Antitrust Issues for E-Commerce in the Greater Bay Area and Beyond

Entrepreneurs see how e-commerce has transformed the consumer market, but they may not see how antitrust laws are transforming the general practices adopted by some e-commerce corporations.

CONSIDERATIONS FOR E-COMMERCE COMPANIES IN THE GREATER BAY AREA

The Greater Bay Area (GBA) is an ideal host for e-commerce businesses engaging in both domestic and cross-border e-commerce trade. As an international financial center, Hong Kong is an interconnector, both geographically and financially, in facilitating e-commerce businesses to raise money in overseas markets. Shenzhen, as a hub for entrepreneurial and innovative industries, harbours many tech giants like Tencent and Huawei, and is known for its scientific and technological strength, and provides favourable infrastructure and policy support for e-commerce businesses. Moreover, pilot zones for cross-border e-commerce have officially been established in Zhuhai and Dongguan, leading to the rapid expansion of the scale of transactions, with infrastructure and policy support from the local government.

With greater scale, comes stricter regulations. Along with the rapid expansion of the e-commerce industry, Chinese authorities have started to pay closer attention to the current practices that e-commerce companies adopt. They intend to fill the loopholes left behind by a rapidly developing industry and promote and maintain fair competition among the companies. Therefore, e-commerce companies should closely monitor the latest legislative developments and carefully examine their policies and practices to ensure compliance with the relevant laws and regulations.

Typical questions from clients: What are the antitrust issues e-commerce companies should consider in designing their policies, systems, and practices?

  1. What are the types of monopolistic activities as defined in antitrust laws and regulations in China?  
  • According to relevant PRC laws, a monopolistic activity could fall under one of three categories: monopolistic agreements, abuse of dominant market position, and concentration of undertakings which has or may have an effect of eliminating or restricting competition.
  • There are guidelines in China to specify the monopolistic activity of e-commerce businesses which fit such activity into the three generalised and conceptualised categories.
  1. How should we understand ‘dominant market position’?
  • To determine whether a company has a dominant market position, we may need to consider factors such as its market share, market controlling ability, the scale of the company, users’ reliance, market-entry, etc.
  • Most importantly, we have to understand what the ‘relevant market’ is.
  1. How is the ‘relevant market’ defined when we talk about ‘abuse of dominant market position’?
  • It is necessary to identify the relevant market when investigating the alleged monopolistic activities.
  • Relevant market can be further divided into 1) relevant commodity market, and 2) relevant geographic markets.
  • However, to precisely define the relevant market is a highly technical matter, which requires professional knowledge that experienced antitrust lawyers possess.
  1. What activities or practices are deemed as abuses of a dominant market position?
  • Activities that may be considered as an abuse of a dominant market position typically include:
    • Unfair pricing practices
    • Sale below cost without a valid reason
    • Rejection of a transaction
    • Restricted transactions
    • Tying or attaching unreasonable trading conditions, and
    • Differential treatment for the terms of a transaction.
  1. Should the client be concerned about the antitrust law if the client is not in a dominant market position?
  • Yes. Abuse of dominant market position is not the only type of monopolistic activity. In addition, identification of dominant market position is a highly technical matter. Companies are suggested to consult their antitrust lawyers in this regard.
  1. What are the consequences of an antitrust law violation?
  • In case of a violation, companies could be subject to a fine ranging from 1% to 10% of the sale amount of the preceding year, which is a significant amount of money for a sizable company.  

Registered Foreign Lawyer, SF Lawyers in association with KPMG Law

Legal Manager, Shanghai SF Lawyers in association with KPMG Law