First Court Decision in Resale Price Maintenance Case Since the Introduction of China’s Anti-Monopoly Law

On May 18, 2012, the Shanghai No. 1 Intermediate People’s Court issued a judgment dismissing all petitions of the Beijing Ruibang Yonghe Technology & Trade Co. (Ruibang) in its case against Johnson & Johnson Medical (Shanghai) Ltd. and Johnson & Johnson Medical (China) Ltd (Johnson).

Article 14 of the PRC Anti-Monopoly Law (AML) prohibits business operators from restricting the lowest prices for the resale of their products. Ruibang had been a distributor of Johnson’s surgical stapling products in Beijing for 15 years. According to the distribution agreement between Johnson and Ruibang, Ruibang was authorized to sell products to hospitals in allocated regions at prices above minimum prices set by Johnson. In March 2008, Johnson discovered that Ruibang had sold products outside its authorized regions and at prices lower than the minimum price agreed by the parties. Johnson suspended and then terminated Ruibang’s distribution rights in several locations and finally stopped supplying products to Ruibang. Ruibang filed a lawsuit against Johnson alleging that the provisions of the distribution agreement violated the PRC Anti-Monopoly Law and claiming RMB 14 million (USD 2.2 million) from Johnson for losses it had suffered as a result.

The court focused on whether a term in an agreement providing for fixed or restricted resale prices could constitute a monopoly agreement in breach of the AML per se, or whether it is only one essential factor in establishing the existence of an illegal monopoly agreement. According to Mr. Junhua Liu, the presiding judge, the existence of a monopoly agreement cannot be based solely on whether a contract contains a provision on fixed or restricted resale prices. Rather, it also should take into consideration whether such provision has resulted in the elimination or restriction of competition, by reference to Article 15 of the AML.

In this case, Ruibang failed to provide the court with sufficient evidence of elimination or restriction of competition (market shares, levels of competition and the influences on supply and price change of the products) as a result of the provisions of the distribution agreement and also failed to prove that it had suffered loss as a direct result of these provisions. Therefore, the court rejected Ruibang’s claims for lack of evidence.