Focusing on Strong Anti-monopoly Regulation and Corporate Compliance Management Measures in the Platform Economy

By Jiang Yubin, China IP,[Anti-Monopoly]

 

In the era of strong anti-monopoly regulation on the platform economy, how to understand the coordination between anti-monopoly and intellectual property protection? How to interpret the successive anti-monopoly policies and relevant statements of the central government? What responsibilities should platform companies take in the face of new challenges in anti-monopoly compliance? How will strengthening anti-monopoly help the sustainable and innovative development of the platform economy?

 
 
 
At the end of 2020, "anti-monopoly" became the focus of public discussion, and a series of anti-monopoly cases involving Internet giants frequently appeared on the hot search list. On December 14, Alibaba, Tencent, and SF Express were heavily fined for violating the Anti-Monopoly Law; On December 24, China’s State Administration for Market Regulation opened an investigation into Alibaba's alleged monopolistic practices such as "two-for-one"; on December 28, Meituan was subject to an anti-monopoly lawsuit for cancelling Alipay's payment channel, and the case has been filed in the Beijing Intellectual Property Court.
 
The Internet industry is not an extra-legal place for anti-monopoly. When market resources are accelerating to concentrate on leading companies, platform monopoly issues have become increasingly prominent, and competition risks in the development of platform economies have gradually received attention: On November 10, 2020, China’s State Administration for Market Regulation announced the draft Guidelines for Anti-monopoly in the Field of Platform Economy (Draft for Solicitation of Comments) ; From November 30 to December 11, 2020, the Political Bureau of the CPC Central Committee mentioned "anti-monopoly" twice within 12 days; on December 18, 2020, the Central Economic Work Conference again focused on anti-monopoly issues and listed "strengthening anti-monopoly" as one of the eight key tasks in 2021, indicating that strict supervision and management of chaos will be normalized for platform enterprises represented by Internet companies. At the same time, the anti-monopoly storm has swept the world, with anti-monopoly lawsuits against Google,Apple, Amazon, Facebook and other technology giants intensifying, and the fight against Internet giant monopolies has become the "tacit agreement" of law enforcement in various countries.
 
In the era of strong anti-monopoly regulation on the platform economy, how to understand the coordination between anti-monopoly and intellectual property protection? How to interpret the successive anti-monopoly policies and relevant statements of the central government? What responsibilities should platform companies take in the face of new challenges in anti-monopoly compliance? How will strengthening anti-monopoly help the sustainable and innovative development of the platform economy? China IP discussed the above issues through interviews with experts and scholars in the field of anti-monopoly.
 
Intellectual property and anti-monopoly jointly protect market competition
 
China's current Anti-Monopoly Law aims to "prevent and stop monopolistic behavior, protect fair competition in the market, improve the efficiency of economic operation, safeguard the interests of consumers and the public, and promote the healthy development of the socialist market economy", and prohibits market exclusivity and restriction of competition. However, with the original intention of protecting the intellectual achievements of creators and giving appropriate material incentives, intellectual property law grants the right holder exclusive rights to a certain intellectual property for a certain period of time in the form of licensing and paid use. Questions and concerns follow: the protection of intellectual property rights somehow creates a competitive advantage in the market, thus excluding and restricting competition, and seemingly running counter to anti-monopoly.
 
Clarifying the coordinated relationship between anti-monopoly and intellectual property rights will help promote technological innovation and social progress as a whole. Although anti-monopoly and intellectual property rights often conflict in terms of expression, in the view of Associate Professor Han Wei, Executive Director of the Competition Law Research Center of the University of Chinese Academy of Social Sciences, intellectual property rights and competition policy with anti-monopoly at its core are in fact complementary: "Protecting competitive markets and thus ensuring that markets can bring economic efficiency and welfare are the common purpose of both. In promoting innovation, the two complement each other, playing a synergistic role of 'carrot' and 'stick'."
 
Promoting competition is the core, and intellectual property protection and anti-monopoly regulations go hand in hand. Article 55 of China’s Anti-Monopoly Law provides that "the exercise of intellectual property rights by an operator in accordance with the laws and administrative regulations relating to intellectual property shall not be subject to this Law; however, the abuse of intellectual property rights by an operator to exclude or restrict competition shall be subject to this Law." It can be seen that the Anti-monopoly Law protects the exclusive rights of the right holder to its intellectual property, but the abuse of intellectual property will be subject to antimonopoly regulation in order to maintain a fair-trading environment in the market, protect the public interests of society and the rights and interests of consumers, and improve the efficiency of social and economic operation.
 
As intellectual property right is a new type of property right, what are the key difficulties in using the Anti-monopoly Law to regulate the abuse of intellectual property? In the interview, Han Wei pointed out three perspectives worthy of attention: “First, it is not appropriate to over-exaggerate the impact of the characteristics of intellectual property rights on the application of anti-monopoly rules. The main line of identification, defense and relief of the anti-competitive effects of specific actions should be firmly grasped. Second, anti-monopoly administrative enforcement and justice related to standard-essential patents often have far-reaching effects on the development of a country's industry, and it is necessary to balance the relationship between domestic competition and international competition, and to reasonably play an active role in the fair and effective competition mechanism of the market. Third, it is also a difficult point regarding how to properly consider innovation in competition assessment in relevant cases." He further explained that although China's Antimonopoly Law does not formally mention the word "innovation", the wording of "technological progress" is sufficient to reflect the importance of innovative development in driving industrial transformation and upgrading. But how to consider innovation in a specific anti-monopoly case? Han Wei believes that the primary concern is to fundamentally understand and recognize the role of intellectual property and anti-monopoly in promoting innovation and creativity, focusing on intellectual property-related cases, as well as the new digital economy anti-monopoly issues and the more controversial injunctive relief cases.
 
In order to better regulate the abuse of intellectual property rights to exclude and restrict competition, based on the principle provisions of Article 55 of the Anti-monopoly Law, in January 2019, the Anti-monopoly Committee of the State Council formulated and issued the Anti-Monopoly Guidelines in the Field of Intellectual Property Rights. On October 30, 2020, China’s State Administration for Market Regulation interpreted the above-mentioned guidelines, determined the rational use and abuse of intellectual property rights analysis ideas and consideration factors, and provided clear guidelines for operators to operate in compliance.
 
Focus on major events of anti-monopoly regulation in the platform economy
 
On November 10, 2020, China’s State Administration for Market Regulation issued the draft Guidelines for Anti-monopoly in the Field of Platform Economy (Draft for Solicitation of Comments) which for the first time clearly defines " two-for-one" dispute and "big data and differential pricing” as abuse of dominant position in the market and determines that they constitute restricted trading and differential treatment. On November 30, the Political Bureau of the CPC Central Committee mentioned "doing a good job in intellectual property protection, anti-monopoly and fair competition review" in the 25th collective study on strengthening intellectual property protection in China, and on December 11, the Political Bureau of the CPC Central Committee held an analysis and research meeting on economic work in 2021, calling for strengthening anti-monopoly and prevent disorderly expansion of capital, which is the first time since the implementation of the Anti-Monopoly Law in 2008, the Political Bureau of the CPC Central Committee has explicitly stated to strengthen anti-monopoly.
 
In the past month, the central government's successive anti-monopoly policies and repeated resolute statements heralded the arrival of the era of strong antimonopoly regulation in the platform economy. Han Wei interpreted that in the current complex environment where the trend of counter-globalization is on the rise, China still adheres to the direction of market-oriented reform, which means that anti-monopoly work to ensure the effective operation of the core market mechanism will become increasingly important in China: "The central government's attention to anti-monopoly work will help deepen the understanding of anti-monopoly at all levels of government, in all departments and in society as a whole, and promotes the improvement of the level of competitive culture in China. The normalization of antimonopoly is an inherent requirement for the in-depth development of market economy and a powerful support for the promotion of innovation-driven development strategy, and all industry players should take this opportunity to fully embed anti-monopoly compliance in their daily business activities."
 
In accordance with the provisions of the Anti-monopoly Law, China’s State Administration for Market Regulation investigated three cases of non-declaration of illegal implementation of concentration of undertakings, including Alibaba Investment Ltd.’s acquisition of InTime’s equity, China Literature’s acquisition of New Classics Media’s equity, and Shenzhen Hive Box’s acquisition of China Post Smart Logistics’ equity. And on December 14, 2020, in accordance with the provisions of Articles 48 and 49 of the Anti-monopoly Law, Alibaba Investment Ltd., China Literature, Shenzhen Hive Box were each fined RMB 500,000 as administrative penalties. Among them, Alibaba Investment Ltd. is the main entity of Alibaba Group to carry out investment and M&A, China Literature is a holding subsidiary of Tencent, and Shenzhen Hive Box is an affiliated company of SF Express, so the authorities' determination to regulate anti-monopoly for the head platform is self-explanatory.
 
Data shows that China's Internet industry M&A transactions are active, from 2010 to December 14, 2020, China's Internet companies M&A cases totaled 542, but some of them did not declare concentration of undertakings in accordance with the law. Han Wei said: “Recently, China’s State Administration for Market Regulation has imposed top-level penalties on three cases of failure to declare illegal implementation of concentration, which is reasonable. However, the legal liability imposed by Article 48 of the current AntiMonopoly Law on the implementation of concentration of undertakings in violation of the provisions is too light and the deterrent effect is very limited. This problem should be solved in the subsequent revision process of the AntiMonopoly Law by enhancing the amount of fines and other measures to strengthen legal liability." In response to the 500,000 yuan top-level penalty, Huang Fang, a senior partner of Beijing Zhengxin Law Firm and head of the Technology Legal Affairs Department, believes that its significance is more of a warning to platform enterprises, emphasizing the state's determination to punish such violations and reminding platform enterprises to fully consider the national regulatory background and regulatory logic in the process of business integration. "The three penalized enterprises are involved in the VIE structure (Variable Interest Entities) issue, and the relevant departments earlier on the VIE structure of the regulatory attitude is rather vague. Should they declare? At what stage? There are no clear rules to follow, so in corporate mergers and acquisitions, the review of VIE applications has always been relatively passive." Huang Fang said frankly.
 
Why did the Sword of Damocles hanging over the Internet platform companies fall in 2020? Huang Fang pointed out that the regulators' crackdown on the monopoly problem of platform enterprises seems to be concentrated at the end of 2020, in fact, the industry has long anticipated this. Prior to the release of the draft Guidelines for Anti-monopoly in the Field of Platform Economy (Draft for Solicitation of Comments) and the announcement of some penalties, the head platform enterprises were invited to participate in the preliminary discussion and research, which improved the rationality, timeliness and innovation of the policy and regulation development through smooth communication with the regulators. Huang Fang told China IP, "According to my observation, the head Internet enterprises have a positive attitude towards anti-monopoly regulation and platform compliance governance, but there are only principled guidelines, the specific implementation details are not yet clear, and the enterprises tend to be cautious in their statements on specific behaviors."
 
In recent years, the market concentration in the field of China's platform economy has been increasing. With the emergence of network effects and economies of scale characteristics of the platform economy, specific platforms have obvious advantages in accumulating market resources. The ecological layout and data aggregation capabilities of some companies, as well as powerful algorithmic power, have increasingly aggravated the Internet Matthew effect. Han Wei pointed out that the anti-monopoly issue in the Internet industry also faces some theoretical controversies: "In the past, China's law enforcement departments as a whole took a cautious attitude, and recently they have put limited law enforcement resources into the Internet industry, which is an inevitable response after the law enforcement departments have observed for a longer period of time and found that there is a market failure in this field and the market cannot correct itself." He also emphasized that anti-monopoly law is a common rule applicable to all industries, and although platform economy anti-monopoly brings new issues such as algorithmic collusion, open data, and startup acquisitions, it does not pose a substantial challenge to the traditional analytical framework of anti-monopoly law. "In addition, under the current severe international environment, ensuring effective competition in China's domestic market and innovative development in the technology sector through anti-monopoly enforcement is a fundamental guarantee for the continued enhancement of the international competitiveness of China's digital economy, a prerequisite for the continuous spawning of domestic enterprises with international competitiveness, and a contribution to the welfare of domestic consumers."
 
Focus on Compliance Governance and Innovative Development of the Internet Industry
 
The draft Guidelines for Anti-monopoly in the Field of Platform Economy (Draft for Solicitation of Comments) points to large Internet platform, causing the stock prices of listed companies such as Alibaba, Tencent and Meituan to experience large fluctuations within a short period of time. On November 23, 2020, Zhang Yong, Chairman and CEO of Alibaba Group, mentioned in a speech at the World Internet Conference in Wuzhen, China that Internet companies and platform companies born during the development of the digital economy have benefited from various government policies to encourage development and innovation, and that company development needs to be managed by policies and regulations that keep pace with the times, and that regulatory policies and regulations are "timely and necessary". Subsequently, at the third-quarter financial report meeting of various companies, the executives successively expressed that they would actively support and cooperate with antimonopoly regulation. According to reliable sources, JD.com, Meituan and other companies said that the key to anti-monopoly in the platform economy is to seek a comprehensive balance of interests between promoting fair competition and maintaining innovative vitality, and Tencent specifically mentioned that the group promotes innovation through competition among products.
 
When "innovation" and "anti-monopoly" are repeatedly mentioned, what is the significance of the series of policies for platform companies? Han Wei answered that anti-monopoly law is a behavior-oriented negative list of rules, and companies need to do a good job of compliance governance to avoid touching the red line of the law. " For the time being, regardless of the application of specific agricultural behaviors, platform companies should fully realize the cross-industry integration and equal application characteristics of China's Anti-Monopoly Law, inclusive and prudent supervision is not negative inaction, and enterprises should exclude the compliance level of fluke mentality." But he also stressed that the purpose of anti-monopoly administrative enforcement is not to overstep the bounds of active promotion of the level of market competition, but to passively defend the market competition mechanism from damage, so as to balance the relationship between the government and the market.
 
As for the responsibility of compliance governance that enterprises should consciously undertake, Han Wei pointed out that platform autonomy and government regulation should form a useful complementary relationship, with government regulation strictly based on existing laws and regulations, and platform autonomy taking into account the differentiated social responsibility pursuits of different enterprises on the basis of integrating legal requirements: "As the legal rules in emerging areas are in the stage of development and improvement, the development of platform autonomy may affect the evolution of legal rules and the boundary of government supervision. For platform enterprises, in addition to compliance management in accordance with the law, the pursuit of higher-level corporate social responsibility goals beyond the scope of legal obligations should not be mandatory but is also worth encouraging." The stronger the capacity and greater the responsibility of enterprises, a seemingly ordinary business rule will affect tens of thousands of operating merchants and the general public. Huang Fang gave an example to China IP: "Alipay Sesame Credit and Baidu people search public welfare open platform, as well as the platform enterprises during the epidemic to provide technical application support for epidemic prevention flow analysis during the epidemic, are enough to prove that platform enterprises enjoy the dividends of technology at the same time, but also take more responsibility and feed society." She suggested that the scale effect of enterprises should be viewed rationally, and it should not be one-sidedly assumed that the head platform will inevitably experience the role transformation from innovation promoter to obstructionist after having the advantages of data, technology and capital.
 
Referring to the current outstanding problems of anti-monopoly in the platform economy, Huang Fang firstly pointed out that China is a civil law country, where statutory laws are formulated based on existing behaviors. Therefore, in the Internet era, the lag of supervision and regulation has become more prominent. "Institutional innovation by regulators and business iterations and technological updates by platform companies is a mutual process of exploring reasonable boundaries, which places higher demands on regulators to develop more effective regulatory strategies. The challenge comes from both sides' understanding of technology upgrade, business innovation and regulatory logic, when the two have the same quality, the same speed, and a win-win situation can then be achieved.
 
In addition, compared with other economic law fields, anti-monopoly in the platform economy involves more relevant subjects, and collaborative governance is crucial. Huang Fang summarized it as two aspects: "First, when choosing the regulatory approach and regulatory time period, we should consider the cost investment and benefit effect of pre-, in- and post-regulation, while giving full play to the institutional advantages of China’s diversified market regulatory system and multiply the use of multiple legal instruments such as anti-monopoly, anti-unfair competition, personal data privacy protection, consumer rights protection and criminal law to reasonably regulate improper behaviors of enterprises.” On December 22, China’s State Administration of Market Regulation and the Ministry of Commerce jointly organized an administrative guidance meeting to regulate the order of community group purchase, emphasizing that Internet platform enterprises should strictly regulate the operation of community group purchase, strictly comply with the "nine shall not", including the abuse of independent pricing power through low-price dumping, and shall not use data advantages to differential pricing, etc., to prevent monopolistic behavior in a low-cost way from the source. Second, before the regulator takes anti-monopoly measures, it needs to fully analyze the role positioning of the relevant platform enterprises, participating enterprises and consumers, distinguish the role of the platform in the transaction or behavior, and avoid 'pure platform behavior' and 'platform + transaction mixed behavior' situations. Under the circumstances, the relevant subjects bear the same responsibility", said Huang Fang. At the same time, it is important not to ignore the issue of the legitimate rights and interests of the participating enterprises and consumers who corporate with the platform enterprises. Han Wei believes that maintaining a fair competitive order between and within platform through anti-monopoly enforcement, such as ensuring platform interoperability and data transferability in specific cases, will further maintain the balanced and healthy development of the industrial ecology.
 
Based on previous legal work experience in leading Internet companies, Huang Fang made suggestions to platform companies: "First, they should fully understand the risks and complex rights and interests involved in micro-technology updates, and raise the importance of comprehensive assessment of business compliance from the perspective of industry development and regulatory logic. Second, while encouraging internal innovation, business products with independent attributes can be considered for participation in platform business as a separate entity when conditions are ripe. Third, for small and micro science and innovation enterprises that have a strong will to be acquired, it is necessary to reasonably assess their level of innovation and the necessity of acquisition to avoid creating an unfavorable situation that inhibits fair competition and hinders industry innovation."
 
The influence of Internet platform companies in the economy is deepening. The main person in charge of the Anti-monopoly Bureau of China's State Administration of Market Regulation has publicly stated that the State Administration of Market Regulation attaches great importance to strengthening anti-monopoly regulation in the Internet field and is actively promoting the revision of the Anti-monopoly Law, and has issued a number of regulatory guidelines, as well as provisions on the application of laws to new economic sectors such as the Internet.
 
Han Wei is full of expectations for strengthening antimonopoly: "We need to evaluate the effectiveness of the existing regulatory mechanism and explore the direction of further improvement of the existing regulatory mechanism, such as drawing on international experience, upgrading the level and independence of China's existing anti-monopoly administrative enforcement departments, and considering the feasibility of establishing competition courts in the judicial system. At the same time, the use of emerging technological means to empower anti-monopoly enforcement should be actively explored.

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