Are Resale Price Maintenance (RPM) Agreements Per Se Illegal in China?

Resale Price Maintenance, or RPM, is a vertical restraint in which a supplier sets the minimum (or fixed) price at which a downstream distributor or retailer must resell its products. In many jurisdictions around the world, the legal treatment of RPM has evolved significantly over the past two decades. In the United States, RPM was historically treated as a per se violation of antitrust law under Dr. Miles Medical Co. v. John D. Park & Sons Co. (1911), but the Supreme Court overruled that position in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007), holding that RPM should be evaluated under the rule of reason. In the European Union, minimum RPM remains a hardcore restriction under Article 101(1) TFEU but can theoretically benefit from individual exemption under narrow circumstances. This FAQ examines where China’s Anti-Monopoly Law (AML) stands on RPM and whether it constitutes a per se violation.

The Legal Framework: Article 14 of the AML

China’s Anti-Monopoly Law, which took effect on August 1, 2008, prohibits vertical monopoly agreements under Article 14. Specifically, Article 14 prohibits three categories of agreements between undertakings and their trading counterparts:

1. Agreements that fix resale prices to third parties (i.e., minimum RPM);
2. Agreements that restrict minimum resale prices; and
3. Other monopoly agreements as determined by the Anti-Monopoly Enforcement Authority (currently the State Administration for Market Regulation, or SAMR).

The text of Article 14 does not use the language of “per se prohibition” explicitly. Instead, it describes prohibited conduct in categorical terms. This has led to extended debate among Chinese competition law scholars and practitioners over whether RPM is subject to per se liability or whether parties may present pro-competitive justifications under an effects-based analysis.

Administrative Guidance and Early Enforcement Practice

In the early years after the AML came into force, the enforcement authorities — first the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC), and later SAMR after the 2018 merger — consistently treated RPM as effectively per se illegal. Between 2011 and 2020, SAMR and its predecessor agencies issued dozens of administrative penalty decisions finding RPM violations, typically imposing fines of 1 to 10 percent of the violator’s prior-year turnover under Article 46 of the AML.

Notable early RPM cases include:

• Moutai (2013): NDRC fined Kweichow Moutai RMB 247 million for fixing minimum resale prices for its baijiu distributors. The decision analyzed RPM under a near-per-se standard, focusing solely on the existence of the price-fixing agreement rather than its market effects.
• Hainan Yeda (2014): NDRC fined Hainan Yeda (a pharmaceutical company) for imposing minimum resale prices on its distributors. Again, the authority did not conduct a detailed effects analysis.
• Lerthai (Johnson & Johnson) RPM case (2013): In a rare civil damages action, the Shanghai No. 1 Intermediate People’s Court initially found that Johnson & Johnson’s RPM agreement with distributor Lerthai was illegal, but the Shanghai High Court overturned on appeal, ruling that RPM must be assessed under a rule-of-reason framework and that the plaintiff failed to prove anti-competitive effects. This civil case created a significant divergence from the administrative enforcement approach.

The divergence between administrative enforcement (effectively per se) and civil litigation (rule of reason) created considerable legal uncertainty for businesses operating in China. Companies engaged in RPM could not reliably predict whether their conduct would be deemed unlawful.

The 2022 Amendments and the Introduction of a “Safety Harbor”

The AML was substantially amended in 2022, with the amendments taking effect on August 1, 2022. The amended AML introduced several important changes to the treatment of RPM and vertical agreements generally.

First, the amended Article 18 now explicitly provides that the prohibition on vertical monopoly agreements under Article 14 does not apply if the undertaking can prove that the agreements do not have the effect of eliminating or restricting competition. This represents a statutory endorsement of the rule of reason for RPM, at least in theory. The burden of proof, however, falls on the undertaking claiming the exemption.

Second, the amended Article 18 establishes a market share-based safe harbor for vertical agreements. Specifically, a vertical monopoly agreement is presumed not to have the effect of eliminating or restricting competition if the undertaking’s market share in the relevant market does not exceed the threshold to be set by SAMR. SAMR’s 2023 Guidelines on the Identification of Vertical Monopoly Agreements clarified that the safe harbor threshold is a 15 percent market share in the relevant market for both the upstream and downstream parties to the agreement.

Third, the amended AML restricts RPM by “hub-and-spoke” type arrangements through Articles 17 and 19, and provides SAMR with stronger investigation and interim measures powers.

Is RPM Still Effectively Per Se in Administrative Enforcement?

Despite the 2022 amendments’ theoretical endorsement of rule of reason analysis, the practical reality for foreign companies is that RPM remains extremely risky in China. The 2022 Guidelines on the Identification of Vertical Monopoly Agreements maintain several features that make RPM difficult to justify:

• Presumption of illegality: The guidelines create a rebuttable presumption that RPM has the object of restricting competition. The burden shifts to the undertaking to prove otherwise.
• Narrow justifications: The pro-competitive justifications recognized by SAMR are limited. An undertaking must show that the RPM is necessary to (a) promote the introduction of new products, (b) prevent free-riding on pre-sale services, (c) ensure product quality and safety under a franchise or distribution agreement, or (d) achieve other efficiencies that benefit consumers.
• High evidentiary burden: Even where a valid pro-competitive justification exists, the undertaking must demonstrate that the RPM is the least restrictive means of achieving the claimed efficiency, and that consumers receive a fair share of the resulting benefits.
• Non-binding SIP (Soft and Hard) approach: SAMR has indicated it will consider both the “form” of the RPM agreement and its “effect.” In practice, however, most administrative decisions continue to focus primarily on the existence of the RPM clause rather than conducting a rigorous effects analysis.

In the post-2022 enforcement environment, SAMR has continued to issue substantial fines for RPM violations. A notable recent case is the 2023 SAMR fine against a major pharmaceutical company for imposing minimum resale prices on distributors of its patented drugs, with penalties exceeding RMB 100 million. The decision acknowledged the 2022 amendments but held that the company failed to meet its burden of proving the lack of anti-competitive effects or establishing a valid safe harbor defense given its market share exceeded 15 percent.

RPM in the Pharmaceutical and Automotive Sectors

Certain industries in China have been subject to heightened RPM scrutiny. The pharmaceutical sector has seen some of the largest RPM fines, driven by concerns that resale price maintenance artificially inflates drug prices, harming patient access and burdening the public healthcare system. SAMR’s pharmaceutical enforcement priorities include both minimum RPM on patented drugs and RPM combined with other anti-competitive practices such as abuse of dominance and refusals to deal.

The automotive sector has also been a major focus. NDRC and SAMR have investigated multiple automakers and their authorized dealer networks for imposing minimum resale prices on new vehicles, aftermarket parts, and repair services. In the automotive context, SAMR has been somewhat receptive to pro-competitive justifications, recognizing that investment in dealer training, showroom quality, and after-sales service may depend on maintaining price stability and margins. However, the burden remains on the automaker to document and substantiate these justifications.

Civil Litigation: Rule of Reason Remains the Standard

In private civil antitrust litigation, Chinese courts have maintained a rule of reason approach to RPM since the 2013 Johnson & Johnson case. Plaintiffs in RPM civil cases bear the burden of proving that the agreement has actual or likely anti-competitive effects in the relevant market. This typically requires detailed economic evidence, including market definition, market share analysis, barriers to entry, and the RPM’s actual impact on prices and output.

The 2022 amendments may strengthen plaintiffs’ positions by creating a presumption that RPM has the object of restricting competition, but it remains to be seen how strictly Chinese courts will apply this presumption. Foreign companies facing RPM civil claims in China should be prepared to present robust economic evidence rebutting any presumption and demonstrating pro-competitive effects.

Practical Compliance Recommendations for Foreign Companies

Given the legal uncertainty surrounding RPM in China, foreign companies should adopt a cautious approach:

1. Conduct market share analysis regularly. If your market share in the relevant market is below 15 percent for both the upstream and downstream transactions, you may benefit from the safe harbor. Ensure your market definition is defensible and well-documented.
2. Avoid minimum RPM clauses in written distribution agreements. Express clauses requiring distributors to adhere to minimum resale prices are the clearest trigger of AML scrutiny. Consider using non-price vertical restraints (exclusive territories, selective distribution, quantity forcing) instead, which receive more lenient treatment.
3. If you use RPM, document pro-competitive justifications. Maintain detailed records demonstrating why RPM is necessary to prevent free-riding, support new product launches, ensure quality standards, or achieve other efficiencies. Obtain economic analyses from qualified experts where possible.
4. Implement a compliance training program. Train sales, marketing, and distribution teams on RPM risks. Ensure that communications with distributors do not contain explicit or implicit price direction, and that any suggested resale prices are clearly labeled as non-binding recommendations.
5. Monitor enforcement developments. SAMR continues to refine its approach to RPM through guidelines and enforcement cases. Foreign companies should monitor these developments and adjust compliance programs accordingly.
6. Seek legal advice before launching distribution models. Given the complexity and evolving nature of China’s RPM regime, engagement with experienced Chinese competition counsel is essential before implementing distribution arrangements that involve price-setting elements.

Conclusion

In summary, resale price maintenance in China is not formally per se illegal under the current legal framework, particularly following the 2022 AML amendments. The amended law explicitly permits parties to rebut the presumption of illegality by demonstrating a lack of anti-competitive effects or by satisfying the safe harbor conditions. However, in practice, administrative enforcement by SAMR continues to treat RPM as a serious violation with a high evidentiary burden on the defending party. Foreign companies should not rely on a theoretical rule-of-right of defense to justify RPM arrangements without thorough legal and economic analysis. The most prudent approach is to avoid minimum RPM except in carefully documented circumstances where clear pro-competitive justifications and low market share positions exist.