Johnson & Johnson's monopoly dispute

Qi Fang of Fangda partners in Beijing, who specialises in anti-monopoly disputes, said the case was the first anti-monopoly case involving a manufacturer and a distributor since China's Anti-Monopoly Law came into effect. “The case highlights several important issues over market dominance, vertical agreements and burden of proof,” he said.

Companies need to consider how important these provisions are and gage their position in the relevant market, he said. “This gives them an idea of potential risk to anti-monopoly disputes,” he explained. “If they can prove that such a provision is essential to maintaining goodwill, courts may rule in their favour.”

Additionally, proving market dominance is a problem when it comes to vertical monopoly disputes. Under article 13 of the Law, plaintiffs do not have to prove dominance for horizontal agreements, but Article 14 is silent on the issue of vertical agreements.

The Supreme People's Court released Provisions clarifying many areas of the Anti-monopoly Law on May 4. These came into effect on June 1. They failed to touch on vertical agreements, however. “The SPC will wait to gather ideas and allow cases to develop before clarifying this issue,” said Qi.

J&J has argued the Anti-monopoly Law did not apply to this case, as the contract was signed before it came into effect in August 2008. This is typical of China's laws, as they do not have retrospective effects.

Even so, Rainbow is unlikely to use the law preceding the Anti-monopoly Law - the PRC Anti-unfair Competition Law (中华人民共和国反不正当竞争法) – to justify its claims as this focuses on trade secrets and fails to cover the specific terms found in the Anti-monopoly Law.

Qi clarifies the issue: “If Rainbow can argue the alleged monopolistic conducts continued after the Law became effective, then their claim should still be valid.”

An interesting aspect of the case is that the Court did not hold the damages claim valid because it comes from a contract dispute not an anti-monopoly dispute. According to Qi, contract disputes are anti-monopoly claims but this all depends on how Rainbow argued the case. This issue will become clearer once the judgement is released in the coming months.

If Rainbow appeals the decision it will go to Shanghai Higher People's Court and become only the second anti-monopoly case to be heard by a Higher Court. With so many grey areas in anti-monopoly disputes, practitioners hope Rainbow does appeal, as decisions from Higher Court's will provide clarity and guidance.

By David Tring

Further reading:

Making sense of the PRC Anti-monopoly Law

PRC Anti-monopoly Law (中华人民共和国反垄断法)

The PRC Anti-monopoly Law: one year on