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Yang Yang*
The online advertising intermediary market is part of the digital advertising market that started around 1994.1 In the US, this market will exceed traditional advertising spending by the end of 2019, according to eMarketer.2 Big technology companies serving intermediaries between advertisers and publishers, referred to as demand-side platform (DSP), are not independent companies; they merely run platforms. Their core products attract advertisers. According to the market shares reported in eMarketer, Google and Facebook had a combined market share of 63.1% of US digital ad investment in 2017.3 Besides the existing competitor, Bing Ad, other emerging conglomerate technology companies are entering the online advertising intermediary market, such as voice-shopping platform Alexa by Amazon4 and Adobe Advertising Cloud, serving as a multichannel DSP.5
A successful operation of a DSP involves many factors, including the managing of many publishers of websites and other forms of media content on desktop, TV or mobile (smartphone and tablets), the collecting of data of customers’ behavior, and the use of data analytical and webmaster tools. As a result, the digital advertising market features an ecosystem competition, and success of the business essentially depends on success of the core products of the technology companies. This article suggests that the effects of the business conduct in the online advertising intermediary market take into consideration the effects on the quality of the core products of the technology companies. In making this recommendation, this article conducts a comparative study among US, EU and China rulings involving internet companies.
In Ohio et al. v American Express Co., the U.S. Supreme Court ruled that both sides of the two-sided credit-card market—cardholders and merchants—must be considered because the credit-card networks are best understood as supplying only one product—the transaction—that is jointly consumed by a cardholder and a merchant. Accordingly, the two-sided market for credit-card transactions should be analyzed as a whole.6
This article raises a question arising from the recent EU fines on Google for abusing a dominant position on online advertising intermediary: Whether the determination of the market position and the competitive effects should consider the ecosystem feature of such Internet companies, which have their flagship or core products, such as online service engines, as their technology sector and also services such as advertising platforms as their business sector. The article suggests that, regarding the determination of market position, the online advertising intermediary is one inseparable part of Google’s ecosystem, which depends on Google’s flagship product—the online general search engine service—that attracts searchers, whose “eyeballs” or traffic constitute the inventory sold to advertisers. Google’s main competitor, Bing by Microsoft, runs a similar ecosystem, which also includes Bing Ad as a comparable product to Google’s Adsense. Regarding the effects on competition, this article argues that the effects on the whole ecosystem, including the size of the publishers and the effects on the quality of Google’s flagship search engine product, should be assessed.
This article does not aim to criticize the result of the EU decision on the Google investigation but instead aims to suggest the following based on a comparative study among US, EU and Chinese regimes:
The article starts with a similar ruling among US, EU and Chinese regimes that “defining a relevant market is generally a necessary component of analyzing a monopolization claim.” In addition, in analyzing China’s Guangdong High Court decision on Tencent, this article discusses both a similarity and a distinction between the concepts of market definition and market power in relation to the role of competitive restraints from substitute products. This test is required to define a relevant market as the essential part of the demand-side substitutability. In the decision by China’s Guangdong High Court on Tencent, the Court held that Tencent did not hold a dominant position because of available substitute products. This article aims to clarify that the similarity between the two concepts in relation to the role of competitive restraints from substitute products is the test that should be applied in both. As the famous Microsoft decision by the US District of Columbia Circuit states: “Because the ability of consumers to turn to other suppliers restrains a firm from raising prices above the competitive level, the relevant market must include all products ‘reasonably interchangeable by consumers for the same purposes.’ ”7
Interestingly, there is also a distinction between these two concepts because the test for the market power of a firm, including an internet firm, should consist of a comprehensive assessment that incorporates competitive restraints from alternative or substitute products, market shares, entry barriers and switching costs of the customer to substitute products.
2-I. Market Definition and Market Position for Internet-Related Businesses
US, EU and Chinese regimes share one similar rule, that “defining a relevant market is generally a necessary component of analyzing a monopolization claim.” Under the EU regime, the Court of Justice in the early cases on dominance held that the definition of the relevant market is necessary for an assessment of the market position of the firm at issue.8 In addition, the Court held that the test on market definition is interchangeability. Under the US regime, the Second Circuit held that “in the absence of direct measurements of a defendant’s ability to control prices or exclude competition, however, market power necessarily must be determined by reference to the ‘area of effective competition’—which, in turn, is determined by reference to a specific, defined ‘product market.’ ”9 The Chinese Supreme Court in Qihoo v. Tencent held that it is the plaintiff’s burden to define a relevant market in alleging an abuse of a dominant position of another firm.10
A. Market Definition
In the internet economy, the market definition usually focuses on the relevant product market because there is no geographic boundary feature. As a result, the relevant geographic market is global. Below is a comparative study among Chinese, US and EU rules on market definition of the relevant product market.
Chinese court rulings on the internet platform suggest that the reasoning of Chinese courts is consistent with the dynamic trend of internet industries by assessing whether the investigated firm can control the quality, rather than the price, of the core product.
1. Chinese Rules
According to Article 12 of the Chinese AML11 and the AML Explanatory Notes,12 the elements of the definition of a relevant market are as follows:
According to AML Explanatory Notes, element (iii) means that the Chinese AML recognizes that a relevant product market may change over time due to advanced technology. Accordingly, in a dynamic market, new substitute products may emerge as technology advances. Regarding the relevant geographic market, as the transportation capacity progresses, the geographic barriers may decrease so that the scope of geographic area may expand.13 This time element is specifically consistent with the internet-connected economy as the internet eliminates geographic barriers; thus, Chinese courts have determined that the relevant geographic market is “global,” as discussed later. Such consideration is further reflected in the Market Definition Guide,14 which clarifies the necessity of considering the dynamic nature of a market in defining a relevant market, where the production cycle, duration of usage, seasonality and trends of certain products or protection period of IPR are indispensable features of the underlying products or services.
The Market Definition Guide states that the direct and indirect competitive restraints the business operators are subject to are mainly the products/services or geographic area, which customers or clients consider to be substitutable for the product/services or geographic area in question, which is referred to as demand-side substitutability.15 Thus, the agency will mainly consider the demand-side substitutability in defining a relevant market. If the supply-side substitutability imposes similar competitive restraints as demand-side substitutability on the behaviors of the business operators, then the supply-side substitutability will be taken into account as well.16 Therefore, when defining a relevant market, the most important factor is the nature of the competitive restraints from customers on the behaviors of the business operators, i.e., alternatives for products/services that customers consider substitutable.
For demand-side substitutability, the main factors are: (i) the similarity of the functions or features of the product/service, (ii) the comparability of the costs; (iii) the sales channel; (iv) the level of dependence of customer; and (v) switching costs to other products/services.17 The supply-side substitutability depends on the extra switching costs and liabilities for producing the products or providing services, etc.18
In addition, the Market Definition Guide makes clear that there can be multiple methods for defining the relevant market. However, no matter which method is applied, the fundamental principle considers the basic characteristics of the products that meet the consumers’ needs; this principle is used to adjust the discrepancies in the market definition from different methods, including the following methods listed by the Market Definition Guide:
Under the US regime, the boundaries of a relevant product are determined principally by the reasonable interchangeability for the purposes for which they are produced—price, use and qualities considered.20
2. Court Rulings
The Chinese Supreme Court, in Qihoo v. Tencent,21 held that the application of the “Small But Significant and Non-transitory Increase in Price” (SSNIP) can be a practical methodology for products sharing apparent similarities, with price being the most important competitive factor. However, for products with distinct features—in particular those involving two or multi-sided market features with one side providing free services—but non-price factors such as quality, services, innovation and user experience as the most important competitive factors, the test of SSNIP is difficult to apply. The Chinese Supreme Court further suggested that, in such an industry, the “Small but Significant and Non-transitory Decrease in Quality” (“SSNDQ”) test should be applied. Furthermore, given the difficulty of evaluating the degree of the quality decrease and obtaining relevant data, the Supreme Court expressed a preference for a qualitative analysis rather than a quantitative analysis when applying the SSNDQ test.
The Chinese Supreme Court correctly identified the internet industry as a two-sided or even multi-sided market. Thus, the competitive factors for internet companies are mainly non-price factors because the main purpose of the internet companies is to attract as many users as possible so as to influence their consumption habits and, more importantly, to sell their user lists to advertisers. Most internet platforms operate based on revenue from advertising. The Chinese Supreme Court applied SSNDQ in analyzing whether emails and SMS should be included in defining the relevant product and geographic markets.
The Chinese Supreme Court also correctly recognized the following features about competition among internet companies:
In addition, the Court correctly recognized that the core competition in internet industries is technology or quality competition rather than price competition. Therefore, the essential part of assessing both market definition and market position should be consideration of the quality of the main product in the ecosystem of the internet platform.
B. Determination of Market Power
This article asserts that the market power of an internet firm should be a comprehensive assessment, factoring in the competitive restraints from alternative or substitute products, market shares, entry barriers and switching costs of the customer. None of the factors is a determinative factor. Such an approach is consistent with the China, US and EU definitions of a dominant position based on the following comparative study.
1. General Rules
The US regime recognizes that market power is the ability to maintain prices profitably above, or output below, competitive levels for a significant period of time.22 This definition differs from the current definition of market power or dominant position under Chinese AML. Under Chinese AML, a dominant position is defined as the market position of control prices, quantity or other deal conditions, or the exclusion or influence over entry of other business operators.23
Under the EU regime, according to settled case law, dominance is a position of economic strength enjoyed by an undertaking that enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately its consumers.24
The notion of independence, which is the special feature of dominance,25 is related to the level of competitive constraints facing the undertaking in question. It is not required for a finding of dominance that the undertaking has eliminated all opportunity for competition on the market.26 However, for dominance to exist, the undertaking must have substantial market power. In this regard, the Commission will first assess market shares in the relevant market and will then analyze barriers to expansion and entry in the market. The economic concept of market power focuses on whether there are sufficient actual or potential close substitutes that prevent the exercise of market power. These substitutes serve as competitive pressure on a specific firm’s ability to set its price or output.
The Chinese definition seems to be more of a legal concept focusing on determination of an ability of the specific firm, rather than a measurement of the competitive pressure or restraints from other actual or potential competitors. Article 18 of the AML stipulates that the dominant market position of an undertaking is determined on the basis of the following factors:
However, in the Chinese court rulings in the internet industry discussed below, the Chinese courts have adopted the EU approach focusing on whether actual or potential close substitutes sufficiently prevent the exercise of market power.
Under the US regime, monopoly power refers to the power to control price or unreasonably restrict competition.27 This conclusion is clearly held by the US Supreme Court in the du Pont case: “A party has monopoly power contrary to § 2 of the Sherman Act if it has, over ‘any part of the trade or commerce among the several States,’ a power of controlling prices or unreasonably restricting competition.” Regarding the party’s ability to control prices, the Court held that:
every manufacturer is the sole producer of the particular commodity it makes, but its control in the above sense of the relevant market depends upon the availability of alternative commodities for buyers—i.e., whether there is a cross-elasticity of demand between cellophane and the other wrappings. This interchangeability is largely gauged by the purchase of competing products for similar uses considering the price, characteristics and adaptability of the competing commodities.28
Regarding the ability to exclude producers, the Court placed weight on “Modern Packaging,” a trade journal that exhibits various advertisements, as an example of the competition among manufacturers in the flexible packaging market, as well as the 1952 Annual Packaging Show at Atlantic City, with exhibits offered by “machinery manufacturers, converters, and manufacturers of flexible packaging materials.” The Court held that these circumstances “dispose also of any contention that competitors have been excluded by du Pont from the packaging material market.”
For assessing the ability to control the price or exclude competition, other relevant factors arise, including market share, as the Second Circuit held in PepsiCo: “Once a relevant market is determined, the defendant’s share in that market can be used as a proxy for market power.”29 In addition, the court also tested Coca-Cola’s ability to exclude PepsiCo from competition and found that
PepsiCo’s stepped-up attack on the fountain syrup market resulted in numerous bidding wars between PepsiCo and Coca-Cola. PepsiCo was successful in obtaining several accounts, and in those cases where it lost out to Coca-Cola it nevertheless forced Coca-Cola to drastically reduce its price and profitability to keep the account. As the district court stated, moreover, it is “[m]ost compelling, [that] no customer testified that Coca-Cola’s loyalty policy prevented the customer from obtaining Pepsi.”30
These facts constitute direct evidence of Coca-Cola’s market power and imply that no significant barriers exist for PepsiCo to enter or expand, and that the switching costs of Coca-Cola’s customers to Pepsi are not significant.
2. Standards Adopted in Court Rulings
(1) Renren v. Baidu31
This case was the first private antitrust litigation based on Article 50 of Chinese AML, since Chinese AML came into effect. Article 50 of Chinese AML states that “[w]here the monopolistic conduct of an undertaking has caused losses to another person, it shall bear civil liabilities according to law.” This provides the legal basis for imposing civil liability and damages.32 The plaintiff, Renren, alleged that Baidu abused its dominant position by forcing it to participate in Baidu’s paid search program, thus violating Item 4 of Article 17 of Chinese AML. Item 4 of Article 17 of Chinese AML states that a firm possessing a dominant position in its relevant market is prohibited from forcing trade partners to deal exclusively with the firm or a business operator designated by the firm without justification. In the first instance decision by Beijing No. 1 Intermediate People’s Court,33 the Court held that the relevant product market is search engine services and the relevant geographic market is China. The Court rejected defendant’s argument that the free of charge feature of the search engine services excluded it from the definition of a relevant market under Chinese AML. The Court clearly recognized the two-sided market feature of these services, which utilize the users to attract paying advertisers.
Regarding the dominant position, the Court held that Article 18 of Chinese AML should be comprehensively considered. Article 18 of Chinese AML stipulates that the dominant market position of an undertaking is determined on the basis of the following factors:
The plaintiff provided two newspaper articles indicating the defendant possessed over half of the market share in the search engine market. The Court held that the evidence was not sufficient because the plaintiff did not list a clear definition of a relevant market and a precise calculation of the market share. In addition, the Court held that the defendant was justified in blocking the plaintiff’s websites because they contained “trash links.” The defendant appealed the decision to Beijing High People’s Court, which affirmed the first instance decision by upholding the first instance court’s reasoning.
(2) Qihoo v. Tencent
In 2013, the Chinese Supreme Court ruled on a high-profile litigation in Qihoo v. Tencent.34 The Court held that, in determining the dominant position, the assessment on market position should focus on whether the firm can control quality in the internet industries rather than on price due to the two or multi-sided market feature of the internet industries. The Court held that IM services require a high level of user experience to maintain traffic in order to attract paying advertisers. As a result, if Tencent lowered its service quality, it will lose users. The Court used as an example the declining size of MSN users in a short period of time due to a decrease in quality. The Court further held that Tencent was not able to control the quantity or other deal conditions in the relevant market because no significant entry barriers existed in IM services; more than 50% of users used IM services in 2009 and 8.7% of users switched to another IM service within 6 months. The Court correctly listed one factor for assessing the market position of an internet company—low switching costs when the quality of one product is inferior. The direct network effects can also be relevant because, for IM with social features, the number of users determine the switching costs of one user. Accordingly, for search engine services, enforcers’ decisions should analyze whether relevant direct network effect exists.
The Court also conducted a comprehensive analysis of Article 18 of the Chinese AML and specifically assessed the following two criteria in determining Tencent’s market position:
First, the Court ruled that the anticompetitive effects of an alleged conduct can indicate whether Tencent has a dominant position. The Court found that, on the day Tencent implemented the either-or request, the number of its competitors’ users actually increased, showing that Tencent did not have prominent dominance in the IM service market. This analysis was in line with the view of the Chinese Supreme Court that it could use direct evidence of the competitive effect of elimination or restriction of competition to evaluate whether the defendant has a dominant market position. In other words, the Chinese Supreme Court concluded that an operator whose conduct does not eliminate or restrict competition in the relevant market should not be determined to possess a dominant market position.
Second, the Court assessed the market condition, including the size of actual or potential competitors and the dynamic feature of the relevant market depending on innovations. The Court used as an example the innovative activities of Tencent: Tencent QQ Software system updated 14 times in 2009, relating to 100 projects; updated 8 times in 2010, relating to 40 projects; updated 5 times in 2011, relating to 40 projects; updated 30 times in 2012, relating to 30 projects; and updated 8 times in 2013 until July relating to 60 projects. Such updates focused on new functions to improve user experience and service quality.
It is noteworthy that the Chinese Supreme Court implied that Tencent’s innovations contributed to the conclusion that it was subject to the competitive pressure of its competitors and thus did not have a dominant position. This standard was applied by the Guangdong High Court in a 2016 case against Tencent for an alleged abuse of dominant position.
(3) Xu Shuqing v. Tencent
In a 2016 decision by Guangdong High Court on an appeal brought by an individual against Tencent,35 the Court ruled that the plaintiff, as a non-competitor to the defendant, should focus on the demand-side substitution to define the relevant market. In reaching this decision, the Court emphasized the fundamental principle for defining the relevant market that is provided in the Market Definition Guide: “No matter which method is applied, the fundamental principle is to consider the basic characteristics of the products that meet the consumers’ needs.”36 In this case, the plaintiff wished to advertise his services through WeChat Expressions. The Court defined the relevant product market as internet platform information services, including social platform, online search engine platforms, such as the Baidu search platform, as well as mobile apps store platforms. The Court defined the relevant geographic market as global due to the no-boundary feature of the internet.
In the Guangdong High Court decision on the Tencent case, the Court ruled that only if there are no substitute products from the demand side will the party be considered as possessing a dominant position. In reaching this decision, the Court held that the plaintiff’s basic needs are to advertise its legal services and has many substitute products both online and offline. The online substitute products are provided by apps offered in the Apple Store, Wandoujia Apps,37 Yingyongbao Apps,38 Weibo, Baidu search engine, WeChat Public Account, and websites built by the plaintiff. The offline substitute products include Cartoon Toys for the plaintiff’s legal services. The Court implied that these substitute products impose competitive pressure or restraints on the defendants; thus, the defendants do not have a dominant position. This standard is consistent with the 2013 landmark Chinese Supreme Court decision on Tencent discussed above. In addition, the Court took into consideration the second factor of the market definition, competitive pressure, in assessing market position.
The decision in this case blurred the concepts of market definition and the determination of market position, even though it is correct to emphasize that a market definition is a necessary component of the plaintiff’s burden in an abuse of dominant position complaint. The PepsiCo decision held that once a relevant market is determined, the defendant’s share in that market can be used as a proxy for market power.39 Because of the “possibility of competition from new entrants, looking to current market share alone can be ‘misleading.’ ” “ ‘Entry barriers’ ” are factors (such as certain regulatory requirements) that prevent new rivals from timely responding to an increase in price above the competitive level.40 As a result, in addition to a finding of competitive restraints from substitute products, other factors should be assessed, including market share, barriers to entry and switching costs. A firm can still be found to possess a dominant position when substitute products exist because of constantly high market share combined with a high barrier to entry.
In sum, the market definition is a concept distinct from market power. One major distinction is that any effective competitive restraints must be strong enough to allow the firm to control the quality of the product or exclude competition. Such abilities depend on the barriers to entry and the switching costs of customers to substitute products. If customers have significant switching costs or there are high entry barriers, despite the existence of available substitute products, the competitive restraints from actual or potential competitors may not be strong enough to prevent or limit the firm’s ability to control price or quality or to exclude competition.
In discussing the decision by China’s Guangdong High Court on Tencent, this article analyzes a similarity and a distinction in the internet industry between market definition and market position in relation to a test on the effects of competitive restraints from substitute products. This test is required to define a relevant market as the essential part of the demand-side substitutability. First, the similarity. In the decision by China’s Guangdong High Court on Tencent, the Court held that Tencent did not hold a dominant position because of available substitute products. This article aims to clarify that the test for competitive restraints from substitute products should be applied in both defining the relevant market and in market position assessment. As the Microsoft decision by the District of Columbia Circuit states: “Because the ability of consumers to turn to other suppliers restrains a firm from raising prices above the competitive level, the relevant market must include all products “reasonably interchangeable by consumers for the same purposes.”41
However, the courts should also recognize, in the internet context, a distinction between these two concepts: In the market position assessment, the test should focus on whether competitive restraints are strong enough to prevent the firm’s ability to control quality or exclude other competitors. Such abilities depend on relevant factors, including market share of the firm, the barriers to enter the relevant market and the switching costs for customers among flagship products.
C. Ecosystem of Google and Comparable Product
In American Express, the U.S. Supreme Court ruled that the relevant market is defined as “the area of effective competition42 and courts should “combin[e]” different products or services into “a single market” when “that combination reflects commercial realities.”43 The Court made clear that although horizontal constraints, as the US Horizontal Merger Guidelines point out, may not require a definition of a relevant market, vertical restraints often pose no risk to competition unless the entity imposing them has market power, which cannot be evaluated unless the Court first defines the relevant market.44
The ecosystem that centers on Google’s general search engine can be demonstrated below:
This ecosystem centers on Google’s general search engine, which will attract advertisers, the ad buyers for Google’s online advertising intermediary business. Advertising revenues help provide financial support to publishers, who can focus on building content on third-party websites that provide free content to Google’s searchers. The large numbers of searchers help attract advertisers. Google also runs a website analytical tool to collect information for analyzing users’ website visits, Google Analytics, that monitors the websites. This is also referred to as “third-party cookies” placed in the users’ devices when visiting a website.
Advertising services on the organic search results or on third-party websites as inventory are the business sides of the search products. In other words, the company with the largest market share in the search engine market will accordingly have the largest share of advertisers. The share of advertisers will decide the market share in the advertising intermediation market. As a result, the ecosystem is interlinked and inseparable, and thus should be combined into one “single market,” as the U.S. Supreme Court held in the American Express decision. Accordingly, the anti-competitive effects should focus on the quality of the search engine service, which is the core product of the ecosystem. In conducting such an assessment, the effects on the size of the publishers and the owners of third-party websites should be considered because the third-party websites provide content on Google’s search engine services for the users. Google’s main competitor, Bing owned by Microsoft, runs a similar ecosystem that includes Bing Add as a substitute product for Google’s AdSense.
EU’S GOOGLE FINE AND DIGITAL AD MARKET
In assessing Google’s market power, there should be a test to determine whether Google has the ability to exclude Bing from any part of the ecosystem—in particular the core product, search engine services. For example, as of November 2015, the US Core Search Share is as follows:
According to an official Microsoft blog, since January 1, 2016, Bing started to power AOL’s web, mobile and tablet search,46 providing paid search ads and algorithmic organic search results to AOL’s properties worldwide. In 2019, while continuing to serve organic results and ads on the AOL network, Bing Ads started to power all search and ads on inventory on Aol.com, Yahoo.com, AOL Mail, Yahoo Mail, Huffington Post, TechCrunch and other Verizon-owned properties.47 This partnership also reflects the fact that the advertising platform is part of the search engine service, or at least depends on it.
As a result, this article suggests that all this relevant evidence should be taken into consideration in assessing whether Google has the ability to exclude competition in any part of the ecosystem, in particular the core search-engine product in the technology sector. The ecosystem of Google and Bing reflect the fact that the internet platform is already a multi-sided platform connecting many layers of businesses as interdependent businesses in one ecosystem. The core product of the ecosystem is the flagship product. This article suggests that the test should be whether Google would be able to profitably lower the quality of flagship products without losing users and advertisers. This approach is consistent with the EU definition of a dominant position in the sense that the assessment tests whether a firm can act independently of its customers.
D. Conclusion
In cases involving internet companies, a difficult decision must be made on whether companies like Google or Tencent, possessing a leading market share over a considerable period of time, should be treated as dominant firms. The firms may not have the ability to control the quality of the core product because they rely on the quality to attract and maintain the size of their customers to generate sufficient revenue from advertising. On the other hand, the companies do have advantages over their rivals. As this article suggests, if the advantages, or any bargaining power with trading partners, is based on the superior quality of the core product of the firms, they should not be considered to be in a dominant position. Otherwise, the incentive of leading Internet companies to maintain their leading positions with improved quality of their core products would be impaired. With that said, taking into consideration the ecosystem feature of an Internet company would protect the incentives of Internet companies to maintain high quality and constant innovations on their core products.
Actually, this suggestion is not foreign to the EU approach. As the EU Non-Horizontal Merger Guidelines provide:48 “Consequently, the fact that a merger affects competitors is not in itself a problem. It is the impact on effective competition that matters, not the mere impact on competitors at some level of the supply chain.” The Guidelines elucidate this position further through the case COMP/M.3653—Siemens/VA Tech (2005), in which the Commission concluded that “even if the merger had negative consequences for independent suppliers of electrical rail vehicles ‘sufficient competition would remain in the relevant downstream market for rail vehicles.’ ”49
This paper suggests that the market definition, assessment of market position and assessment of competitive effects all take into consideration the ecosystem feature of an Internet company, which depends on the success of the flagship or core products. Under this approach, the determination of market position and competitive effects of an Internet company in its business sector—in particular, the advertising platform or advertising intermediation—should take into consideration the effects on the quality of the core products of the technology companies, i.e., whether the Internet company would be able to lower the quality of its flagship products profitably without losing users and advertisers.
* Yang Yang, Attorney, Unitalen Law Firm, email: yang_yang@unitalen.com, website: http://www.unitalen.com/.
1 Digital Advertising Report, 25 Years of Digital Advertising, https://www.adobe.com/advertising/25th-anniversarydigital-ad.html. 2 Id. 3 https://www.emarketer.com/Article/Google-Facebook-Tighten-Grip-on-US-Digital-Ad-Market/1016494. 4 News about Alexa Ads sponsoring product ads, https://www.cnbc.com/2018/01/02/amazon-alexa-is-opening-upto-more-sponsored-product-ads.html. 5 https://www.adobe.com/advertising/adobe-advertising-cloud-features.html. 6 Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018). 7 United States v. Microsoft Corp., 253, F.3d 34, 51 (2001) (citing Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 218 (D.C. Cir. 1986) and United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, at 395. 8 C-6/72—Europemballage Corporation and Continental Can Company v Commission (1973); see C-27/76, United Brands v. Commission (1978). 9 Pepsico, Inc v. the Coca-cola Company, 315 F.3d 101 (2d Cir. 2002) (citing Brown Shoe, 370 U.S. at 324, 82 S. Ct. 1502); see, e.g., Spectrum Sports v. McQuillan, 506 U.S. 447, 459 (1993). 10 Qihoo v. Tencent (Chinese Supreme Court 2013), http://www.court.gov.cn/wenshu/xiangqing-7973.html (in Chinese). (Civil Final [2013] No.4) (the Court provided that “it is not necessary to have a definite and clear definition of a relevant market in every abuse of dominant lawsuit.” However, this article argues that a precise understand of this statement is that a definition of a relevant market is a required burden on the plaintiff but this definition does not need to be definite and precise, provided that the Plaintiff can provide direct evidence of anticompetitive effects.). 11 Anti-monopoly Law of the People’s Republic of China (promulgated by the Standing Comm. Nat’l People’s Cong., Aug. 30, 2007, effective Aug. 1, 2008), art. 12, Clause 2 [hereinafter Chinese AML] http://english.mofcom. gov.cn/article/policyrelease/Businessregulations/201303/20130300045909.shtml. 12 Explanatory Notes to Chinese Anti-Monopoly Law, [Zhong Hua Ren Min Gong He Guo Fan Long Duan Fa Zhu Shi], edited by Legal Committee of Standing Committee of the National People Congress, Art. 12, [hereinafter the AML Explanatory Notes]. 13 AML Explanatory Notes, Art. 12. When transportation capacity advances, some products can be transported to a further distance. As a result, a relevant geographic of a region inside China may be expanded nationwide. 14 Guidance of the Anti-Monopoly Committee of the State Council for the Definition of the Relevant Market, [Guo Wu Yuan Fang Long Duan Wei Yuan Hui Guan Yu Xiang Guan Shi Chang Jie Ding De Zhi Nan], promulgated by the State Council and came into effect on May 24, 2009, Art.3, Chap.1 [hereinafter “Market Definition Guide”]. 15 Market Definition Guide, Art.4, Chap.2. 16 Market Definition Guide, Art.4, Chap.2. 17 Market Definition Guide, Art.5, Chap.2. 18 Market Definition Guide, Art.6, Chap.2. 19 Market Definition Guide, Art.7, Chap.3. 20 United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 394 (1956) (In considering what is the relevant market for determining the control of price and competition, no more definite rule can be declared than that commodities reasonably interchangeable by consumers for the same purposes make up that “part of the trade or commerce” monopolization of which may be illegal.). 21 Qihoo v. Tencent (Chinese Supreme Court 2013), http://www.court.gov.cn/wenshu/xiangqing-7973.html (in Chinese). (Civil Final [2013] No.4). 22 Section 2.2 of the Antitrust Guidelines for the Licensing of Intellectual Property (hereinafter referred to as US Antitrust Guidelines for IPR) is issued by US Department of Justice and Federal Trade Commission on January 12, 2017. 23 Chinese AML, Art. 17, Chap. 3. 24 Paragraph 65 of Case 27/76 United Brands and United Brands Continental v. Commission [1978] ECR 207, and paragraph 38 of Case 85/76 Hoffmann-La Roche v. Commission [1979] ECR 461. 25 Paragraphs 42–48 of Case Hoffmann-La Roche v. Commission [1979] ECR 461. 26 Paragraph 113 of Case United Brands and United Brands Continental v. Commission [1978] ECR 207, and paragraph 330 of Case T-395/94 Atlantic Container Line and Others v. Commission [2002] ECR II-875. 27 Id. at 380 and 389 (citing Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, at 85 (1911)). 28 Id. at 380 and 381. 29 Pepsico, Inc v. the Coca-cola Company, 315 F.3d 101 (2d Cir. 2002). 30 Id. 31 Tangshan RenRen Information Service Ltd. vs. Beijing Baidu Network Technology Co., Ltd, (Beijing High Court July 2010), [Civil Final No. 489]. 32 AML, art. 50. 33 Tangshan RenRen Information Service Ltd. v. Beijing Baidu Network Technology Co., Ltd (Beijing No. 1 Intermediate People’s Court December 2009), https://www.chinacourt.org/chat/chat/2009/12/id/6418.shtml (in Chinese), [Civil First Instance No. 845]. 34 Qihoo v. Tencent (Chinese Supreme Court 2013), http://www.court.gov.cn/wenshu/xiangqing-7973.html (in Chinese). (Civil Final [2013] No.4). 35 Xu Shuqing v. Shen Zhen Tencent Computer System Co., Ltd. (Guangdong Higher People’s Ct., 2016), http://www.gdcourts.gov.cn/web/content/40604-?lmdm=1040 (in Chinese) (Yu Civil Final [2016] No. 1938 (Yu Min Zhong [2016] No. 1938). 36 Supra note 10. 37 https://www.wandoujia.com/ 38 https://android.myapp.com/ 39 Pepsico, 315 F.3d 101 (2d Cir. 2002), Supra note 29. 40 United States v. Microsoft Corp., 253, F.3d 34, 51 (2001). 41 Microsoft, 253 F.3d at 51 (citing Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 218 (D.C. Cir. 1986) and United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, at 395). 42 Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018) (citing Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U. S. 172, 177 (1965). 43 Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018) (citing United States v. Grinnell Corp., 384 U. S. 563, at 572 and Brown Shoe Co. v. United States, 370 U. S. 294, 336–337 (1962) (“the definition of the relevant market” must “ ‘correspond to the commercial realities’ of the industry”). 44 Ohio v. Am. Express Co., 138 S. Ct. 2274, 2285 n.7 (2018). 45 ComScore releases US desktop search engine rankings, November 2015, https://www.comscore.com/Insights/ Rankings/comScore-Releases-November-2015-US-Desktop-Search-Engine-Rankings?cs_edgescape_cc=US. 46 https://advertise.bingads.microsoft.com/en-us/blog/post/january-2016/bing-powers-aol-search. 47 In January 2019, Version, who owns Yahoo, and Microsoft, who owns Bing, announced that Bing Ads serve the Yahoo search inventory, including Aol.com, Yahoo.com, AOL Mail, Yahoo Mail, Huffington Post, TechCrunch and other Verizon-owned properties. https://searchengineland.com/bing-ads-will-serve-all-yahoo-search-ads-in-new-microsoftverizon-media-deal-310651. 48 Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings (2008/C 265/07), para. 16. 49 EU Non-Horizontal Merger Guidelines, Footnote 2 to Para. 16 (“the Commission assessed the effect of the transaction on the two complementary markets for electrical rail vehicles and electrical traction systems for rail vehicles, which combine into a full rail vehicle. While the merger allegedly reduced the independent supply of electrical traction systems, there would still be several integrated suppliers which could deliver the rail vehicle.”).