On 24 March 2023, the State Administration for Market Regulation (SAMR) issued the Provisions on Prohibiting Abuse of Dominant Market Position, further developing and refining the specific rules for determining abuse of dominant market position, and improving the investigation procedure and corresponding legal liability, thus according them significant practical guiding significance for determining, investigating and handling abuses of dominant market position by business operators.
In light of current legal regulation and practice, this article looks at the rules for determining and holding liability for abuse of dominant market position, and suggests pertinent compliance recommendations.
RULES FOR DETERMINATION
In determining abuse of dominant market position, the usual practice is to apply the “relevant market-market, power-competitive effects” analytical method. Accordingly, the foremost precondition is reasonably defining the relevant markets, including the relevant product market and the relevant geographic market.
The main tool for defining these markets is the alternative analysis method, i.e. conducting a demand alternative analysis from the perspective of the demander or, where a demand analysis is difficult, a supply alternative analysis from the perspective of the business operator.
Furthermore, a hypothetical monopolist test (HMT) – which conducts an analysis by way of such methods as small but significant and non-transitory increase in prices (SSNIP), or small but significant non-transitory decrease in quality (SSNDQ) – is another common analytical approach used in defining relevant markets.
However, it should be noted that the Supreme People’s Court creatively put forward, in its guiding case no. 78, such ideas as that “defining the relevant market is only one way to assess the impact on competition of the market power of a business operator and its alleged monopolistic act, but not the only way”, and that “even without clearly defining the relevant market, the market position of the accused operator and the possible market impact of the accused monopolistic behaviour can be evaluated through direct evidence of exclusion or obstruction of competition”.
Once a definition of the relevant market is completed, it is necessary to determine whether the business operator has a dominant position in that market. “Dominant market position” is defined in the Anti-Monopoly Law as a market position where a business operator has the ability to control the price or quantity of goods, or other trade conditions in the relevant market, or to impede or affect the entry of other business operators into the relevant market.
Pursuant to the Anti-Monopoly Law, the main factors to be considered in determining dominant market position include:
- The business operator’s market share in the relevant market, and the state of competition in the relevant market;
- The business operator’s capacity to control the sales market or raw materials procurement market;
- The business operator’s financial resources and technical conditions;
- The degree to which other business operators rely on the business operator in their trading; and
- The degree of difficulty faced by other business operators in entering the relevant market.
In terms of the determination of collective dominance, the regulation specifies that such factors as the consistency in the business operator’s acts, market structure, transparency of the relevant market, degree of homogeneity of the relevant products, etc., additionally need to be taken into account. This provision is essentially identical to the analytical approach embodied in the judgment in Ma Lijie v China Mobile Communications Group Henan (2021).
That a business operator has a dominant market position does not in itself constitute a violation of the Anti-Monopoly Law. What that law prohibits is having a dominant market position and abusing such dominant market position.
Based on China’s anti-monopoly administrative law enforcement and judicial practice, where a business operator commits an abusive act prohibited by the first paragraph of article 22 of the Anti-Monopoly Law without just cause, and such act has the effect of eliminating or restricting competition in the relevant market, it will be found to have abused its dominant market position.
It goes without saying that the provision in question does not exhaust the types of abusive acts but, in practice, the anti-monopoly risks of such acts are significantly higher than those that are not enumerated.
Pursuant to the Anti-Monopoly Law and the regulation, where a business operator is found to have abused its dominant market position, the Anti-Monopoly Law enforcement authority will order it to cease the illegal act, forfeit the illegal gains, and impose fines ranging from 1% to 10% of its sales turnover for the previous year.
When determining the specific amount of the fine, the authority will consider such factors as the nature, extent and duration of the illegal act, the success in eliminating the consequences of the illegal act, etc.
Where the circumstances of an abuse of dominant market position are particularly serious, the impact is particularly heinous or the consequences caused are particularly serious, the SAMR may determine a specific fine amount that is more than double but less than five times the above-mentioned specified fine amount.
In addition to the above-mentioned administrative liability, where the abuse of dominant market position by a business operator causes injury to a third party, it will additionally face the risk of being required to bear the attendant civil liability.
It is recommended that enterprises conduct a systematic review of their business models and business scopes, and analyse factors such as market share, market power, etc., in the relevant markets to determine whether they may have dominant positions in such markets.
Based on this, conduct a comprehensive self-examination of anti-monopoly compliance issues involved in all business chains, business procedures, various agreements and business policies, and promptly rectify any act that could give rise to a suspicion of abuse of dominant market position.
For acts that have already been investigated by the Anti-Monopoly Law enforcement authority, actively co-operate with the investigation and take measures to eliminate the effect as soon as possible. At the same time, enterprises should assess the potential risk of third-party civil litigation resulting from the investigated act suspected of abusing market dominance position, and formulate response strategies as early as possible.
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