Effects Analysis in Abuse of Dominance Cases in China – Is Qihoo 360 v Tencent a Game-Changer?* Adrian Emch Introduction In June 2014, the General Court of the European Union (EU) issued its judgment in the Intel case. The judgment created quite some controversy in antitrust circles. One of the reasons was that the General Court concluded, essentially, that a showing of actual anti-competitive effects was not required for Intel’s conduct to be illegal.1 This position contrasts with US antitrust law, where an analysis of competitive effects is generally required for monopolisation cases – ie, the equivalent to abuse of dominance cases in the EU.2 With these divergent EU and US approaches, this article examines where Chinese antitrust law positions itself on this key issue. In particular, the article focuses on two questions: (1) are Chinese antitrust authorities and courts required to examine effects before finding an illegal abuse of dominance; and (2) what kind of effects are examined? * A version of this article will appear in Philip Lowe, Mel Marquis and Giorgio Monti (eds), What is a Uniform Application of EU Competition Law? Hart Publishing (forthcoming). The author would like to thank Thomas Cheng and Liyang Hou for their invaluable comments on earlier drafts of this article, and Qing Lyu for her support in putting it together. 1 Case T-286/09, Intel v European Commission, 12 June 2014, [2014] ECR II-0000, paras 103–104, for example. 2 See, for example, United States v Microsoft Corp, 253 F.3d 34, 58 (DC Cir 2001) (en banc) (per curiam). Electronic copy available at: http://ssrn.com/abstract=2775484 12 COMPETITION LAW INTERNATIONAL Vol 12 No 1 April 2016 China’s Anti-Monopoly Law3 (AML) itself does not give clear answers to these questions,4 and hence it is necessary to look to the decisions by Chinese antitrust authorities and courts for possible guidance. One of the most important decisions in AML history, the Qihoo 360 v Tencent judgment by the Supreme People’s Court (SPC) in October 2014, may bring about a fundamental change to how the effects analysis is employed in China. Effects analysis required? Pre-Qihoo 360 v Tencent Most authority and court decisions before Qihoo 360 v Tencent did not directly address the question whether proof of anti-competitive effects is a pre-condition for finding an abuse of dominance. In many decisions, there is no discussion of this issue at all, which suggests the authority or court in question did not consider a showing of negative effects to be required. In other decisions, in particular by local offices of the State Administration for Industry and Commerce (SAIC), there were sub-headings in the published decisions relating to the conduct’s effects – without, however, stating that an effects analysis is required.5 The only decision I have found, which explicitly states that an effects analysis is required, is the judgment by the Shanghai Intermediate People’s Court in Tong Hua v China Mobile from September 2014. In that case, a consumer accused China Mobile in Shanghai of improperly suspending service and changing the duration of the time during which he could retain his phone number, thereby allegedly committing an abuse of dominance. The defendant argued that its conduct (including the period for retention of the phone number) simply implemented a specific contract with the plaintiff. The Shanghai Intermediate People’s Court ultimately dismissed the plaintiff’s action, finding no competitive effect.6 3 Anti-Monopoly Law of the People’s Republic of China, [2007] Presidential Order No 68, 30 August 2007. 4 The academic literature in China has not particularly focused on this issue either. Some scholars advocate that a showing of effects should be a prerequisite for a successful abuse of dominance case, but scholarship is certainly not unanimous about this question, nor is the idea discussed in much detail in the literature. See, for example, Shang Ming, Anti-Monopoly Law of the People’s Republic of China: Interpretation and Application (1st edn, 2007) 20; or Jing Fuhai, Research on Complicated Issues in Anti-Monopoly Law (1st edn, 2009) 100. 5 Inner Mongolia Cigarettes, [2014] SAIC Public Announcement No 16, 30 July 2014, see: www.saic.gov.cn/ zwgk/gggs/jzzf/201407/t20140730_147167.html, s 4; Huizhou Water, [2014] SAIC Public Announcement No 13, 6 November 2014, see: www.saic.gov.cn/zwgk/gggs/jzzf/201401/t20140106_140960.html, s 5; Chongqing Gas, [2014] SAIC Public Announcement No 19, 21 November 2014, see: www.saic.gov.cn/zwgk/gggs/ jzzf/201411/t20141128_150176.html, s 6; Xuzhou Cigarettes, [2014] SAIC Public Announcement No 18, 31 October 2014, see www.saic.gov.cn/zwgk/gggs/jzzf/201411/t20141104_149672.html s 4; Dongfang Water, [2015] SAIC Public Announcement No 2, 12 February 2015, see: www.saic.gov.cn/zwgk/gggs/jzzf/201502/ t20150212_152067.html, s 5; and Liaoning Cigarettes, [2015] SAIC Public Announcement No 7, 1 June 2015, see: www.saic.gov.cn/fldyfbzdjz/dxal/201509/t20150925_161988.html. 6 Shanghai Intermediate People’s Court, Tong Hua v China Mobile, 2 September 2014, [2014] Hu Er Zhong Min Wu [Zhi] Chu Zi No 59. Electronic copy available at: http://ssrn.com/abstract=2775484 EFFECTS ANALYSIS IN ABUSE OF DOMINANCE CASES IN CHINA 13 Legally speaking, the judgment is important, since it attempts to interpret Article 6, which is located in the ‘general provisions’ section of the AML. In relatively high- level language, Article 6 states that a company shall not abuse its dominant market position to eliminate or restrict competition.7 In interpreting this provision, the Shanghai Intermediate People’s Court found that Article 6 provides that: ‘only the monopolistic conduct implemented by a business operator having a dominant market position, which had the consequence of eliminating or restricting competition, belongs to the monopolistic conduct [by way of] abuse of a dominant market position prohibited by the Anti-Monopoly Law.’8 To the best of my knowledge, the only other case where a Chinese authority or court analysed a similar (but not identical) issue in detail is Rainbow v Johnson & Johnson. In that case, the question of whether proof of anti-competitive effects is a prerequisite for a successful AML case was also explicitly raised and discussed, albeit in the context of vertical agreements, not abuse of dominance.9 Nonetheless, since the underlying law for abuse of dominance and vertical agreements is similar, I believe the reasoning in the Rainbow v Johnson & Johnson judgment could also be important for abuse of dominance cases. In the Rainbow v Johnson & Johnson case, the defendant was Johnson & Johnson, a life sciences company with a large product portfolio, including the manufacturing and sale of medical sutures. The plaintiff distributed Johnson & Johnson suture products to a number of designated Beijing hospitals. In 2008, after a 15-year relationship, Johnson & Johnson terminated the distribution agreement with Rainbow because the latter had resold Johnson & Johnson suture products below suggested resale prices. The plaintiff sued Johnson & Johnson for damages, claiming Johnson & Johnson had engaged in resale price maintenance in violation of Article 14 of the AML. At first instance, the Shanghai Intermediate People’s Court sided with Johnson & Johnson, but on appeal the Shanghai High People’s Court reversed.10 As is the case for abuse of dominance, the AML does not explicitly require a showing of anti-competitive effects for resale price maintenance (or other horizontal or vertical ‘monopoly agreements’).11 Like Article 6, Article 13(2) stipulates that ‘a 7 AML, Art 6 (emphasis added), see n3 above. 8 Shanghai Intermediate People’s Court, Tong Hua v China Mobile, n6 above, 4 (emphasis added). 9 The interpretation focused on Art 13(2), not Art 6, of the AML. 10 At first instance, see Shanghai Intermediate People’s Court,Rainbow v Johnson & Johnson, 18 May 2012, [2010] Hu Yi Zhong Min Wu (Zhi) Chu Zi No 169; on appeal, see Shanghai High People’s Court, Rainbow v Johnson & Johnson, 1 August 2013, [2012] Hu Gao Min San (Zhi) Zhong Zi No 63. 11 Article 3 of the AML, which lists the three types of ‘monopolistic conduct’, does not mention effects for monopoly agreements and abuse of dominance, but does so for mergers: ‘a concentration between business operators which has or is likely to have the effect of eliminating or restricting competition’ (emphasis added), see n3 above. 14 COMPETITION LAW INTERNATIONAL Vol 12 No 1 April 2016 monopoly agreement is an agreement, decision or other concerted practice which eliminates or restricts competition’.12 In Rainbow v Johnson & Johnson, the court also looked at the SPC’s judicial interpretation on private antitrust litigation, which contains a clause shifting the burden onto the defendant to prove that a horizontal cartel-like agreement does not have anti-competitive effects.13 But the judicial interpretation remains silent on the burden of proof for vertical agreements like that in Rainbow v Johnson & Johnson. Against this background, the Shanghai High People’s Court concluded that a showing of anti-competitive effects was necessary to find the illegality of the resale price maintenance arrangement. In so concluding, it relied on the common understanding (in antitrust circles) that horizontal agreements are generally more likely to have negative effects on competition than vertical agreements.14 As noted, the question for this article then is whether the same reasoning could apply to abuse of dominance cases. Like for vertical agreements, the judicial interpretation did not establish who has the burden to prove the presence or absence of anti-competitive effects for abuse of dominance cases.15 Generally speaking – perhaps with notable exceptions such as the EU General Court’s Intel judgment mentioned above – scholars and practitioners recognise that cartel-like conduct can more safely be assumed to have anti-competitive effects than abuse of dominance conduct.