by Susan Ning, Cheng Liu, Hazel Yin, Yun Bi King & Wood Mallesons’ Commercial & Regulatory Group
In recent years, Chinese authorities have dealt with many antitrust cases for resale price maintenance (“RPM”), and such investigations have spread into various industries, e.g. milk powder, eye glasses, alcohol, automotive industry, etc. Especially in the automotive industry, since 2014, some well-known branded auto suppliers have been fined for restricting their distributors’ resale price. On March 23, 2016, the National Development and Reform Commission (“NDRC”) published the consultation draft of the Antitrust Guidelines for Automotive Industry (“Consultation Draft”) to invite public comments. The Consultation Draft particularly provides detailed explanations on RPM and provides practical guidance for both companies and the Anti-Monopoly Enforcement Agencies (“AMEAs”).
Assessment of RPM’s anticompetitive effects
The Consultation Draft clarifies that the Anti-Monopoly Law (“AML”) focuses more on the effect of conduct rather than its formality. The Consultation Draft on the one hand, confirms that RPM is prohibited under Article 14 of the AML. On the other hand, it recognizes that RPM may be exempted under Article 15 of the AML, if companies establish that such practice does not seriously restrict competition and enables consumers to share the benefit therefrom. Therefore, in general, the Consultation Draft clarifies that the AMEAs may adopt the frame of “prohibition plus exemption” principle to assess the anticompetitive effects of RPM on a case-by-case basis, which is consistent with both the current regime of the AML and the AMEAs’ previous enforcement.
Identifying four exemptible RPM situations
In practice, we notice that RPM is hardly exempted in the previous investigations by the NDRC. Hence, in practice, companies are not clear on which kinds of RPMs may apply for exemption. The Consultation Draft identifies four RPM situations where companies may apply for exemption, by referring to the characteristics of the automotive industry, namely:
- RPM for new energy automobiles during the promotional period;
- RPM imposed on the distributor who only acts as an intermediary party;
- RPM in the government procurement where the distributor participating the public bid only acts as an intermediary party; and
- RPM in the auto suppliers’ online sales where the online platform only acts as an intermediary party.
There are a lot of discussions about whether the Consultation Draft may exempt RPM for new automobiles during the promotional period in the early stage of drafting the Consultation Draft. However, the current Consultation Draft only adopts exemptions applicable to the new energy automobiles during the promotional period. And the Consultation Draft also extends the promotional period for new energy automobiles to 9 months after the automobiles come into the market. This benefit to the new energy automobiles reflects the AMEAs’ considerations of both the public interest under Article 15 of the AML and the national strategy to support the development of new energy automobiles.
The other three exemptible situations mainly involve RPM imposed on distributors who only act as intermediary parties. The Consultation Draft emphasizes that the pricing policy in the online sales is generally regulated under the AML and other applicable laws and regulations, which shall not be differentially treated. Therefore, the exemption for the RPM in online sales is only applicable to the online sales fulfilled by the distributor who acts as an intermediary party.
In EU and the US, the “genuine agency agreement” may be used as a defense against RPM allegations, because there is no real resale between suppliers and distributors under such arrangement, therefore RPM is not applicable. However, the “genuine agency agreement” normally does not cover the situation of the “intermediary party”. The intermediary party described in the Consultation Draft usually bears certain commercial risks during the transaction (such as the inventory or financial risks), and has obtained the title of automobiles by finishing the purchase from auto suppliers in advance, which is totally different from the concept of “genuine agent” under the US or EU law.[i] However, the Consultation Draft recognizes that such intermediary parties should be distinguished from the ordinary distributors, because they only participate in limited process during the transaction, i.e. invoicing, delivery, receiving payment, etc., to facilitate the transaction between auto suppliers and end users (where the price and other key business terms are agreed between auto suppliers and end users directly). Such distinction takes the common practice in the automotive industry into account and also reflects the AMEAs’ focus on the anticompetitive effects of conducts (rather than the form of conducts).
It is well worth noting that the AMEAs also notice that the above four exemptible situations, especially the last three, could be misused in practice, and therefore require companies to prove their conduct complying with the above four situations and in accordance with Article 15 of the AML on a case-by-case basis, rather than presumably or directly exempt these practices.
Recognizing pro-competitive effects of setting suggested or maximum resale price
The Consultation Draft recognizes that setting up a suggested or maximum resale price brings with efficiencies. However, it also clarifies that if such suggested or maximum resale price has actual effect of RPM, due to its accompanied incentive or punitive measures, it also could be considered as imposing RPM prohibited under Article 14 of the AML. Such attitude towards the suggested or maximum resale price is consistent with the current enforcement practice of the AMEAs.
Conclusion and Recommendations
The Consultation Draft provides practical guidance for auto suppliers to self-regulate their future pricing policies and to enhance their compliance work. However, the Consultation Draft does not exhaustively list all the exemptible situations. Companies may apply for exemption according to Article 15 of the AML for their other business practices.
We also noticed that some listed exemptible situations may also broadly exist in other industries, especially RPM involving intermediary parties. Since the Consultation Draft will only be applicable in automotive industry upon taking effect, it is recommended that companies in other industries keep monitoring the key development and enforcement of the AMEAs for similar situations existing in their domains.
[i] See Thoughts on Certain Key Issues of Drafting the Antitrust Guidelines for Automotive Industry, Lu Yanchun and Su Hua.