Business Litigation Report - July 2016

by Quinn Emanuel Urquhart & Sullivan, LLP
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Article: Increase in Vertical Price Restraint Enforcement in China -

In recent months, Chinese anti-monopoly enforcement actions scrutinizing and penalizing pricing-related issues have noticeably increased. A growing number of foreign companies in consumer-facing industries have received significant penalties for setting pricing restrictions—usually minimum resale prices—on contractual counterparties down the supply chain. A particular target of the enforcement authorities has been the automotive industry, which has been the subject of numerous regulatory actions, but cases in this area are not limited to that sector; the authorities have also taken action in the liquor and healthcare industries.

The most recent development is that on April 15, 2016, the Shanghai Pricing Bureau, a provincial- level authority for pricing-related anti-monopoly enforcement actions, imposed a fine of USD 340,000 on South Korean tire company Hankook. See Shanghai Price Bureau Administrative Penalty Decision (Shanghai Hankook Tires), Case No. 2520160001 (April 12, 2016). The decision found that Hankook established minimum resale price restraints through its agreements with its distributors, under which Hankook had implemented minimum price lists, “market norm” security deposits, and warning letters when distributors offered prices below the minimum. This penalty was just one in a series of administrative decisions penalizing vertical price restraints in the automotive industry in the last 18 months. To date, Chinese anti-monopoly law enforcement authorities (the “AMEAs;” including National Development and Reform Commission, the State Administration of Industry and Commerce, and the Ministry of Commerce) have imposed fines totaling more than RMB 2 billion (approximately USD 300 million) on major automakers and spare-parts suppliers; five out of seven actions are related to vertical price restraints. (See Liu Weiyan, Anti-Monopoly Guidelines for the Auto Industry Targets Resale Price Maintenance and Presumptive Exemptions Remain Difficult, National Business Daily (April 25, 2016).)

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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