreliable evidence. The evidence produced by Renren in order to sustain that Baidu held a 76.9 percent share of the relevant market included relevant articles from the China Securities Journal and from Baidu s website as well as two industry reports. Although the court supported the relevant market defined by the plaintiff, it nevertheless found that the evidence for dominance lacked scientific rigour and objectivity. As stated in the decision of the Higher People s Court: To summarize, Renren Co. does not have sufficient evidence to prove that its argument is based on scientific and objective economic analysis, and the court cannot establish from this evidence that Baidu Co. has more than half of the market share in the search engine market in China. The argument that Baidu Co. occupies a position of market dominance lacks sufficient evidence, and therefore, is not supported by the court. 32 The conclusion of the Shanghai s Higher People s Court in the Sursen v Shanda case was not different. Sursen, the plaintiff, had argued that Shanda and Yuen Ting, the defendants, had Renren v Baidu, decision of second instance, 6 (case cited in Table no.1). 20

21 percent of the relevant market and, for this reason, their position of market dominance had to be presumed. The court dismissed Sursen s claim on the grounds that Sursen had neither defined the market clearly nor adduced solid evidence. According to the court, Sursen s allegation could not be proved by means of propaganda information on websites as Sursen had intended. 33 Another case in which the plaintiff was unsuccessful in its attempt to profit from the presumptions in art.19 AML was the Liang XU v Qingdao Tongbao Automobile case. In this case the court concluded the following: Second, regarding the question whether the defendant has market dominance in the defined relevant market, the court thinks firstly that art. 19(1) AML says that the operator can be assumed to have market dominance under one of the following circumstances: 1) the market share of the operator reaches 50%. In this case, the plaintiff and the defendant agree that apart from the defendant there are many Honda 4S stores in Qingdao that can provide the oil filter and oil for Honda s FIT cars, and the plaintiff has failed to provide evidence that the defendant s market share has reached the percentage specified in law; secondly, the plaintiff considers that maintaining the car needs the products from the products authorized by Honda, but the plaintiff has failed to prove that there are no other substitutes on the market, that is to say, has not proved that only products authorized by Honda can be used for maintaining the car. Therefore, the court 33 Sursen v Shanda, decision of second instance, 3 (case cited in Table no.1). 21

22 thinks that the defendant does not have market dominance in the oil filter and oil market for Honda s FIT cars in Qingdao. 34 In the case Fangping LI v China Netcom the court again broadened the boundaries of the relevant market beyond the plaintiff s views. LI had argued that the relevant product market included no more than the fixed telephone services and the Personal Handy-phone System (PHS). However, the court decided that the market involved all voice communications including mobile phone services. Since LI did not provide further evidence on the defendant s market position in this broader product market, the court concluded that LI, as plaintiff, had failed to discharge its burden of proof. More specifically, the court said that: According to the regulations of the AML, a dominant operator in the market cannot abuse its market dominance to eliminate or restrict competition. A position of market dominance refers to an operator s ability in the relevant market to control goods price, quantity and other trading terms, and its ability to prevent other operators from entering the market. In antitrust civil lawsuits, the plaintiff has the burden to define the market, to prove that the defendant occupies a position of market dominance, to abuse its market dominance, and to prove that the abuse of its market dominance has caused actual losses to the plaintiff. In this case, there is a lack of sufficient and effective evidence to claim that the relevant market only contains fixed-line telephone, PHS and ADSL services. The court of first trial, based on the existing evidence, concluded that it was reasonable to 34 Liang XU v Qingdao Tongbao Automobile, 2-3 (case cited in Table no.1). 22

23 assume a strong substitutability respectively between fixed-line telephones, PHS and mobile phones, and between ADSL internet and wireless internet. Li s grounds of appeal stating that the court of first trial was wrong on the facts by defining the relevant market to be the voice communication market and by concluding that the defendant did not hold market dominance are absent of factual and legal evidence and, therefore, are not sustained. Since Li s argument regarding the relevant market in this case does not hold, and Li also failed to prove that the defendant has market dominance, the grounds of Li s appeal that the Court of first trial committed a false determination of the facts by stating that China Netcom had not abused its market dominance cannot be established and are therefore not supported by the court. 35 Although problems in relation to market definition and determination of market shares were also observed in the more recent Qihoo v Tencent case, this case showed distinctive features. The case is particularly significant to our analysis because, unlike the previous cases in box AB and despite the problems above mentioned, this case did in the end qualify for the application of art. 19 AML. Moreover, unlike all the other prior AML court cases, Qihoo v Tencent was resolved in appeal by a decision of the highest court in China, namely the Supreme People s Court. This is the first decision of the Supreme People s Court in the context of the AML. In the Qihoo v Tencent case Qihoo had argued, before both the trial court (Guandong Higher People s Court) and the appeal court (Supreme People s Court), that Tencent supplied more than three quarters of the alleged relevant market. According to Qihoo, this level of market 35 Fangping LI v China Netcom, decision of second instance, 4 (case cited in Table no.1). 23

24 share was sizable enough to trigger the presumption of market dominance under art. 19(1) AML. But both the trial and the appeal courts disagreed. The trial court found that Qihoo had defined the relevant market in ways that overstated Tencent s position. Whereas Qihoo defined the product market in terms of the integrated instant messaging market, the trial court broadened this definition to include not only test, audio, and video capabilities but also micro-blogging and social networking services. Moreover, the geographic market was also widened from national proposed initially by Qihoo to global. Consequently, the trial court dismissed Qihoo s claim that Tencent enjoyed 76.2 percent of the relevant market as unreliable and thus not credible. It is in this context that the trial court in this case examined the criteria for market dominance to be presumed under art. 19 AML. The trial court found that the requisite threshold level of market shares (above 50 percent) had not been satisfied in this case given the fact that Qihoo had failed to provide new evidence of market share in light of the court-adjusted definition of the relevant market. The trial court stated its reasoning as follows: Based on the previous statement, the definition of relevant market from the plaintiff is too narrow. The market share based on this narrow definition cannot objectively and truly reflect the market share and market position of the defendant. Especially, there are differences between the product range in the report produced by Airui Consulting and the product range as determined by the court: (1) the definition of IM software from Airui Consulting only focuses on PC but does not include mobiles and tablets; (2) the report does not include the products of Weibo and SNS in the form of websites which use IM 24

25 software as a core technology; (3) the research only covers mainland China, which excludes Hong Kong, Macau, Taiwan and other areas in the world. Therefore, the 76.2% market share of Tencent as drawn from Airui Consulting s report is not reliable and cannot truly reflect the market share of Tencent QQ in the relevant market. To summarize, the court cannot agree that the defendant dominates the market according to the unreliable presumption of market share alleged by the plaintiff. 36 In the appeal the Supreme People s Court partially modified the analysis of the trial court, although Qihoo s arguments were still dismissed as a whole. The major difference from the trial judgment lies in that the Supreme People s Court supported Qihoo s definition of geographic market as Mainland China. Such a narrowed geographic definition permitted Qihoo to provide further evidence of Tencent s market share in the appeal proceedings. Qihoo re-calculated Tencent s market share, all of the results suggesting that Tencent had well above 80 percent of the relevant market. This evidence was accepted by the Supreme People s Court. In such a scenario of high market shares, the Supreme People s Court was confronted with the question whether or not the art. 19 AML presumption ought to be applied and how. In this sense, the Supreme People s Court held that Article 19 presumptions ( ) are rebuttable, and therefore, market dominance should be the result of evaluating a combination of economic factors. 37 This was not different from the opinion of the trial court. Secondly, the Supreme People s Court continued its analysis as follows: 36 Qihoo v Tencent, decision of first instance, 43 (case cited in Table no.1). 37 Qihoo v Tencent, decision of second instance, 98 (case cited in Table no.1). 25

26 the higher and the more pervasive the market shares are, the more probable the existence of market dominance ( ) However, the boundaries of relevant markets in the Internet environment where strong dynamic competition constraints are present, the indicative value of high market shares should not be over-stated. Focus should be rather placed on entry barriers, market behavior and other facts or evidence that are helpful to determine the impact on competition. 38 Subsequent to such analysis, the Supreme People s Court evaluated market dominance by looking at diverse factors including the current competition constraints, the ability of Tencent to control price, quantity and other trading conditions, Tencent s financial capacity and technological advantages, interdependence of third parties on Tencent s product, and entry barriers. In the end, the court found that Tencent did not enjoy market dominance in spite of it having a high share of the relevant market. All in all, from the cases examined above we find that the presumptions have played a somewhat limited role. Although the presumptions were mentioned in 3 cases where the defendant was found to occupy a position of market dominance, it does not follow clearly from the overall content of these cases that the court relied on the presumptions as legal framework to resolve whether or not market dominance existed. Moreover, and except for the Qihoo v Tencent case, the plaintiffs failed to prevail in their arguments for the application of the presumption in all the cases in which the defendant operated in a competitive environment due to an inadequate 38 ibid