Anti-monopoly guidelines issued for internet platforms

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Anti-monopoly guidelines issued for internet platforms, 针对互联网平台的反垄断指南_

On 7 February 2021, the State Administration for Market Regulation (SAMR) published the Anti-Monopoly Guidelines for the Platform Economy issued by the Anti-Monopoly Commission of State Council. This follows a high-profile consultation process on the draft version, which began on 10 November 2020.

While some revisions to the earlier draft appear to have adopted a more balanced approach, it remains clear that the SAMR intends to continue taking a more active role in policing China’s tech sector, as evidenced in recent enforcement activities.

Similar scope

The guidelines broadly adopt the same scope and structure as the draft version, and deal with a broad range of issues related to:

(a) Agreements/collusion between competitors, including information exchange and collusion furthered by platforms or other technical means;

(b) Agreements between non-competitors, including resale price maintenance (RPM) and most favoured nation clauses; and

(c) Abuse of dominance, including: Exclusivity obligations or restrictions precluding counter-parties from dealing with rival platforms (either-or/one-from-two type arrangements); personalised pricing (discrimination) on the part of dominant platforms without justification; and potential application of the essential facilities doctrine to platforms and refusal to supply, tying or bundling conducted through technical means and novel forms of abuse, for example penalising certain operators via search downgrades, traffic restrictions and/or technical barriers.

A softening of approach

There are some subtle signs of a softening of tone when compared with the November consultation draft, with more emphasis placed on:

(1) The role of market definition and effects analysis. The guidelines emphasise that market definition is usually required in assessing all aspects of competition law (anti-competitive agreements, abuse of dominance, and merger control), whereas the draft stated that market definition would be of lesser importance when assessing horizontal collusion and RPM; and

(2) The possibility of objective justifications for conduct that may constitute abuse of dominance. For example, the list of potential justifications for predatory pricing has been expanded to include short-term price promotions.

There is also an express clarification that parallel behaviour that results from an operator’s independent decision making is not a sufficient basis on its own to establish an anti-competitive agreement.

These changes appear to be deliberately designed to respond to concerns expressed during the consultation that the SAMR should not overregulate the tech sector, and the risks that heavy-handed enforcement pose to innovation and development.

Broader policy goals

In addition to maintaining fair market competition, stimulating innovation and creativity, and safeguarding the legitimate interest of all parties, the guidelines highlight that the competition authority’s enforcement should pay attention to the equal treatment of all market players, and enhancing their international competitiveness. While this may signal a desire to let China’s tech champions grow in order to compete internationally, it remains to be seen how this will play out against other policy goals in day-to-day enforcement.

Interestingly, the guidelines further expand enforcement principles by adding in the prevention of the disorderly expansion of capital, as well as strengthening the co-ordination of anti-monopoly law enforcement and industry supervision. This appears to be in response to the central bank’s recent actions against online payment platforms and fintech operators, so as to maintain financial safety and prevent financial risks.

Online platforms and merger control

SAMR targets VIEs

The guidelines expressly state that transactions involving variable Interest entities (VIEs) are subject to merger control in China in the normal way. This is unchanged since the draft.

The SAMR has already taken enforcement action against three companies with VIE structures, imposing the statutory maximum fine of RMB500,000 (US$77,000) for failure to notify their respective transactions for merger control.

Reviews of non-notifiable deals

The guidelines confirm that the SAMR may conduct ex officio investigations on tech deals below turnover thresholds, in particular transactions involving start-ups or emerging platforms, or where the revenues of a party to the concentration are below the turnover thresholds due to the free or low-price model, or the market concentration of the relevant market is high, or the number of competitors is small.

This, again, is unchanged since the draft, and reflects a global debate about the extent to which merger control regimes are well placed to appropriately review acquisitions of competitively significant businesses with turnover that falls below conventional thresholds for mandatory notification. Certain jurisdictions have responded by introducing new transaction value thresholds (Germany and Austria), whereas other jurisdictions (Singapore, which operates a self-assessment/voluntary regime) have decided that their rules are already adequate.

Revenue calculation for online platforms

The guidelines also recognise that – according to industry practices, charging methods, business models, the role of platform operators etc. – revenue calculation by internet platform operators for China merger control jurisdiction analysis might be different from traditional industries. That being said, the guidelines emphasise that revenue being captured in principle should include sales of either product or service:

(1) For platform operators that only provide information matching and receive commissions or service fees, revenues may be calculated from the service fees charged by the platform operator and other revenues generated by the platform operator; and

(2) For platform operators that specifically participate in competition on one side of the platform, or take a lead in such market, revenues may also include the transaction amounts involved in the platform.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Howard Wu (Shanghai) at howard.wu@bakermckenzie.com