Provisions relating to internet to be included in the full amendment of the Anti-Monopoly Law
After 11 years since its implementation in China, the Anti-Monopoly Law has come to a point where major revisions are needed. On January 2, the official website of the State Administration of Market Supervision and Administration announced the revised draft of the Anti-Monopoly Law (draft for comment), which will be open to the public for comments from now until January 31.
Factors in determining dominant position of market participants
The consideration for the new businesses models of internet industry is included. In determining the dominant market position of an undertaking, the Draft for Comments specifically mentions that "factors such as network effect, economies of scale, lock-in effects, and the ability to hold and process relevant data shall be taken into consideration in determining the dominant market position of an undertaking in internet industry”.
In recent years, competition in the Internet industry has become fierce, and restricted trading represented by the "either-or" situation have become common tricks, which has affected market competition and consumer interests. In fact, in the supporting regulations of the Anti-monopoly Law, such as the Interim Provisions on Prohibiting Abuse of Dominant Market Position, which came into effect in September 2019, provides specific provisions on other situations that could be deemed as having dominant market position for the internet industry.
When China's Anti-Monopoly Law was promulgated and implemented in 2008, the development of China's Internet economy has not yet reached the prosperity stage now. 11 years later, when the Anti-Monopoly Law was amended, "factors such as network effect, economies of scale, lock-in effects, and the ability to hold and process relevant data shall be taken into consideration in determining the dominant market position of an undertaking in internet industry” is added. This article is mainly to solve the problem of lacking legal basis. Although the supporting laws and regulations have relevant provisions, there is no legal basis in the superior law itself. With this provision in position, law enforcement would be more legally based. However, this article also makes it more difficult to enforce the law against monopoly on the Internet, such as how to specifically define terms such as network effects and economies of scale.
An undertaking with dominant market position shall not abuse the dominant market position
The monopolistic conducts as provided in the draft for comment of the Anti-Monopoly Law includes: monopoly agreements reached between undertakings, abuse of dominant market position by undertakings, and concentration of undertakings that lead, or may lead to elimination or restriction of competition. Undertakings may, through fair competition and voluntary association, get themselves concentrated according to law, to expand the scale of their business operations and enhance their competitiveness on the market. Undertakings holding a dominant position on the market may not abuse such position to eliminate or restrict competition.
Competing undertakings are prohibited from concluding the following monopoly agreements in the draft amendment:
(1) on fixing or changing commodity prices;
(2) on restricting the number of commodities manufactured or marketed;
(3) on splitting the sales market or the purchasing market for raw and semi-finished materials;
(4) on restricting the purchase of new technologies or equipment, or the development of new technologies or products;
(5) on joint boycotting of transactions; and
(6) other monopoly agreements confirmed as such by the authority for enforcement of the Anti-monopoly Law under the State Council.
However, if an undertaking can prove that the monopoly agreement reached is "for improving technologies, or engaging in research and development of new products", "for improving product quality, reducing cost, and enhancing efficiency, unifying specifications and standards of products, or implementing specialized division of production", and "due to mitigating sharp decrease in sales volumes or obvious overproduction caused by economic depression”, etc., the above provisions shall not apply.
Three situations to determine whether an undertaking holds dominant market position
Undertakings holding dominant market positions are prohibited from doing the following by abusing their dominant market positions:
(1) selling commodities at unfairly high prices or buying commodities at unfairly low prices;
(2) without justifiable reasons, selling commodities at prices below cost;
(3) without justifiable reasons, refusing to enter into transactions with their trading counterparts;
(4) without justifiable reasons, allowing their trading counterparts to make transactions exclusively with themselves or with the undertakings designated by them; and
(5) without justifiable reasons, conducting tie-in sale of commodities or adding other unreasonable trading conditions to transactions;
The dominant market position of an undertaking shall be determined on the basis of the following factors:
(1) its share on a relevant market and the competitiveness on the market;
(2) its ability to control the sales market or the purchasing marker for raw and semi-finished materials; and
(3) its financial strength and technical conditions;
The conclusion that an undertaking holds a dominant market position may be deduced from any one of the following circumstances:
(1) the market share of one undertaking accounts for half of the total in a relevant market;
(2) the joint market share of two undertakings accounts for two-thirds of the total, in a relevant market; or
(3) the joint market share of three undertakings accounts for three-fourths of the total in a relevant market.
Undertakings who meet the thresholds for anti-monopoly declaration shall declare to the authority for enforcement
According to the regulations, when their intended concentration reaches the threshold level as set by the State Council, undertakings shall declare in advance to the authority for enforcement of the Anti-monopoly Law under the State Council; they shall not implement the concentration in the absence of such declaration. The anti-monopoly law enforcement authority of the State Council may formulate and modify declaration standards based on the level of economic development and industry scale, and make them publicly available. Where the concentration of undertakings meets the reporting standards, or the concentration of undertakings has not been declared in accordance with the law, or the concentration of undertakings has not reached the declaration standards, but has or may have the effect of excluding or restricting competition, the anti-monopoly law enforcement authority of the State Council shall conduct investigations in accordance with the law.
Where an undertaking, in violation of the provisions of this Law, concludes and implements a monopoly agreement, the authority for enforcement of the Anti-monopoly Law shall instruct it to discontinue the violation, confiscate its unlawful gains, and, in addition, impose on it a fine of not less than one percent but not more than 10 percent of its sales achieved in the previous year. If such monopoly agreement has not been implemented, it may be fined not more than RMB 500,000. Where an undertaking, in violation of the provisions of this Law, abuses its dominant market position, the authority for enforcement of the Anti-monopoly Law shall instruct it to discontinue such violation, confiscate its unlawful gains and, in addition, impose on it a fine of not less than one percent but not more than 10 percent of its sales achieved in the previous year.
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