*AI-generated translation, for reference only.

Keywords: Civil; Monopoly; Horizontal Monopoly Agreement; Perpetrator of Monopolistic Conduct; Compensation for Losses

Judgment Digest

No person shall benefit from its own unlawful conduct. A horizontal monopoly agreement clearly constitutes unlawful conduct. Where a business operator that participates in a horizontal monopoly agreement, naming as defendants other business operators that have participated in the same agreement, requests compensation, in accordance with the provisions of the Anti-Monopoly Law of the People's Republic of China on civil liability, for losses incurred during the period of its participation in and performance of the agreement, the people's court shall not support such a claim.

Case Facts

In March 2010, the Civil Affairs Bureau of Yibin City, Sichuan Province, upon review and approval, granted the establishment of the [REDACTED] Association of Yibin City (hereinafter the "[REDACTED] Association"), an industry-based social organization. Cao [REDACTED] served as president, Ruan [REDACTED] as vice president, and Chen [REDACTED] as secretary-general. The sponsors and sponsoring entities were respectively: Cao [REDACTED] and Yibin Heng [REDACTED] Group Co., Ltd.; Li [REDACTED] and Wu [REDACTED] Building Materials Industry Co., Ltd. of Yibin City, Sichuan Province (hereinafter "Wu [REDACTED]"); and Ruan [REDACTED] and Si [REDACTED] Building Materials Co., Ltd. of Yibin County (hereinafter "Si [REDACTED]"). The [REDACTED] Association initially had more than 50 member entities, including the [REDACTED] Store Machine-made Brick Factory of Yibin City (hereinafter the "[REDACTED] Brick Factory") under the name of Zhang [REDACTED].

In July 2009, the "Yibin Brick-Manufacturing Industry Working Meeting" was held, and the Meeting Minutes recorded the following: the heading read "oversupply leads to cheap goods... balanced supply and demand makes scarce goods dear..."; the specific plan was to establish the Brick Association Council and the Brick Association Coordination Office. The scope of the activity covered the brick factories within Cuiping District of Yibin City and within 30 kilometers thereof, as well as the brick factories in Baixi and within a 15-kilometer radius thereof. The plan called for coordinating with Yibin Ren [REDACTED] Trading Co., Ltd. (hereinafter "Ren [REDACTED]") to establish local brick associations in the surrounding counties and districts, so as to prevent products from outside areas from entering this area. The shutdown plan provided for shutting down brick factories accounting for 50% of the production, with the producing brick factories subsidizing the shutdown brick factories. Ren [REDACTED] was to come forward, together with the Brick Association Coordination Office, to sign lease-and-contracting contracts with the shutdown factories and cooperation agreements with the producing factories. The shutdown factories were to collect lease-and-contracting fees from Ren [REDACTED] on a monthly basis (i.e., a portion of the management fees paid by the producing parties), and the producing factories were to pay market management and technical guidance fees to Ren [REDACTED]. In addition, it was further provided that: "The shutdown and adjustment of brick factories shall be subject to the decision of the Brick Association, and no factory may adjust on its own; any factory making unauthorized adjustment shall be deemed in breach, with a single-time liquidated damages of RMB 200,000 in cash, the collection of which shall be the responsibility of the Coordination Office and Ren [REDACTED]." "After a shutdown brick factory ceases firing, it shall not sell its inventory bricks, and a uniform across-the-board cessation shall be enforced unconditionally... Any unauthorized seller shall be deemed in breach, and the penalty for breach shall be assessed at ten times the amount sold." During the same period, the [REDACTED] Branch — the predecessor of the [REDACTED] Association — formulated the Interim Administrative Measures of the [REDACTED] Branch of the Yibin Building Materials Industry Association (hereinafter the "Interim Administrative Measures"), expressly setting forth specific arrangements for "externally preventing products from entering and internally controlling the output of bricks and tiles," and dividing local brick-and-tile enterprises into producing enterprises and shutdown enterprises. In July 2009, the [REDACTED] Branch signed agreements with the [REDACTED] Brick Factory and other brick-and-tile manufacturers, including Shutdown and Rectification Contracts and Technical Service Contracts. According to the records of the Schedule of Approved Output of Brick Factories (Producing Manufacturers) of Yibin City, there were a total of 19 producing manufacturers. According to the records of the Schedule of Approved Output of Brick Factories (Shutdown Manufacturers) of Yibin City, there were a total of 31 shutdown manufacturers, including the [REDACTED] Brick Factory.

On March 31, 2011, the Commission of Economy and Information Technology of Yibin City, Sichuan Province (hereinafter the "Yibin Commission of Economy and Information Technology") issued the Notice on Ordering the [REDACTED] Association of Yibin City to Suspend Activities, which recorded: "Our Commission has recently received reports from the public that, in carrying out its activities, your association has failed to strictly operate in accordance with its articles of association and has engaged in conduct exceeding the scope prescribed by its articles of association. In accordance with the requirements for the administration of industry associations, your association is hereby ordered to immediately and temporarily cease all activities of the association, undertake a comprehensive rectification, and report the rectification in writing to our Commission." On April 18, 2011, the [REDACTED] Association issued to the Yibin Commission of Economy and Information Technology the Report on the Cleanup and Rectification Work and Request for Resumption of the Normal Activities of the [REDACTED] Association, which recorded: "Owing to the inadequate performance of duties by the principal leaders of the Association... individual brick factories have falsely raised prices and fabricated false information of tight supply and demand... We believe that the Brick Association bears unshirkable responsibility for such consequences, and they must be promptly rectified..." "The objectives are clarified as follows: first, market demand must be satisfied unconditionally...; second, supply must be provided at reasonable market prices (the current guideline price approved and confirmed by the relevant authorities is: the ex-factory price shall not exceed RMB 0.33 per standard brick), and member entities are not permitted to supply at prices higher than the Association's guideline price; third, quality must be ensured..." In September 2011, the [REDACTED] Association ceased disbursing shutdown support funds.

On March 6, 2013, the Sichuan Provincial Administration for Industry and Commerce issued an Administrative Penalty Decision against the [REDACTED] Association, holding that the Interim Administrative Measures, reached by member entities in a competitive relationship that the [REDACTED] Association had organized, stipulated that some enterprises would cease production, thereby controlling the production quantity of bricks in the Yibin brick-and-tile market and controlling the direct withdrawal of the shutdown member entities from competition in the Yibin brick-and-tile market, severely restricting market competition and constituting a monopoly agreement restricting the production quantity of goods. The party's act of organizing member entities to reach and implement a monopoly agreement disrupted the fair and orderly competitive order of the Yibin brick-and-tile market.

Subsequently, Zhang [REDACTED] filed a lawsuit with the people's court, contending that he had ceased production pursuant to the Shutdown and Rectification Contract and had received only a small amount of shutdown support funds before September 2011. The above-mentioned conduct, in substance, had the effect of excluding Zhang [REDACTED] from participating in competition, constituted monopolistic conduct, and infringed upon Zhang [REDACTED]'s lawful rights and interests. He claimed that the court should order Wu [REDACTED], Si [REDACTED], Yibin Heng [REDACTED] Investment Group Co., Ltd., the [REDACTED] Association, Cao [REDACTED], and others to bear joint and several liability to compensate him for economic losses of RMB 336,000 and reasonable expenses of RMB 80,000.

Result of Judgment

On December 24, 2019, the Chengdu Intermediate People's Court of Sichuan Province rendered Civil Judgment (2018) Chuan 01 Min Chu No. 855: I. Within fifteen days from the effective date of the judgment, Wu [REDACTED], Si [REDACTED], Cao [REDACTED], and the [REDACTED] Association shall jointly and severally compensate Zhang [REDACTED] for economic losses of RMB 336,000 and reasonable expenses of RMB 5,000. II. The other litigation claims of Zhang [REDACTED] are dismissed. Following the pronouncement of the judgment, Wu [REDACTED], Cao [REDACTED], and the [REDACTED] Association, being dissatisfied, filed an appeal with the Supreme People's Court. On November 6, 2020, the Supreme People's Court rendered Civil Judgment (2020) SPC IP Civil Final 1382: I. Civil Judgment (2018) Chuan 01 Min Chu No. 855 of the Chengdu Intermediate People's Court of Sichuan Province is revoked. II. All litigation claims of Zhang [REDACTED] are dismissed.

Judge's Opinion

The Supreme People's Court holds that: As Zhang [REDACTED] is one of the perpetrators of the horizontal monopoly agreement in this case, the question of whether he is entitled to demand that the other perpetrators of such monopoly agreement compensate him for his so-called economic losses shall be considered in light of such factors as the legislative purpose of Article 50 of the Anti-Monopoly Law, the characteristics of the alleged monopolistic conduct, and the legal effects of damages compensation.

First, the legislative purpose of Article 50 of the Anti-Monopoly Law. Article 50 of the Anti-Monopoly Law provides that where a business operator engages in monopolistic conduct and causes losses to others, it shall bear civil liability in accordance with law. The legislative purpose of this Article lies in providing a channel of civil judicial redress to stop and combat monopolistic conduct, and in providing civil remedies to entities harmed by monopolistic conduct. Where the plaintiff is not a victim of the monopolistic conduct regulated by the Anti-Monopoly Law but rather a perpetrator of such monopolistic conduct, its claim for damages compensation is, in substance, a demand to share in the monopoly profits, and therefore the plaintiff is not the object intended to be remedied by the Anti-Monopoly Law. In this case, Zhang [REDACTED] is one of the participants and perpetrators of the horizontal monopoly agreement which he himself has alleged in this case, and, owing to his participation in and implementation of the alleged monopolistic conduct in this case, he obtained a share of the monopoly profits over a certain period of time; he is not a victim of monopolistic conduct intended to be remedied by the Anti-Monopoly Law. Second, one who seeks remedy by way of damages compensation must itself have engaged in lawful and proper conduct. As for a subject that itself participates in and implements unlawful conduct, even if it suffers losses as a result of participating in and implementing such unlawful conduct, such losses, owing to the impropriety of the subject's own conduct, shall not be remedied. In the Shutdown and Rectification Contract, Zhang [REDACTED] voluntarily accepted the shutdown and rectification, and participated in and implemented the horizontal monopoly agreement in this case; his conduct is itself unlawful, and the damage thereby sustained shall not be remedied. Lastly, awarding damages compensation to a perpetrator of monopolistic conduct would produce the negative legal effect of encouraging and supporting the relevant monopolistic conduct. In this case, the losses arising from the monopolistic conduct that Zhang [REDACTED] claims are, in substance, a demand for the compulsory enforcement of the horizontal monopoly agreement in this case, and for the sharing of the collective monopoly proceeds in accordance with the provisions of such monopoly agreement on the distribution of monopoly profits. To support Zhang [REDACTED]'s litigation claims would be tantamount to upholding and encouraging such unlawful conduct.

In conclusion, a perpetrator of a horizontal monopoly agreement is not entitled, in accordance with the Anti-Monopoly Law, to demand that the other perpetrators of such monopoly agreement compensate it for its so-called economic losses. As a perpetrator of the horizontal monopoly agreement involved in this case, Zhang [REDACTED] is not entitled to gain benefits from his own unlawful conduct, and the people's court shall not support his litigation claims for damages compensation.

Related Index

Article 60, Paragraph 1 of the Anti-Monopoly Law of the People's Republic of China (amended in 2022) (the law applied in this case is Article 50 of the Anti-Monopoly Law of the People's Republic of China that took effect in 2008)