By Susan Ning, Sun Yiming and Hazel Yin
It was reported 1 that on December 15, 2011, the Intermediate Court of Changsha, Hunan Province dismissed a consumer’s complaint that automobile producer Dongfeng Nissan and its 4S store 2 abused their dominant position in violation of China’s Anti-monopoly Law ("AML") by reaping exorbitant profits and expelling their competitors. The case was originally filed in November 2010 and the court hearing was held in May 4, 2011. It is the first antitrust lawsuit in the automobile industry and yet another defeated attempt by Chinese consumers in bringing AML private actions.
The plaintiff, Mr. Liu Dahua, is a Nissan car owner. In October 2009, He had his car repaired at a local 4S store of Nissan. Finding that the 4S store charged much higher price for repair services than other local auto repair factories, Mr. Liu asked the 4S store to sell the spare parts separately so he could do the repairs elsewhere. However, the 4S store turned down his request saying that Dongfeng Nissan did not allow its 4S stores to sell spare parts alone, meaning that customers could only purchase the spare parts as well as the repair services together from Dongfeng Nissan’s 4S stores.
Being a lawyer himself, Mr. Liu filed a complaint against Dongfeng Nissan and the 4S store alleging that it constituted an abusive conduct for the defendants to refuse to sell the spare parts and repair services separately. According to Mr. Liu, the spare parts sold by the 4S store were three times more expensive than the market price; and the repair services offered by the 4S store were 7 times more expensive than the market rate.
The key issue in this litigation is whether Dongfeng Nissan and its 4S store have dominant market position. Dongfeng Nissan argued that with a market share of less than 50%, it did not hold a dominant position in the automobile market. Moreover, Dongfeng Nissan argued that it was an industry practice for 4S stores not to sell auto parts alone, in order to ensure the quality of the auto parts and the safety of customers. The plaintiff counter-argued that the defendant had dominant position (nearly 100%) in the market for the supply of spare parts of Nissan cars and that it was not an industry practice for "4S" stores to refuse to sell spare parts alone.
The court eventually ruled against the plaintiff on the ground that the plaintiff failed to provide sufficient evidence to define the relevant market at issue here and to establish the defendants’ dominant positions. The plaintiff has lodged an appeal against this decision and claimed that the defendants tied the excessively expensive services to the sale of "original spare parts" of Nissan cars.
This lawsuit is the first decided AML private action after the Supreme Court published the draft judicial interpretation governing AML private actions in April ("Draft Litigation Rules") . 3 Although the Draft Litigation Rules have not yet been finalized, it appears that some of the rules have been adopted in practice. For instance, the case was first brought before a district court in Changsha and then referred to Changsha Intermediate Court for hearing. This is in line with the provisions in the Draft Litigation Rules regarding the jurisdiction of AML private actions.
Moreover, it appears that the Chinese courts are getting more sophisticated in trying AML private actions. The Changsha Intermediate Court indicated in its decision that to properly define the relevant market and establish defendants’ dominance, the plaintiff should conduct market research and provide evidence relating to the existing substitutable products and services in the market, their market shares and the competitiveness of the competing operators. It shows that the court had endorsed the demand-side substitutability test in defining the relevant market and required a full analysis on the competition dynamics in the relevant market.
This, of course, makes it more difficult for plaintiffs, especially in case of individual customers, to establish their cases. Noticeably, the Draft Litigation Rules set forth some rebuttable presumptions of dominance to alleviate such burden. For example, public utility enterprises or enterprises having exclusive legal authorization to supply certain products or services can be presumed to have dominance in a relevant market. Another potential solution could be to bring a "joint action" 4 which bears some resemblance to the US class action regime, so that individual consumers can come together to share resources and costs.
Back to this case, the plaintiff tried to establish a relevant market for parts or services for Nissan-brand passenger cars. This reminds us of the Kodak case in the United States in which the Supreme Court has held that a single brand of product or service, namely Kodak parts or services for Kodak copiers, could be a relevant market under the Sherman Act as the customers were "locked in" to the "aftermarkets" for parts and services designed specifically for those copiers. 5 It will be interesting to see how the plaintiff will further develop this as well as the tying argument in the appeal.
1 See, for example, Plaintiff Lost First AML Civil Action in Automobile Industry, Legal Daily, December 17, 2011, available at http://epaper.legaldaily.com.cn/fzrb/content/20111217/Articel08007GN.htm.
24S store refers to shops which sell vehicles and spare parts, and provide services and survey ("Sale, Spare part, Service and Survey").
3For more details, please refer to our previous article entitled Supreme People’s Court Issues Draft Rules Governing Private Actions under the Anti-Monopoly Law.
4 For a brief introduction of the AML joint action, please refer to our article entitled AML Class Actions and The Draft Litigation Rules.
5Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992).