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Business Articles Awards > Asian Antitrust

Rainbow v. Johnson & Johnson: RPM Litigation in China

Fei Deng and Su Sun, ABA’s Distribution Newsletter, March 2014

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On August 1, 2013, the fifth anniversary of China’s Antimonopoly Law (AML) taking effect, the Shanghai High People’s Court (the High Court) delivered its long awaited appellate decision on the resale price maintenance (RPM) case involving Johnson & Johnson Medical China Ltd (J&J). Prior to this decision in Rainbow v. Johnson & Johnson, the appropriate antitrust policy to apply to RPM had been controversial in China. The AML itself does not clearly specify whether RPM should be treated as a per se violation or whether it should be analyzed under the rule of reason, and the Supreme People’s Court’s (the SPC) judicial interpretation (JI) of the AML did not clarify this issue.

When the Shanghai No. Intermediate People’s Court (the Intermediate Court) initially ruled that J&J did not violate the AML, it provided the first sign that Chinese courts might consider RPM cases under the rule of reason in the same way U.S. federal courts have treated the issue since the Supreme Court’s 2007 decision in Leegin Creative Leather Products v. PSKS. However, the recent aggressive crackdown on RPM practices in the white liquor industry and the infant milk formula industry by the National Development and Reform Commission (NDRC), China’s antitrust agency in charge of enforcement against price-related cartels and abuse of dominance, prompted speculation that the NDRC might differ from Chinese courts in approaching RPM cases.

Although the High Court overturned the Intermediate Court’s decision and ruled that J&J’s RPM practices violated the AML, it affirmed the rule of reason approach and established a framework under which courts should analyze four factors in applying the rule of reason: (1) the competitiveness of the relevant market; (2) the defendant’s market power; (3) the defendant’s purpose for implementing the RPM; and (4) the competitive effect of the RPM.

The High Court’s opinion is significant for several other reasons, including its embrace of economic analysis, its decision on the burden of proof in an RPM case, its approach to admissibility and weighting of certain types of evidence, and its holdings on the standing of a distributor to challenge RPM agreements and how the contract between the distributor and the supplier influences how damages are determined.

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