The Legal Sense of the Punishment over the Vertical Monopoly of Mao Tai and Wu Liang Ye By NDRC

360截图-11608502_副本(You Yunting) According to the report, Mao Tai Company and Wu Liang Ye Company, both are the top distilleries in China, would be ordered the penalty of 1% of their annual sales in 2012, approximately RMB 449 million yuan, by the National Development and Reform Commission (the “NDRC”) for their restricting or fixing the retail price of their downstream dealers. You might have noticed “would be”, and we have no idea about whether the final decision has been made, and it could not exclude the possibility that the news report is only the public opinion test by NDRC for its punishment in consideration.

As thought by the writer, if the news report could be confirmed, the big companies’ demand to sell the products at the agreed price for its dealers, which could constitute the vertical pricing monopoly, would be combated by the administration. However, before the promulgation of the Anti Monopoly Law, the vertical monopoly is mainly seen within the scope of the parties’ free will, and the State would not interfere it. If the manufacturers and the dealers conclude the agreement basing on the free will and fairness, then the restriction articles over the pricing would be legal, effective and protected by the law.

Yet, with the further development of the market oriented economy, the capital begins to show its greedy. The big companies tend to add numbers of complicated articles into their contracts signed with dealers, which could regulate almost all the aspects of their business. And the ultimate purpose of such arrangements is to exploit the final consumer to the utmost extend. But in fact, it would not violate the law once the dealer sell the product above the cost price, and therefore the pricing clause takes off their legal rights, and make them be controlled by the upstream companies, and with such arrangement, the damages would be finally taken by the consumer. In the meantime, the pricing clause could also produce the negative consequences like man made out-of-store or great price gap among the regions, which are against the principle of open, justice and fairness of the market economy, and damage the interests of the consumers.

At that moment, the government shall take necessary interference, and readjust the balance between the sellers and the consumers. The measures regulating the vertical monopoly is one of such measures, but that has been long disputed by the judicial organs and administrative departments, mainly for the six year has passed since the promulgation of the Anti Monopoly Law, but so far no supporting regulations have been issued, and no unified understanding has been developed over the articles in the law. Like in the first vertical monopoly case judged in China, Shanghai No.1 Intermediate People’s Court supported the manufacturer in the case. In that case, A Beijing admitted dealer sued the Johnson & Johnson Medical Equipment Company’ s Shanghai branch, who was the manufacturer, claiming it has violated the Anti Monopoly Law. The dealer mainly based its lawsuit on the ground that Johnson & Johnson has agreed with it the restricted sales area and fixed price for retail, and afterwards deduced its deposit as accusing the dealer violated the clauses and then canceled its qualification as its dealer.

As affirmed in the written judgment: for the judgment over the vertical pricing monopoly agreement regulated in the Anti Monopoly law, it could not only consider whether the manufacturer has concluded the price fixing or restricted agreement with the dealer, but shall in combination of other clauses in the law, checking whether the agreement would limit or restrict the competition. For more detailed speaking, it shall comprehensively consider the market share of the product, competition level between the upstream and downstream of the relevant market, the influence degree caused by the article to the product supply amount and pricing and other elements. The court also judged the burden of prove shall be taken by the plaintiff. The final judgment refused the claims of the plaintiff, and explaining that no adequate proofs have been submitted in the case.

The judgment of the court is obviously made after comprehensive consideration and the writer, for sure, respect the professional decision by the judges, since the agreement over the retail pricing is quite common in the business activities, and it would produce a great shock to the commercial order if such an agreement is decided to be illegal according to the Anti Monopoly Law. But it could not deny that the judgment made in this case has further tipped the balance to the big companies. For this reason, once the reported punishment decided by NDRC is true, it means the articles concerning the anti vertical monopoly in the Anti Monopoly Law has been practically implemented, the competition among the manufacturer, dealer and consumer could be more of a fine match, and the monopoly of the big companies would be restricted to a certain extent, since one of their trump card “pricing adjustment” has been revoked.

However, the big companies could have other counter measures when facing the punishment ordered to them. In addition to the pricing adjustment, the IPR, benefit returning, deposit and product supply amount could also be taken.

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You Yunting86-21-52134918

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