(By You Yunting) August 1, 2013 was the fifth anniversary of the enactment of China’s Anti–Monopoly Law. On the same day, Shanghai Higher People’s Courts handed down the first decision that supported a plaintiff’s claim in an anti-monopoly civil ligation in China. The court determined that Johnson & Johnson Medical Co. Ltd action constituted as a vertical monopoly for restricting the minimum sales price, and the company was ordered to make civil compensation for the plaintiff’s loss.
Since we have already posted Why Did the Court Not Rule in Accordance With Article 14 of the Anti Monopoly Law Part I on August 7, 2013, today we would like to introduce more.
The second instance court, Shanghai Higher People’s Court held that:
The monopoly agreement as regulated by the Anti-Monopoly Law shall have the ability to eliminate or restrict competition as its fundamental element.
First, the definition for monopoly agreement as prescribed in Article 13 of the Anti Monopoly Law applies to vertical monopoly as regulated by Article 14. After Article 13 lists 6 kinds of monopoly agreements, the article states that “for the purposes of this Law, monopoly agreements shall conclude agreements, decisions and other concerted conducts designed to eliminate or restrict competition.” After reading the whole provision of the Anti-Monopoly Law, 4 more similar sentence pattern to the above mentioned can be found in Article 12, consisting of “for the purpose of this law, operators shall refer to” and “for the purpose of this law, relevant markets shall refer to.” in Article 13, and in Article 17 “for the purpose of this law, dominant market position means.” It is clear that these expressions can be interpreted as “for the purpose of this law”, applicable to “this law” and not just one particular provision. For those factors, as previously mentioned, the definition for monopoly agreement as prescribed in Article 13 also applies to vertical monopoly as regulated by Article 14.
Next, according to Article 7 of Several Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct, classifying horizontal agreement as monopoly agreement as pursuant to Article 13 of the Anti Monopoly Law requires the precondition that the agreement was designed to eliminate or restrict competition. Generally speaking, because horizontal agreement will immediately eliminate or restrict the competition in a greater effect than that of vertical monopoly, if horizontal monopoly shall rely on the precondition stated previously, similarly, vertical monopoly must also require the precondition that the agreement was designed to eliminate or restrict competition.
The plaintiff, Beijing Rui Bang Yong He Science and Trading Co., Ltd, shall assume the burden of proof to demonstrate that the agreement had the effect of eliminating or restricting competition.
It is only when laws, regulations or legal interpretations have been clearly defined can they be applied in civil litigation. Because the existing provision has not clearly defined Article 14 of the Anti Monopoly Law, the defendant shall assume the burden of proof to demonstrate whether the agreement upon limitation of the resale prices has the effect of eliminating or restricting competition. Since this case abides by the principle of “who claim, who quote”, the plaintiff shall bear the burden of the proof to prove such agreement to eliminate or restrict competition as is the rule of thumb for civil litigation. The burden of the proof as regulated in Article 7 of Several Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct is not applicable to this vertical monopoly. Accordingly, the appellant (“Beijing Rui Bang Yong He Science and Trading Co., Ltd”) shall first demonstrate the existence of the agreement upon limitation of resale prices, then provide the relevant evidence to prove it, including insufficient competition in relevant markets, the appellee’s leading position (the “appellee” refers to Johnson & Johnson Medical Co. Ltd), its intention for limiting the competition, and the adverse impact such agreement has on market competition.
Author’s Comment:
Shanghai Higher Court’s interpretation for Article 14 of the Anti Monopoly Law clearly violates the legislative intention, for two reasons:
I. Shanghai courts tends be more protective of big companies.
Article 14 of the Anti Monopoly Law clearly states that as long as agreements reached by enterprises limit the resale prices, such agreement is to be deemed illegal in accordance with the legislative intention of the law. The violation in question clearly has the effect to eliminate or restrict competition. Nonetheless, the second instance court’s judgment reversed the legal logic, demanding that the agreement upon limitation of resale prices constitute monopoly agreement only when the plaintiff demonstrates that the agreement eliminate or restrict competition.
About this issue, the Chinese National Development and Reform Commission (“NDRC”) has a different opinion from the Chinese courts. NDRC’s punishment seem to conform more to the legislative intention, deciding that “WuLiangYe conducts, including restricting the minimum prices, reached and performed a vertical monopoly upon sales prices of liquor has violated Article 14 of the Anti Monopoly Law, as it has excluded and restricted the market competition and damaged the interests of the consumers”. Please click Full Text of the Anti-trust Punishment Ordered by China NDRC against MaoTai and WuLiangYe Vertical Pricing Monopoly for more information.
As for the reason behind the court’s decision, this author believes that: because Shanghai is a business center, from the judicial value standpoint, the courts are more protective of the big companies’ profit. If vertical agreement is acknowledged as illegal, there would be even greater impacts on big companies to implement price control.
II. Accounting the fact that big company generally performs vertical price control, if the courts all recognized it as illegal, large volume of lawsuits would flood into the court, bringing a huge pressure for judicial trials.
The applicable standard for Article 14 of the Anti Monopoly Law as adopted by Shanghai Higher Court is actually the reflective opinions of the whole China court. Considering the fact that big Chinese domestic enterprises all use price control either openly or covertly to stabilize the terminal sales’ price, if all those control methods are decided to be illegal, large lawsuits would flood into the courts, bringing huge pressure for judicial trials, incapacitate the judicial branch of the government.
In fact, when the Supreme People’s Court of China gave the judicial interpretation of Several Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct, this problem already emerged. In initial draft of Several Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct, it provided that the defendant shall assume the burden of the proof to demonstrate that the agreement in question eliminates or restricts competition. Please click Latest Patent Law Revision Exposure Draft from SIPO for reference.
Person injured in excluding monopoly agreement shall bear the burden of the proof to demonstrate that the accused agreement eliminates or restricts competition. If the accused monopoly agreement constituted Item 1 to Item 5 of Paragraph 1, Article 13 and Item 1 and Item 2 of Article 14 of the AntiMonopoly Law, the injured party does not need to bear the burden of the proof, except when the accused party provides evidences to the contrary. Meanwhile, the party accused shall assume the burden of the proof to prove that the agreements conform to Article 15 of the Anti Monopoly Law.
However, the latest revision of Several Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct excluded Item1 and Item 2 of Article 14, and redefined that “if monopolistic conducts accused was constituted monopoly agreement as regulated in Item 1 to Item 5 of Paragraph 1, Article 13 of the Anti Monopoly Law, the defendant shall not bear the burden of the proof to prove the accused agreement to be non-eliminating or restricting competition.”
This modified decision is probably a reflective of the whole court system, meaning that if the defendant shall assume the burden of the proof to Article 14 of the Anti- Monopoly Law, Chinese courts would face large pressure for judicial trials. However, because NDRC has no such pressure and only administrative punishments, the NDRC has the authority to initially use administrative punishment to parties that conduct illegal monopoly. Even when the violation becomes rampant, NDRC could still use its authority to hand out punishments. For such reasons, NDRC could enforce and interpret the laws in accordance with the legislative intention of the Anti Monopoly Law.
Lawyer Contacts:
You Yunting: 86-21-52134918 youyunting@debund.com/yytbest@gmail.com
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