In its first antitrust ruling since the passage of China’s AntiMonopoly Law (“AML”), China’s Supreme People’s Court (“SPC”), its highest court, clarified rules regarding resale price maintenance (“RPM”). RPM, also known as vertical price fixing, is an agreement between a manufacturer and a distributor to set the price at which the distributor will resell the manufacturer’s products to retailers. Prior to this decision, antimonopoly enforcement agencies (“AMEAs”)1 in China condemned RPM with a “prohibition + exemption” approach. RPM was per se unlawful unless an exemption applied, and AMEAs rarely conducted any analysis to determine whether RPM led to an anticompetitive result. In contrast, Chinese courts generally reviewed RPM cases under the rule of reason, which considers the net competitive impact of the conduct. The SPC’s Yutai2 ruling adopts a compromise approach for public enforcement: AMEAs may impose fines for RPM without proving that RPM led to anticompetitive effects; however, companies may avoid penalties if they can show the absence of an effect on competition. In other words, SPC set a rebuttable presumption of anticompetitive effects for RPM. The Yutai ruling does not alter the Shanghai Higher Court’s 2013 Johnson & Johnson decision which held that RPM in private litigation is subject to a full rule of reason analysis in which a plaintiff must prove an anticompetitive effect.3
Although the Yutai decision provides companies operating in China an opportunity to defend RPM as procompetitive, courts in government-enforcement cases must presume that RPM is unlawful. Therefore, companies are still advised to avoid RPM in China.