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China Issues its First Antimonopoly Guidelines for Platform Economy

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China

On 7 February 2021, the Antimonopoly Committee of the State Council issued the Antimonopoly Guidelines on Platform Economic Sector (Platform Antimonopoly Guidelines), which is China’s first specific antitrust rules on platforms. The Platform Antimonopoly Guidelines signal a strengthening of antitrust enforcement against monopolistic behaviours in China’s internet platform sector.

The State Administration for Market Regulation (SAMR) issued the Platform Antimonopoly Guidelines, based on a draft of the Antimonopoly Guidelines on Platform Economic Sector (Draft Platform Antimonopoly Guidelines) with minor changes, for comments on 10 November 2020.
 
The Platform Antimonopoly Guidelines expressly refer to the Antimonopoly Law (AML) which itself is under revision. The Platform Antimonopoly Guidelines consist of six chapters with 24 articles. It takes into account the characteristics of the platform economy and provides guidance on monopolistic behaviours in the platform sector, and compliance with the provisions already stated under the AML.
 
The issuance of the Platform Antimonopoly Guidelines provides better guidance not only for Chinese antitrust enforcement in the platform sector but also for companies in the platform sector to comply. Below are some highlights of the Platform Antimonopoly Guidelines:
 
  1. Definition of the Relevant Market
Article 4.3 provides that defining the relevant market is normally needed when investigating monopoly agreements, abuses and merger cases in the platform sector. This provision indicates that defining the relevant market in an antitrust investigation is not always a must. In fact, the Draft Platform Antimonopoly Guidelines clearly provided that under certain circumstances, anti-competitive conduct can be directly identified without the definition of the relevant market, due to the difficulties of defining the relevant market in the platform sector. Unfortunately, the Platform Antimonopoly Guidelines do not specify under what circumstances defining the relevant market is not required. Nevertheless, the Platform Antimonopoly Guidelines do clarify the misunderstanding that defining the relevant market is always required in an antitrust investigation.
 
  1. MFN Clause
According to the Platform Antimonopoly Guidelines, if a platform operator requires operators on that platform provide the platform operator better trading conditions (such as price and quantity) than other platform operators benefit from (the so-called the most favoured nation clauses or MFN clauses), such requirements might be considered as both monopolistic agreements and abuses of dominance. Previous Chinese antitrust rules do not mention MFN clauses. In addition, for the first time, the Platform Antimonopoly Guidelines mention that the MFN Clause could be considered as a vertical monopoly agreement under the Article 14.3 of the AML. Article 14.3 of the AML address non resale price maintenance (RPM) related vertical monopoly agreements. In practice, Article 14.3 of the AML has never been implemented. Thus, the Platform Antimonopoly Guidelines will have huge impact on the implementation of the Article 14.3 of the AML. According to the Platform Antimonopoly Guidelines, if an MFN clause is challenged as a vertical monopoly agreement, the following factors need to be considered: platform operator’s market power, the relevant market competition status, the undertakings’ commercial motivation for entering into the clause, their ability to control the market, the impact of the implementation of such clause on market entrance to other players, consumers’ welfare and innovation.
 
In practice, MFN clauses have been investigated as an abuse of dominance. On 16 April 2019, for example, the Shanghai Administration for Market Regulation imposed fines of more than RMB 24 million on Eastman (China) Investment Management Co., Ltd for its abuse of dominance by having agreements containing the MFN clause conditioned on minimum purchase quantity.[1]
 
  1. Hub and Spoke Agreements
This is the first time that Chinese antitrust rules/guidelines clearly mention hub and spoke agreements. Competitive operators on a platform may reach a hub and spoke agreement that has the effect of a horizontal monopoly agreement, by using the vertical relationship with the platform operator, or by the organization and coordination of the platform operator. To analyse whether the hub and spoke agreement is a monopoly agreement regulated by Articles 13 (horizontal agreement) and 14 (vertical agreement) of the AML, the antitrust authorities need to consider whether the competitive operators on the platform use technical means, platform rules, data and algorithms to reach and implement the monopoly agreement and eliminate and restrict the relevant market competition.
 
  1. Essential Facility
According to the Platform Antimonopoly Guidelines, if a platform is considered as an essential facility in the platform economy, the platform operator shall not refuse to deal with operators that want to use the platform without any justification. Otherwise, such a refusal is considered as an abuse by refusal to deal. To determine whether a platform constitutes an essential facility, it is necessary to comprehensively consider such factors as the data occupied by the platform, the substitutability of other platforms, the existence of potential available platforms, the feasibility of developing competitive platforms, the degree of dependence of the operators on the platform, and the possible impact of opening the platform on the platform operator. Due to the controversy of essential facility, it remains to be seen how a platform is deemed as an essential facility. In particular, ByteDance brought a litigation case against Tencent for abuse of dominance on 2 February 2021.[2] ByteDance argues that Tencent's restricting of users from sharing Douyin content on its instant messaging apps WeChat and QQ, constitutes a 'refusal to deal', since Tencent is deemed as an essential facility. It will take two or three years for this lawsuit to be completed if both parties go through the full litigation procedure. Thus, the case will not very soon answer the question on how a platform is considered as an essential facility.
 
  1. Choosing One from Two (Exclusive Dealing)
Choosing one from two is a very popular phrase describing the situation where one platform operator forces operators to exclusively choose its platform and not to use competitive platforms. It is a popular practice in the Chinese platform sector. Under the Platform Antimonopoly Guidelines, choosing one from two could be challenged as an abuse by exclusive dealing. When analysing choosing one from two as an abuse of dominance, the following two circumstances need to be taken into account. First, a platform operator imposes restrictions by taking punitive measures, such as blocking the operator in the platform, search downgrading, traffic restrictions, technical barriers and deduction of deposits. Since they will cause direct damage to the market and consumers, such practices are normally deemed as abuses (exclusive dealing).  Second, a platform operator imposes restrictions by taking incentive measures, such as subsidies, discounts, preferences and traffic resource support. Such practices may have certain positive effects on operators on the platform, consumers’ welfare and the overall social benefits. However, if there is evidence which shows such practices may eliminate or restrict competition, such practices will be deemed as abuses.
 
  1. Big Data Discrimination
Article 17 of the Platform Antimonopoly Guidelines addresses the “Big Data Discrimination” behaviour that has caused widespread concerns in the platform sector. A dominant platform operator may be deemed as abusing its dominance through discrimination to its users. When analysing whether a discrimination exists, the following three factors shall be considered: first, implementing differentiated transaction prices or other transaction conditions based on big data and algorithms and in accordance with the payment capacity, consumption preference, use habits, etc. of the users; second, implementing differentiated standards, rules and algorithms; third, implementing differentiated payment conditions and transaction methods.
 
To address the difficulty of how to determine that the users’ transaction conditions are the same, the Platform Antimonopoly Guidelines provide that the same conditions mean that there are no differences among users in terms of security of transaction, cost of transaction, credit status, stage of transaction, and duration of transaction that materially affect a transaction, etc.  The Platform Antimonopoly Guidelines further provide that the differences in terms of the privacy information, transaction history, individual preferences, consumption habits and other aspects of the counterparties obtained by the platform in a transaction do not affect the identification that the condition of users are identical.
 
  1. VIE-related M&A
Before the release of the Draft Platform Antimonopoly Guidelines in November 2020, many people believed that variable interest enterprise (VIE) related M&As were not subject to Chinese merger control rules due to the nature of VIE. This assumption is baseless from the AML perspective since the AML never provided such exemption for VIE-related merger filings. Nevertheless, this assumption had been widely accepted and in a sense, proved, as most VIE-related M&As had not been filed even though they have reached the Chinese merger filing thresholds.
 
This changed after the release of the Draft Platform Antimonopoly Guidelines in November 2020. Three VIE related M&As were fined on 14 December 2020. This proves the above assumption is wrong. Now, the Platform Antimonopoly Guidelines further confirm that VIE-related M&As are subject to merger review if they reach the Chinese merger filing thresholds. In next few months, we can expect tens of if not hundreds of cases in which the SAMR will impose fines on failures to notify from VIE-related M&As.
 
Conclusion
China is not alone in regulating its platform economy by using antitrust laws. Antitrust authorities in several countries and regions such as the US, EU, Germany, the UK, Japan and Australia have considered antitrust policy changes or investigated markets in the digital/platform sector.
 
On 19 January 2021, for example, the 10th Amendment to the German Act against Restraints of Competition went into effect, which introduces a number of new restrictions to the platform economy.
 
It is against this background, that China’s Antimonopoly Committee has issued the Platform Antimonopoly Guidelines and there is no doubt that the guidelines will have a huge impact on the Chinese platform sector.
 
[1] See http://gkml.samr.gov.cn/nsjg/fldj/201904/t20190429_293282.html
[2] Byte Dance’s Douyin sue Tencent for monopolistic behaviour, see https://www.reuters.com/article/us-china-bytedance-idUSKBN2A2153

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