Asian Competition Report

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Asian Competition Report Asian Competition Report OCTOBER – DECEMBER 2009 www.clearygottlieb.com This is the third edition of Cleary Gottlieb’s Asian Competition Report, agreed to pay 1,000 renminbi (approx. $146) without admitting covering major antitrust developments in Asian jurisdictions. As wrongdoing. China Mobile reportedly claimed that its payment was detailed below, during the fourth quarter of 2009, China continued to only an acknowledgement of its gratitude for Mr. Zhou’s suggestion issue implementing rules under its Anti-Monopoly Law and saw on improving their services. resolution of early Anti-Monopoly Law litigation. South Korea • On December 18, 2009, the Beijing No. 1 Intermediate People’s continued its efforts to investigate and punish price fixing cartels. We Court ruled for Baidu, a Chinese Internet search company, in a case have reported on recent developments with the circulation of brought by Tangshan Renren Information Services Co. (“Renren”), two Alert Memoranda and the publication of articles in Competition which operates a medical consulting services website. Renren Law360 and Bloomberg Law Reports (Asia-Pacific). We hope you find claimed that Baidu used its dominant position to limit access to this Report interesting and useful. Renren’s website in violation of the AML. CHINA • On December 24, 2009, the Beijing No. 2 Intermediate People’s Court reportedly ruled for China Netcom’s Beijing Branch in a case Resolution of first court cases under China’s Anti-Monopoly brought by Mr. Li Fangping over China Netcom’s alleged Law (“AML”) discriminatory treatment of customers who are not permanent During the fourth quarter of 2009, China’s courts issued decisions or Beijing residents. helped mediate settlement in four abuse-of-dominance cases. 1 The court ruled for defendants in each of the three decisions, finding that Shanda plaintiffs failed to meet their burden of showing that the defendants This case involved a book Sursen published online in 2008. Shanda had had a dominant position and explaining that the defendants’ conduct previously hired author Zhu Zhihong to write an online serial novel was legitimate. These decisions illustrate the significant role played by titled “Star Change,” to which Shanda’s partner Xuanting holds the private litigation in the development of Chinese antitrust law applicable copyright. “Star Change” was one of the most popular online novels in to unilateral conduct. The Chinese antitrust enforcement agencies China in 2008. Two other authors subsequently wrote “Star Change – responsible for this area, the State Administration for Industry and the Sequel” using similar pen names and the same characters, scenes, Commerce and the National Development and Reform Commission, and other details. Beginning in May 2008, Sursen’s website, du8.com, have not yet announced any decisions or publicly launched any carried “Star Change – the Sequel,” which also gained widespread investigations under the AML, although a number of complaints have popularity. been filed. The four cases are summarized below: Shanda and Xuanting accused the sequel’s authors and Sursen of • On October 23, 2009, the Shanghai No. 1 Intermediate People’s violating Xuanting’s copyright. The sequel’s authors issued a public Court rejected an abuse-of-dominance case filed by Sursen Electronic apology on January 1, 2009, and promised to cease writing the sequel. Technology Co., Ltd. (“Sursen”), the operator of a website offering digital books, against Shanda Interactive Entertainment Ltd. Sursen, however, filed suit under the AML, alleging that Shanda had (“Shanda”) and Shanghai Xuanting Entertainment Co., Ltd. abused its dominant market position in the “Chinese online literature (“Xuanting”). market” by stopping the two Chinese authors from publishing their sequel and by falsely claiming copyright infringement. This decision • Also on October 23, 2009, China Mobile settled a private abuse-of- appears to be the first judgment applying the AML, specifically dominance lawsuit brought by Mr. Zhou Ze, a Beijing lawyer who is Article 17(4) of the AML, which prohibits an undertaking with a a subscriber to China Mobile’s services. In the settlement, which was dominant market position from “limiting a counterparty to trading only mediated by Beijing No. 2 Intermediate People’s Court, China Mobile 1 Our Alert Memoranda regarding these cases are available at http://www.cgsh.com/news/List.aspx?practice =2&geography=3. © Cleary Gottlieb Steen & Hamilton LLP, 2009. All rights reserved. This report was prepared as a service to clients and other friends of Cleary Gottlieb to report on recent developments that may be of interest to them. The information in it is therefore general, and should not be considered or relied on as legal advice. Under the rules of certain jurisdictions, this report may constitute Attorney Advertising. ASIAN COMPETITION REPORT OCTOBER – DECEMBER 2009 2 with it or with an undertaking designated by it without any China Mobile denied that it holds a dominant position or that it justification.” The case went to trial on June 17, 2009. imposed unreasonable trading conditions or engaged in discriminatory pricing. To support its arguments, China Mobile On October 23, 2009, the Shanghai No. 1 Intermediate People’s submitted to the court circulars and rules issued by the Ministry of Court issued an opinion rejecting Sursen’s abuse-of-dominance Industry and Information Technology (and its predecessor) dated claims, for two primary reasons: from 1994 to 2002. First, the court held that there was not sufficient evidence that After two trials, the court mediated a settlement and issued its Shanda had a dominant position in the market for Chinese online decision on October 23, 2009 accepting Mr. Zhou’s dismissal literature. Sursen did not provide sufficient evidence to count application. Shanda’s position in online gaming (for which Shanda is better known) toward its position in online literature. In addition, while the Baidu court acknowledged that Shanda’s official website claimed a market Beijing’s No. 1 Intermediate People’s Court accepted Renren’s lawsuit share of more than 80% in China’s online literature market (higher against Baidu on January 6, 2009. Renren accused Baidu of using its than the 50% threshold for a presumption of single firm dominance dominant position to limit access to Renren’s website in retaliation under Article 19 of the AML), the court did not accept this as for Renren’s reduced spending on Baidu’s bid-for-ranking system. evidence of dominance. The court noted that: (i) the statement was Bid-for-ranking is a for-profit model of ranking Internet search results likely made for marketing purposes and was not a properly adopted by Internet search engine providers, in which payments by calculated market share; and (ii) the plaintiff had previously claimed website operators affect the rankings of those websites in search that its website was the largest website for electronic books. results. This contrasts with “natural rankings,” in which the Second, the court held that the plaintiff failed to establish that algorithms used to rank search results do not take such payments Shanda and Xuanting acted improperly in forcing the sequel’s into account. Renren alleged that after it lowered its spending on authors to cease publication. Instead, the court held that the Baidu’s bid-for-ranking system, daily visits to its website decreased defendants’ actions were justified by the defendants’ desire to significantly and that searches on Baidu yielded far fewer hits than protect their intellectual property rights. searches on Google. The company claimed that Baidu has a dominant position in the market for Chinese search services and that The decision is notable for the court’s willingness, at least on these Baidu’s actions violated Article 17(4) of the AML. facts, to treat the assertion and protection of intellectual property rights as a permissible justification for challenged action. Baidu admitted that its search algorithm reduced the likelihood of Renren’s website appearing in search results. Baidu argued that this China Mobile result was unrelated to Renren’s bid-for-ranking payments and was In this case, Mr. Zhou argued China Mobile held a dominant position, taken because Renren’s website had a large number of “junk links.” possessing a 70% share of the domestic mobile telecoms market, Baidu’s “natural ranking” search algorithm gave higher rankings to and that it abused its dominance by charging subscribers who do websites with more links. In order to increase its “natural ranking,” not participate in pay-as-you-go schemes a 50 renminbi (approx. $7) Renren deliberately included a large number of links that were monthly rental fee. Mr. Zhou claimed China Mobile violated Article irrelevant to its website’s contents, i.e. , “junk links.” Baidu’s search 17(5) and Article 17(6) of the AML, which prohibit an undertaking engine detected these links and automatically reduced the search with a dominant market position from “conducting tie-in sales of results of Renren’s website in its “natural ranking” system. Baidu commodities or imposing other unreasonable trading conditions to further argued that its rules regarding junk links were imposed to transactions without any justification” and from “applying differential protect the integrity of Baidu’s search results and that the penalties prices or other transaction terms among their trading counterparties for breaching those rules were publicly available. who are on an equal footing without any justification.” Relevant Baidu also argued that because it does not charge for its search provisions in China’s Price Law and Consumer Protection Law were services, these search services cannot constitute an antitrust market also invoked. Mr. Zhou asked the court to order China Mobile to stop and that, even if search services were an antitrust market, the charging him the monthly rental fee and to reimburse him for the plaintiff failed to prove that Baidu had a dominant position under rental fee charged in the past two years.
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