In the context of gradual tightening of supervision of large technology companies (especially Internet platform companies) in major global economies, and the growing controversy over issues such as “picking one in two” and “personalized pricing through big data”, China’s antimonopoly enforcement agency, State Administration for Market Regulation (“SAMR”), launched the Draft Antitrust Guidelines in the Field of Platform Economy (“Draft”) on November 10, 2020, which aroused strong reactions from all parties. Only about three months later, on February 7, 2021, the SAMR officially issued the “Antitrust Guidelines in the Field of Platform Economy” (“Guidelines”). The release of the Guidelines further highlights Chinese government’s determination to follow international trends, strengthen supervision, create the supervision model and improve antimonopoly transparency and predictability, marking a new stage of anti-monopoly supervision in the Internet sector in China. Through the Guidelines, the SAMR systematically illustrates the thinking of regulations on Internet platform monopolistic behavior and responds to the industry’s key competition issues and difficult issues exposed in past law enforcement practices.

Clarify the common practice of defining relevant market in monopoly cases

Regarding the definition of the relevant market, the previous Draft has tried to distinguish the necessity of defining relevant market in different types of cases. It stipulates that in cases of monopoly agreement, it may not be necessary to define relevant market. In cases of abuse of dominant market position, if the prescribed conditions are met, the operator in the platform economy can be directly concluded to have engaged in monopolistic conduct without defining relevant market. In cases of conducting merger review, definition of relevant market is usually required. This provision has caused great concern and discussion. In the end, the official text deletes the circumstances where it is not necessary to define the relevant market, and stipulates that in principle, definition of relevant market is usually required despite different types of cases. However, the Guidelines reserve the statement that “different types of monopoly cases have different practical needs for definition of relevant markets”. It remains to be seen whether law enforcement agencies will distinguish the relevant market definition issues according to various monopoly cases in the law enforcement process.

Second, the official text clarifies that when defining relevant markets, one or multiple relevant commodity markets can be defined based on one or multiple sides of the platform. It also stipulates that “when the cross-platform network effect existing in the platform can impose sufficient competitive constraints on the platform operator, the relevant commodity market can be defined based on the platform as a whole.” That is to say, the multilateral market can be integrated to define a unified relevant commodity market.

In addition, the Guidelines add new factors to be considered for substitutability analysis of relevant market definition. Specifically, on the basis of retaining platform functions, business models, user groups, multilateral markets, offline transactions and other factors, the Guidelines add application scenarios as a factor for demand substitutability analysis. On the basis of retaining factors such as market entry, technical barriers, network effects and cross-border competition, the Guidelines add lock-in effect and transfer costs as factors for supply substitutability analysis.

Parallel acts such as price following are excluded from monopoly agreements

The Guidelines exclude operators’ use of data, algorithms and platform rules, etc. substantially realizing coordinated behavior, as well as parallel acts such as price following by operators based on independent intention from the monopoly agreement.

When determining platform-related monopoly agreements, the Guidelines essentially take the subjective intentions of operators into consideration. The objective fact that there is coordination between platforms based on data, algorithms, rules, etc., or parallel behaviors such as price following does not itself lead to a monopoly agreement. The formation of a monopoly agreement requires that there is communication between the operators or at least indirect evidence that communication can be presumed to exist.

We believe that the Guidelines’ regarding platform parallel act as a circumstance that excludes the application of monopoly agreements, on the one hand, is consistent with the certification requirements of “coordinated behavior plus communication” that China has consistently upheld in the administrative enforcement and judicial enforcement of monopoly agreements. On the other hand, it is also in line with the actual needs of China's current enforcement of monopoly agreements in the Internet field. At present, the market structure of oligarchic competition has formed in the field of Internet platforms in China. The competition among platforms is fierce, and following behaviors are common. There are usually coordinated or parallel actions implied based on competitive demands between platforms, thus making it difficult to prove that the relevant actions are because of communication or joint intention. This provision of the Guidelines shows that law enforcement agencies currently adopt a relatively modest regulatory attitude on issues such as data, algorithms and other coordinated behavior and price-following behavior.

Clarify that the most-favored-nation treatment clause may constitute a monopoly agreement or an abuse of dominant market position

The Draft has made it clear that the “most-favored-nation treatment clause” may constitute a vertical monopoly agreement and detailed analysis elements. The official text does not use the concept of “most-favored-nation treatment clause”, but describes its behavior, that is, “platform operators require the operators on the platform to provide them with equal or superior trading conditions such as price and quantity compared to other competitive platforms”. At the same time, the official text clarifies that the “most-favored-nation treatment clause” may not only constitute a monopoly agreement but may also constitute an abuse of market dominant position.

Incorporate the “substantial reduction in the existing number of transactions” and other disguised refusal of transactions into supervision

Article 14 of the Guidelines adds “substantially reducing the existing number of transactions with counterparties” as a situation of refusal to deal of abusing market dominant position, which is in line with the “Interim Provisions on Prohibition of Abuse of Dominant Market Position” and relevant regulations issued by the SAMR, including indirect refusal to deal in the scope of supervision.

Delete the statement that data constitutes “essential facility”

The previous Draft stipulates that both platforms and data may constitute “essential facility”. The Guidelines released this time deletes the statement whether data constitutes an essential facility, retains factors for determining whether the platform constitutes an essential facility and adds “possessed data of the platform” as one of the factors for judgment.

Judging from the current law enforcement and judicial practices in Europe and the United States, the theory of “essential facility” is mainly applicable to public utilities with natural monopoly and nature of network industry. As a new type of factor of production, data is quite different from the traditional ones. Anti-monopoly law enforcement in the data field is intertwined with data property rights, user privacy protection, and more complex issues such as how to balance and choose between innovation and competition. As to whether data needs to be regulated by anti-monopoly laws and whether traditional anti-monopoly theories can be applied, further exploration and examination through practice by law enforcement and justice are still needed.

Monopoly agreements

The law enforcement field touches cutting-edge issues such as “algorithm collusion” and “shaft-spoke agreement”. Specifically, the Guidelines stipulates that platforms’ use of data, algorithms and platform rules, etc. to achieve coordinated behavior (with communication) may constitute a horizontal monopoly agreement (Article 6). An agreement with effect of excluding competition which is reached through operators’ within the platform with competitive relationships leveraging the vertical relationship with the platform operator, or through platform operators’ organizing and coordinating, may constitute a monopoly agreement. (Article 8)

Abuse of dominant market position

It is clarified that the “pick one in two” behavior may constitute a restricted transaction. Implementing punitive measures can be deemed to constitute a restricted transaction. If an incentive scheme has an obvious exclusion or restriction effect on market competition, it may also be deemed to constitute a restricted transaction. (Article 15)

It is clarified that “personalized pricing through big data” may constitute an act of differential treatment regulated by the anti-monopoly law. Differential transaction prices or other trading conditions based on big data and algorithms, according to the counterparties' ability to pay, consumption preferences, usage habits, etc. may constitute differential treatment. However, this article deletes the situation of “differential trading prices or other trading conditions for old and new counterparties, based on big data and algorithms” as stipulated in the draft for comments. We believe that this modification indicates that whether the transaction counterparty is “old” is not a necessary condition for determining differential treatment, but that it is necessary to comprehensively consider the payment ability, consumption preferences and usage habits of the counterparty of the transaction in accordance with the first situation of this article. (Article 17)

Concentration between undertakings

The Guidelines clarify that the transactions of operators involved in Variable Interest Entity (VIE) structure falls within the scope of merger review of the concentration of undertakings. Under circumstances where the turnover does not meet the notification criteria and where there is high degree of concentration in the relevant market, the regulatory agency can take ex officio investigations. (Article 18)

Administrative monopoly and fair competition review system

It is stipulated that administrative organs’ directly or indirectly restricting an entity or individual’s operation, purchase, or use of the goods provided by the designated operators in the platform economy constitutes an abuse of administrative power to exclude or restrict competition. (Article 22) Administrative organs and organizations authorized by laws and regulations to manage public affairs to formulate regulations, normative documents, other policy documents and specific policy measures in the case-based form involving the economic activities of market participants in the economic field of the platform shall conduct fair competition reviews. (Article 23)