Effects Analysis in Abuse of Dominance Cases in China – Is Qihoo 360 V Tencent a Game-Changer?*

Effects Analysis in Abuse of Dominance Cases in China – Is Qihoo 360 v Tencent a Game-Changer?*

Adrian Emch

Introduction In June 2014, the General Court of the European Union (EU) issued its judgment in the Intel case. The judgment created quite some controversy in antitrust circles. One of the reasons was that the General Court concluded, essentially, that a showing of actual anti-competitive effects was not required for Intel’s conduct to be illegal.1 This position contrasts with US antitrust law, where an analysis of competitive effects is generally required for monopolisation cases – ie, the equivalent to abuse of dominance cases in the EU.2 With these divergent EU and US approaches, this article examines where Chinese antitrust law positions itself on this key issue. In particular, the article focuses on two questions: (1) are Chinese antitrust authorities and courts required to examine effects before finding an illegal abuse of dominance; and (2) what kind of effects are examined?

* A version of this article will appear in Philip Lowe, Mel Marquis and Giorgio Monti (eds), What is a Uniform Application of EU Competition Law? Hart Publishing (forthcoming). The author would like to thank Thomas Cheng and Liyang Hou for their invaluable comments on earlier drafts of this article, and Qing Lyu for her support in putting it together. 1 Case T-286/09, Intel v European Commission, 12 June 2014, [2014] ECR II-0000, paras 103–104, for example. 2 See, for example, United States v Microsoft Corp, 253 F.3d 34, 58 (DC Cir 2001) (en banc) (per curiam).

Electronic copy available at: http://ssrn.com/abstract=2775484 12 Competition Law International Vol 12 No 1 April 2016

China’s Anti-Monopoly Law3 (AML) itself does not give clear answers to these questions,4 and hence it is necessary to look to the decisions by Chinese antitrust authorities and courts for possible guidance. One of the most important decisions in AML history, the Qihoo 360 v Tencent judgment by the Supreme People’s Court (SPC) in October 2014, may bring about a fundamental change to how the effects analysis is employed in China.

Effects analysis required?

Pre-Qihoo 360 v Tencent Most authority and court decisions before Qihoo 360 v Tencent did not directly address the question whether proof of anti-competitive effects is a pre-condition for finding an abuse of dominance. In many decisions, there is no discussion of this issue at all, which suggests the authority or court in question did not consider a showing of negative effects to be required. In other decisions, in particular by local offices of the State Administration for Industry and Commerce (SAIC), there were sub-headings in the published decisions relating to the conduct’s effects – without, however, stating that an effects analysis is required.5 The only decision I have found, which explicitly states that an effects analysis is required, is the judgment by the Shanghai Intermediate People’s Court in Tong Hua v China Mobile from September 2014. In that case, a consumer accused China Mobile in Shanghai of improperly suspending service and changing the duration of the time during which he could retain his phone number, thereby allegedly committing an abuse of dominance. The defendant argued that its conduct (including the period for retention of the phone number) simply implemented a specific contract with the plaintiff. The Shanghai Intermediate People’s Court ultimately dismissed the plaintiff’s action, finding no competitive effect.6

3 Anti-Monopoly Law of the People’s Republic of China, [2007] Presidential Order No 68, 30 August 2007. 4 The academic literature in China has not particularly focused on this issue either. Some scholars advocate that a showing of effects should be a prerequisite for a successful abuse of dominance case, but scholarship is certainly not unanimous about this question, nor is the idea discussed in much detail in the literature. See, for example, Shang Ming, Anti-Monopoly Law of the People’s Republic of China: Interpretation and Application (1st edn, 2007) 20; or Jing Fuhai, Research on Complicated Issues in Anti-Monopoly Law (1st edn, 2009) 100. 5 Inner Mongolia Cigarettes, [2014] SAIC Public Announcement No 16, 30 July 2014, see: www.saic.gov.cn/ zwgk/gggs/jzzf/201407/t20140730_147167.html, s 4; Huizhou Water, [2014] SAIC Public Announcement No 13, 6 November 2014, see: www.saic.gov.cn/zwgk/gggs/jzzf/201401/t20140106_140960.html, s 5; Chongqing Gas, [2014] SAIC Public Announcement No 19, 21 November 2014, see: www.saic.gov.cn/zwgk/gggs/ jzzf/201411/t20141128_150176.html, s 6; Xuzhou Cigarettes, [2014] SAIC Public Announcement No 18, 31 October 2014, see www.saic.gov.cn/zwgk/gggs/jzzf/201411/t20141104_149672.html s 4; Dongfang Water, [2015] SAIC Public Announcement No 2, 12 February 2015, see: www.saic.gov.cn/zwgk/gggs/jzzf/201502/ t20150212_152067.html, s 5; and Liaoning Cigarettes, [2015] SAIC Public Announcement No 7, 1 June 2015, see: www.saic.gov.cn/fldyfbzdjz/dxal/201509/t20150925_161988.html. 6 Shanghai Intermediate People’s Court, Tong Hua v China Mobile, 2 September 2014, [2014] Hu Er Zhong Min Wu [Zhi] Chu Zi No 59.

Electronic copy available at: http://ssrn.com/abstract=2775484 Effects Analysis in Abuse of Dominance Cases in China 13

Legally speaking, the judgment is important, since it attempts to interpret Article 6, which is located in the ‘general provisions’ section of the AML. In relatively high- level language, Article 6 states that a company shall not abuse its dominant market position to eliminate or restrict competition.7 In interpreting this provision, the Shanghai Intermediate People’s Court found that Article 6 provides that: ‘only the monopolistic conduct implemented by a business operator having a dominant market position, which had the consequence of eliminating or restricting competition, belongs to the monopolistic conduct [by way of] abuse of a dominant market position prohibited by the Anti-Monopoly Law.’8 To the best of my knowledge, the only other case where a Chinese authority or court analysed a similar (but not identical) issue in detail is Rainbow v Johnson & Johnson. In that case, the question of whether proof of anti-competitive effects is a prerequisite for a successful AML case was also explicitly raised and discussed, albeit in the context of vertical agreements, not abuse of dominance.9 Nonetheless, since the underlying law for abuse of dominance and vertical agreements is similar, I believe the reasoning in the Rainbow v Johnson & Johnson judgment could also be important for abuse of dominance cases. In the Rainbow v Johnson & Johnson case, the defendant was Johnson & Johnson, a life sciences company with a large product portfolio, including the manufacturing and sale of medical sutures. The plaintiff distributed Johnson & Johnson suture products to a number of designated Beijing hospitals. In 2008, after a 15-year relationship, Johnson & Johnson terminated the distribution agreement with Rainbow because the latter had resold Johnson & Johnson suture products below suggested resale prices. The plaintiff sued Johnson & Johnson for damages, claiming Johnson & Johnson had engaged in resale price maintenance in violation of Article 14 of the AML. At first instance, the Shanghai Intermediate People’s Court sided with Johnson & Johnson, but on appeal the Shanghai High People’s Court reversed.10 As is the case for abuse of dominance, the AML does not explicitly require a showing of anti-competitive effects for resale price maintenance (or other horizontal or vertical ‘monopoly agreements’).11 Like Article 6, Article 13(2) stipulates that ‘a

7 AML, Art 6 (emphasis added), see n3 above. 8 Shanghai Intermediate People’s Court, Tong Hua v China Mobile, n6 above, 4 (emphasis added). 9 The interpretation focused on Art 13(2), not Art 6, of the AML. 10 At first instance, see Shanghai Intermediate People’s Court,Rainbow v Johnson & Johnson, 18 May 2012, [2010] Hu Yi Zhong Min Wu (Zhi) Chu Zi No 169; on appeal, see Shanghai High People’s Court, Rainbow v Johnson & Johnson, 1 August 2013, [2012] Hu Gao Min San (Zhi) Zhong Zi No 63. 11 Article 3 of the AML, which lists the three types of ‘monopolistic conduct’, does not mention effects for monopoly agreements and abuse of dominance, but does so for mergers: ‘a concentration between business operators which has or is likely to have the effect of eliminating or restricting competition’ (emphasis added), see n3 above. 14 Competition Law International Vol 12 No 1 April 2016

monopoly agreement is an agreement, decision or other concerted practice which eliminates or restricts competition’.12 In Rainbow v Johnson & Johnson, the court also looked at the SPC’s judicial interpretation on private antitrust litigation, which contains a clause shifting the burden onto the defendant to prove that a horizontal cartel-like agreement does not have anti-competitive effects.13 But the judicial interpretation remains silent on the burden of proof for vertical agreements like that in Rainbow v Johnson & Johnson. Against this background, the Shanghai High People’s Court concluded that a showing of anti-competitive effects was necessary to find the illegality of the resale price maintenance arrangement. In so concluding, it relied on the common understanding (in antitrust circles) that horizontal agreements are generally more likely to have negative effects on competition than vertical agreements.14 As noted, the question for this article then is whether the same reasoning could apply to abuse of dominance cases. Like for vertical agreements, the judicial interpretation did not establish who has the burden to prove the presence or absence of anti-competitive effects for abuse of dominance cases.15 Generally speaking – perhaps with notable exceptions such as the EU General Court’s Intel judgment mentioned above – scholars and practitioners recognise that cartel-like conduct can more safely be assumed to have anti-competitive effects than abuse of dominance conduct. Although companies in abuse of dominance cases may have stronger market positions than those in vertical agreements cases, there seems to be a recognition that often the conduct at issue in abuse of dominance investigations can have pro- and anti-competitive effects, depending on the circumstances. This would support applying the rationale of the Shanghai High People’s Court in Rainbow v Johnson & Johnson to abuse of dominance cases.

Qihoo 360 v Tencent Against this backdrop, what does the Qihoo 360 v Tencent judgment say about a showing of effects being required for abuse of dominance cases?

SPC’s ruling Qihoo 360 (the plaintiff) was the market leader for security software in China. The instant messaging (IM) flagship product ‘QQ’ of Tencent (the defendant) was one of the go-to products for China’s internet users.

12 AML, Art 13(2) (emphasis added), see n3 above. 13 Provisions by the Supreme People’s Court on Several Issues concerning the Application of the Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct, [2012] Judicial Interpretation No 5, 3 May 2012, art 7. 14 Shanghai High People’s Court, Rainbow v Johnson & Johnson, see n10 above, 32. 15 Article 8 of the judicial interpretation regulates the burden of proof for dominance and abuse (upon the plaintiff) and justification (upon the defendant). See Judicial Interpretation, n13 above. Effects Analysis in Abuse of Dominance Cases in China 15

The dispute arose through a series of tit-for-tat measures between the two companies, starting in 2010, when Tencent launched its own security software (‘QQ Software Manager’ and ‘QQ Doctor’16) and encouraged QQ IM software users to download it. Qihoo 360 alleged that QQ IM software scanned private user data, and hence triggered its security software to block QQ IM software’s plug-ins, arguably to protect users’ privacy. In response, Tencent sent a statement to users saying that the QQ IM software would stop running on computers that installed Qihoo 360’s security software. The result was dubbed a ‘from-two-choose-one’ practice in China, since users were only able to install either QQ IM software or the Qihoo 360 security software, but not both. The ‘from-two-choose-one’ policy lasted for only one day. But in June 2011, Tencent (ultimately successfully) sued Qihoo 360 for unfair competition.17 In November 2011, Qihoo 360 countersued Tencent under the AML before the Guangdong High People’s Court, claiming that Tencent had abused its dominant position in the IM market by requiring QQ IM software users to uninstall Qihoo 360’s security software (exclusive dealing18) and by linking the QQ security software with its QQ IM software (tying). The Guangdong High People’s Court dismissed the action by Qihoo 360, which then appealed the judgment to the SPC.19 The SPC upheld the first-instance judgment, clearing Tencent of all charges. In its verdict, the SPC started its analysis of Tencent’s allegedly abusive behavior with some guiding principles: ‘[E]ven if the appellee had a dominant market position, when determining whether its [conduct] constituted an abuse of a dominant market position, a comprehensive assessment of the conduct’s negative and potentially positive effects on consumers and market competition is still needed to further determine the illegality of such conduct. To this end, this court considers it necessary to analyze and determine the impact of the alleged monopolistic conduct on competition and its legality.’20 After its general remarks on abusive conduct, the SPC looked at both of the plaintiff’s allegations: exclusive dealing and tying. When analysing the exclusive

16 ‘QQ Software Manager’ and ‘QQ Doctor’ were later merged into an integrated, updated software called ‘QQ PC Manager’ (subsequently, ‘QQ PC Manager’ was renamed ‘Tencent PC Manager’). This article will use ‘QQ security software’ when referring to Tencent’s various security software products. Also, this article will refer to Tencent’s IM product ‘QQ’ as ‘QQ IM software’. 17 Guangdong High People’s Court, Tencent v Qihoo 360, 3 April 2013, [2011] Yue Gao Fa Min San Chu Zi No 1; upheld on appeal, see Supreme People’s Court, Tencent v Qihoo 360, 18 February 2014, [2013] Min San Zhong Zi No 5. 18 Article 17(1)(4) of the AML speaks of ‘forcing’ trading partners to exclusively deal with the dominant company or another entity designated by it, and in China is sometimes referred to as ‘restrictive’ dealing. 19 Guangdong High People’s Court, Qihoo 360 v Tencent, 20 March 2013, [2011], Yue Gao Fa Min San Chu Zi No 2. 20 Supreme People’s Court, Qihoo 360 v Tencent, 16 October 2014, [2013], Min San Zhong Zi No 4 (‘Qihoo 360 v Tencent, SPC’), p106. 16 Competition Law International Vol 12 No 1 April 2016

dealing allegation, the SPC did not provide additional language explicitly ruling on the question of whether anti-competitive effects need to be proven, but its conclusion showed quite clearly that it thought this was the case.21 In contrast, in analysing the tying allegation, the SPC set out five criteria to examine the legality of tying conduct. Importantly for this article, as the fifth criterion, the court mentioned ‘the negative effect on competition that the tying has’.22 The way the court listed the five factors seems to indicate that they apply to any tying analysis, and hence an analysis of negative effects on competition would be required. Further, the Qihoo 360 v Tencent judgment is also interesting because it discusses the burden of proof in relation to the effects analysis: ‘[The question of] whether the alleged monopolistic conduct can be justified is not exactly identical with [the question of] whether it has the effect of eliminating or restricting competition. The two issues are connected but there are also differences. Bearing the burden of proof for justifications does not equal to bearing the burden to prove that the conduct does not have the effect of eliminating or restricting competition. What needs to be noted is that the existence of the effect of eliminating or restricting competition caused by the alleged monopolistic conduct can help prove that the appellee held a dominant market position. As the existing evidence cannot prove that the appellee held a dominant market position, [the finding of] the first-instance court to require the appellant to provide evidence to prove that the alleged tying conduct created the effect of eliminating or restricting competition was not manifestly improper.’23 This paragraph does not directly address the issue of the burden to prove effects. The SPC simply held that, at least in the specific situation of the Qihoo 360 v Tencent case where the plaintiff was not able to prove the defendant’s dominance, the burden to prove anti-competitive effects rested on the plaintiff.

Implications of SPC’s ruling The SPC’s Qihoo 360 v Tencent judgment appears to have brought about a relatively clear answer to the question of whether a showing of anti-competitive effects is required for a plaintiff to bring an abuse of dominance case. The court’s reasoning that the plaintiff bears the burden was (in part) based on the circumstance that the defendant’s dominance was not established. However,

21 In particular, the SPC stated that Tencent’s conduct ‘did not have the obvious consequence of eliminating or restricting competition. On the one hand, this means that the appellant conduct’s implementing ‘product incompatibility’ does not constitute conduct abusing a dominant market position prohibited by the Anti-Monopoly Law….’ Ibid, 108-109. 22 Ibid, 109. 23 Ibid, 110. Effects Analysis in Abuse of Dominance Cases in China 17

the court’s words at the beginning of its abuse analysis seemed quite clear and unconditional: ‘this court considers it necessary to analyze and determine the impact of the alleged monopolistic conduct on competition and its legality’.24

Post-Qihoo 360 v Tencent After Qihoo 360 v Tencent, two other judgments suggest that an effects analysis is required for abuse of dominance cases. The judgments – in the Guangdong Football case and in Yang Zhiyong v China Telecom (both adopted on 14 December 2015) – are less detailed than the findings inQihoo 360 v Tencent, but are still relevant. The first post-Qihoo 360 v Tencent judgment confirming that an effects analysis is required is the Guangdong Football judgment. This case involved five-a-side football games. In 2009, the Guangdong Football Association granted exclusivity to Zhuchao for organizing five-a-side football games, making rules and decisions on games and teams, and enjoying business development rights for games in Guangdong Province. Yuechao, a company organising sports contests and hence a competitor of Zhuchao, sued both Zhuchao and the Guangdong Football Association, alleging a variety of AML offences. At first instance, the Guangzhou Intermediate People’s Court dismissed the lawsuit.25 Yuechao then appealed to the Guangdong High People’s Court, which upheld the first-instance judgment.26 As a last resort, Yuechao requested, and was granted, a retrial before the SPC. On the substance, Yuechao’s actions were dismissed at all levels. The alleged violation which was discussed in most detail by the SPC was that the Guangdong Football Association had engaged in illegal ‘administrative monopoly’ conduct. However, the SPC also discussed the abuse of dominance allegation. Without directly referring to its earlier Qihoo 360 v Tencent decision, the SPC started its abuse analysis with a general statement: ‘Market business operators have the right to independently choose their transaction parties. For a business operator having a dominant market position, it is only where it refuses to deal with parts of the business operators under equal conditions, and in the situation where [the conduct] has the effect of eliminating or restricting competition, that [the conduct] constitutes an infringement of Article 17(1)(3) of the Anti-Monopoly Law [the refusal to deal provision].’27

24 See n20 above. 25 Guangzhou Intermediate People’s Court, Guangdong Yuechao Sports Development v. Guangdong Football Association and Guangdong Zhuchao Competition Sports Operation Management, [2012] Yue Zhong Fa Min San Chu Zi No 400. 26 Guangdong High People’s Court, Guangdong Yuechao Sports Development v Guangdong Football Association and Guangdong Zhuchao Competition Sports Operation Management, [2014] Yue Gao Fa Min San Zhong Zi No 242. 27 Supreme People’s Court, Guangdong Yuechao Sports Development v Guangdong Football Association and Guangdong Zhuchao Competition Sports Operation Management, 14 December 2015, [2015] Min Shen Zi No 2313, 21 (emphasis added). 18 Competition Law International Vol 12 No 1 April 2016

After analysing the conduct at hand in more detail, the SPC held that there was neither enough proof that the conduct constituted a refusal to deal nor that it had a (negative) impact on competition in the market. As a result, despite finding the defendant to be in a dominant position, the court concluded that the plaintiff had not provided evidence showing that the (potentially) abusive conduct had anti- competitive effects, and dismissed the abuse of dominance claim.28 The second post-Qihoo 360 v Tencent judgment, which required a showing of effects for abuse of dominance, was Yang Zhiyong v China Telecom. In that case, Yang, a man with disabilities, sued China Telecom and its Shanghai branch, arguing that a number of their actions violated the AML. In particular, Yang took issue with the telecom operator’s perceived high prices for broadband access and other services. At first instance, the Shanghai Intermediate People’s Court dismissed Yang’s arguments.29 On appeal, the Shanghai High People’s Court agreed and upheld the first-instance judgment.30 The beginning of the substantive analysis by the Shanghai High People’s Court was particularly interesting. Laying out the steps required for private AML litigation, the court found that a plaintiff must provide evidence to prove (1) dominance in the relevant market; (2) conduct prohibited by the AML without valid reasons; and (3) that [the conduct] ‘caused the effect of severely harming competition in the market’. In the case at hand, since the plaintiff had put forward quite a number of allegedly abusive types of conduct, the Shanghai High People’s Court basically focused on the last of the conditions to be proven: ‘In view of this, causing the effect of severely harming competition in the market is a necessary pre-condition for anti-monopoly intervention against market conduct.’31 Overall then, looking at the Qihoo 360 v Tencent judgment and the decisions before and after, I believe the judgment stated clearly that a showing of anti-competitive effects is required for a successful abuse of dominance case. The relatively few decisions after the judgment suggest this message has come through. Of course, Qihoo 360 v Tencent is a judgment involving litigation between private parties, but there appears to be nothing explicit in the judgment that would preclude its logic from applying to decisions adopted by the antitrust enforcement authorities. The fact that the judgment’s key findings on the necessity of the effects analysis were made at the beginning of the abusive conduct section suggests they are essential to the analytical framework.

28 Ibid, 22. 29 Shanghai Intermediate People’s Court, Yang Zhiyong v China Telecom, 25 March 2015, [2013] Hu Yi Zhong Min Wu (Zhi) Chu Zi No 208. 30 Shanghai High People’s Court, Yang Zhiyong v China Telecom, 14 December 2015 [2015] Hu Gao Min San (Zhi) Zhong Zi No 23. 31 Ibid, 13. Effects Analysis in Abuse of Dominance Cases in China 19

What kind of effects? This section examines what kind of effects the Chinese antitrust enforcement authorities and courts have examined in specific cases.

Pre-Qihoo 360 v Tencent In general, the Chinese authority decisions and court judgments under the AML are not particularly consistent as to the types of anti-competitive effects examined. In many cases, especially those brought by the antitrust authorities, the public decisions make reference to a relatively abstract impact on the market or society at large.32 Despite the number of cases just containing such abstract references, it is more useful to focus on those cases where the authorities and courts made a more in-depth analysis of the impact of the contested conduct. Among those cases, the types of effects examined generally fall into two categories, depending on the group that suffers the impact: competitors and customers. The pre-Qihoo 360 v Tencent decisions, which focused on the impact on competitors, are very rare. One such case is Tong Hua v China Mobile. In that case, the Shanghai Intermediate People’s Court held that the restrictions on the period of time, during which the plaintiff (a user) was allowed portability of his phone number, were in line with the requirements of the Contract Law. The court found that the conduct ‘did not have any harmful consequence of eliminating or restricting competition,’ and did not have any such harmful consequence on ‘competitors in the same industry’.33 Although there may have been ‘harm’ to the individual user in question, there was no anti-competitive impact on competitors. In contrast, there are numerous cases where the authorities and courts examined the conduct’s impact on customers including – in many cases – end consumers. The impact can be manifold. For example, in the Dongfang Water and Chongqing Gas cases, SAIC’s local offices looked at the increased financial burden on consumers.34 One particular impact that is omnipresent in Chinese authority and court decisions involves restrictions on customers’ right of choice. Restrictions to the right of choice are discussed mainly – but not only – in tying cases. There are numerous cases where the anti-competitive effect of tying conduct was found to be that the buyers of the product bundle were not able to buy the

32 By way of example, in the Xuzhou Cigarettes case, the decision by SAIC’s local branch stated that the defendant’s conduct had ‘disturbed the fair market competition order’ and ‘destroyed the market order for fair competition in the tobacco retail market’ without much further quantitative or qualitative assessment of these statements. Xuzhou Cigarettes, see n5 above. 33 Shanghai Intermediate People’s Court, Tong Hua v. China Mobile, see n6 above, 4. 34 See n5 above, Dongfang Water, or Chongqing Gas. 20 Competition Law International Vol 12 No 1 April 2016

tying product without the tied product.35 The Shaanxi Digital TV case represents a relatively recent, particularly interesting, illustration of this concern. In that case, the plaintiff (a man called Wu Xiaoqin) sued Shaanxi Broadcast & TV Network Intermediary, a TV broadcaster in Shaanxi Province. Wu had paid the broadcaster CNY 90 for digital TV services. However, the plaintiff noticed after entering into the contract and making the payment that the total CNY 90 payment contained CNY 75 for basic services and CNY 15 for a premium digital TV programme. The plaintiff argued that the defendant had abused a dominant position by tying basic digital TV services with the premium TV programme, and that his right of choice – in respect of whether to buy the premium TV programme – was eliminated. At first instance, the Xi’an Intermediate People’s Court held that Shaanxi Broadcast & TV Network Intermediary had failed to inform the plaintiff of his right to choose the relevant TV programmes, and that this amounted to ‘forcing’ and therefore illegal tying.36 On appeal, the Shaanxi High People’s Court held that: ‘The illegality of tying is that consumers cannot obtain the tying product if they do not buy the tied product at the same time; coupled with the company’s dominant position, it would mean that consumers have no choice but to accept the package sales provided by the company, which would go against the consumers’ intent; and competition is eliminated by depriving the buyers of the right of choice, which is anti-competitive.’37 However, looking at the facts of the specific case, the Shaanxi High People’s Court reversed the first-instance finding that the plaintiff’s right of choice was restricted.38 Beyond tying, the issue of the right-of-choice restriction can also appear in exclusive dealing cases – where the issue can be that the customer is not able to buy only part of his or her demand from the dominant company39 – or refusal to deal cases – where the issue can be that the customer wants to purchase from the dominant company, but is not able to do so.40

35 See, for example, Shankai, [2014] SAIC Public Announcement No 14, 11 June 2014, see www. saic.gov.cn/zwgk/gggs/jzzf/201406/t20140611_145915.html; Inner Mongolia Cigarettes; Guiyang Intermediate People’s Court, Jiang Yugui v Zunyi Railway Through Transport Company & Chengdu Railway Bureau, 20 December 2014, [2014] Zhu Min San (Zhi) Chu Zi No 193; Guiyang Intermediate People’s Court, Zhao Xing v Zunyi Railway Through Transport Company & Chengdu Railway Bureau, 15 December 2014, [2014] Zhu Min San (Zhi) Chu Zi No 171. 36 Xi’an Intermediate People’s Court, Wu Xiaoqin v Shaanxi Broadcast & TV Network Intermediary, [2012] Xi Min Chu Zi No 00438. 37 Shaanxi High People’s Court, Wu Xiaoqin v Shaanxi Broadcast & TV Network Intermediary, 12 September 2013, [2013] Shan Min San Zhong Zi No 00038. 38 The Shaanxi High People’s Court found that customers were able, and did, purchase the bundled products separately, but in the plaintiff’s case the fact that this was possible may not have been communicated to the plaintiff. The court found this to be a consumer protection or contract law issue, not an AML issue. Ibid. 39 See, for example, Jiang Yugui v Zunyi Railway Through Transport Company & Chengdu Railway Bureau; and Zhao Xing v Zunyi Railway Through Transport Company & Chengdu Railway Bureau, see n34 above. 40 See, to an extent, Guangdong High People’s Court, Gu Fang v China Southern Airlines, 5 May 2015, [2014] Yue Gao Fa Min San Zhong Zi No 1141. Effects Analysis in Abuse of Dominance Cases in China 21

In short, the authorities and courts’ focus in many past tying and other abuse of dominance cases is primarily on the conduct’s impact on the customer as the direct counterparty. The ultimate underlying issue is whether the conduct was ‘fair’ between the respective counterparties. There may be several reasons for this customer-side focus of the effects analysis (apart from the ‘fairness’ issue, which to an extent is present in Chinese law, policy and propaganda more broadly). First, the AML’s goals include ‘safeguarding consumer interests’.41 Generally speaking, this is in line with international antitrust laws and practices. However, while in many antitrust jurisdictions consumer welfare is viewed as the ultimate goal of antitrust law, this does not mean that global antitrust authorities directly and immediately focus on a conduct’s impact on consumers. In general in abuse of dominance cases, authorities would often focus first on the effects on competitors to verify if there is an ‘exclusionary effect’, and only as a second step examine if the exclusion of one or more particular competitors leads to harm to consumers either by way of higher prices or other changes to the market structure. In China, if the AML’s goal of ‘safeguarding consumer interests’ is not put into the relevant context (especially if the concept of ‘consumers’ is interpreted to refer to ‘customers’ more generally), then this would favour a buyer perspective for the effects analysis.42 Secondly, many of the past cases pitched individual consumers against dominant businesses, including many court cases filed by consumers. In those cases, there are necessarily elements requiring a consumer-focused approach, in particular as the court needs to verify whether the consumer has standing and suffered damages as a result of the purportedly anti-competitive conduct. However, as will be explained below, standing and damages should not be confused with the question of whether the allegedly abusive conduct has anti-competitive effects. Thirdly, the Anti-Unfair Competition Law (AUCL) – enacted in 1993 – contains a few antitrust-related provisions, including Article 12: ‘Business operators selling products shall not tie products or attach other unreasonable conditions against the will of the customer.’43 The impact of this language was, on the one hand, that the ‘will’ of the customer became a constitutive criterion for tying44 and, on the other hand, that tying is viewed as a single offence together with the imposition

41 AML, Art 1, see n3 above. 42 See, for example, Zhang Yongzhong, The criteria of consumer welfare in antitrust law: the confirmation of theories and application of laws, 3 Politics and Law Forum, 106-109 (2013); Liu Jifeng, The construction and application of Rechtsgut analysis of antitrust law, 6 China Legal Science, 20-33 (2013). 43 Anti-Unfair Competition Law of the People’s Republic of China, [1993] Presidential Order No 10, 2 September 1993, Art 12 (emphasis added). 44 Of course, in many cases tying in the sense of ‘pure bundling’ – that is, when the tied product is available only as a bundle with the tying product – would basically by definition be imposed by ‘will’ of the supplier, not the customer. If the ‘against the will’ – criterion were to replace a proper effects analysis, then tying would be close to becoming a per se offence in China. 22 Competition Law International Vol 12 No 1 April 2016

of unreasonable conditions (or at least similar). Clearly, the direct focus of the unreasonable conditions prohibition is the direct counterparty, the customer. The AUCL’s language on tying was basically incorporated into the AML and SAIC’s implementing regulation,45 and hence has shaped the antitrust assessment of tying under the AML. By way of example, the Shaanxi High People’s Court held in Shaanxi Digital TV that ‘tying conduct is illegal because it obstructs the market competition order, [and] one of the legislative aims for regulating tying conduct is precisely to protect buyers’ right of choice.’46 In short, authorities and courts look at whether customers’ right of choice is affected as a method to assess the possible impact on competition of abusive (in particular, tying) conduct, and other types of direct impact on customers (eg, increased financial burden). In contrast, only one decision I have found clearly focuses on harm on competitors (Tong Hua v China Mobile). But, as discussed in the next subsection, the Qihoo 360 v Tencent judgment may be changing this.

Qihoo 360 v Tencent What kind of effects did the court in Qihoo 360 v Tencent examine?

SPC’s ruling When analysing the Qihoo 360 v Tencent judgment through the lens of the different types of effects – that is, impact on competitors and impact on customers – we can find elements of both types throughout the judgment. At many places, the judgment speaks of the impact of Tencent’s conduct ‘on competition’, not on competitors directly. But usually an analysis of the conduct’s impact on Tencent’s key (though not all) competitors in the relevant markets follows such statements. Hence, for the sake of simplicity and argument, below, I will mostly refer to the impact ‘on competitors’. As noted, the plaintiff alleged two abuses: exclusive dealing and tying. The SPC looked at competitor- and customer-focused elements for both allegations. The SPC examined the question of whether Tencent’s alleged exclusive dealing conduct is abusive from three aspects: its impact on consumers’ interest; Tencent’s motives; and its impact on competition – in that order. First, as to the impact on consumers, the court stated: ‘The [product incompatibility] restriction may cause inconvenience when consumers use Tencent QQ [IM software] or 360 security software, but since

45 AML, Art 17(1)(5); and SAIC Regulation on the Prohibition of Conduct Abusing a Dominant Market Position, [2010] SAIC Order No 54, 31 December 2010, Art 6. 46 Shaanxi High People’s Court, Wu Xiaoqin v Shaanxi Broadcast, see n37 above. Effects Analysis in Abuse of Dominance Cases in China 23

there are sufficient alternative choices in the instant messaging market and Tencent QQ [IM] software is not an indispensable product, such inconvenience does not have a significant impact on consumers’ interests. Of course, this does not mean that the appellee’s conduct is irreproachable.’47 ‘To sum up, although the “product incompatibility” conduct implemented by the appellee caused inconvenience to users, it did not result in an obvious effect of eliminating or restricting competition.’48 Secondly, the SPC examined whether Tencent’s ‘motive’ was to exclude actual or potential competitors in the IM market. In that regard, the court took into account the prior tit-for-tat measures between Tencent and Qihoo 360 and the court’s own judgment in the unfair competition case (where it had found Qihoo 360’s conduct to constitute unfair competition).49 The court concluded that Tencent’s motive to break product interoperability would not be ‘obvious’. Thirdly, the SPC examined the effects of Tencent’s conduct on competitors in a section headed ‘[o]n the actual effects of the conduct by the defendant to implement “product incompatibility” on competition’. As noted, that sub-heading ranked third in the three prongs of the court’s effects analysis, but the discussion it contained was by far the longest. Here, the SPC examined the effects on competitors in two markets: the IM market and the security software market. Its analysis was quite detailed for both. For the IM market, the court found that, during the month in which the ‘from-two-choose-one’ practice occurred (for only one day), the user numbers for competitors such as MSN, Feixin and Alibaba surged dramatically. For example, the number of MSN’s users increased by close to 62 per cent.50 At the same time, Tencent’s market share dropped by one per cent. For the security software market, the court started with a key statement: ‘True, the appellant’s market share was to a certain degree negatively impacted by the ‘product incompatibility’ conduct implemented by the appellee. However, the focus of the AML is not an individual company’s interest, but whether the healthy market competition mechanism has been distorted or destroyed.’51 It then examined in detail the market position movements. First, the court found that Qihoo 360’s user numbers dropped around ten per cent, and its market share fell from 74.6 per cent to 71.3 per cent, during the incompatibility period. During the same period, Tencent’s share in the security software market rose by 0.57%, to 4.46%. Based on this data, the SPC concluded that the impact in

47 See n20 above, 107. 48 Ibid, 108. 49 Supreme People’s Court, Tencent v Qihoo 360, 18 February 2014, [2013] Min San Zhong Zi No 5. 50 See n20 above, 105. 51 Ibid, 108. 24 Competition Law International Vol 12 No 1 April 2016

the security software market was ‘extremely weak’, and that the conduct did not noticeably eliminate or restrict competition. In considering the plaintiff’s tying claim, both the SPC and the first-instance court recognised the restriction of the customer’s right of choice as a factor in the legal analysis of tying. The first-instance court had explicitly spoken of the absence of the right of choice,52 while the SPC on appeal held forcing to be a criterion (with the result that the buyer had no choice but to accept the tied product).53 In both instances, the courts found that users’ right of choice had actually been safeguarded in practice because users could uninstall the QQ security software – that is, ‘unbundle’ the tied product – and because Tencent asked users to consent to an upgrade containing bundled software. Furthermore, the SPC also briefly looked at the effects of the ‘from-two-choose- one’ practice on the market shares of Qihoo 360 and Tencent in the tying analysis. The court reasoned that, following the logic of the plaintiff, the practice should lead to leveraging of Tencent’s strong position in the IM market (tying market) into the security software market (tied market). In reality, however, Qihoo 360 was able to maintain its high market share above 70 per cent in the security software market, while Tencent’s share was below five per cent and only increased by 0.57 per cent as a result of the practice. From this, the SPC concluded that there was not sufficient evidence to prove that Qihoo 360’s market shares significantly decreased or that the practice ‘created the effect of eliminating or restricting competition for other business operators in the security software market’.54

Implications of SPC’s ruling The SPC judgment contains a quite extensive discussion on effects. However, despite the relative length, it is not immediately clear what benchmarks should be used for assessing anti-competitive effects. In particular, as noted, at the beginning of its analysis on abusive conduct – before going into an in-depth analysis of the exclusive dealing and tying claims – the SPC held that ‘a comprehensive assessment of the conduct’s negative and potentially positive effects on consumers and market competition is still needed’.55 This could in principle be interpreted as a two-side focus, on consumers and competitors. Furthermore, the SPC’s analysis on effects was most elaborate on the exclusive dealing allegation, yet in that analysis the court used three benchmarks: impact on consumers; the defendant’s ‘motives’; and impact on competition. Hence, the

52 See n19 above, 52. 53 See n20 above, 109. 54 Ibid, 110. 55 Ibid, 106 (emphasis added). Effects Analysis in Abuse of Dominance Cases in China 25

SPC did not provide a single benchmark for the anti-competitive effects analysis. The same is true for the tying allegation, where the SPC examined both the impact on competitors (leveraging) and customers (right of choice). Despite the fact that the SPC looked at three benchmarks including consideration of the impact on both competitors and customers,56 I would argue – and this is my first takeaway point from the Qihoo 360 v Tencent judgment – that the judgment signals a relatively clear shift towards a competitor-focused analysis, for the following reasons. First, in both the exclusive dealing and tying claims, the largest part focused on the data showing a lack of significant impact on the market shares (and user numbers) of Qihoo 360, Tencent and other competitors. Secondly, in the exclusive dealing claim, when analysing the impact on consumers, the SPC focused on ‘inconvenience’ for users as a criterion. It concluded that, even if users needed to change their purchasing behavior as a result of the ‘inconvenience’ caused by Tencent’s conduct, the effects analysis should examine whether there is sufficient competition on the supply side. In that sense, the SPC’s customer-focused analysis actually referred to the analysis of the effect on competition – that is, competitors. Thirdly, in the tying claim, the SPC limited the traditional customer-focused analysis based on the restriction of right-of-choice argument. There, the SPC held that, although the joint installation of the QQ IM software and QQ security software was not communicated to users, these retained the possibility to easily uninstall the QQ security software. The court also found that the joint upgrade of two earlier versions of the QQ security software actually communicated to users that they had a right of choice. In a way, the SPC may be lowering the bar for the right-of-choice analysis: what the court appeared to say here is that abusive tying can be ruled out as long as customers are able to ‘unbundle’ the product bundle (in that particular case, by way of uninstalling the QQ security software).57 In short, the SPC may be changing the customer-focused into a competitor-focused approach ‘through the back door’. The second takeaway point from the Qihoo 360 v Tencent judgment is that it appears to change the analysis of the impact on competitors, in a number of ways. First, the most obvious guidance from the SPC judgment is that, where available,

56 The SPC’s reference to Tencent’s ‘motives’ is very interesting, as it appears to bring in a subjective element into the analysis. In the extreme, taking ‘motives’ as benchmark would completely decouple the effects analysis from the impact on competitors or customers, and just look inside the dominant company. This may be too simplistic an analysis of the SPC’s reference to ‘motives’, but in this article I will not focus on this element. 57 This would be in line with the judgment of the Shaanxi High People’s Court in Shaanxi Digital TV, finding that the failure to inform the customer of the right of choice (when it existed in reality) was a consumer protection or contract law, not an AML, issue. Shaanxi High People’s Court, Wu Xiaoqin v Shaanxi Broadcast, see n37 above. 26 Competition Law International Vol 12 No 1 April 2016

concrete data on market shares and other market data should be used to conduct the effects analysis. The SPC appears to propose a quantitative, data-based analysis, not merely a theoretical analysis. Secondly, the judgment seems to mandate an analysis of actual, rather than potential, effects. As noted, the contested conduct in Qihoo 360 v Tencent only lasted one day. During that day, Tencent’s share in the security software market increased by 0.57 per cent, while Qihoo 360’s decreased by 3.3 per cent. The SPC found these market share movements to be insufficient to find clear anti-competitive effects.58 However, the same data in the court’s file suggests that the conduct’s impact on market share may have been more pronounced if the conduct had lasted longer. Interestingly, the court explicitly accepted that, if the incompatibility behaviour had persisted for a longer period of time, ‘there is reason to believe’ that Tencent ’s share in the IM market might have dropped considerably. In reality, the court found, the conduct lasted only one day and users came back quickly.59 But, conversely, what would have happened to Qihoo 360’s share in the security software market if Tencent’s conduct had lasted a few weeks or months, rather than just one day (during which Qihoo 360’s market share dropped by 3.3 per cent)? The SPC’s approach here clearly indicates that actual effects on competition are what matter, not potential or hypothetical effects. This would be in line with the sub-heading in the Qihoo 360 v Tencent judgment, in which the SPC’s above-mentioned assessment was inserted, entitled ‘[o]n the actual effects of the conduct by the defendant to implement “product incompatibility” on competition’.60 If correct, this interpretation would put the SPC much closer to the US than the EU position. Thirdly, the Qihoo 360 v Tencent judgment did not simply mandate adopting a competitor-focused approach toward the effects analysis. The SPC also appeared to recognise that assessing the impact on competitors is only the first step in this analysis. The subsequent step would look at the situation where competitors have actually been excluded, and examine whether that situation would be harmful for end consumers. The proposition that antitrust law ‘protects competition, not competitors’ is the globally cited mantra expressing this principle. On this point, the SPC seemed to accept this principle when it stated that ‘the

58 As noted above, the SPC also looked at the conduct’s impact on shares of Tencent and competitors in the IM market. However, as noted in the analysis of the tying allegation, the most credible theory of harm from the perspective of a competitor-focused effects analysis would be that Tencent leverages its alleged market power from the IM market into the security software market. If so, the impact in the latter market would seem to be key for verifying if the theory holds. In contrast, the conduct’s impact on the IM market would seem to be part of the analysis of whether Tencent is dominant in the IM market – which the SPC found it is not. 59 See n20 above, 108. 60 Ibid, 107-108 (emphasis added). Effects Analysis in Abuse of Dominance Cases in China 27

focus of the AML is not an individual company’s interest, but whether the healthy market competition mechanism has been distorted or destroyed’.61 Still, while the SPC appears to follow the logic of this two-step approach, the adherence to the logic is not (too) explicit.

Post-Qihoo 360 v Tencent Although over a year has passed since the SPC issued its judgment in Qihoo 360 v Tencent, no authority or court decisions seem to explicitly refer to that judgment. However, several decisions may have been at least inspired by the SPC judgment. The first post-Qihoo 360 v Tencent decision, which appears to follow the SPC judgment, was Emiage v Qihoo 360 in December 2014. In that case, the allegations (and, to an extent, the facts) were relatively similar to Qihoo 360 v Tencent, and the Beijing Intermediate People’s Court made a ruling that is in line with the SPC judgment.62 Plaintiff Emiage, a software company whose products allow users to share electronic business cards and exchange text messages on mobile phones, sued Qihoo 360 for alleged exclusive dealing and tying in violation of the AML. Qihoo 360 had developed 360 Mobile Safe, a mobile phone security app to protect mobile phones from spam and ‘nuisance calls’. 360 Mobile Safe blocked Emiage’s text messaging and electronic business cards as spam. As a result, 360 Mobile Safe users were not able to receive text messages or electronic business cards provided with the plaintiff’s software. At first instance, the Beijing Intermediate People’s Court dismissed Emiage’s claims for a variety of reasons, including insufficient proof of dominance. The court did not consider that Qihoo 360’s blocking constituted an abuse of dominance. In its findings, the court stressed that the defendant’s blocking conduct was inappropriate, ‘but this kind of inappropriateness did not cause severe social negative impact, and did not reach the degree where regulation through law is needed’.63 The court further held that, because 360 Mobile Safe completely blocked Emiage’s text messaging and electronic business cards, users could not recognise Emiage’s messages on their mobile phones, hence users had difficulties to exercise their right of choice. But equally, the court found that Qihoo 360 undertook efforts

61 Ibid, 108. 62 The Beijing Intermediate People’s Court was issued around two and a half months after the SPC judgment in Qihoo 360 v Tencent. Although the Intermediate People’s Court did not explicitly refer to the SPC judgment, it almost literally copied the text of an entire paragraph, which indicates the Intermediate People’s Court’s judges were fully aware of that judgment. See, also, Adrian Emch & Jiaming Zhang, Chinese Competition Law—the Year 2015 in Review, Global Competition Litigation Review 30, 35 (2016). 63 Beijing Intermediate People’s Court, Emiage v Qihoo 360, 31 December 2014, [2014] Er Zhong Min (Zhi) Chu Zi No 08091, 31. The first-instance court’s decision was affirmed on appeal, see Beijing High People’s Court, Emiage v Qihoo 360, 30 April 2015, [2015] Gao Min (Zhi) Zhong Zi No 1035. 28 Competition Law International Vol 12 No 1 April 2016

to improve the technology support necessary for users to exercise their right of choice, by way of using smaller pop-up windows to alert users without blocking the whole display of the suspected spam, etc.64 As the above description shows, there are some similarities between this case and the Qihoo 360 v Tencent judgment. The main similarity is that the Beijing Intermediate People’s Court in Emiage v Qihoo 360 held that users had suffered some sort of negative consequences, but that those consequences were not sufficient for the abuse of dominance prohibition to apply. True, the Beijing Intermediate People’s Court used different terminology than the SPC – ‘inappropriateness’ versus ‘inconvenience’ – but the thinking seems rather similar. The Beijing Intermediate People’s Court in Emiage v Qihoo 360 appears to have adopted the first takeaway from Qihoo 360 v Tencent – that is, to shift towards a more competitor-focused analysis – as it held that negative consequences for users were not sufficient for Qihoo 360’s conduct to be abusive. This finding implies a more competitor-focused approach. In contrast, on the second takeaway point – that is, the specific guidance on how to implement a competitor-focused approach – the Emiage v Qihoo 360 court did not follow the SPC closely. The court did not appear to have much hard data in the file, and did not refer toactual effects on competitors and ultimate impact on consumer welfare. The second post-Qihoo 360 v Tencent decision is the Yang Zhiyong v China Telecom judgment. In that case, the Shanghai High People’s Court examined whether a series of actions by China Telecom had negative effects on competition. One of the plaintiff’s allegations was that China Telecom’s specific payment calculation method – basically, charging by minute, not second, of calling time – was abusive. The court replied: ‘The Anti-Monopoly Law focuses on the competition order. Through safeguarding free competition and promoting competition to improve market efficiency, [the AML] allows consumers to obtain more products or services at good quality and low price, not to directly judge the legality based on the method to calculate prices or the level of calculating prices. [We] cannot determine that market conduct harms market competition based on whether the setting of prices is cheap enough for consumers.’65 Again, the court’s findings in Yang Zhiyong v China Telecom seem to be reminiscent of the SPC’s Qihoo 360 v Tencent judgment, holding that ‘convenience’ for customers should not be the benchmark for assessing anti-competitive effects. A third post-Qihoo 360 v Tencent decision was taken in the Qingyang case, a refusal to deal case against a local pharmaceuticals manufacturer in Chongqing, from December 2015. In that case, the authority – SAIC’s local branch in the city

64 Beijing Intermediate People’s Court, Emiage v. Qihoo 360, Ibid, 31 65 Shanghai High People’s Court, Yang Zhiyong v China Telecom, see n30 above, 14–15 (emphasis added). Effects Analysis in Abuse of Dominance Cases in China 29

(Chongqing AIC) – undertook a data-based analysis of the impact on competitors, slightly less detailed but still similar to the SPC in Qihoo 360 v Tencent. The company under investigation, Qingyang, operated at two levels of the production/distribution chain: upstream as a manufacturer of allopurinol active ingredients and downstream as a manufacturer of allopurinol drugs. The challenged conduct essentially consisted of Qingyang stopping to supply allopurinol active ingredients to rivals in the downstream allopurinol drug market. The Chongqing AIC’s decision contained a separate section, entitled the ‘harmful effects caused by the party’s refusal to deal conduct’. The section started off with the assertion that Qingyang ‘had intended to eliminate competition’ by rival producers in the downstream market. Then, it analysed the effects in some detail. It held that several of the downstream rivals had to reduce, switch or even stop the manufacture of the downstream product, ‘eliminating or decreasing the right and opportunity for downstream business operators to participate in competition’. Further, the authority found Qingyang’s downstream market share to have risen from around ten per cent to 57 per cent, within half a year, as a result of the conduct. The Chongqing AIC also looked at price effects both upstream and downstream. Upstream, it found that prices had more than doubled over the time of the contested conduct, and that this led to the raising of downstream rivals’ costs. Downstream, prices rose close to five-times the pre-conduct period. The Chongqing AIC concluded that the higher prices would be passed on to, and ultimately be borne by, end consumers.66 The Chongqing AIC decision did not directly refer to the SPC judgment in Qihoo 360 v Tencent, but it seems to have drawn on the court’s guidance. The decision seems to be in line with both of the SPC’s takeaway points previously mentioned: ‘first, the competitor-focused analysis and, second, the specific analysis of the impact on competitors. In particular, the Chongqing decision used “hard data” including market shares of Qingyang and its downstream competitors, as well as prices of products.’ The decision further stressed that four out of seven of the competitors downstream stopped production or switched to other products as a result of Qingyang’s refusal to deal, and that Qingyang’s market share downstream rose from around 10 per cent to 57 per cent. Hence, the authority looked back at actual (past) behavior and found that there was actual exclusion of competitors (and a significant increase in the dominant company’s market presence). This comes close to analysing the actual effects of the dominant company’s conduct. Finally, the analysis by the Chongqing AIC did not stop with the finding that (some) competitors actually were excluded, but continued to determine whether the exclusion had a harmful effect on end consumers. Indeed, the authority found this effect, as prices of the downstream product sky-rocketed and end consumers were harmed as a result of the significantly higher prices.

66 Qingyang, [2015] SAIC Public Announcement No 12, 22 December 2015, see www.saic.gov.cn/zwgk/gggs/ jzzf/201512/t20151222_165152.html. 30 Competition Law International Vol 12 No 1 April 2016

Conclusion In reviewing the Qihoo 360 v Tencent judgment and the decisions before and after, the judgment was less clear-cut on what effects to be examined as compared to its clear guidance that a showing of some sort of effects is required. Yet, while the judgment contains some ambiguity about which benchmark to use for the effects analysis, it signals a preference for a competitors-focused analysis. The Qihoo 360 v Tencent judgment has had some – but not too many – followers, yet. Ultimately, time will tell whether Chinese authorities and courts will fully take up where the SPC has left off. Hopefully, they will. It is clear that SPC judgments should be a highly authoritative source of law. After all, the SPC is China’s highest tribunal, and – at least in theory – the highest decision-maker in both private litigation and administrative litigation (eg, appeals against AML decisions by the antitrust authorities). However, certain factors make it less likely that Chinese authorities and courts will readily adopt the SPC’s guidance. First, the existence of multiple decision-makers with concurrent jurisdiction makes consistent application of the law more difficult. In China, two administrative authorities are responsible for tackling abuse of dominance conduct, and their enforcement practices, priorities and styles vary considerably. In addition, many abuse of dominance cases are handled by the courts, and it is clear that ‘public enforcement’ by the authorities and ‘private enforcement’ through litigation in courts are different. For example, since discovery is limited in China, a court’s factual record will depend on the parties’ submissions, and its substantive analysis will also be limited by the parties’ legal arguments. In contrast, the administrative authorities have very extensive procedural powers through which they can get access to data, and their legal analysis is not limited by the defendant’s (and complainant’s) arguments. In short, in Qihoo 360 v Tencent, the SPC did not specifically limit its findings to private litigation. In principle, the findings of the SPC as China’s highest court should apply to all decision-makers, but at this point it is unclear if the administrative authorities accept the SPC’s guidance without caveats. Secondly, the AML pursues multiple goals, as mentioned in its first article: preventing and prohibiting monopolistic conduct, protecting fair market competition, enhancing efficiency of economic operations, safeguarding consumer interests and the public interest, and promoting the healthy development of the socialist market economy. An in-depth analysis of this provision is beyond the scope of this article, but it seems clear that the provision may justify both a customer- and competitor-focused approach to the effects analysis for abuse of dominance cases. Effects Analysis in Abuse of Dominance Cases in China 31

Thirdly, the types of abusive conduct listed in Article 17 of the AML contain both exclusionary and exploitative abuses. For example, predatory pricing is clearly an exclusionary abuse (since low prices benefit customers, at least in the short-run). In turn, excessive pricing is clearly an exploitative abuse (since high prices could potentially benefit competitors, as their lower prices might enable them to gain a larger share of the market). Looking at past cases and the way the law is drafted, in China, most types of abusive conduct listed in the AML – perhaps all except for predatory pricing – could be interpreted as either an exclusionary or an exploitative abuse. Hence, there will be a mix of underlying issues in abuse of dominance cases and – accordingly – the treatment of effects may continue to vary.

About the author Adrian Emch is a partner in Hogan Lovells’ Beijing office, where he focuses on Chinese and Hong Kong antitrust law. He started his career with a stage at the European Commission’s DG COMP before moving into private practice in Brussels and then Beijing. Adrian has been very active in the international antitrust community, including as editor of global antitrust journals, competition law lecturer at Peking University, and non-governmental advisor to the International Competition Network.