SAMR Imposed Record Fine on Alibaba for Abuse of Dominant Position

According to the Administrative Penalty Decision (Guo Shi Jian Chu [2021] No. 28) of 10 April 2021("Decision") available on the website of the State Administration for Market Regulation ("SAMR"), the SAMR imposed a record fine, i.e. RMB 18.228 billion (approximately EUR 2.315 billion), on Alibaba Group Holding Limited ("Alibaba") for its abuse of a dominant position. The fine amounted to 4% of Alibaba's annual sales within the territory of China in 2019.

Alibaba is a company whose business scope includes, among others, online retail platform services, retail and wholesale business, logistics services and cloud computing.

According to the Decision, the SAMR launched an investigation into Alibaba from December 2020 after receiving tipoffs ("Case"). Below is an overview of the Case.

1. Relevant markets

Considering the characteristics of the platform economy and the specific situation of the Case, the SAMR decided that the relevant product market is online retail platform services within the territory of China. The relevant geographic market is the territory of China.

2. Dominant position of Alibaba in the relevant market

During the investigation, the SAMR found that Alibaba has been having a relatively high market share (more than 50%) for a long time and that Alibaba has a very high degree of market recognition and loyalty of consumers (98% of Alibaba's customers continued to use the Alibaba's platform compared to the previous year). Further, the transfer costs for the Platform-based Operators from one internet platform to another are relatively high. According to Article 2 of the Anti-Monopoly Guide of the Anti-monopoly Commission of the State Council for the Platform Economy Sector, the term "Platform-based Operators" refers to operators which provide commodities or services on the internet platform.

Further, the SAMR found that Alibaba has significant advantages in the related market as well. For example, Alibaba has carried out an overall strategic plan in the fields of logistics, payment and cloud computing, which provide strong logistics service support, payment guarantee and data processing capability for Alibaba's platform services. These further consolidate and enhance Alibaba's market power.

According to Article 18 of the Anti-Monopoly Law, in order to determine whether an undertaking has a dominant position, among others, the following factors shall be considered: the market share of an undertakings and the degree of dependence on such undertaking during transactions by other undertakings, etc. According to Article 19.1 of the Anti-Monopoly Law, "an undertaking can be considered to have a dominant market position, if the market share of such undertaking accounts for 1/2 in the relevant market".

Thus, the SAMR decided that Alibaba has a dominant position in the online retail platform services market within the territory of China according to Articles 18 and 19 of the Anti-Monopoly Law.

3. Abuse of dominant position by Alibaba

During the investigation, the SAMR found that since 2015, in order to restrict the development of other competing internet platforms and to maintain and consolidate its market position, Alibaba abused its dominant position in the online retail platform services market within the territory of China.

Alibaba adopted the so-called "either Alibaba or no services" ("二选一"in Chinese) approach, which prohibited Platform-based Operators from opening stores in other competing platforms and/or participating in promotional activities in other competing platforms, etc. Thus, Alibaba limited relevant Platform-based Operators to conduct deals exclusively with itself. Further, Alibaba has also taken incentive and punitive measures to ensure the implementation of the "either Alibaba or no services" approach, etc.

Because Alibaba is a dominant company in the relevant market, further, its "either Alibaba or no services" approach violated Article 17.1 (4) of the Anti-Monopoly Law, which states that undertakings are prohibited from the following behavior that abuses their dominant market position, …, without justifiable reasons, limiting relevant trading counterparties to conduct deals exclusively with them. Thus, the SAMR decided that Alibaba abused its dominant position.

According to the SAMR, Alibaba's abuse of a dominant position has created lock-in effects, which have excluded and restricted competition on the market and damaged the interests of both the Platform-based Operators and the consumers. Further, Alibaba's abuse of dominant position has also hindered the orderly innovation and healthy development of the platform economy.

4. Administrative penalty

According to the Decision, because Alibaba violated Article 17.1 (4) of the Anti-Monopoly Law, Alibaba (i) was ordered by the SAMR to terminate the illegal activities; and (ii) was imposed by the SAMR with a fine of RMB 18.228 billion (approximately EUR 2.315 billion) (4% of its annual sales in China in 2019).

In addition, the SAMR also issued an Administrative Instruction (《行政指导书》in Chinese) (Guo Shi Jian Xing Zhi Fan Long [2021] No. 1) to Alibaba, requesting that Alibaba should carry out comprehensive rectification by (i) comprehensively regulating its competitive behavior; (ii) strictly implementing the main responsibilities of a platform operator; (iii) improving its internal control and compliance system; (iv) protecting the legitimate rights and interests of Platform-based Operators and consumers; and (v) actively maintaining fair competition. Further, upon receipt of the Administrative Instruction, Alibaba shall submit a self-examination compliance report to the SAMR before 31 December on a yearly basis for the next three consecutive years.

5. Conclusion

This Case is the first significant antitrust law case in the sector of the platform economy in China, indicating that the antitrust law enforcement in this sector has entered a new phase. I.e. while on the one hand encouraging the development of the platform industry, the Government has also strengthened the supervision in this sector. Thus, the investigation and the Decision of the Case is also of great significance for other platform operators operating in China. We can already see similar decisions on local level and smaller scale. For example, according to news on the website of the Shanghai Administration for Market Regulation ("Shanghai AMR") dated 12 April 2021, on 25 December 2020 the Shanghai AMR issued the Administrative Penalty Decision (Hu Shi Jian Fan Long Chu [2020] No. 06201901001) on the delivery company Sherpa’s. The Shanghai AMR found that Sherpa’s has a dominant position on the English-language online food delivery platform market in Shanghai and abused its dominant position by forcing the relevant Platform-based Operators to cooperate with it exclusively. In accordance with Article 17.1 (4) of the Anti-Monopoly Law, the Shanghai AMR fined Sherpa’s RMB 1,168,644.90 (approximately EUR 148,390, which amounted to 3% of the annual sales of Sherpa’s in 2018).

This article was authored by Aiping Bao who has now left CMS.