• Natural Gas Cylinders and Abuse of Dominance
  • October 26, 2010 | Author: Susan (Xuanfeng) Ning
  • Law Firm: King & Wood - Beijing Office
  • In September 2010, Wuxi Baocheng Vehicle Cylinder Inspection Co. Ltd (WB) filed a civil suit to against Wuxi China Resources Gas Co., Ltd (WCR), alleging that the latter abused its dominance, in breach of the Anti-Monopoly Law (AML) (the “WB-WCR case”). WB is engaged in the business of inspecting and installing compressed natural gas vehicle cylinders. WCR owns and operates natural gas filling stations. WB alleged that WCR abused its dominance by refusing to fill natural gas for a vehicle that was installed with a natural gas cylinder installed by WB, in breach of Article 17(3) of the AML. (1)

    The WB-WCR case has been filed with the Wuxi Intermediate People’s court. The court hearing is scheduled for 18 November 2010.

    While we do not currently have many details to do with the pending WB-WCR case, earlier this year, there was a similar case being filed (the “CB-CE case”). The CB-CE case was settled in the end. However, it is likely that the plaintiff and defendant in the WB-WCR case will raise similar issues that were raised in the CB-CE case (as the fact patterns are similar between both cases). The following is a summary of what we know about the CB-CE case.

    CB-CE case - facts(2) 
    The plaintiff was Changzhou Baocheng Vehicle Cylinder Inspection Co. Ltd (CB). CB is engaged in the business of inspecting and installing compressed natural gas vehicle cylinders.

    The defendants were Changzhou ENN Gas Development Co Ltd (CE) and Changzhou ENN Gas Engineering Co Ltd (CE Engineering). CE owns and operates natural gas filling stations. CE Engineering is, like CB, engaged in the business of inspecting and installing compressed natural gas vehicle cylinders. CE and CE Engineering are affiliated companies.

    On 15 and 16 November 2009, CB installed compressed natural gas vehicle cylinders for 10 taxis. Subsequently, the taxis attempted to fill gas at CE’s natural gas filling stations. CE refused to fill gas for the 10 taxis. CB therefore has alleged that CE has abused their dominance by refusing to transact or fill natural gas for the 10 taxis in breach of Article 17(3) of the Anti-Monopoly Law (AML).(3)   CB alleged that the reason CE has refused to transact with the 10 taxis is because they (the 10 taxis) contained natural gas vehicle cylinders installed by CB. Further, CB alleged that by refusing to transact with the 10 taxis for the alleged reason above, CE has abused their dominance by indirectly suggesting that the 10 taxis should use natural gas vehicle cylinders installed by CE Engineering instead ¿ in order to be served at CE natural gas filling stations. CB has alleged that this is a form of “restricting” the 10 taxis to transact only with CE Engineering, in breach of Article 17(4) of the AML.(4) 

    CE and CE Engineering’s defence was that their employees refused to fill natural gas for the 10 taxis because they thought that there might be safety risks and considerations if they filled CE natural gas into natural gas cylinders installed by CB. CE and CE Engineering claimed that because they were unfamiliar with the manner in which CB installed these natural gas cylinders into the 10 taxis (and were not able to verify that CB staff possessed the requisite qualifications and technical skills to conduct these installations), it was risky for CE to fill their natural gas into these taxis.

    CB-CE case - court process and settlement
    This matter was filed in the Changzhou Intermediate People's Court on 28 January 2010. A public hearing was listed for 11 March 2010. However, the parties settled the matter privately before the hearing. CB withdrew their application on 26 March 2010.

    Comments
    The terms of settlement for the CB-CE case have not been made public. However, it is interesting to note that companies are increasingly becoming aware of the parameters of the AML and are using the AML as a tool to defend their “competitive” rights. It will be interesting to watch the outcome of the WB-WCR case and see if the case raises similar issues to the CB-CE case.

    (1) Pursuant to Article 17(3) of the AML, business operators who hold a dominant position may not abuse their dominance by engaging in a refusal to deal or transact with other business operators, without a valid reason.

    (2) These facts were pieced together from a variety of public sources including Chinese press articles about the CB-CE case, such as this one: www.zhong5.cn/article-122780-1.html.

    (3) Pursuant to Article 17(3) of the AML, business operators who hold a dominant position may not abuse their dominance by engaging in a refusal to deal or transact with other business operators, without a valid reason.

    (4) Pursuant to Article 17(4) of the AML, business operators who hold a dominant position may not abuse their dominance by restricting other business operators to transact only with the business operators or only with designated business operators without a valid reason.