Abuse of dominance in China

Abuse of dominance

How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?

Article 17 of the AML provides that a conduct may constitute an abuse if it consists of:

• selling products at unfairly high prices or buying products at unfairly low prices;
• selling products at prices below cost without justification;
• refusing to enter into transactions with other parties without justification;
• limiting other parties to entering into transactions exclusively with them or undertakings designated by them, without justification;
• tying products without justification or imposing any other unreasonable terms in the course of transactions; and
• applying dissimilar prices or other transaction terms to equivalent trading parties that are in the same position without justification.

The SAIC Dominance Provisions and the NDRC Anti-Price Monopoly Provisions provide more details on each type of specific abusive conduct prohibited by law.

The Price Law prohibits price collusion, predatory pricing, discriminatory pricing and obtaining exorbitant profits, regardless of the existence of dominance.

In the intellectual property section, business operators with market dominance shall not, without a proper reason:

• refuse to license its intellectual property rights to other business operators under reasonable conditions if this intellectual property constitutes requisite facilities for manufacturing and business activities;
• restrict the transaction counterparties from entering into transactions only with them; or restrict the transaction counterparties from entering into transactions only with their designated business operators;
• implement bundling sales;
• impose unreasonable terms in the course of the transaction, such as exclusive grant-back; questioning the validity of intellectual property rights; making use of competing commodities or techniques upon the expiry of the licensing period without infringing upon the intellectual property rights; exercising intellectual property rights for which the protection period has expired or was declared void; and
• discriminate against transaction counterparties under the same conditions.

Does the concept of abuse cover both exploitative and exclusionary practices?

The AML, the SAIC Dominance Provisions and the NDRC Anti-Price Monopoly Provisions cover both exploitative and exclusionary practices.

What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?

These issues have not yet been dealt with in the law or in the decisional practice of the enforcement authorities. However, in order to testify the abusive behaviour, the precondition of dominate position shall be satisfied at first.

What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?

The AML provides that certain practices are prohibited where they are ‘without any justification’. While the AML itself is silent as to the interpretation of what may be considered to constitute adequate ‘justification’, some guidance is provided in relation to specific types of abuse in the AML-related regulations.

Article 12 of the NDRC Anti-Price Monopoly Regulations prohibits undertakings with dominance from selling goods below cost price without proper justifications, which includes the following:

• selling at a reduced price fresh perishable goods, seasonal goods, goods with an imminent expiry date or overstocked goods;
• selling goods at a reduced price to repay debt, to change production lines or to wind-up a business; and
• promoting the new product marketing.

The Price Law prohibits the sales of goods at a below-cost price in order to exclude competitors or to dominate the market except for the legitimate reduction of prices for goods such as seasonal products, or overstocked goods.

Article 16 of the NDRC Anti-Price Monopoly Provisions and article 7 of the SAIC Dominance Provisions provide ‘proper justification’ for price discrimination. To clarify what could be considered as ‘proper justification’, article 8 of the SAIC Dominance Provisions provides that two elements should be comprehensively considered: whether the business operator’s conduct is based on its normal operating activities and for its normal benefits; and whether the conduct has an impact on economic efficiency, public interests and economic development.