(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.

Starting today, we will have several posts introducing the key legal issues in the court’s decision. The first issue is that the Shanghai Higher People’s Court in this judgment found that eliminating or restricting competition was a prerequisite of the monopoly agreement as regulated by Article 14 of the Anti Monopoly Law. Meanwhile, a higher court held that it was the plaintiff who shall bear the burden of proof to demonstrate that restricting the lowest prices for commodities resold to a third party has the effect of eliminating or restricting competition. However, this ruling is in clear conflict of the legal provisions. In today’s post, we will introduce the different legal advices from the perspective of the plaintiff, defendant and the two courts respectively, and analyze the reasons for the second instance court’s decision.

 

For the case summary, please click on the following link: Plaintiff First Wins Chinese Anti Monopoly Civil Case.

 

The original court, Shanghai No.1 Intermediate People’s Court’s decision:

With regards to the decision based on the existence of monopoly agreements as regulated by Article 14 of the Anti Monopoly Law, judgment cannot be made solely based on whether the parties involved have concluded a monopoly agreement with their trading counterparts which would fix or limit sales prices, but Paragraph 2 of Article 13 must also be taken into consideration. This means that it is necessary to further examine whether the agreement excludes or limits competition.

 

Article 14 of the Anti Monopoly Law states: Undertakings are prohibited from concluding the following monopoly agreements with their trading counterparts:

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

(2) On restricting the lowest prices for commodities resold to a third party; and

(3) Other monopoly agreements confirmed as such by the authority for enforcement of the Anti-monopoly Law under the State Council.

 

Paragraph 1, Article 13 of the Anti Monopoly Law states: Competing undertakings are prohibited from concluding the following monopoly agreements:

(1) On fixing or changing commodity prices;

(2) On restricting the amount of commodities manufactured or marketed;

(3) On splitting the sales market or the purchasing market for raw and semi-finished materials;

(4) On restricting the purchase of new technologies or equipment, or the development of new technologies or products;

(5) On joint boycotting of transactions; and

(6) Other monopoly agreements confirmed as such by the authority for enforcement of the Anti-monopoly Law under the State Council.

 

Paragraph 2, Article 13 of the the Anti Monopoly Law states: For the purposes of this Law, monopoly agreements include agreements, decisions and other concerted conducts designed to eliminate or restrict competition.

 

Appellant, Beijing Rui Bang Yong He Science and Trading Co., Ltd, holds: 

Horizontal monopoly and vertical monopoly as respectively regulated by Article 13 and Article 14 of the the Anti Monopoly Law are explicitly prohibited by laws due to the illegality of its purposes. Such agreements constitute as monopoly agreement upon signing, thus does not require further proof to determine whether or not it constitutes as a monopoly agreement. Despite the original court’s decision that the effect of eliminating or restricting competition must be one of the requirements to demonstrate monopoly agreements, such interpretation was wrong. This point could be confirmed by Article 46 of the Anti Monopoly Law.

 

Article 46 of the Anti Monopoly Law provides: 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 no less than one percent but no more than 10 percent of its sales achieved in the previous year. If such monopoly agreement has not been implemented, it may be fined no more than RMB 500,000 Yuan.

 

Appellee, Johnson & Johnson Medical Co. Ltd, clarifies the following opinions:

The original court’s interpretation for monopoly agreement as regulated in Paragraph 2, Article 14 of the Anti Monopoly Law is correct, consistent to the Supreme Court’s provisions. Article 7 of the Several Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct states “Where the alleged monopolistic conduct is a monopolistic agreement as described in Item (1)-(5) of Paragraph 1, Article 13 of the Anti Monopoly Law, the defendant shall assume the burden of proof to prove that the agreement has not have effects of eliminating or restricting the competition.” While horizontal monopoly shall consist of the effect of eliminating or restricting competition as regulated in Paragraph 1, Article 13, vertical monopoly has little effect over the marketing competition when compared to horizontal monopoly. Whether agreement upon restricting the lowest prices for commodities resold to a third party constituted as monopoly agreement, shall rely on the premise of the effect of eliminating or restricting competition.

 

Article 15 of the Anti Monopoly Law formulates the exemption of monopoly agreement rather than the decidedly standards for monopoly agreements designed to eliminate or restrict competition. In this case, without the effect of restricting the lowest prices of commodities resold to a third party, the appellee did not need to demonstrate such undertakings as regulated in Article 15.

Why Did the Court Not Rule in Accordance With Article 14 of the Anti Monopoly Law? Part II

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

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