Having announced a huge yearly revenue increase just last Friday, Nasdaq-listed Chinese advertising company Focus Media found itself in the spotlight for far less welcome reasons Wednesday, as it appeared in court charged with unfair competition.

In the case's first hearing at Shanghai No 1 Intermediate People's Court, Focus Media Holding Ltd and Shanghai Focus Media Advertising Co Ltd were jointly accused of illegally trying to expand their presence in 13 Hymart supermarkets in Shanghai and Hangzhou, Zhejiang Province.

The case was brought by CGEN Digital Media Network Co Ltd, one of Focus Media's major competitors, which claims Focus approached the 13 stores encouraging them to break their contracts with CGEN.

CGEN is demanding Focus cease all activities in the 13 stores, issue a public apology, and pay more than 13 million yuan (US$1.6 million) compensation.

Specializing in selling advertising space on LCD television screens in large supermarkets, CGEN claims it signed three-year exclusive contracts with 13 Hymart stores 11 in Shanghai and two in Hangzhou in 2004.

Attorney for CGEN Zhong Jinguang told the court yesterday that the company sent letters to the 13 stores in March, 2005, warning them not to breach the contracts by working with any "third party."

A month later CGEN received replies from the Shanghai Kangren Hymart Supermarket Trading Co Ltd which manages the stores, terminating the contracts.

"They accused CGEN of violating Internet law and other problems," Zhong said. "But those were all excuses."

Zhong showed the court a copy of Focus Media's international prospectus published in July, 2005.

In it, Focus says it is in the process of expanding its network into the Hymart chain, adding that, in order to ensure its presence in the stores, it has agreed to compensate the supermarket chain for costs incurred in defending any breach of contract suit brought by CGEN against Hymart.

CGEN successfully sued the 13 Hymart stores late last year, with the court ordering Hymart to pay CGEN 300,000 yuan (US$37,040) in compensation.

Representing Shanghai Focus, Yang Ming accepted Shanghai Focus had signed contracts with two Hymart stores in Hangzhou and installed facilities in 11 Shanghai stores, but said everything had been done in accordance with the law.

As his client's relationship with Focus Media Holding Ltd was purely as a business partner in Shanghai, he added, Shanghai Focus could not be held responsible for Focus Media's behaviour elsewhere.

"The prospectus was published in the United States and it is not proper to judge its validity in China," he said.

The case continues.