By Susan Ning, Liu Jia and Huang Jing
On April 24, 2012, TV.SOHU.COM, v.QQ.COM,and iQIYI.COM (the specialized video website of Baidu)jointly announced the establishment of an alliance called "Video Content Cooperation" (VCC) for vedio copyright joint purchasing. The VCC is viewed as another "faction" after the recent combination of Youku and Tudou. It is reported that the main purpose of the VCC is to jointly purchasing the copy right for their own each website.1
TV.SOHU.COM, v.QQ.COM, and iQIYI.COM are all internet video websites and are close competitors. Their cooperation may affect the competition status in the market. This article will analyze under the Anti-Monopoly Law (AML) whether joint purchase arrangement could constitute "horizontal monopoly agreement".
- Typical horizontal monopoly Agreement
Article 13 of the AML clearly lists five types of horizontal monopoly agreements between competitors that are prohibited, including price fixing, production quantity or sale quantity restriction, dividing sales market or procurement market of raw materials, restricting the procurement of new technologies or new equipment or restricting the development of new technologies or new products, and jointly boycott. The National Development and Reform Commission ("NDRC"), responsible for price-related monopoly agreements and the State Administration for Industry and Commerce ("SAIC"), responsible for non-price-related monopoly agreements both enacted implementing rules for prohibition of the monopoly agreements. These implementing rules list some conducts that shall be deemed as horizontal monopoly agreement:
|Category||Conducts||Authority in charge|
• Fixing or changing price level of products.
|Production and Sales restriction||• Restricting the production volume of products, or restricting the production volume of specific kinds or types of products by means such as limiting, fixing production volume, stopping production, etc.
• Restricting the sales volume of products or restricting the sales volume of specific kinds or types of products by means such as refusing to supply, limiting the launch volume of products, etc.
|Market division|| • Dividing the sales regions, sales targets or categories and volume of products.
• Dividing the procurement regions, categories and volume of raw materials such as (basic) raw materials, semi-finished goods, parts and components and related equipment, etc.
• Dividing the suppliers of raw materials such as the (basic) raw materials, semi-finished goods, parts and components and related equipment, etc.
|Restriction on New Technology||• Restricting the purchase or use of new technologies or new process.
• Restricting the purchase, lease or use of new equipments;
• Restricting the investment in, the R&D of new technologies, new process or new products;
• Refusing to use new technologies, new process or new equipments;
• Refusing to adopt new technical standards.
|Jointly Boycott||• Jointly refusing to supply or sell products to particular undertakings;
• Jointly refusing to procure or sell the products of particular undertakings;
• Jointly restricting particular undertakings to conduct business with undertakings competing against them.
- Joint purchasing and price fixing
The AML does not clearly list joint purchasing as one of the horizontal monopoly agreements. However, it is possible that parties to a joint purchasing arrangement jointly fix the purchasing prices paying to their supplier. Price fixing usually refers to competitors in the upstream market fixing their selling prices. It is not clear under the AML whether fixing the purchasing price by the competitors in the downstream market could constitute price fixing. Joint purchasing arrangements usually aim at creating countervailing buying power against upstream industry suppliers, in order to obtain raw materials at lower price. It may ultimately benefits consumers through the decrease of the final product’s price. While fixing selling price would usually lead to higher prices and harm the interest of consumers.
- EU regulation for joint purchasing
The EU rules may shed some light in this regard. The Guidelines on the horizontal co-operation agreements specifically analyzed joint purchasing arrangement. Under the EU rules, to see whether a joint purchasing arrangement violate the Article 101(1), it must be assessed whether it would give rise to competition concerns. To this end, two markets, i.e. relevant purchasing markets and selling market, need to be analyzed at the same time. The agreement related to fixing purchase prices will not be assessed separately, but in the light of the overall effects of the purchasing agreement on the market. It is recognized that, in general, joint purchasing arrangements are less likely to give rise to competition concerns when the parties do not have strong market powers on the selling market.
It is not clear under the AML whether the three internet video websites’ joint purchasing arrangement can be deemed as conclusion of horizontal monopoly agreement. Whether the establishment of VCC will cause competition concerns could be essential for the analysis. But such question may only be solved after observing the actual operation of the VCC.
1. On March 12, two Chinese Internet video giants Youku and Tudou announced that the two companies have signed a final agreement on March 11 to combine their services in a 100% stock-for-stock transaction to create a new service provider, Youku Tudou Inc. To read more, please refer to our article, titled "Lauch of Youku Tudou Inc."