Internet ban, the next focus of antitrust regulation?

On March 17, the Anti-Monopoly Work Conference of the National Market Supervision System gave the Anti-Monopoly Record of the State Administration for Market Regulation in 2021: 176 monopoly cases were investigated and handled, and the amount of fines and forfeitures was 23.586 billion yuan; 727 cases of concentration of undertakings were concluded, with 4 conditional approvals and 1 prohibition. The meeting also pointed out that competition policy is development policy, monopoly hinders economic development, and anti-monopoly promotes economic development.

2021 is the "big year" of Internet anti-monopoly, and the Internet "wall removal" movement has initially benefited the majority of users, but the opening of large platforms is far from meeting the needs of users, and the monopoly situation accumulated in the past few years has not been broken. Professor Hou Liyang, a special expert of the Internet Law Review and the Kaiyuan Law School of Shanghai Jiao Tong University, believes that the platform ban will become one of the monopolistic behaviors that will be closely focused by the anti-monopoly law enforcement agencies after the "two choices".

I. Causes of Internet bans

Internet bans refer to the conduct of Internet platforms not allowing other business operators to access the services they provide. From the perspective of the Anti-Monopoly Law, the Internet ban is essentially an act of refusing to trade. However, in practice, Internet bans may intersect with exclusive transactions.

Exclusive trading refers to the behavior of internet platforms that require business operators within the platform to only trade with themselves and not with other Internet platforms. Exclusive trading behavior often uses refusal of transaction as a coercive means, but there are two differences between it and refusal of transaction: first, exclusive trading is only to refuse transactions as a means, the purpose of which is not not to trade, but to force the other party to only trade with themselves; second, in addition to refusing to trade, there are also restrictive trading methods such as search and reduction, traffic restrictions, etc.

The first purpose of the Internet ban is not to trade with the other party, and the second purpose is to eliminate and restrict the competition of the other party.

The Information Internet has gradually evolved into a attention economy, that is, an economic model that obtains commercial benefits by attracting the attention of users. Attention makes the advertising range wider and the target more accurate, so it has become a new means for advertisers to choose. When the acquisition of attention is regarded as the main purpose of providing Internet services, the competition between Internet platforms is no longer a competition in the content or form of information, but evolves into a competition for attention.

In the process of this competitive reshaping, Internet platforms are scrambling to build themselves into an all-encompassing platform for Internet services, expanding into all other areas where they can enter. Mainland courts have called this a "business ecosystem in the internet."

In recent years, the mainland Internet market has formed a number of Internet ecosystems with head enterprises as the core, commonly known as Tencent, Ali, Toutiao, Baidu and so on. Internet companies in different ecosystems have gradually evolved from the original cooperative relationship to a relationship of tense competition and restriction of competition. Internet bans came into being in the market environment of building an Internet ecosystem.

The direct purpose of Internet bans is to refuse interconnection with the services of other Internet platforms, and there are two main manifestations of them:

(1) Refuse to provide direct redirect services for external links of other Internet platforms in the services provided by themselves (hereinafter referred to as "no direct chain");

(2) Refuse to provide its own API interface to other Internet platforms (hereinafter referred to as "no docking").

2. The limitations of "required facilities" apply

On the face of it, the Internet ban is consistent with the refusal to trade in Article 17, Item 3 of the Anti-Monopoly Law. Many scholars combine the refusal to trade in this clause with "necessary facilities" to analyze whether the act violates the Anti-Monopoly Law. "Essential facilities" is a concept proposed in the Interim Provisions on Prohibiting abuse of dominant market position issued by the State Administration for Market Regulation, and the Anti-Monopoly Guidelines on the Platform Economy issued by the Anti-Monopoly Commission of the State Council also cover this.

According to the research of mainland scholars, the satisfaction needs of "essential facilities" are based on the following five elements:

(1) Whether the necessary facility that has been refused access is necessary for market competition or service ("necessity");

(2) Whether the necessary facilities that have been refused to be opened are controlled by business operators with a dominant market position;

(3) whether the necessary facility that has been refused access has the possibility of being copied ("non-reproducibility");

(4) whether the necessary facilities that have been refused to be opened can be opened ("openness");

(5) Whether there is a reasonable reason for the operator to refuse to open the necessary facilities.

However, the requirements for these elements are very high, especially the requirements of "non-reproducibility", and most mainland scholars believe that it may be difficult for all Internet platforms to meet this requirement of similar market uniqueness. Even some foreign scholars believe that even in online search engine services, platforms such as Google, which have strong market power, are difficult to identify as necessary facilities. As a result, Internet bans are more difficult to deal with from the perspective of essential facilities.

3. Discriminatory acts of prohibition

While blocking is more difficult to deal with from the perspective of a necessary facility, this does not mean that it cannot be covered by other types of monopolistic behavior.

As mentioned earlier, the interconnection between platforms is not only the design concept of the Internet, but also brings more user traffic. Therefore, it is difficult for Internet platforms to ban all other platforms, and only provide services for platforms that they or have a relationship with themselves. In other words, Internet platforms cannot build themselves into a completely closed system, completely disconnected from other platforms.

In this way, when implementing the blocking strategy, the behavior of Internet platforms is often manifested by blocking the services of platforms that have a direct competitive relationship with themselves, and interconnecting with other platforms that have a weak competitive relationship with themselves.

In the case of a non-discriminatory total ban, the penalty can only be imposed through the path of the necessary facilities; however, if it is a differential ban, it will involve the differential treatment in Article 17,6 of the Anti-Monopoly Law. According to the semantics of Article 17 of the Anti-Monopoly Law, acts of differential treatment must meet the following four elements:

(1) Transaction counterparties with the same conditions;

(2) Differential treatment of trading conditions;

(3) There is no justifiable reason;

(4) Eliminate and limit the effect of competition.

The first three elements of differential treatment tend to be easier to analyze. First of all, although the Internet industry has the characteristics of winner-take-all, the competition situation in the mainland Internet industry has developed well, and it is rare for an Internet platform to have a complete monopoly. As long as there is a competitor, it is easy to find "trading counterparts with the same conditions".

Secondly, the manifestation of Internet bans is very easy to identify. Judging from the current market development, the main thing is that there are two kinds of behaviors: not direct chain and no docking, so the "differential treatment of trading conditions" is also easier to identify.

Third, for the requirement of "no just cause", due to the transparency requirements of the E-commerce Law on the "service agreement" of Internet platforms, Internet platforms need to provide clear and reasonable reasons for their banning behavior in principle. For example, Tencent issued the WeChat External Link Content Management Specification for its non-direct chain, which mainly restricts the content prohibited by jus cogens. However, the reasonable grounds herein should not include the reasons for the purpose of eliminating or restricting competition. For example, Article 16 of the above specification stipulates that "service content with similar functions to WeChat or its service platform" may be blocked; this should not be enough to be regarded as a natural legal reason.

What is more difficult is the identification of the fourth element (the effect of eliminating and restricting competition). The AML does not prohibit all acts of differential treatment in general, even if the implementing entity has a dominant market position. In fact, the vast majority of differential treatment practices are legal and contribute to the improvement of social welfare. The Anti-Monopoly Law prohibits only differential treatment that can eliminate or restrict the effects of competition.

Depending on the purpose of eliminating or restricting competition, acts of differential treatment can be divided into two categories:

The purpose of the first type of conduct is to eliminate or restrict competition from direct competitors. The main manifestations of such behavior are to give different treatment to new and old customers, attract competitors' customers, and produce the purpose of eliminating or restricting competition;

The purpose of the second type of behavior is to eliminate and restrict competition in the upstream and downstream markets. The market entities that carry out such acts are vertically integrated enterprises and are active in multiple relevant markets at the same time. By implementing differential treatment for different customers (or their own downstream branches), thus disrupting the competitive order of the relevant market where the customer is located, the ultimate goal is to let their branches or customers who have a relationship with themselves gain benefits in the downstream market.

Internet bans conform to the characteristics of category II differential treatment, so the focus of the review of the effects of eliminating or restricting competition should be competition between the banned Internet platform and the Internet platform that has not been banned.

The case with a better analysis of the effect of eliminating and restricting competition is the "Case of Abuse of Market Dominance by Food Pie" in 2021. In this case, the law enforcement agency determined that the main reasons for the exclusion of the effect of restricting competition were: from September 2017 to March 2018, the parties used their dominant position in the relevant markets to formulate and implement the "exclusive delivery rights plan", forcing a large number of restaurants to remove from the platform of the parties concerned in order to maintain a large number of orders and users on the foodpac platform, resulting in a sharp decline in the number of orders from the competitors, the loss of platform users, a sharp decline in sales, and even the inability to continue to operate.

From the discussion in this paragraph, we can see that the analysis of the effect of eliminating and limiting competition has roughly two steps:

(1) Other Internet platforms that are not banned must benefit from the implementation of the act; in other words, their market share has been greatly improved.

(2) The acts involved in the case have increased the operating costs of the banned platforms, making it impossible to compete with the unblocked platforms on the same level, thus being forced to be at a competitive disadvantage.

The Anti-Monopoly Law does not prohibit differential treatment in general, but only prohibits acts of differential treatment that have the effect of eliminating or restricting competition. The above-mentioned analytical requirements can better balance the freedom to ensure the development of Internet platforms that carry out banned acts with the protection of the freedom of competition of banned Internet platforms.

The Supreme People's Court made it clear in the "3Q Case" that if after the implementation of the monopolistic act, the market share of the market entities involved in the case did not change much or even showed a substantial decline, it meant that the act did not have the effect of eliminating or restricting competition.

In addition, this essentially means that the market mechanism already has sufficient regulatory functions, and law enforcement agencies do not need to intervene. The result of the enterprises involved in the case benefiting from discriminatory banning acts and having no other reason to support their market share increase means that the competition mechanism has been artificially undermined, resulting in the inability of the banned platform to form effective competition.

IV. Conclusion

In summary, this article believes that the Internet ban is essentially an act of refusing to trade. The act of refusing to trade can be divided into refusing to conduct transactions with all enterprises and refusing to conduct transactions with some enterprises according to the intensity of their implementation.

The former should follow the path of necessary facilities to solve, but according to the competition situation of the mainland Internet industry, internet bans are difficult to deal with from the perspective of necessary facilities; the latter can be analyzed in the framework of differential treatment, and if the banned platform finds that competitors are not blocked by the banned platforms, they can claim their rights and interests from the perspective of differential treatment.

However, the banned platform must prove that the competitors who were not banned after the occurrence of the act in question benefited from the ban, and their market share gradually declined; and the ban significantly increased its operating costs, making it difficult to compete with other competitors on the same level.