On April 10, 2021, the State Administration for Market Regulation (SAMR) of China issued the Administrative Penalty Decision on the anti-trust action committed by Alibaba Group Holding Limited, that is, imposing “one out of two choices”restriction on the sellers using its online shopping platform, and the total fine in the Decision amounts to18.2 billion RMB, which is 4% of Alibaba’s annual revenue of 2018 in China territory. This fine has been the highest record of Anti-Trust Law enforcement in China, which is much higher than the fine of 6.088 billion imposed on Qualcomm in the year of 2015.The legal ground for this penalty decision is Article 17.1 (4) of Anti-Monopoly Law, which prohibits abusing the dominant market position by “restricting their trading party so that it may conduct deals exclusively with themselves or with the designated business operators without any justifiable causes”.

The relevant market is defined as the market of the business to consumer (“B2C”) online shopping platform service in China territory, such as Taobao, Tmall, etc. Specifically, considering the demand substitute of both operator and consumer on the platform, as well as other difference between the online shopping platform service market and offline retail market, SAMR held that the offline retail service does not belong to the same relevant market as the online shopping platform service market. This criterion for defining relevant market will be a new guideline for future cases in this industry, and the argument that the online service has competitive relationship with offline service could be hard to be accepted.

The dominant market position is determined by traditional criterions that consider market share and market concentration degree, SAMR held that the market share of Alibaba has exceeded 60% in the past five years, and the market concentration in this field is extremely high. In addition, SAMR also took into consideration of the barrier of market, user’s viscosity, Alibaba’s bargaining power, and Alibaba’s significant advantages to create market advantage in the fields of logistics, online payment and cloud computing etc.

The prohibited act of abusing the dominant market position is its “one out of two choices” restriction on the business operator on the online shopping platform, i.e., the sellers.This restriction refers to Alibaba’s policy imposing to the sellers on its platform (including Taobao, Tmall, etc.) that forbids or restricts the seller from opening online shops and participating in the sale-promotion activity on the other competitive platforms. In particular, Alibaba mainly conducted the above acts by written agreements or oral requirements., Alibaba give rewards for obeying the above agreements and requirements and punishment for disagreement, such as giving or reducing the promotion support or the availability of other main interests on the platform.

SAMR held that Alibaba’s “one out of two choices” act has generated lock-in effect, which eliminates and restricts the fair competition in the market of online shopping platform service in the territory of China, and substantially hurt the interests of both the sellers and the consumers.

In addition to the highest anti-trust fine ever, SAMR also issued an Administrative Guidebook to Alibaba. In this Guidebook, Alibaba is required to make a self-inspection on its competition activities against Anti-Trust Law, make declaration of concentration of business operators, and not to use technical methods, platform as well as data and algorithm to carry out monopoly conduct.

This Guidebook, together with the Penalty Decision, provides both a warning and a guide to the internet service companies in China on corporate compliance regarding anti-monopoly and competition regulation, as well as gives the regulation authority a guideline to handle similar cases. As a matter of fact, just two days later, on April 12, 2021, Shanghai Administration of Market Regulation took the same criterionsin another Penalty Decision over an online food delivery platform for its “one out of two choices” policy imposed on the restaurants on the platform. It is foreseeable that China will continue the comprehensive regulation over similar monopoly and unfair competition acts in the internet platform service market.