In a second-instance judgment on a monopoly dispute between Company A and Company B, the Supreme People's Court upheld the first-instance court's determination regarding a horizontal monopoly agreement and maintained the first-instance judgment that the horizontal monopoly agreement was invalid. In the second-instance judgment, the Supreme People's Court held that if the fundamental content and core objective of the disputed agreement were to exclude one party (i.e., the service-receiving operator) from a certain scope of market competition, such agreement constituted a horizontal monopoly agreement and shall be deemed entirely invalid. The second-instance judgment elaborated on the legal basis for the aforementioned determination from the following perspectives, providing guiding significance for the examination of cases involving horizontal monopoly agreements.
Company A and Company B are both enterprises operating in the intelligent transportation sector, and both produce and sell signal controller products in City A at the same time, thus, the two companies are competitors. The parties agreed in the disputed agreement as follows: Company A, in accordance with the detailed testing rules for signal controllers set by the City A Traffic Police Detachment’s control platform, agreed to assist and guide Company B in passing the test for its domestically produced signal controller products; after completing the connection of the already-sold signal controllers to the designated platform, Company B would voluntarily cease further sales of its own-brand signal controllers in City A; if, after the agreement took effect, Company B continued to sell or use its own-brand signal controller products in City A in violation of the contractual terms, it would pay Company A a penalty of RMB 20,000 for each unit supplied. Subsequently, Company A filed a lawsuit on the grounds that Company B had breached the contractual agreement by continuing to sell its own-brand signal controllers in City A, and requested the court to order Company B to pay liquidated damages to Company A.
Company B argued that the disputed agreement was a monopoly agreement and shall be deemed invalid.
The first-instance court held that the agreement at issue constituted a monopoly agreement and shall be deemed invalid in accordance with law. As Company A had no right to claim liquidated damages based on the agreement, the court dismissed Company A's claims. Company A, dissatisfied with the first-instance judgment, argued that the purpose of signing the agreement at issue was not to exclude or restrict competition, but rather to resolve the problem of existing signal controllers being unable to connect to the platform again due to failure to meet national standards. The agreement was supposed to be a general civil and commercial contract, rather than a horizontal monopoly agreement. Based on this, Company A filed an appeal with the Supreme People’s Court. Upon examination, the Supreme People’s Court rendered a final judgment: the appeal was dismissed and the original judgment was upheld.
Regarding how to determine whether an agreement or a specific act constitutes a horizontal monopoly agreement, as well as the legal basis for deeming the provisions of a horizontal monopoly agreement invalid, the effective judgment of the second-instance court elaborated on the following aspects:
China's Anti-Monopoly Law stipulates that a monopoly agreement refers to an agreement, decision, or other concerted practice that excludes or restricts competition. China's Anti-Monopoly Law prohibits operators with competitive relationships from reaching monopoly agreements that (1) fix or change the prices of commodities; (2) restrict the production quantity or sales volume of commodities; (3) divide sales markets or raw material procurement markets; (4) restrict the purchase of new technology or new equipment or restrict the development of new technology or new product; (5) engage in a joint boycott of transactions, and any other monopoly agreements.
Whether a particular act or agreement constitutes a horizontal monopoly agreement shall be considered from the following aspects:
1. Whether the parties to the agreement are business operators in a competitive relationship;
2. Whether the specific act assumes the statutory form (an agreement, decision, or other concerted practice) and specific type of act (e.g., restricting the sales volume of products, dividing sales markets, etc.);
3. Whether the agreement has the purpose or effect of excluding or restricting competition.
The Supreme Court held that: when a specific act already possessed the above elements of the parties and the act, the presence of either the purpose or the effect was sufficient to determine that the act constituted a horizontal monopoly agreement.
The two parties involved in the case, Company A and Company B, are both enterprises operating in the intelligent transportation sector and simultaneously distribute signal controller products in City A. The two companies are obviously operators with competitive relationships. The two companies agreed in the agreement that Company B would voluntarily cease selling signal controllers in City A and if it continued to sell or use its own-brand signal controllers in City A, it would be required to pay liquidated damages. This agreement not only completely restricted the sales volume of signal controllers by Company B in a certain city (with the volume being zero) but also thoroughly excluded Company B from a certain sales market, resulting in a complete exclusionary market division. This falls under the two types of typical monopolistic act specified in the Anti-Monopoly Law. Company A made use of the technical conditions of its signal detection to sign an agreement with Company B, which obviously had the purpose of excluding Company B from a particular sales market, namely, it had an anti-competitive purpose.
As between business operators in a competitive relationship, one operator may provide services to another to resolve certain technical or operational issues and may charge a reasonable service fee for such service; however, it shall not, in violation of the law, restrict or exclude the other operators from competing in the market (including restricting and excluding other operators from participating in market competition on the grounds of providing service to other operators for free). Although Company A may have provided certain technical service to Company B, it cannot justify excluding Company B from the market for signal controllers sales in City A. Moreover, the performance of the agreement at issue would inevitably result in the exclusion and restriction of competition, and this was precisely the fundamental content and core objective of the agreement. Consequently, it can be concluded that the aforementioned provisions in the agreement at issue constituted a statutory horizontal monopoly agreement.
The legal basis for determining a horizontal monopoly agreement as invalid lies in Article 17 of the Anti-Monopoly Law on determination of a monopoly agreement, and Article 153 of the Civil Code, which provides that “a civil juristic act in violation of the mandatory provisions of laws or administrative regulations is void, unless such mandatory provisions do not lead to invalidity of such a civil juristic act. A civil juristic act that offends public order or good morals is void”. Article 15 of the “Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct [AFD Remark: This judicial interpretations has already expired] ” provides: “Where the content of a contract under suit, the articles of association of an industry association, or other such documents violate the mandatory provisions of the Anti-Monopoly Law or other laws and administrative regulations, the people's court shall declare them invalid in accordance with law, unless such mandatory provisions do not lead to invalidity of such a civil juristic act.” [AFD Remark: The aforementioned Article 15 of the Supreme People's Court's provisions is no longer in effect. The corresponding legal basis in the currently effective new judicial interpretation is also determined in accordance with Article 153 of the Civil Code, thus this legal basis can be omitted. / New provisions: Article 48 of the “Interpretation by the Supreme People's Court of Several Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Involving Monopoly” provides that “Where a party claims that a contract, or the articles of association, resolutions, decisions, etc., of an operator group involved in the alleged monopolistic act are invalid due to violations of the mandatory provisions of the Anti-Monopoly Law or other laws and administrative regulations, the people's court shall examine and determine the matter in accordance with Article 153 of the Civil Code.”]
As mentioned above, the fundamental content and core objective of the disputed agreement are to exclude one party (Company B) from a certain scope of market competition, and thus the entire agreement shall be deemed invalid.
The final judgment of the Supreme People's Court provides a guideline for the adjudication on how to identify a horizontal monopoly agreement and how to determine the invalidity of the horizontal monopoly agreement, offering certain guiding significance for courts at all levels in handling similar cases and for parties on how to draft an agreement to avoid invalidity.
(2024) Zui Gao Fa Zhi Min Zhong No. 455
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