Interpreting anti-monopoly guidelines for internet industry

On 7 February 2021, the Anti-Monopoly Committee of the State Council issued the Anti-Monopoly Guidelines for the Platform Economy Sector, which provide detailed regulations and explanations on enforcement issues related to monopoly agreements, abuses of dominant market position, business operator concentrations, etc., in the internet industry. The authors have interpreted key provisions of the guidelines to assist the daily compliance work of internet enterprises.

Assessment of market dominance needs to be combined with the characteristics of the internet industry

Taking into account the characteristics of the internet industry, the guidelines provide detailed provisions for the determination of the market dominance of internet platforms in terms of: The market share data; the competitive situation in the relevant market; the business operator’s capacity to control the market; the financial and technical capacity of the business operator; the degree of reliance of other business operators on the business operator in transactions; and the ease of entry of other business operators into the relevant market. The guidelines set out many factors as additional consideration factors in the internet industry such as the number of active users, the number of clicks, network effects, user stickiness, the capacity to control and process data, etc.

Compared to the chemical, auto and other traditional industries, competition in the internet industry is highly dynamic, and emerging companies may become unicorns and secure a relatively large market share in a short period of time by relying on factors such as technology and services, user experience and stickiness, financing capacity, etc. Accordingly, the authors recommend that internet enterprises conduct dynamic assessments of their market position, based on the number of competitors and the development of the industry, to control the potential antitrust compliance risks of the relevant acts in a timely manner.

Significant risk increase of the utilisation of algorithms and data

The guidelines emphasise the importance of algorithms and data in anti-monopoly law enforcement in the internet industry, including:

(1) data and algorithms may enable internet enterprises to act in concert to eliminate and restrict competition, or enter into hub-and-spoke agreements with platforms;

(2) data and algorithms may enable internet enterprises to directly or indirectly limit prices and other trading conditions with trading counterparties;

(3) the setting of unreasonable restrictions and barriers in platform rules, algorithms, technologies, traffic allocation, etc., to make it difficult for trading counterparties to engage in trade, could constitute refusal to deal;

(4) subjecting users to differential trading conditions based on big data and algorithms could constitute differential treatment;

(5) requiring business operators involved in a concentration to open or modify their data or algorithms could be considered as additional restrictive conditions in the review of concentration filing; and

(6) forced collection of non-essential user information could constitute tying or attachment of unreasonable trading conditions.

How an internet enterprise should utilise algorithms and data, complying with the legal and compliance requirements, is one of the issues of most concern in jurisdictions around the world. Accordingly, enterprises should pay great attention to the compliance management and utilisation of algorithms and data, including but not limited to the establishment of requisite internal compliance procedures and training of business staff.

Antitrust risks in the market expansion strategies of enterprises

The guidelines provide enforcement guidance on a number of issues that may be suspected of constituting monopolistic behaviour in the expansion of internet enterprises, including:

(1) the identification of low-priced sales behaviour with respect to the subsidies and “red packets” common to internet platforms, specifying “increasing prices to earn undue profit and benefits, harming fair market competition and the lawful rights and interests of consumers, among other circumstances” and indicating that “attracting new users within a reasonable period of time” and “carrying out promotional activities within a reasonable period of time” are considered legitimate reasons;

(2) internet platforms require business operators on the platforms to provide trading conditions equal to or better than those provided to the competing platforms in terms of the price and quantity of goods (i.e. the “most favoured nation clause”), which may constitute monopoly agreement or abuse of dominant market position;

(3) the first formal inclusion of the “choose one from two” concept in enforcement regulations, indicating that, in addition to punitive measures (e.g. obscuring of store, downgrading of search rights and restriction of traffic), certain incentive measures (e.g. subsidies and traffic resource support) may constitute forcing enterprises to “choose one from two” in a deceptive manner.

Given that numerous internet enterprises have been heavily penalised, or are under investigation, for committing the above-mentioned acts, the authors advise internet enterprises to conduct comprehensive reviews of platform rules, co-operation agreements, notification documents and other documents in use to determine whether there is a risk of being found to constitute monopoly acts.

Concentration filing obligation of variable interest entity (VIE) structure transactions expressly specified

Before the issuance of the guidelines and draft for comment, the issue of whether business operator concentrations involving VIE structures require the submission of concentration filing has not been fully clarified, leaving the antitrust compliance of a large number of transactions in the internet industry in an uncertain state. In July 2020, the State Administration for Market Regulation publicly accepted and unconditionally approved for the first time a transaction involving a VIE structure by one of the parties to the concentration, making it clear from the enforcement practice that transactions involving VIE structures should be notified if such transactions meet the filing threshold. The guidelines provide a clear response to this issue, that is, business operator concentrations involving VIE structures fall within the scope of antitrust reviews of business operator concentrations.

Given that there have been numerous penalty cases of business operator concentrations involving VIE structures before and after the issuance of the guidelines, the authors recommend that internet enterprises conduct a comprehensive review of whether their past transactions have met the threshold for concentration filings, and analyse the potential antitrust compliance risks.

Zhan Hao is a partner at AnJie Law Firm. He can be contacted on +86 13911781654 or by email at zhanhao@anjielaw.com

Song Ying is a partner at AnJie Law Firm. She can be contacted on +86 13811991784 or by email at songying@anjielaw.com

Zhu Libo is an associate at AnJie Law Firm. He can be contacted on +86 13051284061 or by email at zhulibo@anjielaw.com