Abuse of "Relatively Advantaged Position" Competition Violation Re-proposed in China

In Short

The Situation: China’s antitrust enforcer, State Administration for Market Regulation ("SAMR"), published draft amendments to the Anti-Unfair Competition Law ("Amendments") for public comment that target the digital economy and companies with "relatively advantaged" market positions. The Amendments also would expand the rules against commercial bribery.

The Result: China's Anti-Unfair Competition Law ("AUCL"), adopted in 1993 and amended in 2017 and 2019, addresses a broader range of competitive behavior than the Anti-Monopoly Law ("AML"), which is comparable to most antitrust or competition laws around the world. The AUCL focuses on advertising, marketing, business secrets, the digital economy, and commercial bribery.

Looking Ahead: The Amendments are likely many months, if not years, away from becoming law, and their final form might be significantly different. However, if adopted, the "relatively advantaged" market position rules would lower the bar for administrative enforcement and plaintiffs in civil antitrust litigation. The vague standard also would increase uncertainty for companies attempting to comply with it. 

SAMR, like other global antitrust enforcers, has focused on competition issues in the digital economy, bringing high-profile enforcement actions and issuing guidelines and regulations related to the competitive practices of online platforms and restricting the use of consumer data. In addition, as detailed in our July 2022 White Paper, China amended the AML to prohibit anticompetitive conduct leveraging data, algorithms, technology, or platform rules. The AUCL Amendments would adopt a more regulatory approach specific to the tech industry. They would prohibit, among others:

  • Malicious trading that takes advantage of digital platform rules to disturb or sabotage other market participants; 
  • Refusals to grant market access through unreasonable exclusion or obstruction taking advantage of technical measures, platform rules, etc.; 
  • Data crawling, i.e., the improper collection and use of other companies' commercial data; and 
  • Big data-enabled price discrimination that uses algorithms to analyze user preferences, trading habits, and other characteristics to implement discriminatory treatment or other unreasonable trading conditions.

Revival of "Relatively Advantaged Position" 

Most global antitrust laws, including China's, largely prohibit two types of conduct— conspiracies that harm competition and conduct that abuses a monopoly or dominant position. For example, AML Article 22 prohibits companies with a dominant position (e.g., the ability to control market prices or output) from using that position to eliminate or restrict competition. Article 22 includes a long list of prohibited practices, including tying and exclusivity. Under most such laws, the guiding analytical principle is whether there is harm to consumers as distinct from competing producers, other marketplace participants, or other policy considerations. The typical, though not exclusive, focus of the consumer-welfare standard is the effect on prices of a business practice or transaction.

The Amendments would re-introduce the controversial concept of a "relatively advantaged position," defined as a competitive advantage based on technology, capital, user numbers, industry influence, or the commercial importance of the advantaged party's product or service to the counterparty. The Amendments extend the AML's rules against abuse of a dominant position to "relatively advantaged" competitors. Therefore, the Amendments would prohibit companies with a "relatively advantaged position" from engaging in the same practices (e.g., tying and exclusivity) that Article 22 prohibits for dominant companies, absent a procompetitive justification that outweighs the harm. As drafted, the Amendments would lessen SAMR's and private plaintiffs' burden under Article 22 to prove a company has a "dominant position," particularly in cases in the tech industry. 

Extension of the abuse of dominance violation to companies with "relatively advantaged positions" is not new to China or other parts of the world. The National People's Congress of China considered the change but shelved its addition to prior overhauls of the AUCL. The antitrust laws of Germany, Japan, and South Korea, among other countries, also feature that concept to a varying degree, but it is less common globally than other antitrust rules. 

The Amendments contribute to a global trend of antitrust enforcers moving away from the consumer-welfare standard, focusing instead on harm to competing producers or other policy considerations. For example, Australia extended a law that prohibits unfair contract terms, which involves a "significant imbalance between the parties," in standard form contracts with consumers to small businesses. Likewise, the U.S. Federal Trade Commission ("FTC") recently announced plans to reinvigorate Robinson-Patman Act ("RPA") enforcement, which prohibits discriminatory prices and provision of promotional funds or services. The RPA is a Depression-era law that purports to protect small retailers. With few exceptions, the FTC has not regularly enforced the RPA in more than 40 years. And in another example, the FTC's recent § 5 FTC Policy Statement expanded the focus of competitive harm from consumers to include competitors, workers, or other marketplace participants. (See our November 2022 White Paper).

Remedy For AUCL Violations

As proposed, following a finding of a violation, SAMR could issue an injunction, confiscate unlawful gains, or issue a fine of up to RMB 5 million (approximately $750,000). The draft law contemplates higher fines for "extremely severe" and "vicious" cases of up to 5% of annual turnover, half of the 10% ceiling for violations of AML Article 22, but does not provide further guidance about the circumstances in which SAMR might apply the higher fines.

Expanded Scope of Commercial Bribery

The Amendments would expand existing laws against commercial bribery. They: 

  • Clarify that directing a third party to bribe someone is unlawful, just as it would be unlawful to bribe directly;
  • Expand the scope of prohibited bribe recipients to include not just "employees of the trading counterparty" but also to the "trading counterparty" company itself; and 
  • Clarify that accepting a bribe is equally as unlawful as offering one. 

Violations will lead to fines of between RMB 100,000 (approximately $15,000) and RMB 5 million.

Three Key Takeaways

  1. The Amendments highlight China's continued focus on tech and digital platforms. Companies should expect the AUCL to become a key source of statutory authority for SAMR enforcement and regulation in the tech industry.
  2. If adopted, the extension of Article 22 abuse of dominance claims to companies with merely a "relatively advantaged position" will lower the bar for SAMR and private plaintiffs to bring anticompetitive conduct cases. Absent guidance about the meaning of such a relatively advantaged position, the Amendments would leave it to companies to guess whether they are compliant. 
  3. The Amendments are an early draft. Although companies should consider the potential effect on their business, the Amendments will be the subject of much debate and it is likely there will be further changes. Past amendments to China's antitrust laws have taken months or even years to complete.

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