In a judgment that was recently made public, the Guangzhou Intellectual Property Court dealt with a claim that a distributorship agreement infringed the prohibition on resale price maintenance under Article 14(2) of the Antimonopoly Law. The judgment, made on 30 August 2016, involved a damages claim brought by Hengli Guochang, a sub-distributor of GREE-branded appliances in the city of Dongguan.
The Court found that, pursuant to two agreements concluded in 2012 and 2013, Heshi and Hengli were appointed as wholesale distributor and sub-distributor, respectively, of GREE-branded products in Dongguan. Thereunder, all sales policies and channel development strategies in respect of GREE-branded products were determined solely by GREE and implemented accordingly by Heshi. Eligibility as distributors was conditioned upon specific obligations, including the payment of a commitment deposit and strict compliance with the requirements of GREE in terms of pricing policy, customer relations management and after-sales services. More specifically, any deviation from the pre-determined pricing policy would subject a distributor to a penalty payment equivalent to a portion of the commitment deposit. In early 2015, Hengli sought to terminate its relationship with GREE and Heshi on the basis that the latter had refused to make due repayment of the commitment deposit following Hengli’s failure to comply with the minimum resale price fixed by GREE in 2013.
Having regard to the absence of restrictive effects on competition, the Court was of the view that the two agreements did not involve infringements of Article 14(2) of the Law. Noting that players active in the air-conditioning appliances market in the city of Dongguan continued to face competition from both international brands and strong domestic brands, it was accepted that GREE did not enjoy a dominant market position such that its policy of imposing minimum resale prices could not result in a loss of inter-brand competition. Further, despite a possible loss of intra-brand price competition, market players may continue to compete on other parameters, including pre-sales advertising, sales promotions and after-sales services.
Consistent with the approach adopted by the Shanghai courts in dealing with resale pricing restrictions imposed by Johnson & Johnson in 2013, this case confirms that courts will not readily assume contravention of Article 14(2) of the Antimonopoly Law in respect of agreements containing minimum resale price restrictions. Instead, a more detailed analysis of their effects will be warranted.