Under The Same Blue Sky

Two pioneering legal actions in China involving high-profile companies have been settled, with one case highlighting the fresh powers handed to consumers under the country’s new anti-monopoly laws.

China Mobile, the world’s largest mobile phone group with 500m subscribers, has agreed to pay Rmb1,000 ($146) to settle a lawsuit filed by a customer who alleged it had abused its mono-poly position to extract unfair revenue from subscribers.

A Shanghai court has also thrown out a case against Nasdaq-listed Shanda Interactive Entertainment because the plaintiff had insufficient evidence to prove its allegations.

The Shanda ruling is the first legal judgment from a mainland court under China’s revamped competition regime, which was introduced in August 2008.

China Mobile and Shanda were in the first batch of mainland companies facing legal action for alleged monopolistic practices, with cases involving China Netcom, Baidu and Sinopec awaiting settlement.

Zhou Ze, a Beijing-based civil rights lawyer, had demanded China Mobile refund Rmb1,200 because of the allegedly “unfair” extra monthly Rmb50 rental fee charged to high-end customers who do not use prepaid phone cards.

The settlement, mediated by a Beijing court and which China Mobile agreed without accepting liability, could trigger thousands of copycat cases against Chinese companies as consumers utilise their new rights.

China Mobile was unavailable for comment.

Mr Zhou predicted that other Chinese companies with exposure to large numbers of consumers, including telecoms groups and oil majors, would “see more such complaints in the future”.

He told the Financial Times: “They all have a history as state-owned monopolists and that is where their mindset comes from. Consumers will stand up to that.”

Legal experts warn foreign companies operating in China to pay close attention to the cases, as emerging rulings could radically alter corporate behaviour.

In the Shanda case, the court ruled against a small online publisher, which alleged that Shanda had abused its dominant position in the market for online literature.

The case centred on the plaintiff’s ultimately fruitless attempt to commission two authors to write a sequel to a novel series originally published by Shanda, an internet portal dominated by online games.

But some Chinese lawyers warn that a flood of cases is unlikely to emerge.

“I think there’s no reason to be overly optimistic,” said Li Changqing, who represents a small Chinese medicine trader in the lawsuit against Baidu, the online search company. “The burden of providing evidence is a big problem. The law is still too abstract.”

Foreign companies in China should pay close attention to pioneering court cases involving Chinese groups accused of monopolistic behaviour, international law firms have warned.

Freshfields told the Financial Times that since the introduction of a new antitrust regime in 2008, cases had been filed against big Chinese companies including China Mobile, China Netcom, Baidu, Shanda Interactive Entertainment and Sinopec.

While non-Chinese groups are unlikely to have monopolies in China, the laws could affect them because of measures targeting practices such as discriminatory pricing.

Freshfields learned of the cases, which have received little or no publicity, through discussions with Chinese law firms.

While it is unclear what stage the cases have reached, legal experts said they were significant as the first examples of suits brought under the new anti-monopoly regime.

Experts said the cases could radically alter corporate behaviour on the mainland.

The new regime, which is largely based on western competition practices, took effect in August 2008. It covers merger controls, monopolistic and cartel behaviour, and discriminatory pricing.

So far, enforcement has focused on merger provisions, with the most notable case being the commerce ministry’s rejection in March of Coca-Cola’s attempted $2.4bn takeover of China Huiyuan Juice.

But mainland lawyers now appear to be testing article 50 of the anti-monopoly law, which allows individuals to claim compensation for suffering loss due to proscribed behaviour.

The cases are regarded as a breakthrough. It is the first time Chinese courts have accepted such filings.

“Although no judgments have yet been rendered, the fact that the Chinese courts have allowed a number of these complaints to be filed indicates that the plaintiffs have at least established a prima facie case,” said Peter Yuen, a dispute resolution partner in Freshfield’s Hong Kong office.

“This is an entirely new domain for all involved.”

Mr Yuen said that multinational companies were “clearly in the spotlight and should take enforcement seriously”, adding that the number of private suits would rise.

He said the case against China Mobile, which has 500m customers, involved accusations that the company was discriminating against existing subscribers by offering a lower pricing band for new customers.

Ninette Dodoo, a lawyer at Clifford Chance in Beijing, said her firm’s intelligence also suggested that individuals across China were seeking to test article 50.

But she cautioned that it was “too early to say whether any of these reported cases are sufficiently credible for the courts to take them further”.