The Decision of the Supreme People's Court in Qihoo v. Tencent and the Rule of Law in China: Seeking Truth from Facts

• Publication year: 2016
• Author: By Emilio Varanini and Feng Jiang

The Decision of the Supreme People's Court in Qihoo v. Tencent and the Rule of Law in China: Seeking Truth from Facts1

By Emilio Varanini and Feng Jiang^*

I. INTRODUCTION

The rule of law is important not only to create order in society and enhance government legitimacy but also to promote economic growth.² However, the development of the rule of law is about process as much as it is about results.³ The English Common Law, for example, developed because King Henry II sought to impose a system of courts that would administer a law common to England so as to increase his power at the expense of local customary feudal rights.⁴ Such courts could offer litigants "better justice than they could have at the hands of their lords" via offering a fairer process.⁵ For example, only royal judges could summon a jury.⁶ And a jury came to be "a safeguard from arbitrary perversion of the law."⁷ This encouraged the people to resort to royal courts that were staffed with professional judges, removed from local prejudices, who would apply a law common to the entire country.⁸ Even though antitrust principles are subject to revision based on the evolution of economic understanding,⁹ antitrust is no more exempt from the rule of law than any other body of law.¹⁰

The process behind the rule of law has important aspects that deserve widespread attention. First, the rule of law involves the development of principles that can be applied or expanded to novel circumstances.¹¹ Those principles have to be administrable—capable of ready understanding and application—even though insofar as antitrust is concerned, concerns of administrability can be foreign to economics.¹² Nonetheless, even in antitrust, the gap between developing administrable principles and applying complex fact-dependent economic theory has been filled by the use of presumptions and structural factors.¹³ Thus, antitrust presents cutting-edge issues for the application of the rule of law because of the desire to balance application of economic principles to complex factual circumstances while avoiding every antitrust case from degenerating into a "graduate economic seminar."¹⁴

The rule of law also involves the development of precedent, a body of published case law that judges could apply in similar cases and that commentators could reference to explain and comment on.¹⁵ A system of precedent involves lower courts standing by the decisions of higher courts and higher courts (generally) following their own precedent.¹⁶ In this manner, the rule of law can "promote the evenhanded, predictable and consistent development of legal principles" and ensure "the actual and perceived integrity of the judicial process."¹⁷ Indeed, it is now common to the rule of law in East Asia as well as in the West alike that it rests, in the end, on a system of court decisions that involve binding precedent from higher courts. And in this respect, antitrust presents interesting challenges in the development of precedent because of the desire to apply the latest economic principles without sacrificing the predictability of this system of precedent.¹⁸ Finally, the rule of law also involves following a set process in which everyone has a chance to be heard and to respond in front of a neutral decision-maker and where a litigant's legitimate interests, such as the protection of the confidentiality of business secrets, are taken into account.

In the end, however, all of this presupposes a judiciary that can carry out these tasks—as evinced by the quality of their opinions.¹⁹ And that point applies whether the judiciary is in a civil law country or a common law country.

Since the Cultural Revolution, China embarked on developing a functioning legal system that would implement many features of the rule of law in the economic and commercial spheres: it passed legal codes and restored a functioning court system; it then steadily increased the power and reach of its courts as well as the tools available to civil litigants to pursue cases within that system. Eight years ago, it enacted the Anti-Monopoly Law, a civil antitrust law of such importance that a celebration of its five-year anniversary was televised on the premier, state-owned television network CCTV.²⁰ This raises the dual questions of how China has addressed the challenges of applying the rule of law in the context of antitrust and what its efforts to date say about its commitment to the rule of law as a more general matter.

Those dual questions are worth study, not just through an analysis of the development of China's legal framework for addressing antitrust issues but also through a detailed examination of the 2014 antitrust decision by the Supreme People's Court—Beijing Qihoo Technology Co., Ltd. v. Tencent Technology (Shenzhen) Co., Ltd.²¹ (hereinafter "2014 QQ Decision"). That comparison is enlightening as to the question of whether China is truly now on the road to the rule of law, at least in the economic and commercial spheres. This Article answers that question in the affirmative based on an analysis of China's legal system, and the comparative analysis of the 2014 QQ Decision with a 2015 decision of the California Supreme Court. However, this Article notes that there are still important milestones to meet flowing from the 2014 QQ Decision.

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This Article is divided into five parts following this introduction. Part II provides background on the development of China's civil law system following the Cultural Revolution. Part III provides background on the scope of China's Anti-Monopoly Law eight years out. Part IV discusses the 2014 QQ Decision in extensive detail, so that its significance may be readily understood in terms of how it provides careful guidance on a whole host of evidentiary, procedural, and substantive issues of great import for the Anti-Monopoly Law specifically and the rule of law generally. Part V compares the 2014 QQ Decision to a more recent decision in California to further explore the significance of the 2014 QQ Decision for the rule of law in China. This part of the article also explores the milestones that we would want to see China surpass to confirm that China is indeed on the path to the rule of law as indicated by the 2014 QQ Decision. Part VI provides some closing thoughts.

II. THE DEVELOPMENT OF CHINA'S CIVIL LAW AND PROCESSES AFTER THE CULTURAL REVOLUTION

Since 1979, China's lodestar has been economic development and social stability under Deng Xiaoping and his successors.²² However, as the Cultural Revolution came to an end, China found itself without a legal system.²³ China's first task in addressing the renewal of economic development and social stability was to restore a legal system by enacting a Constitution in 1978 that restored the courts and procuratorates.²⁴ This was followed by the enactment of a new Constitution in 1982 that was revised four times through 2004, as well as more than 229 national laws through 2008 that spanned a wide variety of criminal, civil, economic and administrative subjects.²⁵ The 1982 Constitution, for the first time, emphasized the rule of law.²⁶

The 1980 Organic Law of the People's Courts and the 1982 Constitution established the general administrative structure of four levels of courts, with the Supreme People's Court located in Beijing at the apex.²⁷ In 1986, China enacted the General Principles of the Civil Code,²⁸ enabling civil cases to be heard in its courts as a substantive matter.²⁹ In 1989, China enacted the Administrative Litigation Law,³⁰ enabling cases challenging certain administrative actions to be heard in its courts.³¹ And in 1991, China enacted the Civil Procedural Law, setting out the general process and rules by which civil actions would be heard and adjudicated in Chinese courts.³²

China's court system allows for a civil plaintiff to receive up to two trials at different levels (e.g., the equivalent of the district or superior court level in the United States and then again at an intermediate appellate level) with the second trial being de novo.³³ The courts are split into four divisions: civil, criminal, economic and administrative.³⁴ Many provinces have established a separate division for intellectual property cases³⁵ and those divisions have become tasked with hearing cases involving the Anti-Monopoly Law.³⁶ Moreover, those intellectual property cases (and by extension Anti-Monopoly Law cases) may involve a trial in the first instance at the intermediate appellate court level, with a second-level Higher People's Court for the entire province that can retry the case and then the Supreme People's Court.³⁷ The Supreme People's Court is the court of final resort in Mainland China; though it has considerable room for the exercise of original jurisdiction, in practice it prefers to serve as an appellate court in hearing appeals from lower courts.³⁸

At each level of a court system in a province, as well as at the Supreme People's Court, there are a President, Vice-Presidents, a Chief Judge for each division within that system, deputy chief judges and assistant judges—as well as People's Assessors or lay judges though such assessors are not included in second trials or appeals.³⁹ They are appointed for a term by the equivalent People's Congress for that level.⁴⁰

Judges are required either to have advanced degrees specializing in law or a college degree, plus one or two years of working experience and professional legal knowledge.⁴¹ Though would-be judges can pass an examination to become judges, they may be directly appointed as assistant judges even at the Supreme People's Court level. However, once appointed, judges must pass periodic examinations and evaluations like any other civil servant.⁴² And judges at the higher levels, who not uncommonly have scientific or engineering degrees, believe that those degrees help them in the performance of their judicial functions, e.g., by enabling those judges to ask court litigants the kind of questions necessary to address...