Recently, the Intellectual Property Court of the Supreme People’s Court concluded an appeal in a dispute over abuse of a dominant market position brought by a downstream industrial gas user against an upstream natural gas supplier. The case establishes that it is legitimate for a natural gas supplier to require the gas user to declare its gas consumption plan in advance and to charge deviation settlement fees, and that this generally does not constitute an abuse of a dominant market position regulated by the Anti-Monopoly Law. The case is of positive significance for clarifying the boundary between industry practice and monopolistic conduct and for regulating the order of market competition in the public utilities sector.

The basic facts of the case are as follows. Yunnan Luo XX Biotechnology Co., Ltd. (hereinafter “Company Luo”) is a manufacturer in Tengchong City, Yunnan Province engaged in the extraction of biopharmaceutical raw materials, and Tengchong XX Petroleum Kun XX Gas Co., Ltd. (hereinafter “Tengchong Kun XX Gas Company”) is the only pipeline natural gas supplier in the locality. In August 2022, the two parties entered into a Gas Supply and Use Contract (hereinafter the “Contract”), which stipulated that Company Luo must declare its gas consumption plan in advance on an annual, quarterly and monthly basis, and which set out a deviation settlement clause: where Company Luo’s actual gas consumption falls below the declared planned volume, it must pay a deviation settlement fee equal to 30% of the value of the shortfall volume; where Tengchong Kun XX Gas Company’s actual gas supply falls below the planned volume, it must likewise pay a deviation settlement fee to Company Luo. During performance of the Contract, Company Luo repeatedly declared planned gas volumes that differed seriously from its actual consumption, giving rise to a substantial cumulative amount of deviation settlement fees, and a dispute and litigation ensued. Tengchong Kun XX Gas Company subsequently suspended the gas supply on grounds including Company Luo’s failure to pay the deviation settlement fees.

Company Luo brought proceedings before the Intermediate People’s Court of Kunming City, Yunnan Province, alleging that Tengchong Kun XX Gas Company had abused its dominant market position by “attaching unreasonable trading conditions”, “selling commodities at unfairly high prices” and “refusing to deal”, and requesting an order that Tengchong Kun XX Gas Company resume supply, compensate for losses, and that the relevant contractual clauses be declared invalid. The court of first instance held that Tengchong Kun XX Gas Company had not abused a dominant market position and dismissed all of Company Luo’s claims. Company Luo appealed.

On appeal, the Supreme People’s Court held as follows. First, requiring an industrial gas user to “declare its gas consumption plan in advance” and applying a “deviation settlement mechanism” do not constitute the attachment of unreasonable trading conditions. To begin with, natural gas is a special commodity with a public-interest character; its purchase, sale and transmission are subject to marked physical exclusivity and capacity constraints, and precise dispatching of long-distance high-pressure pipeline networks requires downstream industrial users to declare their gas consumption plans in advance. It is industry practice for upstream gas source enterprises to apply “take-or-pay” clauses when purchasing natural gas, and the submission by downstream industrial gas users of annual, quarterly and monthly gas demand plans is a rigid requirement for safeguarding pipeline network security and stably obtaining low-priced gas source quotas. Furthermore, Tengchong Kun XX Gas Company did not entirely prohibit adjustment of downstream enterprises’ gas consumption plans: provided the annual total gas volume constraint was not exceeded, it could, upon an enterprise’s application, submit adjustments to the monthly gas consumption plan to the upstream supplier for approval, and it had also established a supporting mechanism for reallocating gas volumes among industrial users, so that a degree of flexibility existed at the operational level. Finally, the root cause of the high deviation fees incurred by Company Luo was the inaccuracy of its own estimates of gas consumption, which bore no direct causal relationship to the gas supplier’s pricing mechanism. Second, the difference between the deviation settlement amounts received from downstream users and those paid upstream cannot be characterised as selling commodities at unfairly high prices. The gas purchase contracts that urban gas enterprises conclude with upstream gas source enterprises and the gas supply and use contracts they conclude with downstream industrial users differ naturally in metering cycle, scope of risk and pricing standards, and it is entirely normal that the deviation settlement amounts under the two types of contract are not exactly equal. On the complete settlement data for the most recent three and a half years, there was only a very small difference between the total deviation fees collected by Tengchong Kun XX Gas Company from downstream users and the costs it paid to upstream gas source enterprises, and there was no systematic extraction of monopoly profits. Third, Tengchong Kun XX Gas Company had justified grounds for suspending supply, and this did not constitute a refusal to deal. On the one hand, on the facts established, Company Luo had failed to perform the payment obligations determined by an effective civil mediation instrument, owed gas fees to Tengchong Kun XX Gas Company, and had been listed by several courts as a judgment defaulter, so that Tengchong Kun XX Gas Company had reasonable grounds to doubt its capacity to perform. On the other hand, Company Luo had not declared any gas consumption plan to Tengchong Kun XX Gas Company after June 2024, with the result that Tengchong Kun XX Gas Company was unable to include its demand within the quota of planned gas purchased from the upstream supplier.

In sum, the Supreme People’s Court held that Tengchong Kun XX Gas Company had not engaged in any of the three alleged forms of abuse of a dominant market position asserted by Company Luo, dismissed the appeal and upheld the original judgment. At the same time, the Supreme People’s Court stated expressly in its judgment on appeal that, as the sole undertaking responsible for supplying natural gas in Tengchong City, Yunnan Province, Tengchong Kun XX Gas Company still has room for further improvement in how effectively it carries out advance forecasting and precise planning with a view to ensuring the overall balance of local supply and demand. Tengchong Kun XX Gas Company should fulfil its corporate responsibilities as a public utility operator and may take further necessary measures to strengthen the standardisation and transparency of its operation and management, so as to avoid, as far as possible, downstream users incurring additional operating costs as a result of the “deviation settlement” mechanism.

The judgment on appeal in this case makes clear that, in determining whether trading conditions attached by an undertaking with a dominant market position constitute “unreasonable trading conditions”, a comprehensive analysis should be conducted in the light of the characteristics of the commodity and reasonable industry practice, so as to avoid wrongly characterising trading conditions that conform to the characteristics of the industry and to reasonable industry practice as unlawful monopolistic conduct and thereby producing “false positive” errors. On that basis, the judgment on appeal also provides clear and specific guidance on how natural gas public utility entities should further standardise their operations, and it carries a degree of guiding significance for regulating the boundaries of the conduct of public utility undertakings, maintaining a fair competitive market order and fostering a business environment governed by the rule of law.

Source: Intellectual Property Court of the Supreme People’s Court; authors: OU Hongwei, LUO Suyun; date of original: 9 September 2026; link to original: https://ipc.court.gov.cn/zh-cn/news/view-6038.html