Full Text of NDRC’s Public Announcement on Milk Powder Manufactures’ Vertical Monopoly of Price Control

未命名(By You Yunting) According to the latest announcement on Chinese National Development and Reform Commission website, NDRC’s carried out anti-monopoly investigations into milk powder manufacturers and imposed fines. Based on this announcement, we found that there are different views between NDRC and Chinese courts on the understanding of Article 14 of the Anti Monopoly Law. With regard to the court’s understanding that milk powder formula in this case is effective competitive, the milk powder manufacturers shall not the determined as violating the the Anti Monopoly Law even if they conducted price control. Following is our translation for this public announcement.


Starting from March 2013, Chinese National Development and Reform Commission (the “NDRC”) carried out an investigation for price-fixing into infant milk powder manufacturers including Biostime (HK:01112), Mead Johnson (NYSE:MJN), Dumex (Euronext:BN/NYSE:DA), Abbott (NYSE:ABT), Friesland and Fonterra (NZX:FCG), Wyeth (NYSE:WYE), Beingmate (SZSE:002570) and Meiji Dairies (TSE:2269) based on a tip-off.


Evidence shows that, milk powder manufacturers are accused of fixing resale prices for dealers by different methods, which includes fixing a price for resale to a third party or restricting the minimum price for resale to a third party. Milk powder manufacturers have adopted different punitive and binding measures, mainly including contract, direct penalties, disguised fines, rebate reduction, supply limitation, stopping deliveries. Once dealers did not sell the infant milk products as per the price or minimum price set by the milk powder manufactures accused, the dealers would suffer penal measures.


What the milk powder manufacturers have done all reach the price fixing in resale minimum resale price restriction and it has actually achieved and implemented a monopoly agreement selling infant milk products, violating Article 14 of the Anti Monopoly Law. Those monopoly agreements unlawfully maintained a high price of the infant milk products, and moreover have seriously eliminated or restricted price competition for the same brand of infant milk products, thus weakens the price competition between different brands of infant milk products and breaking the equal order of market competition as well as damaging the interests of consumers. During the investigation, all milk powder manufacturers involved acknowledged that their arrangement of the pricing has violated the law, and at the same time, they could not prove its price control could be applied the exemption conditions in Article 15 in the Monopoly Law.


NDRC fined the six manufacturers RMB 668.73 million yuan for their pricing monopoly in accordance with Article 45 of the Anti Monopoly Law. Among those penalties, Biostime was imposed a fine of 162.9 million yuan, about 6% of previous year’s sales volume, due to its severe offence and no active rectification. Mead Johnson who did not actively cooperated with the investigation but actively rectified was fined of 203.76 million yuan, about 4% of previous year’s sales volume. Dumex was imposed a fine of 171.99 million yuan, about 3% of previous year’s sales volume, because of its active rectification. In addition, Abbott, Friesland and Fonterra were fined of about 3% of previous year’s sales volume, respectively 77.34 million yuan, 48.27 million yuan and 4.47 million yuan. As for those who positive submitted relevant information of monopoly agreement, provided vital evidences and afterward conducted active rectifications, Wyeth, Bingmate and Meiji Dairies has been exempted of punishment.


All companies fined thereby have put forward their rectification plan: first, ceasing all illegal activities immediately; second, revising the distribution contract, sales policy and business strategy immediately conform to Chinese laws and regulations; third, revamping sales system and organizing employee training to ensure employee’s behavior conform to Chinese laws and regulations; fourth, taking actual measures to eliminate the adverse effects to ensure consumers obtaining practical profit. Until present, these rectification measures are being actualized in a step by step.


Lawyer’s comment:

With regard to the understanding of Article 14 of the Anti Monopoly Law, we have seen a sharply difference between NDRC and China’s courts. If it follows the interpretation by the NDRC, once the price control has been investigated on dealers, the violation against the the Anti Monopoly Law could be judged. Yet, on the other hand, as explained in the Shanghai Higher People’s Court’s second instance ruling on the dispute between Rui Bang Co.Ltd (you may check “Why Did the Court Not Rule in Accordance With Article 14 of the Anti Monopoly Law?” for more details), the milk powder market is the one with full competition which is less replaceable, and for this reason, if the companies involved would like to file the administrative lawsuit against NDRC, the court is less likely to support the decision of NDRC. On this issue, we would continue our discussion on it in tomorrow’s post.


Lawyer Contacts

You Yunting86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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