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China steps up enforcement in the platform economy sector with adoption of antitrust guidelines and imposition of fines for non-compliance

On 7 February 2021, the Anti-Monopoly Commission of the State Council of the People’s Republic of China adopted the Antitrust Guidelines for the Platform Economy (the Guidelines) following public consultation on a draft of the Guidelines published last November. China’s antitrust authority, the State Administration for Market Regulation (SAMR), has since fined several leading Chinese online platforms and companies active in digital markets for failing to notify VIE-related transactions targeted by the Guidelines, signaling China’s determination to crack down on potential non-compliance with China’s Anti-Monopoly Law (the AML) in the platform economy sector.

The Guidelines do not depart materially from the November draft in terms of structure and target practices such as the use of data and algorithms, hub-and-spoke conspiracies, VIE transactions and transactions falling below the thresholds for a mandatory filing. However, the Guidelines have adopted a more balanced and less aggressive approach in some areas, indicating a welcome willingness to address concerns around the uncertainties raised by some of the draft proposals.

A less aggressive approach adopted

  • Market definition is normally a prerequisite in all cases. In response to the heated debate around the draft guidelines’ proposal to allow market definition to be left open, the Guidelines have reverted to the more accepted position that defining relevant markets is generally required in all cases (i.e. merger cases and antitrust investigations). Nevertheless, the Guidelines recognise that the approach may vary from case to case and leave the possibility of market definition being left open in appropriate cases. Only time will tell whether SAMR will rely on this apparent flexibility.
  • A dataset will not be treated as an essential facility on its own. While the Guidelines state that a platform could in certain circumstances constitute an essential facility (as proposed in the draft guidelines), a dataset in itself will not be treated as an essential facility. Instead, the uniqueness of the dataset will be considered when assessing whether a platform is essential. Other factors in considering whether a platform is essential include the substitutability of the platform with other platforms, the feasibility of developing a competing platform, the degree of dependence on the platform by its users, and the impact on a platform operator of opening access to its platform.
  • Collection of non-essential user information without the user’s consent may constitute an unreasonable trading term and amount to abusive behaviour. However, contrary to the November draft, the Guidelines leave room for an undertaking to justify such conduct where the information being collected is essential.

More clarity on finding of anti-competitive practices

  • The Guidelines provide guidance on the approach to defining platform-related markets. Specifically, separate markets may be defined based on the products involved on one or multiple sides of a platform. The relationship between the different markets will be considered (e.g. an online advertising services market on the one side and a social networking services market on the other side, etc.) and, where the cross-platform network effects are strong enough to exert competitive constraints, an overall platform market may be defined.
  • Parallel conduct will not be caught. The Guidelines recognise that parallel conduct is not in itself anti-competitive, although undertakings will need to bear the burden of proving that the conduct in question was indeed undertaken independently.
  • Exclusive dealing more likely to be problematic where a company is dominant, but MFNs may raise concerns absent dominance. The Guidelines clarify that MFN obligations can be caught either as anti-competitive agreements or abusive conduct by dominant undertakings. By contrast, exclusive dealing does not feature in the anti-competitive agreements chapter (unlike the November draft), suggesting that it is more likely to trigger concerns when an undertaking is dominant, in line with the position under the AML.
  • The Guidelines also specify factors SAMR will consider when assessing if other anti-competitive practices are caught by the catch-all clause under Article 13 and Article 14 of the AML. These include the market power of the platform operator and businesses active on the platform, the impact on market entry, and the impact on innovation. This could indicate an increased appetite to apply the catch-all clause in the platform economy sector - which SAMR may consider necessary given the multi-faceted nature of certain practices that might not be expressly caught by the AML.

Use of data and algorithms remains subject to close scrutiny

  • The Guidelines highlight growing concerns, as in other major jurisdictions, that the collection and use of data, algorithms and platform rules can be used to facilitate anti-competitive conduct (e.g. price-fixing) or abusive conduct (e.g. refusal to deal, imposing unreasonable terms and discrimination). This is expected to be an enforcement focus for SAMR going forward. Likewise, in relation to merger control, it is expected that if competition issues arise in transactions involving the platform economy, remedies related to data usage, adapting certain algorithms or platform rules, and/or ensuring compatibility or interoperability could be imposed in appropriate cases.

Clamp down on failure to file VIE-related transactions is set to continue

  • The Guidelines make clear that SAMR will fine companies that fail to notify VIE-related transactions, endorsing the position it signaled in the draft guidelines. The recent uptick in enforcement by SAMR against such transactions has increased the practical enforcement risks around not notifying such transactions. Since the publication of the draft guidelines, SAMR has imposed fines on 13 companies for failing to notify reportable VIE-related transactions - a record haul for a 6-month period. Further fines can be expected to be imposed in the future. It is also worth noting that fining levels may increase significantly in the future given that there are proposals afoot to increase the maximum fine to 10% of a company’s turnover.

Challenges ahead

While the Guidelines provide a welcome framework for analysing antitrust issues in the platform economy, some uncertainty inevitably remains on how they will be applied in practice. Nevertheless, they represent a clear signal that the platform economy will be a key area of enforcement focus for SAMR in the future. Companies with any involvement in the platform economy – whether as operators of platforms, users of platforms or with investments into or other connections to the sector – would be well advised to study the Guidelines and where necessary undertake internal compliance reviews of their business activities.

Please contact your usual Freshfields contacts if you would like to discuss any aspects of this briefing.