Why the courts and the NDRC disagree over price fixing
February 22, 2013 | BY
clpstaff &clp articles &As the NDRC becomes more aggressive in its price fixing enforcement, businesses in China are waiting for an appeal decision in a case where a Shanghai court has taken a different approach to the Commission's
An appeal of the high-profile case involving Rainbow Medical and Johnson & Johnson is now pending before the Shanghai Higher People's Court.
During the first instance at the Shanghai Intermediate People's Court, the judge ruled against Rainbow for failing to meet the burden of proof that the agreement between J&J and Rainbow had restricted or eliminated competition, which meant that the contract between the two parties was not part of a monopolistic agreement.
This has raised questions over differing approaches in retail price maintenance (RPM) cases under the PRC Anti-monopoly Law (中华人民共和国反垄断法) by the NDRC and the courts.
“The court took an approach similar to the US rule of reason, where analysis on anti-competitive effects of the price fixing is necessary. While the NDRC's approach is similar to the per se illegal approach, commonly found in the EU, where once RPM conduct exists, further analysis on anti-competitive effects would not be necessary,” said Zhaofeng Zhou, an antitrust lawyer with Chance & Bridge Partners in Beijing.
In other words, under the per se illegal approach, RPM policies are generally considered to have anti-competitive effects, while under the rule of reason approach each RPM policy will be examined case by case in order to find out whether it has anti-competitive effects.
Under the per se illegal approach, the companies involved can still defend their conducts based on Article 15 of the Law, which states if a business operator can demonstrate than an agreement was reached for certain reasons, like improving technology or operational efficiency, they are not subject to Article 13 or 14 of the Anti-monopoly Law.
Article 14 of the Law explicitly states that business operators cannot engage in resale price maintenance.
It is hard to examine how the NDRC came to its decision, because the Commission has not released any details, except the fines imposed.
“As we do not have the official decision, it is difficult to know what the NDRC's reasoning was, the standard of proof and exact legal requirements,” said Fang Qi, a lawyer with Fangda Partners in Beijing.
The NDRC has more experience in hearing anti-monopoly cases, while the courts have only heard a few cases since the Law's promulgation.
“I would be a little surprised if the NDRC and the courts did not have some sort of informal mechanism in which the two might give information of their respective approach” said Frank Schoneveld of MWE China Law Offices.
It is interesting that in the J&J case, Rainbow filed before the courts instead of bringing their issues to the NDRC. With a lot of publicity surrounding both cases, companies will think twice about whether they go to the NDRC or the courts.
“If the injured party goes to the NDRC, it will be easier to get results as they directly punish offenders. If they choose to go before the courts, the benefit is they get compensation,” said Zhou.
The NDRC offers no rewards for companies who bring complaints before them. While they have the power to fine companies for any illegal misconduct, they cannot compensate for losses.
It remains to be seen what conflicts may arise over the approaches of the courts and the NDRC. The simplest way for companies to avoid issues is not to engage in RPM. This could be hard, however, as the practice is widespread in China.
“Many Chinese companies are just not aware of the Anti-monopoly Law or think it is very important,” said Zhou.
By David Tring
Further reading:
Anti-monopoly Law under scrutiny as key case goes to Higher Court
NDRC cracks down on anti-competitive behaviour
NDRC imposes a second record fine over price fixing
PRC Anti-monopoly Law (中华人民共和国反垄断法)
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