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Basic Elements for Analyzing Resale Price Maintenance

Ding Wenlian, Oct 28, 2013

There are two main views espoused by scholars on how to apply Article 14 of China's Anti-Monopoly Law, which covers vertical agreements. The first view is that the current case law in the United States at the federal level should be followed, whose guiding principle is the "rule of reason." Following that framework, the burden of proof falls on the plaintiff to prove the existence of a vertical agreement and that the agreement restricts competition.

The second view is that European Union law should be used a reference, which could be described as providing a "presumption of illegality, subject to the possibility of exemption." Under the EU framework, vertical agreements are presumed illegal, unless the defendant succeeds in proving that one of the exemption reasons in Article 15 of the AML applies.

As can be seen, these two views refer to different sets of rules and do not allocate the burden of proof in the same way. Nonetheless, neither of the two approaches follows a rule of "per se prohibition" of vertical agreements. Both types of approaches are meant to address the same question, and their common starting point is that vertical agreements are not inevitably illegal. This then begs the question of which criteria-i.e., which specific factors-are relevant to determine the legality of a vertical agreement. These questions touch upon the very substance of vertical price agreements and, more importantly, the administration of justice in private litigation. Unfortunately, these questions have not received sufficient attention by academia and other stakeholders in China.

This paper argues that, for antitrust law to intervene, a resale price maintenance practice-including the setting of a fixed- or a minimum-resale price-must produce restrictive effects on competition that cannot be overcome or offset. In addition, it is necessary to examine the following four most important factors to assess whether or not an RPM practice is legal:

  • whether there is sufficient competition in the relevant market;
  • whether the defendant has a strong market position;
  • the defendant's motives for engaging in RPM; and
  • the RPM's effect in practice.

These factors will be addressed in more detail on the pages that follow.

 

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