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APRIL 2013Legal Focus 97What legal challenges will this bring?According to the AML, where an undertaking,in violation of the provisions of this Law,concludes and implements a monopolyagreement, enforcement agencies of the AMLshall instruct it to cease the violation, confiscateits unlawful gains, and, in addition, impose on ita fine of one to ten percent of its sales achievedin the previous year. The fines are only a portionof punishment for Maotai and Wuliangye, thereal challenge in the coming days is privateantitrust litigation. The victims (e.g. consumersand distributors) suffering the loss are entitled toclaim their rights under the Article50 of AML. Inthat case, Maotai and Wuliangye will involve intime-consuming litigation, which is the last thingthey want to see.What legislative developments do you feelthere is a need for?First, since the application of rule of reason toRPM is settled down, the AML does not makespecific stipulation about vertical territorialallocation. Currently, the AML only provides fortwo types of vertical monopoly agreements,namely fixing resale price and restrictingthe minimum resale price. The SAIC has notpromulgated any rules on non-price-relatedvertical agreements.Moreover, there is no rule setting out the basisfor calculation of the sales revenues. Accordingto Article 46 of the AML, for companies thatenter into a monopoly agreement, the AMLenforcement agencies are entitled to impose afine ranging from 1–10% of their sales revenuesfor the previous year. However, according tosome news report, Wuliangy’s sales revenue in2012 may hit more than RMB 60,000 million, andKweichow Moutai’s sales revenue in 2012may hit around RMB 35,200 million. If this is thecase, it would appear that the fine was notcalculated on the basis of the sales revenues ofthe entire group in the previous year. Therefore,it is not clear whether the basis for calculatingthe fine will be the group revenue or therevenue of the single company investigated,the worldwide revenue or the China-widerevenue, the revenue of the whole business orthe revenue of the affected business.What are the key legal issues within competitionlaw that foreign companies need to be awareof?Considering the severe damage that a cartelinvestigation can cause, the implementationof preventive measures is more importantthan ever. Firstly, it is advisable to draw up aneffective compliance program that fits for theneeds and specific circumstances of thecompany concerned. And the complianceprogram should provide regular training andmonitoring.In addition to the compliance program, theforeign companies should bear in mind that theleniency treatment is very important wheninvolving in monopoly agreement. The businessoperator who comprehensively and activelycooperates with the investigation may beleniently punished by enforcement agencies.Is there anything else you would like to add?For foreign companies, evaluating the antitrustrisk and seriously considering taking preventivemeasures to avoid or mitigate the negativeconsequences of violation should be a priorityin their daily management and legal affairs. Therecent cases have sent a strong signal to themarket that vertical monopoly agreement hasbecome a focus of NDRC’s AML enforcementactivities. It will be vital for companies doingbusiness in China to review their marketingactivities and assess the legal exposures underthe AML if they cover any vertical restraints suchas RPM. It is advised to get rid of the originalmode for distribution, and pay more attentionon product improvement and improving corecompetiveness. LMContact Details:Ken DaiKen Dai earned his LLB and LLM respectivelyfrom the China University of Political Scienceand Law, and the University of Bristol in UnitedKingdom. His working languages are Mandarin,English and Cantonese. Currently, Ken Dai isthe member of the Outbound Investment andAntitrust Committee at Shanghai BarAssociation and Asian Competition Forum. He isalso a columnist at Forbes.Ken DaiDacheng Law Offices3/F & 30/F, China Development Bank Tower500 Pudong South Road, Shanghai, 200120, P. R. ChinaTel: 86-21-5878 5888Direct: 86-21- 5878 1965Fax: 86-21-5878 7350Mobile: 86-139 1611 3437Email: jianmin.dai@dachenglaw.comWebsite: www.dachenglaw.comwww.lawyer-monthly.com