Douglas Adams, author of The Hitchhiker’s Guide to the Galaxy, has said that “Nothing travels faster than the speed of light, with the possible exception of bad news, which obeys its own special laws.”
In the case of a recent investigation in China, infant formula manufacturers would be inclined to agree, with the National Development & Reform Commission (NDRC) moving from initiation of investigation to the imposition of fines in five short months.
China’s NDRC has been investigating Biostime, Mead Johnson, Dumex, Abbott, FreislandCampina, Fonterra, Wyeth, Beingmate and Meiji since March 2013, based on complaints that they had engaged in resale price maintenance. See more about the investigation in our earlier post here.
On 7 August 2013, the NDRC announced it had imposed civil fines on 6 of the 9 companies as follows:
- Mead Johnson: the highest fine of AUD 36.6 million (RMB 203 million)
- Danone-owned Dumex: AUD 31.0 million (RMB 172 million)
- China’s Biostime: AUD 29.4 million (RMB 163 million)
- Abbott: AUD 13.9 million (RMB 77 million)
- Dutch company Freisland Campina: AUD 8.8 million (RMB 49 million)
- Fonterra: AUD 0.7 million (RMB 4 million)
The remaining 3 companies – Wyeth, Beingmate and Meiji – received immunity from the NDRC because they fully cooperated with the NDRC’s investigation and were proactive in their efforts to rectify the matters under investigation.
The NDRC found that the 9 companies had engaged in resale price maintenance by asking supermarkets and distributors to sell relevant products at a specified price in return for rebates and that they imposed direct and disguised fines, reduced rebates, or restricted or suspended supply if the supermarkets or distributors did not sell the products at the specified price.
Although all 9 companies seem to have engaged in the same conduct, the NDRC’s findings did not involve any findings about horizontal price fixing. The conduct seems to have been a market practice without an understanding between some or all of the 9 companies that they would engage in the practice.
This is the second NDRC enforcement for resale price maintenance this year. The first case involved the NDRC imposing civil fines on 2 Chinese wine companies AUD 81 million (RMB 449 million) which we blogged about here.
In both cases, the NDRC has not commented on whether the prohibition on resale price maintenance is per se (strict liability) or requires an assessment of the likely effects on competition.
The cases send a strong signal about the NDRC’s preparedness to impose substantial fines on local and foreign companies who engage in resale price maintenance and its preparedness to grant immunity to companies who fully co-operate with its investigations and who are proactive in their efforts to rectify breaches.