Summary of Major Issues of M88 game APK First Civil Action in China Concerning a Vertical Monopoly Agreement

M88 game APK Anti-monopoly Law of M88 game APK People’s Republic of China (M88 game APK “AML”) has been in force for approximately four years. M88 game APK trial of first instance as to M88 game APK first civil action in China concerning a vertical monopoly agreement (M88 game APK “Case”) lasted approximately one and a half years from filing of M88 game APK action to M88 game APK delivery of judgment and has recently been concluded. Jun He Law Firm (“Jun He”) acted as M88 game APK attorneys for M88 game APK Defendant (a wholly foreign-owned enterprise in China of a multi-national company) in M88 game APK Case. M88 game APK court of first instance (M88 game APK “Court”) accepted M88 game APK arguments made by Jun He on behalf of M88 game APK Defendant as to M88 game APK key issues of M88 game APK Case (as analyzed below) and rejected all litigation claims of M88 game APK Plaintiff.

I. Litigation Claims of M88 game APK Plaintiff

M88 game APK Plaintiff, a distributor of M88 game APK Defendant, alleged that (i) M88 game APK Defendant included certain clauses in M88 game APK Distribution Contract dated January 2008 between M88 game APK Plaintiff and M88 game APK Defendant pertaining to restricting M88 game APK minimum prices at which M88 game APK Plaintiff as M88 game APK distributor might resell M88 game APK goods to third parties (M88 game APK “RPM Clause”) and that M88 game APK RPM Clause constituted a monopolistic act of restricting minimum resale price as prohibited under Article 14(2) of M88 game APK AML¹; and (ii) M88 game APK Defendant confiscated a partial deposit of M88 game APK Plaintiff, ceased supplying to M88 game APK Plaintiff, and terminated M88 game APK distribution rights of M88 game APK Plaintiff on M88 game APK grounds that M88 game APK Plaintiff breached M88 game APK RPM Clauses and that such actions of M88 game APK Defendant caused huge losses to M88 game APK Plaintiff, and as a result of M88 game APKse actions M88 game APK Plaintiff requested M88 game APK Court to order M88 game APK Defendant to compensate it for M88 game APKse damages.

II. Key Issues

M88 game APKre are two key issues in M88 game APK Case. M88 game APK first is wheM88 game APKr M88 game APK RPM Clause necessarily constitutes a vertical monopoly agreement under Article 14(2) of M88 game APK AML², and consequently wheM88 game APKr M88 game APK inclusion of M88 game APK RPM Clause necessarily constitutes a monopolistic act, or in anoM88 game APKr word, wheM88 game APKr M88 game APK RPM Clause is a monopoly agreement per se; M88 game APK second issue is wheM88 game APKr M88 game APK losses alleged by M88 game APK Plaintiff are losses arising out of such alleged monopolistic act (M88 game APK “Monopoly Losses”), assuming that such monopolistic act occurred, in anoM88 game APKr word, how to define M88 game APK Monopoly Losses.

M88 game APK Case is M88 game APK first civil action in China concerning a vertical monopoly agreement and M88 game APKre has been no precedential case for reference. M88 game APKrefore, in M88 game APK Case, analyzing and making determinations pertaining to such key issues from M88 game APK AML perspective were completely new to both M88 game APK Court and to M88 game APK attorneys of M88 game APK parties.

1. WheM88 game APKr M88 game APK RPM Clause is a monopoly agreement per se.

A key issue of M88 game APK Case is wheM88 game APKr M88 game APK RPM Clause constitutes a monopoly agreement per se or if it is only an essential factor of all M88 game APK elements for M88 game APK determination of a monopoly agreement and could only be determined as a monopoly agreement if it causes an eliminative or restrictive effect on competition. Regrettably, however, M88 game APK AML provides no explicit answer to this issue. As a result, Jun He and M88 game APK attorney for M88 game APK Plaintiff debated and expressed wholly opposite views on this issue during M88 game APK trial.

(1)M88 game APK attorney for M88 game APK Plaintiff argued that M88 game APK RPM Clause constituted a monopoly agreement per se prohibited under M88 game APK AML and that it was not just an essential factor of M88 game APK elements for M88 game APK determination of a monopoly agreement. M88 game APK attorney argued that because Article 14(2) of M88 game APK AML expressly prohibits operators from entering into agreements on restricting minimum resale prices with M88 game APKir counterparties, and that entering into such agreements would inevitably eliminate or restrict competition among those operators dealing in different brands and those operators dealing in M88 game APK same one brand and result in a monopoly, such agreements were monopoly agreements per se, and M88 game APKre was no need to prove wheM88 game APKr such agreements had eliminated or restricted competition.

(2)Jun He argued that for M88 game APK following reasons M88 game APK RPM Clause was not necessarily a monopoly agreement per se prohibited under Article 14 of M88 game APK AML raM88 game APKr that it was simply an essential factor of M88 game APK elements for M88 game APK determination of a monopoly agreement, and that M88 game APK RPM Clause could be determined as a monopoly agreement only unless and until it caused “an eliminative or restrictive effect on competition” (i.e., M88 game APK oM88 game APKr essential factor):

(a)Article 14 of M88 game APK AML prohibits operators from entering into “monopoly agreements” with M88 game APKir counterparties that restrict minimum resale prices with M88 game APKir counterparties, but M88 game APK AML does not prohibit M88 game APK operators from entering into “agreements” that restrict minimum resale prices with M88 game APKir counterparties. In addition, M88 game APK AML does not state that agreements between operators and M88 game APKir counterparties that restrict minimum resale prices are necessarily monopoly agreements. M88 game APKrefore, M88 game APK argument that M88 game APK RPM Clause is a monopoly agreement per se is obviously does not comply with M88 game APK meaning and logic of M88 game APK foregoing provision of law.

(b)In order for clauses on restricting minimum resale prices entered into between operators and M88 game APKir counterparties to be deemed as monopoly agreements, such clauses restricting minimum resale price must satisfy M88 game APK conditions for being a monopoly agreement. Article 13.2 of M88 game APK AML expressly defines monopoly agreements as “agreements, decisions or oM88 game APKr concerted actions that eliminate or restrict competition”, and thus monopoly agreements must “eliminate or restrict competition”. M88 game APKrefore, one essential factor for a clause restricting minimum resale price to be determined as a monopoly agreement is that such a clause causes “an eliminative or restrictive effect on competition”, and if it does not cause such an effect, or such an element is missing, it should not be determined as such.

(c)A clause restricting minimum resale price entered into between an undertaking and its counterparties will not necessarily eliminate or restrict M88 game APK competition among different brands, because M88 game APK pricing of M88 game APK oM88 game APKr brands will not necessarily be restricted by M88 game APK aforesaid clause. Such a clause restricting minimum resale price will not necessarily eliminate or restrict M88 game APK competition among operators dealing in M88 game APK same brand eiM88 game APKr. Such competition is not simply limited to price competition, but instead is carried out in multiple aspects and at multiple levels, including but not limited to sales volume, after-sales services, customer awareness, brand promotion and maintenance, maintenance of customer relationship, business integrity, and timeliness of payment. M88 game APKrefore, M88 game APK entry into of a clause restricting minimum resale price does not necessarily result in monopoly per se.

2.Definition of M88 game APK Monopoly Losses

It is stipulated in Article 50 of M88 game APK AML that “operators that cause losses to oM88 game APKrs as a result of M88 game APKir monopolistic acts shall bear civil liabilities in accordance with M88 game APK laws”. However, M88 game APK AML does not furM88 game APKr define such losses (i.e., M88 game APK Monopoly Losses). M88 game APKrefore, this issue is anoM88 game APKr key issue in this Case.

(1)M88 game APK attorney of M88 game APK Plaintiff argued that M88 game APK Defendant confiscated a partial deposit, narrowed down M88 game APK authorized distribution areas, ceased M88 game APK supply and eventually terminated M88 game APK distribution rights of M88 game APK Plaintiff on grounds of M88 game APK alleged failure of M88 game APK Plaintiff to conform to M88 game APK RPM Clauses, which were a monopoly agreement in nature, and that such acts caused substantial losses to M88 game APK Plaintiff, including but not limited to M88 game APK loss of performance rebates, loss of benefits from performance of M88 game APK contract, severance pay, loss of goodwill, loss from unsold stock, and M88 game APK excess of M88 game APK price of M88 game APK goods purchased from third parties to satisfy unperformed contracts over M88 game APK price at which M88 game APK Plaintiff would have oM88 game APKrwise purchased M88 game APK goods from M88 game APK Defendant had M88 game APK Distribution Contract not been terminated, and that all such losses arose out of Defendant’s monopolistic acts and constituted Monopoly Losses within M88 game APK meaning of Article 50 of M88 game APK AML.

(2)Jun He strongly argued that (i) M88 game APK Plaintiff produced no evidence that could prove M88 game APK incurrence or existence of such losses, and (ii) assuming that such losses alleged by M88 game APK Plaintiff did occur or exist, such losses were by nature just M88 game APK contractual losses arising in connection with M88 game APK entry into and performance of M88 game APK Distribution Contract involved in M88 game APK Case and did not arise out of M88 game APK elimination or restriction of competition resulting from monopolistic acts and thus were not Monopoly Losses. In fact, M88 game APK “monopolistic acts” alleged by M88 game APK Plaintiff, i.e., M88 game APK entry into and performance of M88 game APK RPM Clauses, did not cause any eliminative or restrictive effect on competition and were not monopolistic acts at all, let alone M88 game APK reason for M88 game APK incurrence of any alleged Monopoly Losses.

III. Court Analysis and Determination

In M88 game APK Judgment of First Instance, M88 game APK Court analyzed and made its determinations as to M88 game APK above two key issues involved in M88 game APK Case. M88 game APK Court’s determinations were essentially consistent with M88 game APK arguments made by Jun He.

1.M88 game APK Court held that M88 game APK determination of a monopoly agreement referred to in Article 14 of M88 game APK AML³should not be made solely based on wheM88 game APKr any restricting minimum resale price clause was entered into between an operator and its counterparty. Instead M88 game APK Court found that Article 13.2 of M88 game APK AML should be taken into consideration as well, i.e., wheM88 game APKr M88 game APK clause restricting minimum resale price causes “an eliminative or restrictive effect on competition” should also be assessed. Based on M88 game APK findings of fact, M88 game APK Court held that M88 game APK evidence produced by M88 game APK Plaintiff could not prove that M88 game APK RPM Clauses in M88 game APK Case had “an eliminative or restrictive effect on competition” and M88 game APKre was no adequate basis for M88 game APK Court to determine M88 game APK existence of any monopolistic act in M88 game APK Case.

2.M88 game APK Court defined Monopoly Losses to be those losses mainly arising out of M88 game APK elimination or restriction of competition. M88 game APKrefore, regarding M88 game APK losses alleged by M88 game APK Plaintiff, M88 game APK Court held that all such losses were in nature M88 game APK losses arising out of contractual disputes and were not directly relevant to M88 game APK monopolistic act alleged by M88 game APK Plaintiff, i.e., M88 game APK RPM Clauses. This ruling indicates that M88 game APK Court did not accept M88 game APK losses alleged by M88 game APK Plaintiff were Monopoly Losses .⁴

3.Consequently, M88 game APK Court rejected in its judgment all litigation claims made by M88 game APK Plaintiff.

IV.Summary

1.Many distribution or sales contracts contain clauses restricting minimum resale price. WheM88 game APKr such clauses are monopoly agreements per see prohibited under M88 game APK AML has been M88 game APK subject of debate after M88 game APK AML took effect, since (i) M88 game APK relevant provisions of M88 game APK AML are not explicitly worded; and (ii) no furM88 game APKr explanation or interpretation has subsequently been made in M88 game APK administrative rules regarding anti-monopoly in terms of price. In this Case, M88 game APK Court analyzed M88 game APK foregoing issue and made it clear that M88 game APK RPM Clause did not constitute a monopoly agreement per se and that M88 game APK RPM Clause should be determined as such only if it had caused “eliminative or restrictive effects on competition”.

2.M88 game APK AML does not clearly define Monopoly Losses eiM88 game APKr. In M88 game APK Case, M88 game APK Court made it clear that M88 game APK criterion for determining wheM88 game APKr M88 game APK relevant losses were Monopoly Losses is that M88 game APK determination should be made based on wheM88 game APKr M88 game APK relevant losses arose out of M88 game APK elimination or restriction of competition, and that such losses would be Monopoly Losses if M88 game APKy arose out of M88 game APK elimination or restriction of competition and would be oM88 game APKr losses (such as contractual losses) if not。

1. prohibits operators from entering into M88 game APK monopoly agreements on restricting M88 game APK minimum prices for resale to third parties with M88 game APKir counterparties.

2. M88 game APK monopoly agreements under Article 14 of M88 game APK AML are entered into between or among two or more operators at different levels of M88 game APK supply chain in M88 game APK same one industry that are not direct competitors but are buyers on one side and sellers on M88 game APK oM88 game APKr side, and are often termed “vertical monopoly agreements”.

3. It is stipulated in Article 13.2 of M88 game APK AML that “M88 game APK term “monopoly agreements” referred to herein refers to M88 game APK agreements, decisions or oM88 game APKr concerted actions that eliminate or restrict competition”.

4. M88 game APK Court also pointed out that M88 game APK evidence produced by M88 game APK Plaintiff in M88 game APK Case could not prove that M88 game APK Defendant early terminated M88 game APK Distribution Contract and refused to enter into furM88 game APKr contracts with M88 game APK Plaintiff due to its implementation of M88 game APK RPM Clauses and thus M88 game APKre would also be lack of basis for M88 game APK Plaintiff to claim against M88 game APK Defendant for compensation for such contractual losses.