*AI-generated translation, for reference only.

[Keywords] Civil, Monopoly agreement, Horizontal monopoly agreement, Competing operators, Concerted refusal to deal, Necessary joint action

Case Facts

The plaintiff, Yunnan Yi [REDACTED] Rundian Rice Noodle Co., Ltd. (hereinafter referred to as Yi [REDACTED] Rundian Company), alleged that Yunnan Run [REDACTED] Food Co., Ltd. (hereinafter referred to as Run [REDACTED] Company), in collusion with Kunming Lin [REDACTED] Qiugui Food Manufacturing Co., Ltd. (hereinafter referred to as Lin [REDACTED] Qiugui Company), Xundian Lin [REDACTED]yuan Food Factory (hereinafter referred to as Lin [REDACTED]yuan Food Factory), Guandu District Long [REDACTED] Fine Rice Factory (hereinafter referred to as Long [REDACTED] Fine Rice Factory), Zhang [REDACTED], Guo [REDACTED], Ma [REDACTED], and Ban [REDACTED] (hereinafter collectively referred to as the seven alleged monopolists, including Lin [REDACTED] Qiugui Company and others), concluded and implemented a horizontal monopoly agreement fixing commodity prices and boycotting transactions. This caused severe operational difficulties for Yi [REDACTED] Rundian Company, ultimately forcing it to cease rice noodle production and processing. Yi [REDACTED] Rundian Company sought compensation for economic losses of RMB 5,000,000 (same currency hereinafter) and reasonable expenses of RMB 200,000.

The seven alleged monopolists, including Lin [REDACTED] Qiugui Company, jointly argued in their defense that no monopoly agreement had been reached between them and Run [REDACTED] Company.

The court ascertained through trial: On May 5, 2017, Run [REDACTED] Company separately entered into fresh rice noodle purchase and sale contracts with Lin [REDACTED] Qiugui Company, Lin [REDACTED]yuan Food Factory, etc., stipulating the unified purchase price for rice noodles sourced by Run [REDACTED] Company from the aforementioned companies, and providing that Run [REDACTED] Company would implement a unified purchase and distribution system in Kunming City. The contracts also stipulated that Lin [REDACTED] Qiugui Company, Lin [REDACTED]yuan Food Factory, etc., except for their own proprietary business, could not sell to third parties other than Run [REDACTED] Company.

On May 22, 2017, Run [REDACTED] Company issued a "Resolution of the Shareholders' Meeting of Yunnan Run [REDACTED] Food Co., Ltd. on Market Integration, Contract Execution, Organizational Structure and Recent Work Arrangements," requiring rice noodle factories that had signed the purchase and sale contracts to not accept intermediary distributors making unauthorized factory visits to purchase rice noodles, on penalty of a fine of RMB 20,000 to 50,000. The rice noodle factories among the shareholders of Run [REDACTED] Company were to jointly cease supplying rice noodle stalls that refused to sign a supply agreement.

On July 8, 2017, Run [REDACTED] Company issued an implementation notice, clarifying that the rice noodle factories among its shareholders would jointly cease supplying rice noodle stalls that refused to sign a supply agreement. Failure to implement this cessation would subject the non-compliant rice noodle factory to a fine of RMB 20,000 to 50,000.

On July 25, 2017, Run [REDACTED] Company held a general meeting of shareholders, resulting in a resolution of Yunnan Run [REDACTED] Food Co., Ltd. On July 31, 2017, Run [REDACTED] Company issued a price adjustment notice, fixing the retail price of wet rice noodles sold to rice noodle stalls, and classifying and fixing the supply prices of wet rice noodles from rice noodle factories to intermediary distributors depending on the distributor.

In cooperation agreements signed between Run [REDACTED] Company and rice noodle intermediary distributors from July 26 to July 30, 2017, the scope of rice noodle factories authorized for distribution was limited (including over 10 factories such as Lin [REDACTED] Qiugui Company and Lin [REDACTED]yuan Food Factory). The agreements stipulated that if a distributor delivered or sold rice noodles produced by factories outside the authorized scope, it would be liable to pay Run [REDACTED] Company a liquidated damages of RMB 50,000, and the authorized factories would jointly cease supply to that distributor. Run [REDACTED] Company promised a price discount of RMB 0.1 to 0.2 per kilogram upon signing the cooperation agreement.

In supply agreements signed between Run [REDACTED] Company and rice noodle stall owners between June and August 2017, the scope of rice noodle factories authorized for sale was limited (including over 10 factories such as Lin [REDACTED] Qiugui Company and Lin [REDACTED]yuan Food Factory). It was stipulated that if a stall delivered or sold rice noodles produced by factories outside the authorized scope, it would be liable to pay Run [REDACTED] Company a liquidated damages of RMB 50,000, and the authorized factories would jointly cease supply to that stall. Run [REDACTED] Company initially provided a deposit of RMB 5,000 to the stall operators upon signing the supply agreement.

The Intermediate People's Court of Kunming, Yunnan Province rendered the civil judgment (2022) Yun 01 Zhi Min Chu No. 17 on September 28, 2022, ordering Run [REDACTED] Company, Lin [REDACTED] Qiugui Company, Long [REDACTED] Fine Rice Factory, Zhang [REDACTED], and Ban [REDACTED] to jointly and severally pay Yi [REDACTED] Rundian Company the reasonable expenses for rights protection of RMB 20,000. Dissatisfied, Yi [REDACTED] Rundian Company appealed. The Supreme People's Court rendered the civil judgment (2023) SPC IP Civil Final No. 653 on August 29, 2024, setting aside the first-instance judgment and ordering Run [REDACTED] Company to pay Yi [REDACTED] Rundian Company economic damages of RMB 1,000,000 and reasonable rights protection expenses of RMB 100,000. The seven alleged monopolists, including Lin [REDACTED] Qiugui Company, were ordered to bear joint and several liability for the above compensation.

Judge's Opinion

The focus of the dispute in this case is whether Run [REDACTED] Company and the alleged monopolists, including Lin [REDACTED] Qiugui Company, concluded and implemented a horizontal monopoly agreement fixing commodity prices and boycotting transactions.

Through the signing of the Fresh Rice Noodle Purchase and Sale Contracts, Run [REDACTED] Company, Lin [REDACTED] Qiugui Company, Min [REDACTED] Rice Noodle Factory, and Lin [REDACTED]yuan Food Factory determined the unified purchase price of rice noodles sourced by Run [REDACTED] Company from these three factories. Through shareholder resolutions, price adjustment notices, and other means, Run [REDACTED] Company and the seven alleged monopolists, including Lin [REDACTED] Qiugui Company, fixed the retail price for selling wet rice noodles to stalls, classified and fixed the supply prices of wet rice noodles from factories to intermediaries based on the intermediary, and the preferential prices intermediaries could enjoy when factories adjusted prices. By doing so, they concluded and implemented a horizontal monopoly agreement fixing the price of wet rice noodles.

Furthermore, the Fresh Rice Noodle Purchase and Sale Contracts signed between Run [REDACTED] Company, Lin [REDACTED] Qiugui Company, Min [REDACTED] Rice Noodle Factory, and Lin [REDACTED]yuan Food Factory also stipulated that Lin [REDACTED] Qiugui Company, Min [REDACTED] Rice Noodle Factory, and Lin [REDACTED]yuan Food Factory could not sell to third parties other than Run [REDACTED] Company, except for their own proprietary business. Through shareholder resolutions, implementation notices, etc., Run [REDACTED] Company required rice noodle factories that had signed the said contracts to not accept intermediary distributors making unauthorized factory visits to purchase rice noodles, on penalty of a fine of RMB 20,000 to 50,000. The rice noodle factories among the shareholders of Run [REDACTED] Company would jointly cease supplying rice noodle stalls that refused to sign the Supply Agreement. Failure to implement this would subject the non-compliant factory to a fine of RMB 20,000 to 50,000. Run [REDACTED] Company and the seven alleged monopolists, including Lin [REDACTED] Qiugui Company, also entered into Cooperation Agreements with rice noodle intermediary distributors and Supply Agreements with rice noodle stall operators in the name of Run [REDACTED] Company. These agreements required intermediaries and stalls to only deliver or sell rice noodles produced by the agreed-upon factories. Delivering or selling rice noodles produced by factories outside the agreed-upon scope would subject the party to a liquidated damages of RMB 50,000 payable to Run [REDACTED] Company, and the agreed-upon factories would jointly cease supply to that intermediary or stall. To induce intermediaries and stall operators to sign these agreements with Run [REDACTED] Company, the agreements also stipulated discounts and penalty measures.

To achieve the effect of the boycott, Run [REDACTED] Company and the seven alleged monopolists, including Lin [REDACTED] Qiugui Company, adopted measures such as signing affidavits and establishing special working groups, and set up corresponding reward and punishment mechanisms to mutually supervise and ensure the implementation of the boycott agreement. The above acts caused the rice noodle factories, intermediary distributors, and retail stall operators within the agreement to cooperate and reinforce each other at every level, excluding rice noodle factories outside the agreement from the local rice noodle sales market. During implementation, they specifically targeted and suppressed Yi [REDACTED] Rundian Company, implementing a horizontal monopoly agreement through concerted refusal to deal, thereby eliminating and restricting the rules of fair competition in the market.

Judgment Digest

Where several competing business operators conclude a horizontal agreement to boycott transactions, and implement the boycott vertically by collaborating with upstream and downstream operators to ensure and strengthen the anti-competitive effect of the boycott, the vertical arrangements are an important content and method of the boycott and do not affect the determination that the boycott constitutes a horizontal monopoly agreement.

Related Index

Article 178, Paragraph 1, and Article 1168 of the Civil Code of the People's Republic of China

Article 16, Article 17, and Article 60, Paragraph 1 of the Anti-Monopoly Law of the People's Republic of China (as amended in 2022) (The provisions applicable in this case are Article 13 and Article 50 of the Anti-Monopoly Law of the People's Republic of China effective August 1, 2008)

Article 19, Paragraph 1, and Article 44, Paragraph 3 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Monopoly Civil Dispute Cases (Fa Shi [2024] No. 6)

First Instance: Civil Judgment (2022) Yun 01 Zhi Min Chu No. 17 of the Intermediate People's Court of Kunming, Yunnan Province (September 28, 2022)

Second Instance: Civil Judgment (2023) SPC IP Civil Final No. 653 of the Supreme People's Court (August 29, 2024)