China: Record Fines Imposed In Chinese Maotai Liquor RPM Cases

Last Updated: 12 March 2013
Article by John M. Hickin, Hannah C. L. Ha and Philip F. Monaghan

Keywords: record fines, Maotai Liquor, RPM, NDRC, AML

On 22 February 2013, the National Development and Reform Commission (NDRC) imposed record penalties under China's Anti-Monopoly Law (AML) of RMB 449 million on two liquor companies for resale price maintenance (RPM) practices.

These two new NDRC decisions signal not only a new hardline approach to enforcement of the AML's behavioural prohibitions generally (in that respect the rulings hammer home a message most recently conveyed in LCD Panels where the NDRC imposed sanctions of RMB 353 million on six Korean and Taiwanese companies), but also possibly set the stage for a clash with China's judiciary which appears to take more of a 'rule of reason' approach to RPM.

China's largest ever penalties under the AML

In parallel rulings issued by two of its provincial branches, the NDRC has fined two state-owned liquor companies for implementing vertical monopoly agreements with distributors in respect of liquor resale prices, contrary to Article 14 of the AML. In particular, Wuliangye Yibin Group Co., Ltd ("Wuliangye") was fined RMB 202 million for setting minimum prices for its distributors' sales of liquor to third parties. Similarly, Kweichow Maotai Co. Ltd. ("Kweichow Maotai") was fined RMB 247 million for comparable conduct.

While the NDRC can impose fines ranging from 1–10 percent of an infringing company's turnover under Article 46 of the AML, total penalties imposed in the Maotai Liquor RPM cases (equivalent to around USD 72 million) are the highest ever imposed by China's antitrust enforcement authorities under the AML. Though they might be high, these fines are not a complete surprise however after the NDRC's LCD Panels ruling in January which saw sanctions of around USD 57 million – although, technically, those sanctions were imposed under the Price Law which prohibits horizontal collusion among other matters (LCD Panels concerned horizontal cartel conduct which predated the introduction of the AML and therefore the AML was not available).

Perhaps surprisingly given the magnitude of the sanctions in Maotai Liquor, statements in the NDRC press releases for the cases indicate that the parties were treated leniently in view of their "active cooperation" in the investigations. In the case of Wuliangye, the NDRC's press release indicates that this translated into a fine equivalent to 1 percent of the company's turnover – the lower end of the spectrum (the AML suggests a 1 percent fine is the minimum where an infringement is established).

Maotai Liquor – the facts

The NDRC investigative teams, comprising officials at the Sichuan Provincial Development and Reform Commission and the Guizhou Price Bureau (Article 10 of the AML provides for the delegation of power by the central antitrust enforcement authorities and the NDRC delegated enforcement under the AML to provincial price bureaus and local development and reform commissions in 2008), found that the two companies' conduct restricted competition and harmed consumer interests in contravention of the AML. In particular, according to the Sichuan regulator, Wuliangye used its position of strength on the market to impose minimum resale prices on liquor sold by more than 3,200 independent distributors of its products through the use of various punitive measures (the imposition of fines, refusals to supply, withdrawal of marketing support and claims for liquidated damages where parties refused to comply with the agreed minimum price) and extensive monitoring of distributors' pricing practices. According to the NDRC press notice, the regulator identified in its ruling theories of harm involving restrictions on both intra-brand and inter-brand competition resulting in reduced consumer choice overall. These latter findings are telling as they may be suggestive that the NDRC did in fact assess restrictions on competition and the press release refers to Wuliangye's market power twice.

As regards Kweichow Maotai, the Guizhou Price Bureau found that it had fixed minimum resale prices for third-party distributors of its liquor products, and sought to punish distributors that did not implement the agreed minimum price. The Guizhou Price Bureau's press release is notably short on detail but appears to assume RPM is contrary to the AML as such.

RPM in China: per se or 'rule of reason'?

Whether the Chinese antitrust authorities are required to demonstrate that a given RPM practice adversely impacts competition or is deemed to infringe the AML per se and regardless of its effects on competition remains somewhat unclear presently. In particular, there are no AML guidelines dealing with the point, though Article 14 of the AML may be taken to suggest a per se approach. Article 14 provides that "[b]usiness operators are prohibited from reaching the following types of monopoly agreement with trade counterparties: (1) agreements that fix the price of goods sold on to third parties". A plain reading of the text here would suggest that an agreement that contains RPM provisions is a monopoly agreement in and of itself though it might still be possible to justify the agreement on the basis of the factors listed in Article 15 of the AML (the agreement improves technology, increases efficiency etc.). The Maotai Liquor decisions appear (though the Wuliangye decision less so) to have taken this literal reading of Article 14 and viewed the RPM practices as illegal per se though there is no direct discussion of this important issue in the NDRC press releases.

By contrast, the Shanghai Intermediate People's Court more explicitly preferred a 'rule of reason' type analysis in the 2012 case Beijing Rainbow/Johnson & Johnson when it dismissed a claim alleging Johnson & Johnson had engaged in RPM practices.

The Court noted that Article 14 of the AML had to be read in conjunction with Article 13 which provides that for the purposes of the AML the term monopoly agreement "means an agreement, decision or other concerted act that eliminates or restricts competition". The Court reasoned that it followed that the mere fact of engaging in RPM was not contrary to the AML per se but rather the issue turned on whether there was a restriction of competition in fact and this would need to be established in a given case. The ruling in Johnson & Johnson is now currently on appeal but a judgement by the Shanghai High People's Court upholding the first instance decision would add further uncertainty as to how RPM should be viewed under the AML and may even invite an appeal of the NDRC's rulings in Maotai Liquor.

Of course if the first instance ruling in Johnson & Johnson is overturned on appeal, that might offer greater legal certainty as to the correct approach to RPM under the AML. Even so, clarity of this kind – that RPM was per se prohibited – would be cold comfort for suppliers active on the China market today whose business practices stand to be severely impacted.

Whatever the position ultimately as regards RPM, it is now clear that aggressive enforcement of the AML's behaviour rules is upon us. Companies selling into China or based there would be well advised to pay heed.

Originally published 5 March 2013

Learn more about our PRC offices and Antitrust & Competition practice.

Visit us at www.mayerbrownjsm.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2013. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions