(By You Yunting) Abstract: Both Mao Tai and Wu Liang Ye can rely on one of the seven situations in Article 15 of the Anti Monopoly Law for their defense. But, that defense will not be easy because it requires evidence that the relevant agreements will not limit market competitors and that consumers can share the interests produced by the agreements.

In yesterday’s post, the writer analyzed the legal meaning of the punishment ordered by the National Development and Reform Commission (“NDRC”) against two top Chinese distilleries, Mao Tai and Wu Liang Ye. Today’s post will go one step further to describe the way for Mao Tai and Wu Liang Ye can protect their own interests.

I. Introduction to the follow-up legal procedures

According to news reports, the NDRC has not yet concluded a final punishment decision and has only met with the managers of both companies to discuss pricing control. In fact, as stipulated in the Administrative Punishment Law, the administration must notify those to be punished of their right to apply for a hearing before issuing such a large penalty. The two distilleries will definitely seek a hearing when facing such a large penalty, even if it is just to provide an explanation to their shareholders. At that time, the administration must form a hearing, and the law regulates, that as long as trade secrets are not involved, the hearing should be public. During the hearing, the administration designates a non-party to direct the investigation, provide illegal acts of the party, and recommended a sentence, which will be defended against and cross-examined by the defendant or his agent. Additionally, notes must be taken during the evidence hearing, which the defendant signs or stamps.

Once the hearing is finished, the administration can make the final punishment decision. According to the Anti Monopoly Law, in terms of the punishment decision, the companies involved can then initiate administrative review or an administrative lawsuit if they are dissatisfied with the decision. Review is carried out by the administration making the decision or its higher-level body, while the administrative lawsuit is judged by the court, which is more independent. Therefore, companies usually choose the administrative lawsuit. In this case, both Mao Tai and Wu Liang Ye can maintain that the illegitimacy of NDRC’s specific administrative acts in court. The administrative lawsuit includes the first instance and second instance, and either the punished party or the administration have the right to appeal to the higher court if they are dissatisfied with the first instance court’s judgment. The judgment made by the second instance court, however, is final and binding on the parties.

II. The defenses that Mao Tai and Wu Liang Ye can claim in the hearing

The main basis for the punishment of vertical monopolies is Article 14 of the Anti Monopoly Law:

“Undertakings are prohibited from concluding the following monopoly agreements with their trading counterparts：

(1) fixing the prices of commodities resold to a third party；

(2) restricting the lowest prices for commodities resold to a third party.

…”

However, both Mao Tai and Wu Liang Ye can defend themselves by referring to Article 15 of the Anti Monopoly Law: when the operator can prove it are concluded an agreement in the following seven situations, then Article 14 does not apply.

Among these seven situations, the second one refers to “improving product quality, reducing cost, and enhancing efficiency, unifying specifications and standards of products, or implementing specialized division of production;” and the fifth refers to “mitigating sharp decrease in sales volumes or obvious overproduction caused by economic depression.” These will be the main points argued by Mao Tai and Wu Liang Ye. But, this argument may also be difficult. The law also regulates that when applying the articles, the operators prove that agreements they concluded will not severely restrict competition in the relevant market and that the consumers will share the profits thereby produced. So, Mao Tai and Wu Liang Ye must prove the above situations or pay the administrative penalty.

III. Arguments advocated by Mao Tai and Wu Liang Ye in the lawsuit

If the NDRC confirms that Mao Tai and Wu Liang Ye conducted a vertical pricing monopoly and thereby orders administrative punishment, then by the Anti Monopoly Law:

“Where an undertaking, in violation of the provisions of this Law, concludes and implements a monopoly agreement, the authority for enforcement of the Anti-monopoly Law shall instruct it to discontinue the violation, confiscate its unlawful gains, and, in addition, impose on it a fine of not less than one percent but not more than 10 percent of its sales achieved in the previous year.”

Mao Tai and Wu Liang Ye are both the top distilleries in China, and one percent of their annual sales would total RMB 449 million yuan, which would be the minimum sum of the penalty.

If the NDRC decides upon punishment as has been above analyzed, it is very likely that Mao Tai and Wu Liang Ye will file an administrative lawsuit due to illegitimacy or defect in the procedure or substantial content of the decision making. As regulated by the Administrative Procedure Law, In the administrative lawsuit, unlike in the hearing, the authority deciding the punishment—the NDRC in this case—must prove the legitimacy of its decision, and it can collect evidence from the plaintiff or the witness during the process of the lawsuit.

As to the legal grounds, the Administrative Procedure Law provides that when the People’s Court hears administrative cases, it must base its decisions on the laws, administrative regulations, and local rules. That is to say, if the NDRC makes its decision based only on department rules, this decision would be invalid.

Before closing, we would like to say even Mao Tai and Wu Liang Ye choose the administrative lawsuit to settle the dispute, it seems necessary that they pay the penalty and pay it before the lawsuit. According to the Administrative Procedure Law, during the duration of the lawsuit, the specific administrative act cannot be stopped, unless the administration or the court considers the necessity to do so. If Mao Tai and Wu Liang Ye refuse to pay the fine, they would face additional penalty of three percent of the charged fine per day.

Lawyer Contacts

You Yunting：86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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