King & Wood Mallesons

Asia-Pacific 100 position: 3

Resale price maintenance under the AML and recommendations for companies

Since the Anti-monopoly Law (AML) of the People’s Republic of China (PRC) came into effect, there has been much debate about the circumstances in which minimum resale price maintenance (RPM) will constitute a vertical monopolistic agreement prohibited by article 14 of the AML. In the debate, the most contentious issue is whether RPM should be regarded as per se illegal or if the ‘rule-of-reason’ doctrine should be adopted to assess on a case-by-case basis whether the RPM is illegal.

In reviewing the AML, it can be seen that RPM is one kind of vertical monopolistic agreement, as categorised by article 14 of the AML. Article 13 of the AML defines monopolistic agreements as ‘agreements, decisions or other concerted practices that eliminate or restrict competition’. This definition apparently covers vertical monopolistic agreements listed in article 14. However, opinions differ when it comes to assessing the illegality of RPM. The different opinions can be simplified into two distinct lines of thought: (i) whether the act of RPM is a monopolistic agreement that eliminates or restricts competition definitely with no need to further decide its effect on competition (i.e. to adopt the per se illegal rule); or (ii) whether the act of RPM itself should not be deemed as illegal and a rule of reason approach should be adopted to comprehensively evaluate its effect on market competition, to determine whether or not it constitutes an illegal monopolistic agreement.

Despite the debate, the tendency of applying the rule-of-reason doctrine to determine the legality of RPM appears to be clear on the judicial side. On 1 August, 2013, being the AML’s fifth anniversary since it came into effect, the Shanghai Municipal High People’s Court made its second-trial judgment on the case Rainbow Technology and Trading Co Ltd v Johnson & Johnson (Shanghai) Medical Devices Co Ltd and Johnson & Johnson (China) Medical Devices Co Ltd, in which the court clarified that the effect of eliminating or restricting competition must be proved to determine that RPM constitutes a vertical monopolistic agreement…

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