On 10 November 2020, the State Administration for Market Regulation (SAMR) published the draft Anti-Monopoly Compliance Guidelines for the Platform Economy for public consultation.
The draft guidelines clearly signal that stronger antitrust enforcement in China’s tech sector is likely. This appears to be driven by a desire on the part of the central government to rein in the growing strength of internet platforms, and to encourage a more diverse market structure.
The draft guidelines are expected to be finalised by the end of this year, or early next year, and cover an extensive range of issues related both to merger control as well as antitrust enforcement.
(1) Variable interest entity (VIE) structures are expressly stated to be subject to merger control in China in the normal way. Parties to concentrations involving such structures now need to assess whether their transactions meet the relevant thresholds.
(2) The SAMR may investigate tech deals ex officio, even where they fall outside of the normal thresholds for notification, particularly where transactions involve emerging players or startups, where the parties fall below the turnover threshold due to free pricing models, and where the markets are concentrated.
The draft guidelines flag various potential infringements, including:
- Interactions between competitors, including the use of platforms by competitors to exchange competitively sensitive information, algorithmic collusion, and hub-and-spoke agreements;
- The use of technology to implement resale price maintenance; and
- Price parity and most-favoured nation clauses (stated to be subject to effects-based analysis).
Abuse of dominance
In addition to restating conventional forms of abuse, the draft guidelines flag potentially novel conduct that may be considered abusive, including:
(1) exclusivity obligations, or restrictions precluding counterparties from dealing with rival platforms (“either or”, or “one from two” type arrangements);
(2) personalised pricing (discrimination) on the part of dominant platforms without justification;
(3) data as an essential facility, and refusal to supply;
(4) tying or bundling conducted through technical means; and
(5) penalising certain operators – via search downgrades, traffic restrictions, technical barriers, etc. – to force business operators to accept the platform’s services or terms.
Many features of the draft guidelines have obvious parallels with developments globally, where we have seen regulators:
(1) assess whether their merger control regimes are adequate to catch significant transactions;
(2) explore the role of data to competition in online sectors, and the interface between antitrust law and data privacy; and
(3) taking action against perceived exclusionary conduct by internet-based operators.
Platform operators in China should take the opportunity to assess their conduct, put in place robust compliance programmes, and refresh existing programmes if necessary.
Parties to VIE structures going forward will need to assess whether the thresholds are met in the normal way. Parties to transactions involving platforms and tech startups will also need to weigh the risk of ex officio investigations, even where a transaction falls outside of the normal revenue thresholds.
The internet sector in China has been a significant driver of growth in recent years. The SAMR and its predecessors have followed a “tolerant and prudential” approach, and this was widely seen as the reason why the sector had not been subject to heavy-handed enforcement.
Since 2018, the SAMR leadership has been increasingly at pains to point out that the above-mentioned approach does not mean laissez-faire, but rather taking a more holistic regulatory approach. Various efforts adopted in this sector include:
- Circumspect investigations. Several antitrust probes have been launched, though kept intentionally low key.
- Strengthening competition advocacy. The SAMR has carried out on-site visits, workshops and meetings with leading online business operators. Since 2019, the SAMR and its local branches have rolled out greater advocacy efforts around antitrust compliance, including issuing antitrust compliance guidelines for business operators, and by emphasising the importance of corporate compliance at various public workshops on e-commerce and the platform economy.
- Closer study of the industry. The SAMR launched an antitrust competition inquiry by circulating generic questionnaires to internet platforms and other leading market players in the second half of 2019.
- Resetting the tone. In early 2020, through a series of directive opinions issued on industry development, the State Council called for a strengthening of Anti-Monopoly Law (AML) enforcement to ensure a fair, competitive environment for the integrated circuit and software industries, and platform economy. In July 2020, 20 domestic e-platform companies, at the direction of the SAMR, jointly signed a voluntary convention to commit to ensuring fair competition and avoiding anticompetitive conduct. At around the same time, a merger filing involving parties to a VIE structure was reviewed and cleared by the SAMR, representing a material policy shift.
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 Danian Zhang (Shanghai) at email@example.com