China's Supreme Court Ruling Likely to Prompt More Follow-on Antitrust Litigation
In Short
The Development: China's Supreme People's Court recently ruled for the plaintiff in Miao Chong v. SAIC-GM, which marked a rare triumph for a plaintiff in antitrust litigation as a follow-on to an administrative penalty decision. The plaintiff-consumer alleged that a joint venture between General Motors China and SAIC adopted resale price maintenance in the sale of cars that harmed competition.
The Result: The case indicates a shift of the Chinese courts' approach toward resale price maintenance and, more broadly, their recognition of Chinese antitrust enforcers' administrative decisions.
Looking Ahead: The Miao Chong decision will encourage plaintiffs to file more follow-on antitrust damages claims, and defendants in administrative penalty decisions will be more likely to challenge them in the Chinese courts given the precedent weight that courts will afford to them following the Miao Chong decision. Both forces are likely to prompt a wave of antitrust litigation in the Chinese courts.
In 2016, the Shanghai Development and Reform Commission, a provincial antitrust enforcement agency, imposed a fine of RMB 201 million (approximately $30 million) on SAIC-GM, a local automotive manufacturing joint venture, for implementing resale price maintenance ("RPM") when selling cars via dealers. RPM, also known as vertical price fixing, is an agreement between a manufacturer and a distributor or retailer to set the price at which the distributor or retailer will resell the manufacturer's products to retailers (in the case of distributors) or consumers (in the case of retailers).
In 2018, an individual customer brought a follow-on lawsuit against both SAIC-GM and its dealer seeking monetary damages. After the Shanghai Intellectual Property Court dismissed the plaintiff's complaint in 2020, it appealed to China's Supreme People's Court ("SPC").
The SPC overruled the Shanghai Intellectual Property Court's decision, but the court has not yet published the full judgment. The Miao Chong v. SAIC-GM ruling is significant because it marks the first known plaintiff's victory in a follow-on RPM case. The Miao Chong decision also alters the Chinese courts' methodology in RPM cases, adopting a more plaintiff-friendly approach with respect to the evidentiary weight given to antitrust enforcers' administrative decisions.
An Adjusted Position Regarding RPM
As detailed in our July 2022 White Paper regarding the 2022 amendments to China's Anti-Monopoly Law ("AML"), China introduced a rebuttable presumption that RPM is unlawful, providing a middle ground between SAMR's per se illegal and the courts' rule-of-reason standards. According to amended Article 18 of the AML, the courts and SAMR presume that RPM is anticompetitive unless the defendant proves that the conduct did not have the effect of eliminating or restricting competition, relieving plaintiffs from the initial burden to prove an anticompetitive effect. A defendant may rebut that presumption with evidence showing procompetitive effects.
Although, intuitively, a supplier in a competitive marketplace should be able to rebut the presumption, RPM cases involve complex legal and economic analysis and are therefore time-consuming and expensive. In some cases, the outcome may be difficult to predict, particularly before performing that analysis.
The 2022 AML amendments opened a key practical question about RPM in China—to what extent would the courts find violations in markets that are relatively competitive? After Miao Chong v. SAIC-GM, it seems more likely than ever that Chinese courts could find liability for RPM conduct even where defendants lack market power.
Evidentiary Rules Facilitating Follow-on Litigation
In Miao Chong v. SAIC-GM, the SPC clarified the precedential value of administrative penalty decisions in follow-on litigation. If an aggrieved defendant does not challenge an enforcer's penalty decision in the courts through the administrative litigation within the statutory period or if a court upholds the penalty decision in the administrative litigation, then in a separate follow-on litigation brought by the plaintiff, the courts must accept the legal violation in the penalty decision absent sufficient evidence to the contrary. In such follow-on cases, the only remaining question for the courts are damages.
That result echoes a recent SPC draft judicial interpretation regarding rules on antitrust civil litigation, released for public comment. In that draft, the SPC stated that illegal antimonopoly behaviors specified in administrative penalty decisions will be binding in follow-on civil litigation if not challenged within the six-month deadline.
The new rules are likely to lead to increased follow-on antitrust actions in China given the enforcers' continued focus on RPM, among other antitrust issues. Parties subject to government antitrust investigations now face more uncertainty than ever when deciding whether and how to resolve a case with enforcers, including whether or not to seek judicial review of any administrative penalty decision. To date, defendants have challenged few penalty decisions in the Chinese courts given the relatively small chance of reversal. However, the elevated risk of follow-on monetary damages imposed by the courts, the enforcer's fines, and the binding presumptions associated with those decisions are likely to lead to more administrative litigation seeking judicial review of enforcer decisions.
Three Key Takeaways
- Unchallenged administrative penalty decisions are now precedential for the purposes of follow-on antitrust litigation in the Chinese courts. The Miao Chong decision therefore lowers the bar for plaintiffs to file follow-on antitrust litigation.
- Although defendants historically challenged few antitrust administrative penalty decisions, the SPC's Miao Chong decision significantly alters the incentives to do so. Expect to see more defendants challenge such decisions in the Chinese courts.
- The Miao Chong decision answers a key question following the 2022 AML amendments in the affirmative—whether the Chinese courts would find an RPM violation in the absence of upstream market power. Companies with RPM policies that operate in China should take this opportunity to reevaluate those policies.
