China Law Vision : China Insurance & Anti-Trust Lawyer : Dr. Zhan Hao : Grandall Legal Group : Anti-Monopoly & Competition Law : China Law Vision Blog

The previous minimum annual fees of Rmb6,000 were raised to between Rmb30,000 and Rmb60,000, while the security deposit was raised from Rmb10,000 to Rmb50,000, Rmb100,000 or Rmb150,000, depending on the size of the business-to-consumer vendor. Smaller vendors protested by disrupting the online platform, using communication tools such as YY Voice to attack companies with a larger presence on Tmall. The incident sent ripples through the worlds of business, academia and politics, with many critics arguing that the price-rise policy may constitute an abuse of dominant position under the Anti-Monopoly Law.

Determining dominant position in a given market is problematic; in most cases, it requires comprehensive market research and subtle, detailed analysis. The answer may be the length of an academic paper and may take weeks to compile and express clearly. If it is assumed that Tmall holds a dominant position, there remains the question of whether its behaviour can be deemed an abuse under the law.

Article 17(1) states that an abuse consists in imposing unfairly high sale prices or unfairly low purchase prices. On the sale side, "excessive" prices may be unfair. Excessive pricing is the most obvious way in which a monopolist can exploit its position to the detriment of consumers in the short term. However, it is often argued that a free market economy needs the lure of monopoly pricing. On this analysis, the opportunity to charge monopoly prices - at least for a short period - is what attracts business acumen in the first place, encouraging the risk taking that produces innovation and economic growth.

Furthermore, excessive prices may be pro-competitive, as high prices and profits may act as a signal to attract new competitors to the market. Therefore, high prices - within reasonable limits - should not automatically be deemed excessive or unfair.

It is unquestionably difficult to decide what constitutes an excessive or unfair price. Given that it is rarely possible to ascertain what the price might have been in a more competitive market, what other yardstick can be used? How should competition policies be balanced against state policies in other sectors, given China's macroeconomic background? Should such a policy protect small and medium-sized businesses or encourage emerging business? All of these questions should be considered when deciding whether Tmall's price-rise policy should be classified as abusive.

I             Draft Regulation on Monopoly Agreements

A          Definition

The Draft Regulation on Monopoly Agreements made significant clarifications to the definition of monopoly agreements. For example, it provides that agreements organized to be reached by trade associations are monopoly agreements within the meaning of AML. It dispels the common misconception that only trade associations are liable for organizing members to reach monopoly agreements. The Monopoly Agreement Draft Rules also provides that in order to establish tacit collusion, SAIC will investigate whether the competitors have engaged in communicating with each other. The amendment is significant, as it implies that a competitor who follows the price leader in a market, without sharing its intention of doing so with other competitors doesn’t constitute tacit collusion. Hence there is no “agreement” within the meaning of AML.

B         Horizontal agreement

The Draft Regulation on Monopoly Agreements re-adjusts the scope of horizontal agreements. For example, it adds “agreement on refusing to adopt new technological standard” to the list of the proscribed horizontal agreements”. It also carves out bid rigging from the scope of horizontal monopoly agreements. These changes reflect SAIC’s concern with the interaction of AML and Tender and Bidding Law of PRC.

C           Vertical monopoly agreements

Regarding vertical monopoly agreements, SAIC only prohibits agreements which “have the effects of eliminating or restricting effects of competition and harming the interests of consumers”, without enumerating specific types of vertical agreements it condemns. It reflects SAIC’s preference for effect-based, rather than formalistic approach to vertical restraint.

D         Abuse of intellectual property rights

For the first time, the Draft Regulation on Monopoly Agreements provides that it will apply to scenarios where undertakings abuse their intellectual property rights by reaching monopoly agreements. Accordingly, for example, where undertakings with competing patent collude to restrict use of new technology, they shall break the regulation.

II           The Draft Regulation on Abusing Market Dominant Position

A          Test for rebutting presumption of market dominant position

The Draft Regulation on Abusing Market Dominant Position provides a clear and workable guidance on substantive rules for rebutting market dominant position. It provides questions on whether the competitor in question has ability to control market price or obstruct competitors from entering the market by reference to such factors as market share, ability to control sales market or raw material purchasing market, financial or technological superiority, degree of market reliance on the undertaking in question, degree of difficulty in market entry.

B         Various conducts of abusing market dominant position

The Draft Regulation on Abusing Market Dominant Position provides that the following conducts constitute refusal to deal, i.e., without due reasons, cutting back volumes of transactions with current customers, terminating current transactions, refusing to engage in new transactions, refusal to share essential facilities and imposing restrictive conditions such that the transaction parties may find it difficult to continue to deal.

Regarding exclusive dealing, the Draft Regulation on Abusing Market Dominant Position forbids exclusive dealing with the undertaking in market dominant position or its designee without due reasons. On top of that, where an undertaking in market dominant position prevents transaction parties from dealing with its competitors without due reasons, it shall also break the regulation.  

The Draft Regulation on Abusing Market Dominant prohibits the following bundling and tying:

•  to sell different commodities in forced bundling or combination, in contradiction with their functions or customs of transactions or consumption;
• to attach unreasonable restrictions to duration of contract, method of payment, transportation of commodities, delivery or methods of services;
• to attach unreasonable restrictions to the territory of marketing, buyers and after-sale services;
•   to attach conditions of transaction that are irrelevant to object of transaction.

SAIC shall look into the following factors to determine the defense of “due reasons”:

• whether the acts in question are based on customary practices and normal operations;
• whether the acts in question have the effects of eliminating or restricting market competition and harming consumers’ interests;
• the effects of the acts on economic efficiency, public interest and economic development.

C         Abuse of intellectual property

For the first time, Abusing Market Dominance Draft Rules expressly provides that it will apply to abusing intellectual property rights where the undertaking in question abuses its market dominant position. It implies that the intellectual property rights afford market dominant position to the undertaking in question.