A whole new world: What Alibaba’s record antitrust fine means for retailers

In April, the e-commerce provider Alibaba was fined USD2.7 billion by China’s State Administration for Market Regulation (SAMR) for anti-competitive conduct. It is part of a global trend in competition investigations of online retail platforms (including organizations such as Compare the Market and Google). Consequently, it is important for retailers and manufacturers using online platforms to be aware of the potential legal risks in their supply arrangements with online platforms, and also of competition compliance more generally. To manage these risks, DLA Piper’s Aiscension tool may be of assistance.

Enforcement decisions against online platforms

Alibaba’s record fine followed a four-month investigation by SAMR into Alibaba’s arrangements with retailers. SAMR was concerned that Alibaba’s “choose one of two” practice, by which Alibaba prohibited retailers from participating in promotional activities of rival platforms while doing so on Alibaba. This practice was supported by a system of incentives and penalties. SAMR considered it effectively forced retailers to deal exclusively with Alibaba and was anti-competitive.

With the Alibaba decision, SAMR joins a wave of global enforcement activity by antitrust regulators into online platforms.

• In November 2020, the UK’s Competition and Market authority (CMA) fined price comparison website Compare the Market over GBP17 million for the inclusion of most-favored nation clauses with insurance companies. These clauses restricted insurers from offering better rates on other comparison websites and were found to deter insurers from lowering their prices.
• More recently, the European Commission opened an investigation into an online marketplace that prominently displays only certain sellers of products to the detriment of others, and the criteria by which the company allowed retailers to sell their products to a selected group of customers.

Ensuring competition compliance

Although competition regimes vary throughout the world, competition regimes universally prohibit agreements that have the effect of restricting or distorting competition on a given market. As the trend of recent decisions shows, this prohibition applies not only to traditional cartel arrangements but also to certain agreements or practices between online platforms and retailers.

Considering the above, retailers who sell their goods on online platforms should be wary of any terms which:

• limit the prices or discounts that they can set on the platform;
• restrict them from selling their products or offering discounts on other platforms;
• monitor the prices/ discounts they can offer on other platforms; or
• provide preferential terms only when certain criteria are met.

Not only might retailers have scope to resist such terms on competition law grounds, but even merely agreeing to the terms could lead to retailers themselves facing liability for a competition law infringement.

Retailers should also consider their own behavior on online platforms. While it is permissible for retailers to use online platforms to gather publicly available market intelligence, retailers should refrain from using online platforms to coordinate prices with competitors (even through automated price fixing algorithms). Not only did the CMA recently fine an online seller for an arrangement with a competitor not to undercut each other’s prices on an online marketplace, but it further disqualified the managing director of the retailer for five years.

Conclusion

It is likely that arrangements between retailers and online platforms will continue to be subject to enhanced scrutiny by global competition authorities. Regulators will place similar scrutiny on the extent to which retailers use online platforms to coordinate activities with competitors.

Retailers with concerns about such behavior in their business may find that DLA Piper’s award-winning Aiscension service will be of benefit.

Aiscension is a cartel risk-management service that uses AI to help detect risks in a business. It combines AI tools with DLA Piper’s renowned legal knowhow to audit businesses for cartel risks. Aiscension is faster, more effective and better value than existing reviews, and helps to ensure that any business can spot potential issues and deal with them appropriately. Aiscension can help identify cartel risks before they become a regulatory investigation and maximize the chance of securing regulator leniency and immunity.

For further information regarding Aiscension please contact Ilan Sherr.