As long term legal counsel for foreign investors in mainland China, we are sometimes asked to give legal advice on their resale price policy. Clients basically want to know if it is legal in China to enter into a contract setting a minimum resale price.
What’s the big fuss? Well the subject matter touches on issues in China’s Anti-Monopoly Law which clearly stipulates that it is prohibited to enter into a monopoly agreement restricting the minimum price for resale. Does this provision mean that any agreement with terms restricting the minimum price for resale will automatically be subject to fines?
Relax. Section 13 of the same law clarifies that a “monopoly agreement” refers to agreements, decisions or other coordinated behavior with the effect of eliminating or restricting competition. Therefore, for an agreement with terms restricting minimum price for resale to be illegal, it must first be found to have the effect of restricting competition. Most ordinary Distribution Agreements are at no risk.
In determining whether an agreement is restrictive of competition, a court will look at several factors, to give a clear idea of the whole picture. If a company does not hold a dominant market position and its products aren’t already dominating the market, we feel it is safe to say the company doesn’t need to be worrying about violating this particular law. As always, in case any doubt, contact your friendly neighborhood China lawyer. Though risks are low, fines can be very high if regulators due determine there are Anti-Monopoly law violations. In 2015, Qualcomm was handed a fine of over 6 billion RMB.