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Wu XiaoqinI V. Shaanxi Broadcat & TV Network Imediary(group) CO., LTD.(2016) ZGFMZ No. 98, SPC

WU XIAOQIN V. SHAANXI BROADCAST & TV NETWORK INTERMEDIARY (GROUP) CO., LTD. (2016) ZGFMZ No. 98, SPC

Cause of action: Dispute over a bundled transaction

Collegial panel members: Wang Yanfang | Qian Xiaohong | Du Weike

Keywords: bundled transaction, dominant market position, monopoly, operator

Relevant legal provisions: Anti-Monopoly Law of the People’s Republic of China, article 17(1)(v)

Basic facts: Wu Xiaoqin alleged that, when he paid the basic maintenance fee for receiving digital television programs to Shaanxi Broadcast & TV Network Intermediary (Group) Co., Ltd. (hereinafter “BC & TV Company”) on May 10, 2012, he learned that this fee had been adjusted from RMB25 per month to RMB30 per month. Wu Xiaoqin paid RMB90 for three months, comprising RMB75 as the basic maintenance fee for receiving digital television programs and RMB15 as the fee for a package of digital television programs. Afterwards, Wu Xiaoqin learned that subscribers should be able to freely choose and voluntarily subscribe to packages of digital programs. Wu Xiaoqin believed that, as a public utility enterprise, BC & TV Company had a dominant position in the digital television market, and its charging of the second fee deprived him of the right of choice and constituted a bundled sale. He consequently filed a lawsuit in which he asked the Intermediate People’s Court of Zi’an City, Shaanxi Province, to nullify BC & TV Company’s charging of the package fee of RMB15 paid on May 10, 2012, and to order BC & TV Company to refund him RMB15.

BC & TV Company contended that it was consistent with the Anti-Monopoly Law of the People’s Republic of China for it, the centralized broadcaster of television programs in Shaanxi Province, to charge fees to those consumers who chose to receive programs beyond the basic ones. BC & TV Company had a dominant position in the provincial cable television market and encouraged subscribers to choose cable television packages, but it did not abuse its dominant market position or force its subscribers to buy service items beyond basic television program services. The subscribers had the right of free choice; the finding of monopolistic conduct was an administrative power rather than a judicial one. BC & TV Company asserted that Wu Xiaoqin had no right to request the invalidation of monopolistic conduct: although BC & TV Company had launched a series of television program packages from among which subscribers could choose according to their individual needs, it had never made any compulsory bundled sale and it guaranteed most people’s right to choose more television programs. BC & TV Company therefore asked the court to dismiss Wu Xiaoqin’s claim to invalidate BC & TV Company’s increased number of television programs and charge of fees, and it was willing to actively resolve Wu Xiaoqin’s second claim.

In the course of proceedings, the court found that, when Wu Xiaoqin paid the basic maintenance fee for receiving digital television programs to BC & TV Company on May 10, 2012, he learned that the minimum monthly basic maintenance fee for receiving the programs had increased from RMB25 to RMB30. Wu Xiaoqin paid RMB90 as the basic maintenance fee for receiving digital television programs for the period from May 10 to August 9, 2012. The special invoice issued by BC & TV Company to Wu Xiaoqin recorded RMB75 as the basic maintenance fee for receiving digital television programs and RMB15 as the fee for a package of paid digital television programs. Afterwards, Wu Xiaoqin consulted BC & TV Company’s customer service center (service telephone: 96766) and learned that BC & TV Company’s program update had added various paid programs in different packages, the cheapest of which cost RMB360 per year, with each installment payable by subscribers for at least three months. With the approval of the People’s Government of Shaanxi Province, BC & TV Company was the only operator engaged in the legitimate operation of the cable television transmission business and the only entity engaged in the centralized broadcast control of television programs within Shaanxi Province. BC & TV Company admitted its dominant position in the cable television transmission business within Shaanxi Province.

The court also found that, as prescribed in the Interim Measures for the Administration of Basic Maintenance Fees for Receiving Cable TV Programs issued by the National Development and Reform Commission and the State Administration of Radio, Film and Television on December 2, 2004, the basic maintenance fee for receiving cable television programs shall be priced by the government and the fee rates shall be set by the pricing authorities. As prescribed in the Several Opinions on Promoting the Integral Transition of Cable TV Digitalization by Pilot Entities (for Trial Implementation) issued by the State Administration of Radio, Film and Television on July 11, 2005, in the process of promoting the overall transition, all pilot entities shall pay attention to the promotion of paid channels and other new business so that subscribers can freely choose among and voluntarily subscribe to them. As provided in the Notice on the Standards of Basic Maintenance Fees for Receiving Digital TV Programs across the Province issued by the Pricing Bureau of Shaanxi Province on May 29, 2006, the standard basic maintenance fee for receiving digital TV programs was based on one terminal per residential television set; the maintenance fee for each terminal for urban residential subscribers at or above the county level across the Province was RMB25 per month and subscribers to digital cable television programs were, according to their actual circumstances, permitted to choose to pay the basic maintenance fees for receiving television programs on a monthly, quarterly or annual basis. As outlined in the Notice on Issues Concerning Strengthening the Administration of Fee Charging of Cable TV Programs issued by the National Development and Reform Commission and the State Administration of Radio, Film and Television on August 25, 2009, the basic maintenance fees for receiving cable television programs shall be priced by the government, and the fee rates of value-added cable television business services and paid packages of digital television programs shall be set by the cable television operators themselves.

At second instance, before the Higher People’s Court of Shaanxi Province, BC & TV Company submitted photocopies of four special invoices for charges, proving that, around May 10, 2012, the outlet of BC & TV Company collected a monthly service fee at RMB25. Given the absence of originals, Wu Xiaoqin refused cross-examination. After the hearing, BC & TV Company submitted the originals of three of the invoices, which both parties verified and cross-examined. All of these invoices showed that the annual payment was RMB300 – that is, RMB25 per month. BC & TV Company submitted the originals of five invoices, including the originals of the three invoices submitted during the first instance, all transacted in Xianyang City. They proved that, around May 10, 2012, BC & TV Company provided paid services for RMB25 per month.

On appeal to the Supreme People’s Court, BC & TV Company submitted screenshots of fee packages on its website as of 2016, the Notice on Issuing the Measures for the Implementation of Public Business in 2016 (for Trial Implementation) and the 2016 invoices of some subscribers.

Held: On January 5, 2013, the Intermediate People’s Court of Xi’an City, Shaanxi Province, rendered its judgment ((2012) XMSCZ No. 438) in which it:

(a) affirmed that BC & TV Company invalidly charged Wu Xiaoqin RMB15 on May 10, 2012, as a digital television fee; and

(b) ordered BC & TV Company, within 10 days after the judgment’s effective date, to refund Wu Xiaoqin RMB15.

BC & TV Company appealed on September 12, 2013, and the Higher People’s Court of Shaanxi Province delivered a judgment ((2013) SMSZZ No. 38) in which it overturned the judgment at first instance and dismissed Wu Xiaoqin’s claims.

Dissatisfied with the second-instance judgment, Wu Xiaoqin appealed to the Supreme People’s Court. On May 31, 2016, the Supreme People’s Court delivered its judgment, in which it:

(a) revoked the second-instance judgment of the Higher People’s Court of Shaanxi Province; and

(b) affirmed the first-instance judgment of the Intermediate People’s Court of Xi’an City, Shaanxi Province.

Reasoning: In the effective judgment, the Supreme People’s Court focused on:

I. whether the disputed conduct violated article 17(1)(v) of the Anti- Monopoly Law of the People’s Republic of China; and

II. whether the court of first instance appropriately applied the Anti- Monopoly Law.

I. Whether the disputed conduct violated article 17(1)(v) of the Anti- Monopoly Law

Article 17(1)(v) of the Anti-Monopoly Law prohibits a business operator with a dominant market position from implementing a bundled sale or imposing other unreasonable conditions at the time of trading without justifiable cause. In its defense at first instance, BC & TV Company had explicitly conceded that it was the only business operator that was legally engaged in the cable television transmission business within Shaanxi Province, with the approval of the People’s Government of Shaanxi Province. As the centralized broadcaster of television programs in Shaanxi Province, BC & TV Company affirmed that it had a dominant position in the provincial cable television market and had encouraged subscribers to choose cable television packages, but argued that it did not abuse its dominant market position or force its subscribers to buy service items beyond basic television program services. Denying at second instance that it had made this statement, BC & TV Company failed to produce corresponding evidence proving that it did not have a dominant market position. In the process of examination on appeal, BC & TV Company raised no objection to the fact found by the courts of first and second instances that it had a dominant market position. Given that BC & TV Company was the only legal operator engaged in cable television transmission business and the centralized broadcaster of television programs within Shaanxi Province, and on the basis of the facts found, the Supreme People’s Court found that the courts of first and second instances did not err in recognizing that, in the cable television transmission business market, BC & TV Company was advantaged in terms of access, market share, operating status, scale of operation and other elements, and had the dominant market position.

As to whether BC & TV Company made a bundled sale while serving Wu Xiaoqin, article 17(1)(v) of the Anti-Monopoly Law prohibits a business operator with a dominant market position from engaging in bundling without justifiable cause. In this case, according to the facts found by the first- and second-instance courts, when providing services, the personnel of BC & TV Company notified Wu Xiaoqin that, from March 2012, the minimum monthly fee rate had risen from RMB25 to RMB30, with each installment payable for at least a quarter; however, they failed to notify Wu Xiaoqin that he may pay the basic maintenance fee for receiving digital television programs or the fee for paid digital television programs separately. Afterwards, Wu Xiaoqin consulted BC & TV Company’s customer service center (service telephone: 96766) and learned that BC & TV Company’s program update increased the number of paid programs with various packages, the cheapest of which cost RMB360 per year (RMB30 per month), with each installment payable for at least three months. According to these facts and in light of the chargeable items recorded on the special invoices issued by BC & TV Company to Wu Xiaoqin (that is, RMB75 for the basic maintenance fee for receiving digital television programs and RMB15 for a package of paid digital television programs), it could be established that BC & TV Company actually tied the basic digital television programs to the paid digital television programs and sold them together to Wu Xiaoqin without notifying Wu Xiaoqin whether or not he could choose separately to receive only the basic digital television programs. In addition, the reply of BC & TV Company’s customer service center (service telephone: 96766) also corroborateds that BC & TV Company had bundled the basic maintenance fee for receiving digital television programs and the fee for paid digital television programs, and had provided the two services together. Although, at second instance, BC & TV Company submitted relevant documents evidencing its separate charge of the basic maintenance fee for receiving digital television programs from other subscribers, such evidence could prove only that, when BC & TV Company collected such charge, there were exceptions to the package detailed by the customer service center. On appeal, BC & TV Company failed to make reasonable explanations of these exceptions. Furthermore, BC & TV Company’s submission of receipts in which the relevant fees were separately charged occurred after this lawsuit was instituted, which was insufficient to prove the circumstances of the lawsuit and hence was not admitted. Therefore, the customer service center’s explanation of exceptions to the package was insufficient to contradict BC & TV Company’s common practice of bundling the basic maintenance fee for receiving digital television programs with the fee for paid digital television programs. The determination of the court of second instance that BC & TV Company provided not only portfolio services, but also basic services, was insufficiently evidenced and was to be corrected. Therefore, the existing evidence could not prove that an ordinary consumer could pay only the basic maintenance fee for receiving digital television programs or the fee for paid digital television programs, or that there existed for consumers a right of choice. Without proving the availability of a right of choice, the court of second instance straightforwardly concluded that this case was about the failure to inform the consumer of his right of choice and thus about the infringement of his right to know. On this basis, the second-instance court held that BC & TV Company’s sale did not constitute a bundled sale without justifiable cause, as provided for under the Anti-Monopoly Law. The Supreme People’s Court held that this decision at second instance had no basis in fact or law and was to be corrected.

In accordance with the facts found on appeal, the basic maintenance fee for receiving digital television programs and the fee for paid digital television programs were fees for two separate services. At first and second instances and on appeal, BC & TV Company failed to prove that the combined provision of both services conformed to the conventional trading practices relating to digital television services. Moreover, there was no evidence proving that separating the charges of the basic maintenance fee for receiving digital television program and the fee for paid digital television programs would impair the performance and usage value of these two services nor did BC & TV Company state a justifiable cause for its conduct. Under these circumstances, by taking advantage of its dominant market position, BC & TV Company’s combined charging of the basic maintenance fee for receiving digital television programs and the fee for paid digital television programs objectively affected the consumer’s right to choose relevant paid digital television programs provided by other service providers, disadvantaged other service providers attempting to access the television services market and had negative impact on market competition. On appeal, the Court held that the court of first instance did not err in holding that BC & TV Company’s conduct violated the provisions of article 17(1)(v) of the Anti-Monopoly Law. Some grounds of Wu Xiaoqin’s application were therefore tenable and upheld.

II. Whether the court of first instance appropriately applied the Anti- Monopoly Law

In its defense in this case, BC & TV Company contended that this case was, in essence, a dispute over whether the right enjoyable by Wu Xiaoqin under the Law on the Protection of Consumer Rights and Interests was infringed, which was irrelevant to monopolistic conduct. BC & TV Company argued that the court of first instance should not have affirmed its dominant market position and invalidated its charges in accordance with the Anti-Monopoly Law and relevant provisions. Under articles 226 and 228 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China, the courts shall, as per the claims and answers of the parties, as well as the circumstances revealed by the exchange of evidence, sum up disputes and consult the parties on that summing-up. The courts shall focus the trial on issues such as the facts disputed by the parties, the evidence and the application of the law. According to the facts found, Wu Xiaoqin’s complaint was clearly stated as:

The digital TV program fee charged by the defendant was actually an additional service provided to the plaintiff beyond the scope of the aforesaid services, which the plaintiff should have the right to autonomously choose. The defendant, as a utility enterprise or other operator enjoying a lawful exclusivity, had a dominant position in the digital TV market. The aforesaid conduct of the defendant violated Article 17(1)(v) of the Anti- Monopoly Law which provides that “a business operator with a dominant market position shall not abuse its dominant market position to conduct the … acts of tying products or imposing unreasonable trading conditions at the time of trading without justifiable cause,” and thus impaired the lawful rights and interests of the plaintiff. The Plaintiff instituted a civil lawsuit in accordance with 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 and requested the people’s court to invalidate the defendant’s bundled transaction according to the law and order it to refund the plaintiff RMB 15.

In that complaint, Wu Xiaoqin did not allege that his consumer rights and interests were impaired; hence, the court of first instance did not err in applying the Anti-Monopoly Law to Wu Xiaoqin’s claims.

In conclusion, the Supreme People’s Court held that BC & TV Company had a dominant market position in the cable television transmission services market within Shaanxi Province. Brundling services for receiving digital television programs with packages of digital television programs and selling them together to Wu Xiaoqin violated article 17(1)(v) of the Anti-Monopoly Law. Wu Xiaoqin’s request, on appeal, to invalidate BC & TV Company’s charge of RMB15 for digital television programs and to have the RMB15 refunded were tenable. The first-instance judgment was clear in its finding of facts and correct in its application of law, and was to be affirmed. The second-instance judgment was insufficient in its factual basis and wrong in its application of law, and was to be corrected.