Shanghai bans e-commerce platforms’ exclusivity agreements in local AUCL draft amendments –Analysis

23 October 2020 | 23:43 CST

• Analysis of ‘unreasonable restriction’ is case-specic –lawyer

• Draft explores companies’ claim on data’s competitiveinterest

• Proposed clarication of ‘inuential third-party’ undercommercial bribery provision removed

Shanghai’s draft amendments to the local Anti-UnfairCompetition Regulation (Shanghai AUCR) include provisions that ban e-commerce platforms’ exclusivity agreements and other“unreasonable restrictions” on in-platform vendors, threeShanghai-based competition lawyers have told PaRR.

The Shanghai AUCR is a local regulation corresponding to thecountry's Anti-Unfair Competition Law (AUCL). The currentShanghai AUCR was amended in 2011. Following the amendmentsto the national AUCL in 2017 and 2019, the Shanghai AUCR mustalso be amended and updated.

The local legislature – the Shanghai Municipal People’s Congress– released the draft amendments to the Shanghai AUCR (thedraft) on 9 October and is soliciting public comments on the draftuntil 24 October, as reported.

Compared with the national law, the draft adds in a provisionagainst the “inappropriate restrictions on choices”.

Article 22 of the draft amendments to Shanghai AUCR (the draft)prohibits e-commerce platform operators from imposingunreasonable restrictions or conditions on in-platform vendors,by means of service agreements or transaction rules, in terms oftheir transactions on the platform, prices or their deals withother operators.

This provision responds to e-commerce platforms’ conduct offorcing in-platform vendors to “choose one from two”, Yang Xun,lawyer at LLinks Law Ofces, told PaRR.

“Choosing one from two” refers to the conduct of an e-commerceplatform forcing in-platform vendors to enter exclusivetransactions and preventing vendors from making transactionswith its competitors.

The draft provision echoes Article 35 of the national E-CommerceLaw (ECL) and aims at protecting small and medium businessfrom restrictions by big platforms, Sha Haitao, senior partner atJincheng Tongda & Neal (JT&N), told PaRR.

In addition to exclusivity agreements, the draft provision alsobans platforms from forcing vendors to participate in salespromotion, Yang Chunbao (Chambers), senior partner at Dentons,told PaRR.

The analysis of whether a platform’s conduct is an “unreasonablerestriction or condition” depends on the specic situation, YangXun noted. It should evaluate whether the platform is leveragingits relative advantage against the vendor and intervening in thevendor’s business operation, or even harming consumers’freedom of choice, he added.

The draft states that a violation of Article 22 would incur a penaltybetween CNY 100,000 (USD 14,994) and CNY 500,000 (USD74,969), and that a severe violation leads to a penalty of more thanCNY 500,000 (USD 74,969) and lower than CNY 3m (USD449,816).

Data interests

Another highlight in the draft is that it includes a provision on the“inappropriate acquisition and use of data”.

Article 21 of the draft states that while acquiring network datafrom other operators via technical means, a business operatorshall not violate relevant laws and regulations, commercial rulesor trade practices. The use of such data should not damage thelegitimate rights and interests of the party that the data isacquired from or disrupt the fair competition order.

This draft provision establishes data as a competitive interest,Yang Xun pointed out.

Currently there have not been any clear-cut provisions on dataownership, he said, explaining that this is because puredata does not involve creative work and there is no establishedconcept of a “database right” in China. Data cannot be protectedas intellectual property in China, he added.

However, as data has an economic value and the collection andmaintenance of data cost money and labor, it is a goodexperimental solution to protect businesses’ legitimate rightsover data by establishing data as a competitive interest, he added.

The draft provision states that the collection of other businesses’data shall follow the commonly accepted practices in the industry.

Commonly accepted business practices include following the robots exclusion protocol and self-disciplinary regulations published by industry associations and recognized by most companies, Yang Chunbao said. The robots exclusion protocol is astandard used by websites to inform web crawlers which areas of the website should not be accessed or scanned.

If the data is publicly accessible, it is generally accepted that itcan be collected as long as it is not used in a competitive business, Yang Xun said, adding by way of example that reviewswritten by customers on a website can be collectedfor a consultancy to analyze the business patterns of the cateringindustry, but cannot be used to create a competitive website.

Commercial bribery

The draft removes the proposed clarication of the ‘influentialthird-party’ under the commercial bribery provision, whoseinterpretation is highly debated among law practitioners.

in July, fourconditions were specified where a third-party could beconsidered as “an entity or individual which takes advantage of itspower or influence to affect a transaction” under item 3 of Article7 of the AUCL.

The previous version stated that when a third party is in anadministrative relationship with, is a relative of, a retiree of, or arelative of a retiree of the transaction counterparty, the third-party can be considered as an ‘inuential thirdparty’. This detailed explanation was not included in the currentdraft.

by Kimberly Jin in Shanghai