Abuse of dominance

Year	Suspended/terminated by commitments	Penalty
2017	1	4
2018	2	7
2019	2	5
2020	1	8

1.8 Does the enforcer have to defend its claims in front of a legal tribunal or in other judicial proceedings? If so, what is the legal standard that applies to justify an enforcement action?

SAMR or PMRD has full discretion to make the decision to impose fines and confiscate illegal earnings, without the need to obtain approval by a legal tribunal or enter into other judicial proceedings. However, such decision could be appealed by the undertaking under investigation in an administrative review proceeding or an administrative lawsuit.

In terms of the standard of review, the competent administrative agency conducting the administrative review will look at the facts and the application of the law but will not conduct a de novo review. In the process of the administrative review, SAMR or PMRD may not, of its own accord, collect evidence from the applicant or from other organisations or individuals concerned. According to Article 28 of the Law on Administrative Review, the administrative decisions can be nullified, changed or confirmed to be illegal, if: (1) the main facts are unclear and the material evidence is inadequate; (2) the application of the law is incorrect;the statutory procedures have been violated; (4) the power of authority has been exceeded or abused; or (5) the administrative decision is obviously inappropriate.

In an administrative lawsuit, the People's Court will look at the facts and the application of the law. According to Article 70 of the Administrative Procedure Law, the People's Court may make a ruling to nullify or partially nullify the administrative decision, or rule that the defendant make a new administrative decision, in the following cases: (1) inadequacy of material evidence;(2) erroneous application of the law or regulations; (3) violation of legal procedure; (4) exceeding authority; (5) abuse of powers; and (6) obvious unfairness.

1.9 What is the appeals process?

Undertakings subject to a penalty decision from SAMR or PMRD have two options to appeal the decision: administrative review; and/or administrative litigation.

Administrative review

For a decision made by SAMR, the application for an administrative review shall be submitted to SAMR. For a decision made by PMRD, the application for an administrative review can be submitted either at the provincial government or at SAMR, subject to the discretion of the applicant.

The procedures of administrative review are divided into four steps: application, acceptance, review, and decision:

1. Application

   The applicant's application for administrative review shall be submitted within 60 days from the date of receipt of the penalty decision by SAMR or PMRD. There needs to be clear requests for administrative review and factual basis. Applicants can apply for administrative review in writing or verbally. For an oral application, the administrative review agency shall record the basic information of the applicant, the administrative review request, and the main facts, reasons and time of the application for administrative review on the spot.

    

2. Acceptance

   After receiving the administrative review application, the administrative review agency shall conduct an examination within five days. When it finds that the application does not conform to the provisions of the Law on Administrative Review, it shall decide not to accept the application and shall inform the applicant of the decision in writing. When it finds that the application does not come under its jurisdiction, it shall inform the applicant to apply to the competent administrative review organ.

   In addition to the above provisions, the application for administrative review shall be accepted from the date of receipt by the administrative review agency. During the period of administrative review, the administrative penalty decision shall not be suspended.

   
   

3. Review

   SAMR or PMRD shall, within 10 days of receiving the application for administrative review, submit a written reply to the administrative review agency and submit the evidence, basis and other relevant materials for the specific administrative act that was originally made. The administrative review agency shall review the application for administrative review, the penalty decision, the facts and evidence on which the penalty decision was made, as well as the written reply of SAMR or PMRD. In principle, the administrative review adopts the method of written review; however, when the applicant requests it or the administrative review agency deems it necessary, it can investigate the situation with relevant organisations and individuals, and listen to the opinions of the applicant, SAMR or PMRD and the third party.

   
   

4. Decision

   The administrative review agency shall make an administrative review decision within 60 days from the date of accepting the application for administrative review. If the situation is complicated and the administrative review decision cannot be made within the prescribed time limit, it can be extended appropriately; however, the extension period shall not exceed 30 days at most. The main types of administrative review decisions are:

   • The decision to maintain the penalty decision – the facts of the penalty decision are clear, the evidence is conclusive, the basis for application is correct, the procedure is legal, and the content is appropriate.

   • The decision to nullify, change or confirm the original punishment decision is illegal – the main facts identified in the original penalty decision are unclear, there was insufficient evidence, the basis for application was wrong, there was a violation of legal procedures, ultra vires or abuse of power, and specific administrative actions are obviously inappropriate.

Administrative litigation

The undertaking may first apply for administrative review, and if it dissatisfies with the administrative review decision, it may file an administrative lawsuit with the People's Court, or it may directly file an administrative lawsuit with the People's Court. The undertaking shall file an administrative lawsuit within six months of receiving the formal penalty decision. The Court shall render a judgment of first instance within six months after accepting the case. This period can be extended upon approval. In an administrative lawsuit, the People's Court will review whether the penalty decision of SAMR or PMRD is legal. People's Courts do not apply mediation when trying administrative lawsuits.

If the parties disagree with the judgment of the first instance, they have the right to appeal to the People's Court at the next higher level within 15 days from the date of service of the judgment. If an appeal is not filed within the time limit, the first-instance judgment of the People's Court shall be legally effective. In hearing an appealed case, the People's Court shall conduct a comprehensive review of the judgment and penalty decision of the original People's Court. The People's Court shall make a final judgment within three months from the date of receipt of the appeal petition.

1.10 Are private rights of action available and, if so, how do they differ from government enforcement actions?

Yes; parties and non-parties to a vertical agreement can bring damages claims if they have suffered losses due to an anticompetitive clause contained in a vertical agreement. Anyone who suffered from the abusive conduct can file an antitrust suit against the undertaking which holds the dominant market position to claim damages.

The differences between private and public enforcement are as follows:

1. Compensation and deterrence

   The plaintiff may obtain compensation in a private litigation but cannot obtain compensation from public enforcement. In an antitrust investigation, all illegal earnings will be confiscated by the government and the undertaking who suffered from the vertical agreement restrictions or abusive conduct cannot obtain compensation from the confiscated illegal earnings.

2. 
   

   If this is considered from a deterrence perspective, public enforcement may have higher deterrence power, since SAMR or PMRD can confiscate the illegal earnings, which could be higher than the damages claimed by the plaintiff. In addition, the fine imposed by the authority could be 10% of all sales revenue of the target, which may be much higher than the damages ruled by the People's Court in a private litigation.

3. 
   

   In addition, antitrust investigations may disrupt the normal operation of company executives, and the unfavourable results of antitrust investigations may cause the company's stock price to fluctuate sharply. Due to the limited claim in an antitrust litigation and the limited ability of the plaintiff to produce evidence, the impact of antitrust litigations on undertakings will be relatively limited.

4. 
   

5. Per se rule v. rule of reason

   In practice, SAMR and PMRD treat resale price maintenance ("RPM") as a per se violation but permit the undertaking to justify its conduct under Article 15 of the AML. In a private litigation, however, the RPM is reviewed by the People's Court under the rule of reason. According to the Provisions of Supreme People's Court on Several Issues Relating to Laws Applicable for Trial of Civil Dispute Cases Arising from Monopolies ("AML Judicial Interpretation"), for hard-core horizontal monopoly agreements, the defendant shall bear the burden of proof to demonstrate that the said agreement does not exclude or restrict competition. However, for a vertical monopoly agreement, the burden of proof to demonstrate that the said agreement excludes or restricts competition is on the plaintiff. In other words, a vertical monopoly agreement may not be anticompetitive unless the plaintiff can prove it.

6. 
   

7. No discovery process v. powerful investigation tools

8. In a private litigation against a vertical monopoly agreement or abusive conduct, it is very difficult for the plaintiff to find evidence to prove illegal conduct and make meaningful competition analysis because there is no discovery process, and all the damaging evidence is in the hands of the defendants. However, in a public enforcement case, SAMR or PMRD has the authority to request documents from the undertaking under investigation and can carry out a dawn raid on the target to obtain a large volume of materials including laptops and servers. It is comparatively easier for SAMR or PMRD to uncover the illegal conduct and complete the competition analysis.

9. 
   

10. Control over the proceeding

11. The plaintiff of a private litigation may withdraw the complaint, which means that it has a certain control over the proceeding. However, after SAMR or PMRD has initiated an antitrust investigation based on the report of a whistleblower, the whistleblower cannot stop public enforcement by withdrawing the report. In addition, SAMR or PMRD may initiate antitrust investigations at the appropriate time many years after receiving the report of a whistleblower. The whistleblower cannot prevent SAMR or PMRD from launching an investigation by withdrawing the report.
    
    

1.11 Describe any immunities, exemptions, or safe harbours that apply.

Safe harbour

1. Vertical safe harbour standard

   1. 30% (vertical) – Undertakings with a market share of 30% or less in the relevant market may be presumed to have no significant market power (Antitrust Guidelines for the Automobile Industry).

   2. 30% (vertical – The agreement involving intellectual property rights ("IPRs")) the market shares of the undertaking and trading counterparties do not exceed 30% in any relevant market subject to the effect of the agreement involving IPRs, an agreement involving IPRs concluded by an undertaking shall usually not be recognised as a vertical monopoly agreement under the catch-all provision of the AML (Intellectual Property Anti-Monopoly Guidelines "Safe Harbor" provision; Regulations on Prohibition of Intellectual Property Abuse "Safe Harbor" provision).

   3. 25% (vertical M&A) – In the upstream and downstream markets, where the market share of the undertakings participating in the concentration is less than 25%, a concentration of undertakings can be notified as a simplified case (Interim Provisions on the Review of Concentrations of Undertakings).

   4. 25% (conglomerate M&A) – For concentrated undertakings who are not in the same relevant market and do not have upstream and downstream relationships, and their market share in each market related to the transaction is less than 25%, a concentration of undertakings can be notified as a simplified case (Interim Provisions on the Review of Concentrations of Undertakings).

   
   

2. Presumed no-dominance standard

   1. Less than 10% (no dominant position) – If an undertaking has a market share of less than 10%, it should not be presumed to have a dominant market position.

Exemptions for a vertical agreement

An agreement containing a vertical restraint can be exempted from the prohibition under the AML if the undertaking can prove the following:

1. the vertical agreement is in the public interest or efficiency can be achieved from the agreement, such as by advancing technology and research and development ("R&D"), improving product quality, decreasing cost, increasing efficiency, unifying specifications and standards, realising energy conservation, environmental protection, rescue and relief efforts, saving jobs in an economic recession, etc.;

2. such public interest or efficiency is derived from the vertical agreement, and there is a causation between them;

3. the vertical agreement does not significantly restrict competition in the relevant market; and

4. consumers could benefit from the vertical arrangement; for example, because it introduces more products to the market, improves the quality of the products, or lowers the price, etc.

Exemptions for abusive conduct

The AML does not treat any abusive conduct as a per se violation. Any abusive conduct could be exempted by providing justifiable cause.

1.12 Does enforcement vary between industries or businesses?

API

The Guide to the Pricing Behaviour of Undertakings Dealing in Drugs in Short Supply and Active Pharmaceutical Ingredients ("API Guideline"), issued in November 2017, regulates the abusive conduct related to active pharmaceutical ingredient ("API"). In addition to the factors to be considered in determining the dominance regulated in Article 18 of the AML, Article 7 of the API Guideline provides that "in regard to categories of drugs in short supply and active pharmaceutical ingredients, market shares are a key element to measure the market power of the undertaking. In evaluating market shares, the actual capacity, potential capacity, intellectual property rights and other influencing factors of the undertaking may be considered. Besides, the law enforcement authority will examine and weigh the situation that any evidence proves the undertaking conducts any substantial control over relevant enterprises to obtain the dominant market position". According to the Anti-Monopoly Guide for the Active Pharmaceutical Ingredients Field (Draft for Comment), since APIs play a special role in the production of drugs, an API generally constitutes a separate relevant product market, which means that if a small number of undertakings produce/distribute an API, they may hold a dominant market position individually or jointly.

The Anti-Monopoly Guide for the Active Pharmaceutical Ingredients Field (Draft for Comment) put forward a series of strict rules of conduct for API undertakings, including:

1. Avoid entering into joint production agreements, joint purchase agreements, joint sales agreements, and joint bidding agreements with other API manufacturers that have a competitive relationship.

2. Avoid communicating sensitive information such as API sales prices, production scales, production and marketing plans through third parties (such as API distributors, downstream drug manufacturers).

3. Avoid implementing geographic restrictions or customer restrictions.

For API undertakings with dominance:

1. it is prohibited to increase the selling price of APIs beyond the normal range when the market environment is stable and the cost (purchase price) is not significantly affected;

2. it is prohibited to refuse to deal with counterparties after underwriting APIs; and

3. it is prohibited to compel drug manufacturers to distribute all drugs through them or their designated undertakings, or force drug manufacturers to share drug revenue.

Since APIs and drugs are related to people's life safety and immediate interests, and most API undertakings implement monopolistic behaviours knowingly and frequently, the AML enforcement agencies will impose a more severe and heavier punishment by taking into consideration factors such as the nature, extent and duration of the illegal act.

Public utilities

Article 22 of the Interim Provisions on Prohibiting Acts of Abuse of Dominance provides "undertakings in public utility domains such as water supply, power supply, gas supply, heat supply, telecommunications, cable TV, postal services and transportation shall operate according to the law, and shall not abuse their dominant market position to harm consumers' interests".

Automobile

The Anti-Monopoly Guidelines in the Automobile Industry reshaped the competition rules of vertical monopoly agreements:

1. Recommended prices, guide prices and maximum prices may be identified as resale price fixing or minimum RPM if:

   1. the pressure or incentive the supplier imposed upon dealers; and

   2. such prices are implemented by most or all dealers.

2. The following geographic restrictions and customer restriction may constitute vertical monopoly agreements:

   1. Restrictions on passive sales by dealers.

   2. Restrictions on cross-supply between dealers.

   3. Restrictions on the sale of spare parts needed for auto repair and maintenance ("RM") services by dealers and RM service providers to end users.

3. Tying – an auto supplier compels dealers or RM service providers to buy tied products such as automobiles, aftermarket spare parts, accessories, consumables, maintenance tools, test equipment, etc. that they did not order.

4. Unreasonable sales target – an auto supplier compels dealers or RM service providers to accept any unreasonable sales target or inventory stocking category or quantity for automobiles or aftermarket spare parts.

5. Unreasonable costs of promotional or marketing activities – an auto supplier compels dealers to bear the costs of advertisements, auto shows or other promotional or marketing activities that are carried out in the name of the supplier, or imposes restrictions on the use of any specific ways or specific media for an advertising campaign carried out by dealers at their own expense.

6. Compels to use specific product/service supplier or supply channel – an auto supplier compels dealers or RM service providers to only use paid services provided by a specific design or construction organisation, or compels dealers or RM service providers to only use a specific brand, supplier or supply channel for any needed construction materials, general equipment, information management system, office facilities, etc.

7. Exclusive distribution to squeeze channels:

   1. the auto supplier restricts the dealers from dealing in the goods of another supplier; or

   2. the auto supplier restricts the dealers from selling in their business premises the goods of another enterprise or brand; and

   3. new or original competitors in the market are unable to find good alternative circulation channels.

8. An auto supplier refuses to supply goods to or terminates early the distribution agreement with dealers or RM providers due to their engagement in activities that promote competition:

   1. not implementing a minimum resale price set by the auto supplier;

   2. purchasing original equipment manufacturer ("OEM") replacement parts and equivalent spare parts used for aftermarket repair, maintenance and other services from a channel other than the auto supplier; or

   3. other activities that promote competition.

9. Indirect vertical restrictions imposed through warranty clauses on aftermarket RM services and circulation of spare parts:

   1. where an auto supplier sets a condition for its performance of warranty obligations that requires end users to engage all RM services not covered by warranty through its authorised RM network;

   2. where an auto supplier sets a condition for its performance of warranty obligations that requires, for spare parts not covered by warranty, auto dealers or auto RM service providers to use OEM replacement parts; and

   3. where an auto supplier imposes, without legitimate justification, restrictions on the provision of aftermarket RM services by its RM network to parallel import cars.

1.13 How do enforcers and courts take into consideration an industry's regulatory context when assessing competition concerns?

Industries of vital economic or national security importance

SAMR, PMRD and the People's Court will consider the regulatory context of: (1) industries of vital economic or national security importance in which the state-owned sector of the economy holds the position of control; or (2) industries which implement monopolisation legally. Article 7 of the AML provides that "the state protects the lawful business activities of the undertakings from industries of vital economic or national security importance in which the state-owned sector of the economy holds the position of control or industries which implement monopolization legally…".

According to Article 22 of the Interim Provisions on Prohibiting Acts of Abuse of a Dominant Market Position, "undertakings in public utility domains such as water supply, power supply, gas supply, heat supply, telecommunications, cable TV, postal services and transportation shall operate according to the law, and shall not abuse their dominant market position to harm consumers' interests".

Digital economy

• The state supports the healthy development of the digital economy. Undertakings in the digital economy shall participate in market competition fairly and shall not conduct activities that exclude or restrict competition.

• Undertakings in the digital economy are not permitted to engage in monopoly agreement behaviours by using technical means, platform rules, data and algorithms, etc.

• Undertakings in the digital economy must not abuse the dominant market position formed by the internet platform or engage in behaviours that abuse the dominant market position.

• To determine that undertakings in the digital economy have a dominant market position, factors such as the competitive characteristics of the digital economy, business models, technical characteristics, market innovation, and the ability of undertakings to master and process relevant data should be considered.

• 
  

1.14 Describe how your jurisdiction's political environment may or may not affect antitrust enforcement.

The political environment in China is in favour of antitrust enforcement

In October 2015, the Central Committee of the Communist Party of China ("CPC Central Committee") and the State Council issued the Several Opinions on Promoting the Price Mechanism Reform ("Opinions"). It was the first time that it clearly put forward the foundational position of competition policy. The Opinions call for strengthening antitrust enforcement and aim to establish a scientific, orderly, and transparent antitrust enforcement mechanism by 2020. The decision of the Fourth Plenary Session of the 19th CPC Central Committee on October 31, 2019, highlighted "strengthening the foundational position of competition policy and implementing the fair competition review system".

In December 2020, the Politburo meeting of the CPC Central Committee and the Central Economic Work Conference both proposed strengthening anti-monopoly and preventing the disorderly expansion of capital. At the Fourth Session of the 13th National People's Congress in March 2021, Li Keqiang put forward in his government work report: "strengthen anti-monopoly and prevent the disorderly expansion of capital, and resolutely maintain a fair competitive market environment."

A series of expositions and deployments by the CPC Central Committee and the State Council on competition policy highlight the importance and urgency of China's acceleration of competition policy implementation and the strengthening of its foundational position. This has created favourable conditions for China to construct and improve relevant laws and strengthen antitrust enforcement.

Competition neutrality

Article 4 of the Interim Provisions on Prohibiting Acts of Abuse of a Dominant Market Position provides that: "when investigating and dealing with acts of abuse of a dominant market position, AML enforcement agencies shall treat all undertakings equally." Similarly, Article 4 of the Interim Provisions on the Prohibition of Monopoly Agreements provides that: "an anti-monopoly law enforcement agency shall treat all undertakings equally when investigating and punishing monopoly agreements."In the 2019 Government Work Report, the State Council emphasises that fair competition is the core of the market economy, and all types of ownership undertakings should be treated equally in accordance with the principle of competition neutrality.

The role of industrial policy

In general, SAMR and PMRD shall only consider competition issues when making their decisions. However, because the exemption rules under Article 15 of the AML are designed to keep the balance between competition policy and industrial policy, SAMR or PMRD shall consider industrial policy. More specifically, when an undertaking applies for an exemption under Article 15 of the AML, it should demonstrate that the public interest and efficiency obtained (the achievement of industrial policy) exceed the anticompetitive harm caused by the conduct.

1.15 What are the current enforcement trends and priorities in your jurisdiction?  

1. Speeding up legislation – The draft revision of the AML has been included in the "law for the first review", which means that this law, which was introduced 13 years ago, will start its first revision this year.

2. Strengthening antitrust litigation – The Supreme Court stated that it is necessary to do a good job in judicial review of monopoly and unfair competition, especially to strengthen economic anti-monopoly trials involving internet platforms, and to formulate judicial interpretations of anti-monopoly civil litigation in a timely manner.

3. Normalising of antitrust investigation – SAMR or PMRD will continue to strengthen supervision of the platform economy in accordance with the law to prevent the disorderly expansion of capital, promote the healthy and sustainable development of the platform economy, and promote the formation of a unified domestic market with high efficiency, regulation and fair competition.

4. Focus on handling "big cases" – Due to the limited budgetary funds of public institutions, it is impossible for SAMR or PMRD to deal with all anticompetitive behaviours. In practice, reports and clues to antitrust cases have shown explosive growth. Under such circumstances, China's AML enforcement power and resources should also be effectively allocated, shifting its focus to major and important cases, and focusing on the investigation and handling of cases of great significance or significant impact on competition and people's livelihood.

5. Pharmaceuticals, natural monopoly industries, and the digital economy, especially those related to the platform economy, will be key areas of investigation in 2021.

   
   

On January 22, 2021, Simcere Pharmaceutical was fined approximately RMB 100 million for abusing its dominant market position and refused to deal. On April 10, Alibaba was fined RMB 18.2 billion for abusing its dominant market position and "choosing one of two". On April 15, Yangzijiang Pharmaceutical was fined RMB 760 million for implementing a vertical monopoly agreement.

1.16 Describe any notable recent legal developments in respect of, e.g., vertical agreements, dominant firms and/or vertical merger analysis.  

Alibaba abuses its dominant market position by "choose one from two"

According to the report, starting from December 2020, the SAMR has launched an investigation into Alibaba Group Holdings Co., Ltd.'s ("Alibaba") alleged abuse of market dominance. Since 2015, Alibaba has abused its dominant position in the online retail platform service market in China and implemented "choose one from two" behaviours, prohibiting platform merchants from opening stores or participating in promotional activities on other competitive platforms, and restricting platform operators to only trade with it. In addition, Alibaba takes advantage of market power, platform rules, data, algorithms and other technical means to adopt a variety of rewards and punishments to ensure the implementation of "choose one from two".

On April 10, 2021, SAMR issued the "Administrative Penalty Decision" against Alibaba, believing that Alibaba's "choose one from two" behaviour excludes and restricts relevant market competition and violates the AML to constitute restrictive dealing. SAMR ordered Alibaba to stop illegal activities and imposed a fine of 4% of its sales in China in 2019, a total of RMB 18.228 billion. In addition, the SAMR also issued an "Administrative Guidance" to Alibaba and required it to make rectifications.

This case imposed by far the largest penalties in antitrust investigation in China.

The penalty for this antitrust investigation is the largest since the AML took effect and is three times higher than the penalties in the second-ranked Qualcomm case.

Yangtze River Pharmaceutical vertical monopoly agreement investigation

According to the report, starting from November 2019, SAMR launched an investigation into Yangtze River Pharmaceutical Group Co., Ltd.'s ("Yangtze River Pharmaceutical") reaching and implementing a vertical monopoly agreement. From 2015 to 2019, Yangtze River Pharmaceutical reached RPM agreements with downstream companies such as primary distributors, secondary distributors, chain pharmacies, and other retail pharmacies by signing agreements, issuing price adjustment letters, and oral notifications. Yangtze River Pharmaceutical ensured the implementation of the agreement by formulating implementation rules, strengthening assessment and supervision, penalising low-price sales dealers, and entrusting intermediary agencies to monitor the prices of online drugs.

On April 15, 2021, SAMR issued the administrative penalty decision; it held that the relevant actions excluded and restricted relevant market competition and constituted RPM in violation of the AML, and ordered Yangtze River Pharmaceutical to stop illegal activities and imposed a fine of 3% of its 2018 sales, a total of RMB 764 million.

Vertical Agreements

2.1 At a high level, what is the level of concern over, and scrutiny given to, vertical agreements?

The explicit wording of the AML and the practice of SAMR and PMRD demonstrates that China takes a high level of concern over vertical agreements.

First, the wording of Article 14 of the AML is strong and straightforward, which directly prohibits RPM. In addition, the AML permits the authority to impose a fine of 1% to 10% of the sales revenue of the preceding year against RPM, which is no different from that imposed on cartels.

Second, SAMR and PMRD treat RPM as per se illegal; however, from an economic point of view, vertical agreements have the possibility of promoting competition and improving efficiency, as well as raising fewer competition concerns.

Third, there is a vast number of antitrust investigations against vertical agreements in China. In the automobile industry, for example, AUDI was fined RMB 248.6 million for RPM for car sales and after-sales services in 2014, Mercedes-Benz was fined RMB 375 million for RPM for car sales and parts price fixing in 2015, Dongfeng-Nissan was fined RMB 123.3 million for RPM for car sales in 2015, SAIC-GM was fined RMB 201 million for RPM for car sales, and Chang'an-Ford was fined RMB 162.8 million for RPM for car sales in 2019. In 2021, Yangtze River Pharmaceutical was fined RMB 760 million for RPM, setting a new record.

2.2 What is the analysis to determine (a) whether there is an agreement, and (b) whether that agreement is vertical?

Types of vertical agreements

The Yangtze River Pharmaceutical case is a classic case that can demonstrate all types of vertical agreements:

1. Signing the "Purchase and Sale Agreement" with the first-level distributor.

   Yangtze River Pharmaceutical realises RPM by signing the annual "Purchase and Sale Agreement" with first-tier distributors.

2. Signing the "Tripartite Agreement" with the secondary distributor.

   
   

   Yangtze River Pharmaceutical has no direct trading relationship with secondary distributors; however, RPM is realised by signing the annual "Tripartite Agreement for Secondary Distributors" with secondary distributors and their corresponding first-tier distributors.

3. Signing "Strategic Service Agreement" with chain pharmacies or other distributors.

   
   

   Yangtze River Pharmaceutical has no direct trading relationship with chain pharmacies and other distributors; however, RPM is realised by signing the "Strategic Service Agreement".

4. Issuing price adjustment letters or price adjustment notices. 

   
   

   Although the price adjustment letter and the price adjustment notice are unilateral acts on the face, through the direct confirmation or actual performance of the notified dealer, a de facto RPM "agreement" is essentially reached.

5. Oral notification through the salesperson.

   Sales personnel of Yangtze River Pharmaceutical require distributors to formulate or adjust drug sales prices in accordance with Yangtze River Pharmaceutical's price policy by means of telephone notification, WeChat notification, or direct door-to-door notification. Although there is no paper agreement, considering the confirmation and implementation of the dealers, it is still considered to have reached a de facto RPM "agreement."

Is it a vertical agreement?

In order to determine whether an agreement is vertical, it is necessary to consider the relationship between the main businesses of the undertakings. If two undertakings are in different levels of the supply chain, their agreement can be regarded as a vertical agreement.

In some cases, there may also be a vertical relationship between competing undertakings, such as patent licenses agreement, procurement agreement of parts, etc. Therefore, the judgment of vertical agreements still needs to be analysed on a case-by-case basis.

2.3 What are the laws governing vertical agreements?

The laws governing vertical agreements are Articles 14 (prohibition of RPM), 15 (exemption rules) and 46 (penalty provision) of the AML and Article 12 (detailed provision of RPM prohibition) of the Interim Provisions on the Prohibition of Monopoly Agreements.

2.4 Are there any types of vertical agreements or restraints that are absolutely ("per se") protected? Are there any types of vertical agreements or restraints that are per se unlawful?

There are no laws or regulations to state that any type of vertical agreement or restraint is per se protected. However, in practice, the following vertical agreements are, in general, unlikely to be caught under the AML:

1. to set up a maximum sales price;

2. to provide a suggested or recommended price, if there is no sanction, incentive or pressure to mandate such price;

3. to restrict the active sales of a distributor outside of the reserved territory or customer group exclusively designated for it;

4. to restrict the wholesale-level distributors from selling products directly to the end customers; and

5. to prohibit the distributor from selling components of the supplier to other manufacturers to produce similar products.

As indicated above, SAMR and PMRD treat RPM as a per se violation but permit the undertaking under investigation to submit an application for an exemption under Article 15 of the AML. Please note that the People's Court does not consider RPM as a per se violation. This different approach can be identified not only from the AML Judicial Interpretation (please see question 1.10), but also from the private antitrust litigation. The rule of reason approach to RPM litigation was first introduced in Rainbow v. Johnson & Johnson, heard by the Shanghai Higher People's Court in 2013. In 2018, the Guangdong Higher People's Court reconfirmed the rule of reason approach in Dongguan Guochang v. Dongguan Shengshi & Dongguan Heshi when judging RPM. The judge held that whether RPM violates the AML depends on the purpose and effect of eliminating and restricting competition.

2.5 What is the analytical framework for assessing vertical agreements?

The general analytical framework underpinning the assessment of vertical agreements under the AML is as follows:

Antitrust investigation

If SAMR or PMRD finds that an agreement fixes resale prices or sets minimum resale prices, it is likely to conclude that entering such vertical agreement violates Article 14 of the AML. However, the undertakings can still argue that the prohibition in Article 14 should be exempted on the grounds that the agreement fulfils one of the circumstances listed in Article 15 of the AML and the agreement does not significantly restrict competition in the relevant market and grants consumers a share of the resulting benefit. The final step is to determine the penalty based on the nature, extent and duration of the vertical agreement.

Antitrust litigation

In Rainbow v. Johnson & Johnson, the Shanghai Higher People's Court held that when analysing the nature of the RPM, there are four prongs that should be considered and which constitute the basic method to analyse and evaluate the RPM. They are:

• whether the relevant market competition is sufficient;

• whether the defendant has a very strong market 

  position;

• the motive of the defendant to impose the RPM; and

• the competition effect of the RPM.

To determine the damage, the Shanghai Higher People's Court held that when claiming compensation, the loss should not be calculated according to the available profit of performing the RPM agreement but should be calculated by referring to the normal profit of the relevant market. Otherwise, it will fall into the logical conflict of pursuing monopoly profits through an antitrust lawsuit.

2.6 What is the analytical framework for defining a market in vertical agreement cases?

Because a vertical agreement involves undertakings at different levels in the chain of distribution, it may involve at least two relevant markets. However, as a vertical agreement will only affect competition on one relevant market, the market definition may only focus on the market affected. The analytical framework for defining a relevant market in a vertical agreement case will be no different to any other antitrust case.

Relevant product market

According to the Guidelines on the Relevant Market Definition, the term "relevant product market" refers to a market that comprises a group or type of products that the demanders deem to be close substitutes for each other due to factors such as characteristics, intended use and price. In defining the relevant market, demand substitution may be analysed based on the characteristics, intended use, price and other factors, and supply substitution may, when necessary, also be analysed. If the scope of the market in which undertakings compete is unclear or difficult to define, the relevant market may be defined according to the analytical concept of "the hypothetical monopolist test".

The relevant technology market is a special product market, which is intangible. Similar technologies that are mutually substitutable could be defined as a relevant technology market.

Relevant geographic market

According to the Guidelines on the Relevant Market Definition, the term "relevant geographic market" refers to the geographic region where demanders obtain products that are relatively close substitutes for one another. The sequence of economic analysis is the same as the market definition of the relevant product market: demand substitution; supply substitution; and the hypothetical monopolist test.

Timeliness

According to the Guidelines on the Relevant Market Definition, timeliness shall also be taken into consideration in defining the relevant market in certain cases. Timeliness is the third dimension of market definition. In practice, it is important to determine what period of time should be considered in evaluating the dominance.

2.7 How are vertical agreements analysed when one of the parties is vertically integrated into the same level as the other party (so-called "dual distribution")? Are these treated as vertical or horizontal agreements?

When dealing with the dual distribution, both vertical issues and horizontal issues may be considered.

Vertical agreement

If the following conditions are met, the dual distribution is likely to be considered a vertical agreement:

1. the agreement is non-reciprocal; and

2. the supplier is a manufacturer/service provider and distributor, while the purchaser is just a distributor.

Horizontal cooperation

If the parties are competing at both the manufacture/ service level and the distribution level and the agreement is reciprocal, the agreement is more likely to be considered a horizontal arrangement. Exchange of sensitive information between the parties is prohibited.

2.8 What is the role of market share in reviewing a vertical agreement?

Market share has two roles in reviewing vertical agreements.

First, the undertaking under investigation can obtain an exemption based on the safe harbour rules. According to the "Anti-Monopoly Law (Draft)", if the undertaking who has reached a monopoly agreement has evidence that their market share in the relevant market is below a specific standard, the horizontal and vertical monopoly agreement rules are not applicable, except where there is evidence that the agreement excludes or restricts competition. The specific standards for market share are formulated by the Anti-Monopoly Law Enforcement Agency of the State Council.

Second, the undertaking under investigation can claim an exemption based on Article 15 of the AML by proving that its market share is low.

2.9 What is the role of economic analysis in assessing vertical agreements?

Economic analysis is inevitable in every antitrust case, including cases involving vertical agreements. According to Article 10 of the Provisions of the Supreme People's Court on Application of Laws in the Trial of Civil Disputes arising from Monopolistic Practices, the parties may apply to the People's Court for permission to engage professional organisations or personnel to conduct market research or make economic analysis reports with respect to the relevant professional issues.

In addition, according to Article 7 of the Guidelines on the Relevant Market Definition, SAMR shall encourage undertakings to define relevant markets according to the specific circumstances of each case by using objective, genuine data and adopting economic analysis methods.

In Rainbow v. Johnson & Johnson, both parties retained economists to provide expert reports regarding RPM to the People's Court.

2.10 What is the role of efficiencies in analysing vertical agreements?

Promoting efficiency is one of the objectives set forth in Article 1 of the AML, which is also applicable to vertical agreements.

In addition, if a vertical agreement can result in a higher quality of product/service, lower price, easing of market entry, or promoting innovation, the undertaking may apply for an efficiency exemption under Article 15 of the AML.

It should be noted that efficiency analysis requires solid evidence to support it. The theory that vertical agreements will bring efficiency out of air cannot be accepted by SAMR or PMRD.

2.11 Are there any special rules for vertical agreements relating to intellectual property and, if so, how does the analysis of such rules differ?

The State Administration for Industry and Commerce ("SAIC") (predecessor of SAMR) issued the Rules on Prohibition of Restriction or Elimination of Competition through Abuse of Intellectual Property Right ("Rules) in 2015, which address the issue of exclusive grant back of technology improvement, prohibition of challenging the validity of the IPR, etc. The Rules do not change the analysis framework of vertical agreements under the AML.

2.12 Does the enforcer have to demonstrate anticompetitive effects?

When SAMR or PMRD decides whether a vertical agreement is illegal, it only needs to determine whether the agreement falls under the circumstances described in Article 14 of the AML. The anticompetitive effects may be evaluated only when the undertaking under investigation files an application for exemption under Article 15 of the AML.

2.13 Will enforcers or legal tribunals weigh the harm against potential benefits or efficiencies?

The People's Court will weigh the harm against potential benefits or efficiencies in a litigation regarding a vertical agreement. SAMR and PMRD may not consider benefits or efficiencies unless there is an application for exemption under Article 15 of the AML.

2.14 What other defences are available to allegations that a vertical agreement is anticompetitive?

A possible defence is to argue that there is no vertical agreement under the AML because the "vertical agreement" is an agent-principal arrangement in which an undertaking agrees to perform certain services on a supplier's behalf for a sales-based commission payment.

Since the People's Court will consider the anticompetitive effect of the vertical agreement, undertakings may prepare evidence regarding the market share of the parties, the competition situation on the relevant market, the ability of the undertaking to control the market, the financial and technical ability of undertaking, the degree of reliance of the trading counterpart, and market entry, to formulate possible defences.

2.15 Have the enforcement authorities issued any formal guidelines regarding vertical agreements?

Article 12 of the Interim Provisions on the Prohibition of Monopoly Agreements detailed RPM as follows:

1. fixing the price level, price change range, profit level or discount, handling fee etc. for resale of products or services to a third party;

2. restricting the minimum price for resale of products or services to a third party, or restricting the minimum price for resale of products or services through restricting the price change range, profit level or discount, handling fee or other fees; or

3. fixing the price or restricting the minimum price for resale of products or services through other methods.

2.16 How is resale price maintenance treated under the law?

The AML mainly stipulates RPM in Articles 14, 15 and 46. Article 14 (1) and (2) respectively prohibit fixing the price of products or services for resale to a third party and restricting the minimum price of products or services for resale to a third party. 

SAMR and PMRD treat RPM as per se illegal. The People's Court will evaluate the anticompetitive effect. In Rainbow v. Johnson & Johnson, the Shanghai Higher People's Court held that when analysing the nature of the RPM, there are four prongs that should be considered, and that constitute the basic method for the Shanghai Higher People's Court to analyse and evaluate the RPM. They are:

1. whether the relevant market competition is sufficient;

2. whether the defendant has a very strong market position;

3. the motive of the defendant to impose the RPM; and

4. the competition effect of the RPM.

5. 
   

2.17 How do enforcers and courts examine exclusive dealing claims?

Exclusive dealing could be considered abusive conduct under Article 17 of the AML. Exclusive dealing is not a target of vertical agreement investigations unless the undertaking holds a dominant market position in the relevant market.

In an antitrust investigation, SAMR or PMRD can presume that an undertaking holds dominance if its market share is above 50%. SAMR or PMRD could determine that exclusive dealing by a dominant firm violates Article 17 of the AML, unless there is an acceptable justification.

Justifications for exclusive dealing include:

1. it is essential for meeting the product safety requirements;

2. it is essential for protecting IPR; and/or

3. it is essential for protecting particular investments undertaken for transactions.

In an antitrust lawsuit, because it is not sufficient for the plaintiff to presume dominance solely on the basis of high market share, and it is difficult to prove the anticompetitive effect of exclusive dealing, it is very tough for the plaintiff to challenge exclusive dealing.

2.18 How do enforcers and courts examine tying/ supplementary obligation claims?

Tying could be considered abusive conduct under Article 17 of the AML. Tying is not a target of vertical agreement investigations unless the undertaking holds a dominant market position in the relevant market.

In several antitrust investigations against tobacco companies, the local anti-monopoly enforcement agencies found that the tobacco companies bundled the sale of popular cigarette brands with unpopular ones by restricting the supply of popular brands. In the Qualcomm antitrust investigation, the anti-monopoly enforcement agency found that Qualcomm abused its dominant market position in the wireless standard essential patent ("SEP") licensing market by tying non-SEP licensing with SEP licensing without justification.

In the retrial of Wu Xiaoqin v. Shaanxi Radio and Television Network Media (Group) Co., Ltd., the Supreme People's Court ruled that the undertaking with a market-dominant position bundled sales of separate services or products, constituting a tie-in sale prohibited by the AML.

2.19 How do enforcers and courts examine price discrimination claims?

Price discrimination is an abusive conduct regulated under Article 17 of the AML. Price discrimination is not a target of Loyalty discounts are an abusive conduct regulated under Article 17 of the AML. Loyalty discounts are not a target of vertical agreement investigations unless the undertaking holds a dominant market position in the relevant market.

It is very difficult for SAMR and the People's Court to identify price discrimination. First, it is normal for a firm to provide different prices to different trading counterparts. The price difference within a reasonable range will be legal under the AML, even for dominant firms. Second, it is very hard for enforcers or judges to draw a line as to what price difference constitutes discrimination, since the markets vary from one to another, and as the markets are changing, the enforcers and courts cannot set up a benchmark that will always remain correct.

2.20 How do enforcers and courts examine loyalty discount claims?

Loyalty discounts are an abusive conduct regulated under  Article 17 of the AML. Loyalty discounts are not a target of vertical agreement investigations unless the undertaking holds a dominant market position in the relevant market.

In the antitrust investigation against Tetra, the anti-monopoly enforcement agency concluded that from 2009 to 2013, Tetra abused its dominant market position in three relevant markets in China and concluded that the company had no legitimate reason to carry out loyalty discounts. In the penalty decision, the anti-monopoly enforcement agency recognised that discounting is a common commercial behaviour, which can promote market competition and benefit consumers. In the meantime, the authority believes that loyalty discounts implemented by undertakings with a dominant market position should be regulated when they combine with specific market conditions and have obvious anticompetitive effect.

2.21 How do enforcers and courts examine multi-product or "bundled" discount claims?

Multi-product or "bundled" discounts are an abusive conduct regulated under Article 17 of the AML. They are not a target of vertical agreement investigations unless the undertaking holds a dominant market position in the relevant market.

Multi-product or "bundled" discounts may be determined illegal if the bundle is priced below cost, or a competitor providing a competitive product cannot match the discount without pricing below cost on that product. Bundled discounts are very popular in the Chinese online and offline markets. However, there is no antitrust investigation or litigation against bundled discounts in China.

2.22 What other types of vertical restraints are prohibited by the applicable laws?

Prohibiting distributors from passive sales

To restrict passive sales under the territory allocation in a vertical arrangement could be determined by SAMR or PMRD to be a violation of the AML.

According to the Guidelines on Anti-Monopoly in the Automobile Industry, manufacturers could restrict the distributor to provide goods within a certain region and not carry out sales in any other distribution region. However, manufacturers may not restrict passive sales by a distributor. "Passive sales" suggests that distributors do not actively market the goods or services to consumers, but deliver the goods or services upon their request. The following are passive sales, which cannot be prohibited by manufacturers:

1. Where a consumer from region A buys goods in region B, this is a passive sale for distributors designated within region B.

2. Where a consumer contacts the distributor after visiting the website of either such distributor or a third party, such contact contributes to a deal, and such deal is regarded as a passive sale.

3. Where distributors publish relevant information for indefinite consumers on their own website or the website of a third party and consumers contact the distributors, the deals made therefrom shall be deemed as passive sales of the distributors.

Prohibiting distributors from cross-supply among themselves

To restrict distributors from cross-supply among themselves under the territory allocation in a vertical arrangement could be determined by SAMR or PMRD as a violation of the AML.

2.23 How are MFNs treated under the law?

Most-favoured-nation ("MFN") clauses in the context of vertical agreements are most-favoured-customer clauses, where the supplier grants the distributor a price that will not be less favourable than the prices granted to its other customers. MFN clauses may reduce the incentive to lower the resale price. In addition, since the undertakings are prevented from applying differing prices in different distribution channels, MFN clauses may facilitate RPM.

Dominant Firms

3.12 What counts as abuse of dominance or exclusionary or anticompetitive conduct?

Article 17 of the AML provides that: "an undertaking who holds a dominant market position is prohibited from engaging in the following practices of abuse of the said position:

1. Selling commodities at unfairly high prices or buying commodities at unfairly low prices;

2. Selling commodities at a price lower than cost without justifiable reasons;

3. Refusing to trade with relevant trading counterparts without justifiable reasons;

4. Restricting trading counterparts to the trading only with the said undertaking or its designated undertaking without justifiable reasons;

5. Conducing tie-in sales without justifiable reasons, or adding other unreasonable conditions to the trading;

6. Discriminating against trading counterparts of the same qualifications with regard to transaction price, etc., without justifiable reasons; and

7. Other practices determined by the anti-monopoly law enforcement authorities as abuse of dominant market position." 

8. 
   

3.13 What is the role of intellectual property in analysing dominant firm behaviour?

Article 55 of the AML provides that "this Law is not applicable to the undertakings' conduct in exercise of intellectual property rights pursuant to provisions of laws or administrative regulations on intellectual property rights; but this Law is applicable to undertakings' conduct that eliminate or restrict market competition by abusing its intellectual property rights".

According to the Provisions on the Prohibition of the Abuse of Intellectual Property Rights to Eliminate or Restrict Competition, undertakings with a dominant market position are prohibited from engaging in certain types of conduct in exercising their IP rights that are deemed to constitute abusive conduct, which include:

1. refusal to license IP rights that amount to "essential facilities";

2. imposing certain exclusivity restrictions;

3. imposing unjustified tying and bundling requirements;

4. attaching unreasonable trading conditions to an IP agreement, including inserting no-challenge clauses;

5. engaging in discriminatory treatment; and

6. engaging in practices that are inconsistent with fair, reasonable and non-discriminatory ("FRAND") principles in relation to the licensing of SEPs.

3.14 Do enforcers and/or legal tribunals consider "direct effects" evidence of market power?

Direct effects analysis has been used in several antitrust litigation cases, through the submission of an expert report by economists. However, the judges are inclined to follow the traditional way to prove dominant market position. In practice, it is difficult to let enforcers and judges consider direct effects evidence of market power.

3.15 How is "platform dominance" assessed in your jurisdiction?

In February 2021, the Anti-Monopoly Commission of the State Council promulgated the Guidelines for Anti-Monopoly in the Field of Platform Economy ("Platform Guidelines"), which proposed a series of regulations for internet platform undertakings.

Relevant commodity market

The platform mentioned in the Platform Guidelines refers to the business organisation form in which interdependent bilateral and multilateral entities interact under the rules provided by specific carriers through network information technology, so as to create value together.

According to Article 4 of the Platform Guidelines, there are three possibilities for the definition of the platform market. First, the relevant commodity market can be defined according to the commodities on one side of the platform. Secondly, it is also possible to define multiple related commodity markets according to the multilateral commodities involved in the platform. Third, when the cross-platform network effect of the platform can impose sufficient competition constraints on platform undertakings, the relevant commodity market can be defined on the basis of the platform as a whole.

In the Alibaba antitrust investigation, the relevant commodity market is defined as the online retail platform service market, which belongs to the third type of market.

Online and offline markets

In the Alibaba antitrust investigation, SAMR demonstrated the difference between online retail platforms (for example, Taobao) and offline retail business services (for example, shopping malls) from a micro level and a macro level. At the micro level:

1. Service area and time. Offline retail business services and offline physical stores can only serve consumers in a certain area around them, and their business hours are fixed. Online retail platforms and online stores have no geographical and time restrictions.

2. Cost composition and trial-and-error costs. Offline physical store costs are mainly store rent, decoration fees, etc., while online store costs are mainly marketing expenses and commissions, with low trial-and-error costs.

3. Service space limitation. Offline retail business services and offline physical stores have limited shopping space, and consumers have limited choices of goods, while online retail platforms and online stores have no space restrictions and more choices.

4. Cost of shopping time. Consumers spend high time costs in offline retail business services and offline physical stores while shopping on online retail platforms and online stores have low time costs.

   
   

     

From a macro perspective:

1. Big data portrait. Online retail platforms master big data and algorithms can profile consumers and help 

   online stores accurately match customers. However, offline retail business services lack big data.

2. Mastery of market demand information. Online retail platforms master market demand feedback information, while offline retail business services have limited relevant information.

3. Mastery of market supply information. Online retail platform services master a large amount of rich and detailed product information, enabling consumers to compare products conveniently and improve purchasing efficiency. The commodity information provided by offline retail business services is relatively limited, resulting in low purchasing efficiency.

4. Barriers to market entry. The transformation of offline retail business services to online retail platforms requires a certain critical scale and high costs.

   
   

The great significance of the Alibaba antitrust investigation lies in its first attempt to distinguish online stores from physical stores, and to distinguish online retail platforms from offline commercial services. It provides inspiration for future law enforcement and compliance for platform companies.

Relevant geographic markets

According to the characteristics of the platform, there are usually three possibilities in the relevant geographic market. The greatest possibility is defined as the Chinese market based on the user's language preference and consumption habits, as well as differences in laws and regulations. Secondly, it is possible to determine a specific regional market based on the actual area where the user chooses the product. Thirdly, it can also be defined as a global market based on individual circumstances.

In the Alibaba antitrust investigation, the relevant market was defined as the Chinese market.

Market dominance

1. Market share

   Calculating the market share of undertakings in the platform economic may consider some special parameters, such as the number of active users, the number of clicks, and the duration of use. These parameters are directly related to the internet's ability to attract attention. In the Alibaba antitrust investigation, SAMR considered the turnover (service revenue) of the online retail platform and its traffic (platform commodity transaction volume) to comprehensively reflect the platform's profitability and eye-catching ability.

2. 
   

3. Market control

   The most distinctive dimension of judging the market control of undertakings in the field of platform economy is the network effect. The network effect makes the platform market have the characteristics of a winner-takes-all. In the Alibaba antitrust investigation, SAMR inspected its market control power mainly from search ranking and placement, without mentioning network effects.




Financial resources and technical conditions

4. The financial and technical conditions of undertakings in the field of platform economy are mainly manifested in financing capabilities, technological innovation and application capabilities, as well as the ability to master and process relevant data. In the Alibaba antitrust investigation, SAMR believed that Alibaba had powerful computing power, advanced algorithms, and massive amounts of transaction, logistics, and payment data.

5. 
   

Dependence of other undertakings

6. Assessing the dependence of other undertakings on undertakings in the field of platform economy will consider the lock-in effect, user stickiness, and the possibility of other undertakings switching to other platform and conversion costs. SAMR believes that the consumer groups and traffic on the Alibaba platform constitute a lock-in for other undertakings. In addition, the accumulated users and data cannot be switched to other platforms to constitute a lock.




Market entry

7. The difficulty of market entry in the field of platform economy mainly focuses on critical scale, user diversification, and user switching costs. In the Alibaba antitrust investigation, SAMR mainly investigated the issue of critical scale.

8. 
   

In summary, when analysing market dominance, the Platform Guidelines examine the same main factors as other cases of abuse of market dominance; however, the parameters that need to be specifically examined are essentially different from other types. In the Alibaba antitrust investigation, SAMR implemented the Platform Guidelines for the first time by analysing Alibaba's traffic, computing power, algorithms, massive data, lock-in effect, and critical scale, making an attempt for future law enforcement.

3.16 Are the competition agencies in your jurisdiction doing anything special to try to regulate big tech platforms?

The Platform Guidelines have formed a series of behavioural norms for platform undertakings. While its content is still within the framework of the AML, the realisation form of monopoly behaviour has changed a lot, with the characteristics of digital economy.

Coordinated behaviour on the platform

Undertakings within the platform have essentially coordinated behaviours through data, algorithms, platform rules or other means, which are considered coordinated behaviours.

Algorithm-based vertical restriction

Undertakings use technical means to automatically set prices in online stores, use platform rules to unify online store prices, and use data and algorithms to directly or indirectly limit online store prices; these are all instances of algorithm-based vertical restriction.

Refusal to deal

Unreasonable restrictions and obstacles are set in platform rules, algorithms, technology, traffic distribution, etc., making it difficult for counterparties to conduct transactions.

Restrictive dealing

The act of requiring undertakings on the platform to "choose one of two" between competing platforms or restricting the transaction counterparty to conduct exclusive transactions with them is considered restrictive dealing.

Unreasonable trading conditions

Mandatory collection of non-essential user information or additional transaction conditions, transaction procedures, and service items that have nothing to do with the subject matter of the transaction is considered unreasonable trading conditions.

Differential treatment

Based on big data and algorithms, implementing differentiated transaction prices or other transaction conditions based on the payment ability, consumption preferences, and usage habits of the counterparty of the transaction is considered differential treatment.

3.17 Under what circumstances are refusals to deal considered anticompetitive?

Article 17 (3) of the AML stipulates that an undertaking who holds a dominant market position is prohibited from "refusing to deal with relevant trading counterparts without justifiable reasons".

First, undertakings must have a dominant market position. Undertakings who do not hold a dominant market position, even if they refuse to deal, have a limited impact on market competition and are not prohibited by the AML.

Second, there are one or more rounds of substantive transaction negotiation between the undertaking and the counterparty. The negotiation usually needs to discuss the subject matter, quantity, price, performance period, etc. of the contract.

Third, the undertaking with dominant market position directly refuses to deal, or sets an excessively high sales price or an excessively low purchase price in order to refuse to deal with the counterparty in disguise.

Fourth, the refusal to deal has an impact on the market competition in which the counterparty is located, leading to reduced supply, rising prices, lowering quality, or inhibiting innovation.

Fifth, the so-called justifiable reasons put forward by undertakings with dominant market positions are not valid.

Miscellaneous

4.1 Please describe and comment on anything unique to your jurisdiction (or not covered above) with regard to vertical agreements and dominant firms.

The relevant information has been covered in the responses above. For a more specific response regarding vertical agreements and dominant firms, you may contact the author directly by email.