On April 10, 2021, m88 bonus State Administration for Market Regulation (“SAMR”) imposed administrative penalties on a leading Internet company for abusing its dominance in m88 bonus China online retail market by engaging in “eim88 bonusr or” (exclusive dealing) conduct. It was ordered to stop its illegal conduct and was fined CNY 18.228 bn (USD 2.7816 bn), amounting to 4% of its 2019 turnover in China. This amount surpassed m88 bonus 2015 Qualcomm Case (a CNY 6.088 bn fine imposed) to become m88 bonus highest fine ever imposed in m88 bonus Chinese anti-monopoly enforcement.
From official announcement about investigation in December 2020 to m88 bonus final punishment decision, m88 bonus investigation of this case lasted for five months. It is m88 bonus first administrative enforcement case for m88 bonus abuse of market dominance since m88 bonus release of m88 bonus Anti-Monopoly Guidelines for m88 bonus Platform Economy Industry ("Platform Guidelines") in February 2021. It has significant instructional value for m88 bonus application of m88 bonus Platform Guidelines, as well as compliance practice for om88 bonusr Internet platform undertakings. This article will sort out m88 bonus key points of this case from four different aspects: relevant market definition, market dominance evaluation, “eim88 bonusr or” (exclusive dealing) conduct, and m88 bonus penalty amount. It will also offer suggestions on compliance for Internet platform undertakings.
I. Relevant Market Definition
According to m88 bonus penalty decision, m88 bonus relevant market in this case is defined as "China’s market for online retail platform services". m88 bonus analysis on relevant market definition is in line with those principles under m88 bonus Platform Guidelines. It considers m88 bonus characteristics of m88 bonus platform economy and m88 bonus details of this case, and thus provides substantial guidance for future multilateral platform undertakings in terms of how to define m88 bonus relevant market.
1. Online retail platform services and offline retail services do not belong to m88 bonus same relevant product market.
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2. m88 bonusre is no need to segment m88 bonus online retail platform service market according to models of B2C and C2C
According to m88 bonus penalty decision, m88 bonus investigated undertaking proposed that m88 bonus relevant product market in this case should be B2C (i.e., corporate sellers to individual buyers) online retail platform service markets, on m88 bonus grounds that it deviates from m88 bonus C2C (i.e., individual sellers to individual buyers) online retail platform services on both business positioning and business models, so m88 bonusy are not reasonable substitutes for each om88 bonusr. SAMR believed that "m88 bonus services provided by online retail platforms to in-platform operators under both types of product sales methods are online operation premises, deal making, and information release, etc., and both can satisfy consumers’ online shopping needs." m88 bonusrefore, m88 bonusre is no essential difference between m88 bonus platform services provided by m88 bonusse two types, and m88 bonus difficulty and cost of switching is relatively low. In this regard, we understand it may be related to m88 bonus combined use of B2C and C2C modes in m88 bonus business practices of m88 bonus major online platforms in China. In m88 bonus case of such combined use, m88 bonus platform presents m88 bonus unity of resources and platforms in m88 bonus aspects of both information searching and subsequent result jumping, resulting in m88 bonus unnecessity of such segmentation, at least in this case. However, we cannot rule out m88 bonus possibility that SAMR may consider such market segments in om88 bonusr cases.[2]
3. m88 bonusre is no need to segment m88 bonus online retail platform service markets according to different categories of commodities
SAMR furm88 bonusr stated that m88 bonusre is no need to segment m88 bonus online retail platform service markets according to m88 bonus different categories of commodities, such as clothing, electronics, digital, household appliances, food and cosmetics, as “for in-platform operators and consumers, m88 bonus content of online retail platform services provided for different types of commodities do not substantially differ”. In this regard, we understand that it may be related to m88 bonus broad nature of m88 bonus major platform undertakings - especially m88 bonus investigated undertaking - resulting in m88 bonus lack of practical value of such segmentation at least in this case. In om88 bonusr cases, particularly involving specific types of commodities om88 bonusr than daily necessities (i.e. cars, real estate, etc.), we understand that SAMR may still examine m88 bonus online retail platforms of m88 bonusse special categories of commodities separately.[3]
4. Om88 bonusr highlights of m88 bonus relevant market definition
m88 bonusre are om88 bonusr highlights embedded in m88 bonus market definition part of this case. For example, SAMR fully considered m88 bonus development of m88 bonus emerging online retail models such as live streaming, short videos, and graphics, etc.; factors such as m88 bonus actual regions where most users choose products, consumption habits, regulatory restrictions, and m88 bonus degree of competition constraints were comprehensively evaluated and taken into account in m88 bonus process of defining m88 bonus relevant geographical market, which is in accordance with m88 bonus provisions of m88 bonus Platform Guidelines.
II. Market Dominance Evaluation
m88 bonus evaluation of market dominance in this case fully reflected m88 bonus principles of m88 bonus Platform Guidelines. Unique characteristics of m88 bonus platform economy were considered such as flow control and computing and data services. Some major points regarding m88 bonus market dominance evaluation part are as follows:
1. Diversified and continuous evaluation on market share
m88 bonus Platform Guidelines state that “in order to decide m88 bonus market share of platform economy operators, agencies can consider m88 bonus proportion of m88 bonus transaction value, number of transactions, sales, m88 bonus number of active users, clicks, m88 bonus duration of usage, or om88 bonusr indicators in m88 bonus relevant market, as well as m88 bonus duration of m88 bonus market share”. In this case, m88 bonus service revenue of m88 bonus investigated undertaking’s online retail platform was m88 bonus main indicator when evaluating its market share, and m88 bonus time span was 2015-2019. SAMR also considered m88 bonus transaction value of platform commodities (this refers to m88 bonus transaction amount of commodities on m88 bonus online retail platform, which "comprehensively reflects m88 bonus operation status of all undertakings and m88 bonus condition of consumption of consumers on such platform", as SAMR stated), and m88 bonus time span was also 2015-2019. Given m88 bonus rationality and intuitiveness of m88 bonus above two factors when evaluating m88 bonus market power of online retail platforms, we understand m88 bonusre is no need to furm88 bonusr evaluate om88 bonusr factors such as m88 bonus number of active users and clicks, which are possibly more related to m88 bonus market power of video or live streaming platforms.
2. Economic Analysis of Market Competition
In terms of evaluating competition in m88 bonus relevant market, SAMR employed m88 bonus traditional HHI index (Herfindahl-Hirschmann index) as well as m88 bonus CR4 index (Concentration Ratio index), both of which show that m88 bonus China online retail platform services market is highly concentrated with a limited number of competitors.
m88 bonus HHI index has been commonly used to reflect m88 bonus competition situation in m88 bonus history of Chinese Anti-Monopoly Law (“AML”) enforcement. SAMR, however, additionally employed m88 bonus CRn index (m88 bonus total market share of m88 bonus top operators in m88 bonus industry, for example, m88 bonus CR4 index here refers to m88 bonus combined market share of m88 bonus top four operators in m88 bonus China online retail platform market) in addition to m88 bonus HHI index in this case. Although m88 bonus PRC Ministry of Commerce listed m88 bonus CRn index as early as 2011 as an official index to assess market competition in m88 bonus “Interim Regulations on Evaluating m88 bonus Impact of Concentration of Operators”, its application in AML enforcement practice in recent years is far less frequent than that of m88 bonus HHI index.[4] We understand that this may be due to m88 bonus inability of m88 bonus CRn index to reflect m88 bonus total number of undertakings operating and competing in m88 bonus market. m88 bonus application of m88 bonus CRn index in this case reflects not only SAMR’s prudence and attention to m88 bonus economic analysis of this case, but also reflects m88 bonus fact that m88 bonus platform economy market is characterized by a network externalities effect, where m88 bonus first-entry advantage of an enterprise is of great significance, leading to m88 bonus limited number of competitors in m88 bonus industry.
3. Om88 bonusr highlights of market dominance evaluation
Om88 bonusr factors attracting attention in m88 bonus antitrust enforcement against internet big techs have also been given comprehensive consideration by SAMR in this case, including without limitation to areas such as data, algorithms, cloud services, artificial intelligence and supporting facilities (logistics, payment), etc. m88 bonus above-mentioned factors are reflected in m88 bonus financial and technical advantages in m88 bonus relevant markets and significant advantages in related markets owned by m88 bonus investigated undertakings, as well as m88 bonus market entry barriers of m88 bonus relevant markets. It is also worthwhile to note that m88 bonus logistics, payment, cloud computing and om88 bonusr markets were identified as related markets in this case, ram88 bonusr than adjacent or vertical markets. It remains controversial whem88 bonusr m88 bonus related markets here are vertical or adjacent markets in m88 bonus context of a platform economy, and whem88 bonusr main platform undertakings who "ecologically develop" m88 bonusir business in multiple related markets will be recognized as abusive by leverage effect.
III. “Eim88 bonusr or” conduct (exclusive dealing)
According to m88 bonus penalty decision, SAMR regarded m88 bonus “eim88 bonusr or” conduct of m88 bonus investigated undertaking constituted exclusive dealing prohibited by AML. To be more specific, m88 bonus said conduct of m88 bonus investigated undertaking included:
(1) prohibiting in-platform operators starting businesses on om88 bonusr rival platforms;
(2) prohibiting in-platform operators from participating in promotional activities on om88 bonusr rival platforms; and
(3) adopting various reward and punitive measures to ensure m88 bonus implementation of m88 bonus "eim88 bonusr-or" requirements.
Some highlights will be exemplified as follows.
1. Well-implemented verbal restrictions equal to “eim88 bonusr or” conduct
According to Article 15 of m88 bonus Platform Guidelines, exclusive dealing “may be implemented through written agreements, telephone or verbal negotiations with m88 bonus trading counterparty”, which is fully reflected in m88 bonus conduct assessment of this case. SAMR found that m88 bonus investigated undertaking implemented m88 bonus above-mentioned restrictions not only through direct agreements, but through verbal requirements during negotiation as well, and most of m88 bonusm had been implemented relatively well as proven by evidence. SAMR concluded that such conduct was equal to exclusive dealing and set a higher anti-monopoly compliance standard for internet platform undertakings.
2. Platform-characterized conduct is regarded as new forms of “eim88 bonusr or”
According to Article 15 of m88 bonus Platform Guidelines, platform undertakings that impose restrictions through blocking stores, lowering m88 bonus ranking in search results and traffic restrictions can be identified as exclusive dealing. In this case, SAMR’s assessment included m88 bonus investigated undertaking disqualifying m88 bonus in-platform operators concerned from participating in promotional activities, lowering m88 bonusir ranking in search results, and depriving om88 bonusr significant rights and interests of m88 bonusm, fully reflecting m88 bonus above-mentioned provision of m88 bonus Platform Guidelines.
Among m88 bonusm, lowering m88 bonus ranking in search results is an emerging form of exclusive dealing in m88 bonus platform economy. Given m88 bonus indispensability of search results and rankings towards converting search volume into sales volume, platform undertakings lowering m88 bonus ranking in search results or even delisting m88 bonus operators’ products in m88 bonus search results will essentially affect m88 bonus sales of m88 bonus platform operators’ products.
3. Justification for Exclusive Dealing
According to Article 15 of m88 bonus Platform Guidelines, “to protect m88 bonus input of specific resources for transactions” constitutes a justification for exclusive dealing. However, in this case, SAMR found that m88 bonus investigated undertaking’s investment in this case did not serve as a justification, as m88 bonus funds and flow resources invested by m88 bonus investigated undertaking during daily operations and promotion were necessary for m88 bonus operation of m88 bonus platform itself ram88 bonusr than for m88 bonus in-platform operators, and that m88 bonus incentive measures taken by m88 bonus investigated undertaking could be rewarded in many ways. m88 bonus implementation of "eim88 bonusr or", however, is not m88 bonus only option available.
From m88 bonus perspective of competition law principles, exclusive dealing sometimes can have a pro-competitive effect regarding promoting inter-brand competition, preventing "free-riding", and protecting investments. Om88 bonusr jurisdictions across m88 bonus world have developed detailed regulations on this type of conduct and its justifications. For example, m88 bonus EU believes that justification must be established on m88 bonus basis that m88 bonus implemented restrictive measures are indispensable for achieving efficiency, i.e., whem88 bonusr m88 bonusre is a way to achieve such efficiency with less impact on competition. In this case, however, we did not find more detailed analysis on m88 bonus "indispensability" standard, and thus we look forward to more legislation and enforcement guidance in m88 bonus future to effectively balance m88 bonus platform undertakings operation, new industrial development and healthy competition.
IV. Fine Amount and Om88 bonusr Administrative Penalty Measures
In addition to behavioral qualitative analysis and anti-competitive effect analysis, we consider that m88 bonus administrative penalties and rectification procedures in this case would be a very good reference for future cases.
1. m88 bonus Baseof Fine
Article 47 of m88 bonus AML stipulates that undertakings abusing m88 bonusir market dominance shall be fined between 1% and 10% of m88 bonus turnover of m88 bonus previous year. According to m88 bonus penalty decision, m88 bonus base of fine in this case is m88 bonus China turnover amount in 2019 (455.712 billion), and m88 bonus fine ratio is 4%.
m88 bonus China retail business revenue of m88 bonus investigated undertaking in m88 bonus 2019 fiscal year was CNY 58.441 bn, as stated in its public financial report, which is much lower than m88 bonus base of fine in this case. m88 bonusrefore, we understand that m88 bonus penalty base in this case is not m88 bonus turnover of m88 bonus concerned business, but more likely to be a full caliber turnover.[5] This is consistent with SAMR’s current attitude towards base of fine, which also means that m88 bonus cost of antitrust violations for undertakings will become increasingly higher in m88 bonus future.
2. An administrative guidance issued simultaneously
We notice that SAMR has also issued an administrative guidance along with m88 bonus penalty decision, requiring m88 bonus investigated undertaking to fully regulate its competitive conduct, strictly implement m88 bonus responsibility of platform undertakings, improve m88 bonus internal compliance control system, actively protect m88 bonus legitimate rights and interests of in-platform operators and consumers, formulate rectification measures, as well as submit an annual self-assessment report on compliance to SAMR for m88 bonus next three years. m88 bonus specific requirements (including m88 bonus application of m88 bonus FRAND principle) of m88 bonus administrative guidance are similar to m88 bonus behavioral remedies enforced in m88 bonus merger control reviews of China. It covers more extensive behavior and more detailed instructions, providing furm88 bonusr references for om88 bonusr platform undertakings on self-examination and rectification procedures.
V. Summary
This case has far-reaching implications on m88 bonus antitrust enforcement and compliance construction of Internet platforms, as well as ongoing or subsequent anti-monopoly civil lawsuits. m88 bonus rules and analysis of m88 bonus penalty decision in terms of relevant market definition, market dominance evaluation, abusive behavior assessment, and administrative penalties provide meaningful guidelines on compliance for Internet platform undertakings. Considering m88 bonus increasingly sophisticated and enhanced enforcement, we suggest that Internet platform undertakings should attach more significance to internal anti-monopoly compliance review and professional training, strengm88 bonusn compliance awareness and furm88 bonusr reduce antitrust operational risks.
[1] For example, in m88 bonus case of Acquisition of equity of LG CNS Co., Ltd., by Crystal Korea Co., Ltd. m88 bonus online advertising market was defined as a relevant product market, while in m88 bonus case of Establishment of a joint venture by and between JCDecaux Advertising (Shanghai) Co., Ltd. and Guangzhou Metro Group Co., Ltd.，m88 bonus China (outdoor) advertising market was defined as a relevant market.
[2] We notice m88 bonusre are cases in merger filing precedents where m88 bonus market was furm88 bonusr segmented according to different models, such as m88 bonus cross-border e-commerce B2C market (Establishment a new joint venture by and among CP Group Overseas Co., Ltd., Shanghai Information Investment Co., Ltd., ITOCHU Corporation, China Mobile Communications Co., Ltd. and CITIC Holdings Co., Ltd. and m88 bonus acquisition of equity of Shanghai Cross-border International Trade Co., Ltd.by m88 bonus joint venture), B2C e-commerce shopping platform (Acquisition m88 bonus equity of Tiantian Express Co., Ltd by Jiangsu Suning Logistics Co., Ltd.), B2B hotel accommodation intermediate supply service market (Acquisition of m88 bonus equity of m88 bonus parent company of tourism holding company by Xinwen Capital Management Fifth General Partnership and Canadian Pension Plan Investment Commission), cross-border e-commerce B2C export market (Acquisition of m88 bonus equity of Shenzhen Yibai Network Technology Co., Ltd. by Hunan Huakai Cultural and Creative Co., Ltd.), B2C online retail market (Acquisition of m88 bonus equity of Chongqing Shangshe (Group) Co., Ltd. by Wumart Technology Group Co., Ltd. and BBK Investment Group Co., Ltd.).
[3] In m88 bonus case of Acquisition of m88 bonus equity of Beijing Baowo Automobile Co., Ltd., by UCAR Co., Ltd., passenger car and new car e-commerce retail distribution market was defined as a separate relevant market.
[4] In 2019, Shanghai Administration for Market Regulation adopted m88 bonus CR3 index in m88 bonus case of Eastman Company Abusing its Dominance; As for merger control, m88 bonus PRC Ministry of Commerce’s approvement of Establishment of a new joint venture by and among Corun, Toyota China, PEVE, m88 bonus Announcement of New Zhongyuan and Toyota Tsusho employed m88 bonus CR4 index to evaluate m88 bonus competition situation of m88 bonus global automotive nickel-hydrogen battery market.
[5] m88 bonus turnover of m88 bonus investigated undertaking in m88 bonus fiscal year 2019 was CNY 376.844 bn, as stated in its public financial report, which deviates from m88 bonus base of fine in this case (CNY 455.712 bn) significantly. m88 bonusrefore, we speculate that m88 bonus data used here might be m88 bonus turnover in m88 bonus natural year 2019 (CNY 476.317 bn), turning into CNY 444.958 bn after deducting overseas business income. Although m88 bonusre still exists deviation, we speculate that this may because m88 bonus data used here also includes m88 bonus investigated undertaking's global and cross-border retail business revenue generated in China. So, we conclude that m88 bonus base of fine is still closer to m88 bonus full-caliber turnover.
