According to Article 2 of the PRC E-Commerce Law which took effect on 1 January 2019, e-commerce activities conducted within the territory of People's Republic of China (“PRC”) shall be governed by the PRC E-Commerce Law.

The term "E-commerce Operator" refers to a natural person, a legal person or a non-legal-person organization that carries out business activities through information networks such as the Internet to sell commodities or provide services, including business operators of e-commerce platforms (“Operator of E-commerce Platform”), business operators on e-commerce platforms (“Operator on E-commerce Platform”), and other e-commerce operators that sell commodities or provide services on the website developed by themselves or through other network services.

After the PRC E-Commerce Law took effect, in case of anti-competitive conduct, E-commerce Operators shall not only be governed by the PRC Anti-Monopoly Law (“AML”), but also especially by the PRC E-Commerce Law.

According to the public news, over the one-year period after the PRC E-Commerce Law took effect, due to the alleged anti-competitive conduct, such E-Commerce Operators as Meituan, Ele.me and Sherpa, all of which are food ordering and delivery e-commerce platforms in the PRC, have been under investigation by different local authorities (“AMR”) either on their own initiative or authorized by the State Administration for Market Regulation.

Below is an overview of the relevant AML-related stipulations in the PRC E-Commerce Law compared to the AML.

1. Tying-in sales

There is no definition of the term “tie-in sales” under the AML. According to EU Competition Law, tying-in occurs where a dominant undertaking that sells a product (the “tying product”) insists that a customer must also purchase another product (the “tied product”). This might be a contractual requirement, or arise technically, because the tying product works properly only with the tied product.

a) According to Article 17 (5) of the AML, without any justification a dominant undertaking is prohibited from abusing its dominance by implementing tie-in sales or imposing unfair trading conditions.

Thus, first, tie-in sales are prohibited only where an undertaking has a dominant position in relation to the tying product. Secondly, an undertaking which has a dominant position cannot implement tie-in sales unless it has justifications to do so.

b) According to Article 19 of the PRC E-Commerce Law, to offer tie-in commodities or services, an E-commerce Operator shall warn consumers about the tie-in sale in a prominent position and cannot set the tie-in commodities or services as the default option.

Thus, under the AML a dominant undertaking is prohibited from implementing tie-in sales without any justification. The PRC E-Commerce Law, however, does not prohibit tie-in sales of E-commerce Operators as such. In other words, an E-commerce Operator, regardless whether it is a dominant undertaking or not, is entitled to implement tie-in sales provided that the methods of the sales are in compliance with the PRC E-Commerce Law. This also means that an E-commerce Operator, which does not observe the methods as stated in Article 19 with respect to tie-in sales, even if it does not have a dominant position, shall also be subject to administrative penalties as provided for in Article 77 of the PRC E-Commerce Law.

According to 77 of the PRC E-Commerce Law, in the event an E-commerce Operator violates, for example, Article 19 of the PRC E-Commerce Law, the competent AMR shall order it to make corrections within the required time limits and may additionally impose a fine of more than RMB 50,000 but less than RMB 200,000. Where the circumstance is serious, the E-commerce Operator shall be fined more than RMB 200,000 but less than RMB 500,000.

2. Refund of deposits

a) According to Article 17 (5) of the AML, without any justification a dominant undertaking is prohibited from abusing its dominance by implementing tie-in sales or imposing unfair trading conditions.

Thus, if a dominant undertaking charges deposits from its trading partners by imposing unfair trading conditions without any justification, this is prohibited according to the AML.

b) According to Article 21 of the PRC E-Commerce Law, where an E-commerce Operator charges consumers deposits as agreed, it shall explicitly indicate how and under what procedures consumers may have the deposits refunded. It shall not impose any unreasonable conditions on the refund of the deposits. Where the request made by a consumer to have his or her deposit refunded meets the conditions on the refund of such deposits, the E-commerce operator shall refund the deposit in a timely manner.

Thus, an E-commerce Operator, which imposes unfair conditions with regard to the refund of deposits, even if it does not have a dominant position, shall also be subject to administrative penalties as provided for in Article 78 of the PRC E-Commerce Law.

According to 78 of the PRC E-Commerce Law, in the event an E-commerce Operator violates Article 21 with regard to the refund of deposits, the competent authority shall order it to make corrections within the required time limits and may additionally impose a fine of more than RMB 50,000 but less than RMB 200,000. Where the circumstance is serious, the E-commerce Operator shall be fined more than RMB 200,000 but less than RMB 500,000.

3. Factors considered to assess a dominant position

a) According to Article 17 of the AML, the term “dominant market position” refers to a market position held by undertakings that can control the price or quantity of products or other transaction conditions in the relevant market or can block or affect the access of other undertakings to the relevant market.

According to Article 18 of the AML, factors indicating a dominant position include, but are not limited to the market share of an undertaking, conditions of competition on the relevant market, ability of an undertakings to control the sales market or the raw material purchasing market, financial and technical conditions of an undertaking, degree of dependence on the undertakings during transactions by other undertakings and barriers to expansion and entry, etc. In short, in order to assess whether a dominant position exists, the relevant market shall be defined as the first step.

According to Article 19 of the AML, there is a presumption of a dominant position where an undertaking has a market share of 50% or more on the relevant market.

According to Article 5 of the Interim Provisions on the Prohibition of Abuse of Dominant Market Position, "Dominant Market Position" refers to a market position where an operator can control the prices, volumes or other trading conditions of goods or services (hereinafter collectively referred to as "goods") in a relevant market, or can obstruct or affect other operators' capability to enter the relevant market.

b) According to Article 22 of the PRC E-Commerce Law, where an E-commerce operator gains a dominant market position as a result of its technological superiority, quantity of users, its controlling power over relevant industries, and degree of dependence of other operators on such E-commerce Operator with respect to transactions, it shall not abuse its dominant market position to eliminate or restrict competition.

According to the PRC E-Commerce Law, in addition to those elements of technical conditions of an undertaking and the degree of dependence of other business operators which have been provided for in the AML, other factors such as quantity of users and the controlling power over relevant industries of an E-commerce Operator are also considered. The factor “quantity of users”, which is specific for the industry of E-commerce business, will be very helpful in assessing whether an E-commerce Operator has a dominant position on the relevant market.

Therefore, the elements to be considered in order to determine whether an undertaking has a dominant position under the AML and the PRC E-Commerce Law are different.

Please also note that according to Article 85 of the PRC E-Commerce Law, if a dominant E-commerce Operator abuses its dominance, it will be subject to the penalties as specified in the AML. According to 47 of the AML, in case that an undertaking violates the relevant provisions of the AML by abusing its dominant market position, the PRC competition authorities shall order the undertaking concerned to cease and desist such acts, confiscate the illegal gains, and impose fines from 1% to 10% of the total sales volume of the preceding year.

Since the maximum penalties in violation of the PRC E-Commerce Law are normally less than RMB 2 million, a dominant E-commerce Operator, if it abuses its dominance, will be subject tostricter penalties (up to 10% of the total sales volume of the preceding year) according to the AML.

4. Imposing unreasonable restrictions or unreasonable trading conditions

a) According to Article 17 (5) of the AML, without any justification a dominant undertaking is prohibited from abusing its dominance by tying or bundling or imposing unfair trading conditions.

b) According to Article 35 of the PRC E-Commerce Law, an Operator of E-commerce Platform shall neither take advantage of service agreements, transaction rules, technologies or other means to impose unreasonable restrictions over or add unjustified conditions to the deals, transaction prices and the deals between an Operator on E-commerce Platform with other business operators which are conducted on the platform by an Operator on E-commerce Platform, nor shall the Operator of E-commerce Platform charge the Operator on E-commerce Platform any unreasonable fees.

According to Article 35 of the PRC E-Commerce Law, an Operator of E-commerce Platform (regardless whether it has a dominant position or not) is expressly prohibited from imposing unfair trading conditions on the Operator on E-commerce Platform. An Operator of E-commerce Platform which imposes unreasonable restrictions over or adds unjustified conditions to the concerned deals shall be subject to the penalties according to Article 82 of the PRC E-Commerce Law. In this regard, there is no need to define the relevant market, to assess the dominance or to determine the abuse of such dominance.

According to Article 82 of the PRC E-Commerce Law, if an Operator of E-commerce Platform violates Article 35 of the PRC E-Commerce Law, the competent AMR shall order it to make corrections within the required time limits and may additionally impose a fine of more than RMB 50,000 but less than RMB 500,000; Where the circumstances are serious, the Operator of E-commerce Platform shall be fined more than RMB 500,000 but less than RMB 2 million.

5. Conclusion

In summary, the PRC E-Commerce Law imposes stricter obligations on PRC E-commerce Operators compared to the AML since obligations and penalties are not necessarily linked to the existence of a dominant position. However, whether or not an E-commerce Operator has a dominant position still plays a role. If E-commerce Operators have been determined to have a dominant position and proved to have abused such dominance, they will then be subject to penalties according to the relevant articles of the AML, which impose higher fines than the PRC E-Commerce Law.