King & Wood Mallesons

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The first antitrust private action of vertical monopolistic agreement

By Susan Ning, Liu Jia and Hazel Yin

On 1 August 2013, the very same day as the fifth anniversary of China’s Anti-Monopoly Law (AML), Shanghai Higher People’s Court made a final judgment on the Rainbow v Johnson & Johnson case. It is the first case of vertical monopolistic agreement and the court overruled the judgment of the first instance and ruling for the appellant (i.e. the plaintiff). This case is also the first anti-monopoly case in China where the second-instance court reversed the judgment of the first-instance court and ruled in favour of the plaintiff.

The parties in dispute are Johnson & Johnson Medical (Shanghai), Johnson & Johnson Medical (China) (collectively J&J) and Beijing Ruibang Yonghe Science and Technology Trade Company, one of J&J’s distributors. The issue in dispute is whether J&J set a minimum resale price in the distribution contract with Rainbow. Rainbow had been a business partner with J&J for 15 years as its distributor of staplers and suturing products.

According to the distribution contract, J&J authorised Rainbow to sell its product to hospitals in specific districts in Beijing with a minimum resale price. However, J&J discovered that Rainbow acquired distributorship in an unauthorised district by bidding at a price that was below the minimum resale price set by J&J. Consequently, J&J withheld Rainbow’s deposit, terminated its distributorship in several hospitals and eventually terminated supply entirely…

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