vertical monopoly agreements under the aml: the … · several car manufacturers (benz, audi, dfl...

VERTICAL MONOPOLY AGREEMENTS UNDER THE AML: THE RECENT DRAFT ANTITRUST GUIDELINES ON

AUTOMOBILE SECTOR

December 15, 2017

Janet Hui

Overview

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Guidelines related to Vertical Restraints: Guidelines on the Anti-Monopoly Issues in the Automobile Industry (Draft for Comments) (Draft Automobile Guidelines)

Mutual Separation

Legal Regime of Vertical Monopoly Agreements (or Vertical Restraints) under the Anti-Monopoly Law (AML)

• Introduction of legal regime of vertical restraints

• Antitrust cases related to vertical restraints

Legal regime of vertical restraints

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Vertical restraints explicitly prohibited under the AML

In practice, except for fixing resale prices or minimum resale price directly, RPM could be conducted in the following ways

(either by imposing penalties or offering incentives):

Fixing the resale price range;

Setting forth resale price formula;

Linking the resale prices of its own products to those of the competitors’ products;

Linking the resale prices for one dealer to those for the other dealers;

Linking the thresholds for good-fleeing to resale price;

Fixing the profit margin or minimum profit margin for dealers;

Fixing the maximum discount for the dealer’s sale to the third party;

RPM• Resale price maintenance (either by penalties or incentives)

• Minimum resale price maintenance (either by penalties or incentives)

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Several contact lenses suppliers (Nikon, J&J, Bausch & Lomb and etc..)

Fixed resale price or minimum resale price for the distributors; set recommended resale price and “forced” the distributors to comply with the recommended resale price by penalties or incentives

RMB19 million

Several milk powder suppliers (MeadJohnson, Dumex, Biostime and

etc. )Imposed penalties on the distributors who did not comply with the resale price or minimum resale price set by the suppliers

RMB 668 million

Several car manufacturers (Benz, Audi, DFL and etc.)

Set resale price or minimum resale price; set recommended resale price or minimum resale price with penalties or incentives

(see the chart on next page)

Hankook(2016)

Fix minimum resale price for tire products RMB 2.17miilom

Medtronic (2016)

fixed the resale price (e.g. restricted the biding price, minimum price for offer to hospital)

RMB118.52 million

Major cases for vertical restraints


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Chrysler Audi Benz DFL(Dongfeng-Nissan)

Major cases for vertical restraints (automobile industry)



Except for RPM, other major vertical restraints appeared in daily commercial arrangement include:

Assigning a territory for each authorized distributor and prohibition on cross-territory sales;

Prohibiting cross-supply among authorized distributors;

Prohibition on direct sales from wholesaler to end users;

Whether the above arrangements will trigger concerns under the AML?

Not explicitly prohibited by the AML

Subject to the catch-all clause

Overlap with abuse of dominant position to some extent

Medtronic case (2016)

Relevant products: certain medical devices for cardiovascular,

restorative therapy and diabetes;

Behaviors: fixed the resale price (e.g. restricted the biding price,

minimum price for offer to hospital) and as enforcement measures,

did internal check and withdrew the products for low price wining bids.

Among others, restriction on the sales territory and customer is

deemed as reinforcing the effects of RPM, not taken as a separated

violation.

Penalties: fines of RMB118.52 million

(4% of the turnover of the relevant products in China in 2015) ；


Draft Automobile Guidelines

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Following with the significant fines imposed on players in automobile industry, NDRC has been authorized by the State Council to draft guidelines for automobile industry, aiming to address competition issues in the industry and provide the market with a predictable enforcement of law and thus enhance the players’ compliance.

On March 23, 2016, NDRC published Guidelines on the Anti-Monopoly Issues in the Automobile Industry (Draft for Comments) (Draft Automobile Guidelines) on its website seeking public opinion.

Detailed rules related to vertical restraints are provided in the Draft Automobile Guidelines, which are meaningful for all industries.

Market definition: Further segmentation of aftermarket

Brand is an important factor for the relevant market definition of automobile aftermarket considering the compatibility and possible lock-in effect. In other words, automobile

aftermarket may be further segmented by brand.

Highlights of Draft Automobile Guideline for vertical restraints


RPM and applicable individual exemptions:

Short term RPM in the promotion phase of new energy vehicles (e.g. 9 months from the date on which the auto supplier issues the first invoice);

RPM where distributors just act as intermediaries (both online and offline); RPM where distributors just assist in the transaction for government procurement or online sales.

Furthermore, it is confirmed by the Draft Automobile Guidelines that recommended/suggested resale price and maximum resale price, without any RPM effect in enforcement, normally will not trigger concerns under the AML.


Highlights of Draft Automobile Guidelines for vertical restraints

Territorial/customer restriction:

“Block exemption”: a few territorial or customer restrictions fixed by the

undertaking without significant market power (i.e. market share is below 25%-

30%) can be presumed to be exempted under AML, such as restriction on

active cross-territory sales or restriction on sales from wholesaler to end user.

• Active sales: actively approach and solicit customers

• Passive sales: initially approached by the customers


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“Hardcore restriction”: some restrictions on territory/customers will cause

significant anti-competitive effect and cannot be presumed to be exempted

regardless of the market power, among others, territory or customer restriction

on passive sales and restriction on cross-supplies between distributors.

The aforesaid restrictions are still be able to apply for individual exemption

under the AML.



Territorial/customer restriction

Other vertical restraints against distributors/repairers

The Draft Automobile Guideline list several vertical restraints (both direct and indirect)

that may inappropriately restrict the distributors/repairers’ capability to serve customers,

including forcing distributors to accept unreasonable sales targets/quantity of inventory,

unreasonable requirement or restriction imposed by auto suppliers against distributors

on design, decoration, office facilities as well as the promotion activities and etc.

This is also generally in line with the Measures for Administration of Automobile Sales

issued by MOFCOM came into effect on July 1, 2017.


J U N H EL L P


Janet Yung Yung Hui

Partner

JunHe, Beijing Office

Tel: (86-10) 85191280

Email: [email protected]

Contact Information

vertical monopoly agreements under the aml: the … · several car manufacturers (benz, audi, dfl...

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