close
CHINA

CHINA: Johnson & Johnson RPM Decision - Shanghai No. 1 Intermediate - May 18, 2012.

Beijing Rainbow Medical Equipment Technology & Trading Co. Ltd. was a distributor of Johnson & Johnson for 15 years on renewable one year contracts. The agreements contained a provision requiring Rainbow not to sell below the price stipulated by Johnson & Johnson. On July 1, 2008 a rival distributor accused Rainbow of doing just that, and when Rainbow placed a further order with Johnson & Johnson on August 15, 2008, it was not shipped.

Paul JONES - 17.09.12
Country expert

 

The AML came into force on August 1, 2008, and one of the arguments put forward by Johnson & Johnson was that because the distribution agreement was entered into before that date the AML did not apply. The Shanghai court did not deal with this issue. Article 14 of the AML prohibits the formation of agreements (Monopoly Agreements) that fix prices or even minimum resale prices. In Article 13 'Monopoly Agreements' are defined as agreements which eliminate or restrict competition.

The court found that the distribution agreement did fix prices, but that alone was not enough. The plaintiff also had to prove that it restricted competition.

 

(In particular there is a need to further examine the relevant market share of the products under the distribution agreement, the contract terms regarding quantity and price, and the supply of the product in order to be able to draw the correct conclusions.)

Based on the evidence described in the judgment the counsel for the plaintiff did not consider this issue, and no relevant evidence was submitted. As others have noted there were previous re-sale price maintenance cases pursued by the NDRC where these requirements did not appear to have been relevant.

The court listed two other elements to be proved, namely that the plaintiff had suffered damages, and that the damages were caused by the defendants conduct.

The PRC is a civil law jurisdiction, and court proceedings focus almost entirely on written evidence and written argument (as opposed to oral). The initial choice of strategy and the collection of good written evidence are crucial factors in winning a case. This decision certainly appears to illustrate that maxim.

 

 

Paul Jones , IDI Franchising country expert for China

 

 

RELATED