China: Big Data And Antitrust Risks In Close-Up: From The Perspective Of Real Cases

Big data is the new battleground to achieve the competitive edge. The digital market features both the first-mover advantage and a winner-takes-all environment. Without doubt, enterprises fight for data, and suppress rivals from access to data. China, as one of the world's largest Internet markets with the largest Internet user population, exemplifies the heated data game. The Alibaba and SF Express data sharing spat is a famous example. In 2017, Alibaba's logistic network, Cainiao, cut off its data interface for SF Express, one China's largest couriers, and removed SF Express as a courier option on its e-commerce platform Taobao.² The dispute was traced back to SF Express's refusal to share customer logistics tracking data in the name of customer privacy protection.³ Similarly, Cainiao's action was allegedly due to data security concerns. The matter was settled upon intervention by the State Post Bureau, China's courier service industry regulator. Similar disputes also occurred between Chinese tech giants Tencent and ByteDance, and between Tencent and Huawei, both of which will be discussed in this article. The yearning for data is overt among the leading companies, not to mention those smaller ones who remain far away from the tipping point.

The question is whether antitrust law has a role to play in regulating the competitive process for big data. By now the crossover seems to be inevitable and unstoppable. Across the world tech giants are often targets of competition law investigations. On the other hand, data protection laws have been increasingly applied in competition cases, such as the Facebook case in Germany which will be addressed in detail below. However, still there is a lot of space between "under-regulation" and "over-regulation."

The United States and China are examples of "under-regulation." Since United States v. Microsoft Corporation,⁴ and until recently, the U.S. regulators have not accused any tech giants of antitrust violations. Similarly, China's digital economy does not fall much behind that of the U.S. and was also criticized for the lack of antitrust enforcement in the digital markets for the past twelve years since the enactment of its Anti-Monopoly Law.⁵ In stark contrast, the European Union ("EU") is more aggressive in scrutinizing tech giants. The penalty against Google for abusing the dominance of its Android mobile operating system was a record-breaking EUR 4.3 billion⁶ and was just one of the three fines that Google was hit with in the EU. The EU's antitrust probe against Amazon is still ongoing for Amazon's dual role as a retailer and a marketplace and how it took advantage of seller data.⁷ More recently, the Commission also opened formal antitrust investigations to assess whether Apple's rules for app developers on the distribution of apps via the App Store violate EU competition rules.⁸ The EU Member States are also active in some prominent cases. While it may not be proper to characterize the EU enforcement as "overregulation", it is apparently on the other side of the spectrum from the U.S. or China. But is there a definitive point at which antitrust authorities should act righteously? There are no easy answers. Related topics have been repeatedly discussed, such as how network effects lead to dominance and how multi-homing complicates the analysis—all intricate issues but gradually falling back to clichés.

Instead of exploring theoretical ideas, this article will examine real cases. By looking at the circumstances surrounding and following those cases, it may be easier to have an instinctive appreciation for the role of antitrust law in the big data context. Specifically, this article will discuss: why the merger control regime might malfunction in start-up acquisitions; the increasing concern for pricing algorithms leading to a cartel situation; how to determine market dominance in a volatile digital market; the novel data-related abusive conduct analyzed from the antitrust perspective; and whether the long-lived essential facilities doctrine could still apply to big data. Each section will be accompanied by one or more high-profile cases in major jurisdictions.

I. START-UP ACQUISITIONS: THE LINGERING DIDI / UBER CHINA CASE

Start-up acquisition, particularly by large digital platforms, has become increasingly suspicious from the competition law perspective. This is the so-called "killer acquisition"— acquisitions of start-ups or nascent firms by dominant market incumbents. Start-ups begin with innovative projects, establishing customer base, and aggregating data pools, but often have not generated much revenue yet when turning themselves over to tech giants. Such acquisitions stifle potential competition by eliminating the potential threat posed by the start-up. Competition authorities in many jurisdictions are concerned that their merger review triggering thresholds are not broad enough to cover these kinds of transactions, particularly when the target firm has small turnover. On the other hand, even after reviewing, the authorities may not be quite confident that the existing theories of competitive harm will enable them to make the right decision, especially on data-driven capabilities in a rapid evolving market.

The 2016 Didi/Uber China acquisition is a typical case that generated heated discussions regarding China's merger control regime. On 1 August 2016, Didi Chuxing ("Didi"), a popular app-based ride-hailing platform in China, announced a strategic agreement with Uber China under which Didi would acquire all assets of Uber, including Uber's brand, business, and data. The acquisition ended a year-long price war between Didi and Uber during which drivers and passengers were attracted by both platforms through all kinds of allowance offerings. As a result of this deal, Didi would acquire market share of as much as 93.1% in the ride-hailing market in China.⁹ Although this is not a typical "killer acquisition" (neither of them is a dominant incumbent though Didi's market share is quite high even before the deal), the acquisition exemplifies how the notification threshold based on the parties' turnover could be under-inclusive, and upon intervention by the Chinese competition authority nonetheless, how hard it could be to establish competitive harm in an extremely dynamic market.

A. Notification Thresholds That Are Under-Inclusive for Data- Driven Capacities

As to notifiability, Didi announced publicly that its turnover in the preceding fiscal year did not meet the relevant thresholds.¹⁰ The turnover thresholds to trigger notification obligations in China are: the combined turnover of the parties exceeds CNY 2 billion (approx. USD 280 million) in China or CNY 10 billion (approx. USD 1.4 billion) globally; and the Chinese turnover of at least two of the parties to the transaction each exceeds CNY400 million (approx. USD 56 million). It was formulated when the Anti-Monopoly Law of China took effect in 2008 and has remained unchanged. Though widely criticized as too low to accurately mirror the economic reality in China, the thresholds still could not catch some high-profile transactions such as Didi/Uber China.

The case illustrates why turnover-based notifying threshold is under-inclusive, and cannot accurately reflect innovation capabilities based on data. The price war preceding this acquisition cost both Didi and Uber a significant amount of revenue. It was reported that Uber had suffered an annual loss of at least USD 1 billion in China.¹¹ Didi did not get rid of loss neither despite that it had possessed the data of more than 58.8 million users at that time.¹² The same reason goes to other start-ups and other jurisdictions. At an early stage, digital start-ups usually focus more on users and data than turnover. This is why Facebook's acquisition of Instagram was not reviewed by the European Commission and why, without a specific referral by national competition authorities, Facebook's acquisition of WhatsApp would not have been reviewed by the Commission.¹³ For the same reason, U.S. regulators are now revisiting hundreds of deals made by tech giants in the past decade that were not required to notify according to law.¹⁴

B. Assessing Competitive Harms and Innovation Incentives in a Dynamic Market

Similar to the U.S., the competition authority in China also has the power to investigate a potentially anti-competitive transaction even though it did not trigger notification in the first place.¹⁵ As early as September 2016, one month after the announcement of Didi/ Uber China, the then merger control authority of China—the Ministry of Commerce— announced that it had launched an investigation into the deal. Almost four years passed, during which an institutional reform in 2018 led to the birth of the State Administration for Market Administration ("SAMR") taking over the responsibility of merger review. The last time the case was mentioned was a press conference held by SAMR in November 2018. On that occasion, Wu Zhenguo, the head of the Anti-Monopoly Bureau of SAMR, unequivocally said that the deal was still under investigation and they were assessing the deal's impact on market competition and industry development.¹⁶ However, no decision has been made thus far.

Undoubtedly, it is no easy decision to challenge a start-up acquisition. Along with the traditional parameters—price, output, choice, and quality, a competition authority also has to consider innovation—a highly volatile parameter.¹⁷ Data-driven innovation is pivotal for a sharing economy like Didi. Typically, both Didi and Uber collect users' locations, time, frequency and other data to analyze user habits, so as to offer more targeted services. For example, by analyzing data distribution of hours and roads, they can improve service coverage, alleviate peak hour pressure, and enhance passenger load factor. In addition to perfecting the basic services as a ride-hailing platform, the true value of big data may lie in researching new business opportunities. To name a few, transportation data could be used for providing analysis and consulting services to other related businesses. Platforms could also sell push-up ads, or direct traffic to expand into new services such as social networking or e-commerce. Apparently, continuous accumulation of data is one of the motives for various digital platforms to strive till the end.

While it is difficult to assess data-driven competency in a rapidly evolving market, we could look back at what happened in the past four years after the deal. The investigation aside, Didi itself has undergone several crises and its reputation was hit hard since the Didi/ Uber China deal. Immediately after that, there were voices worrying about Didi's monopoly position. Drivers and passengers complained that they could no longer enjoy the allowances or discounts as before during the price war and there were even fare increases.¹⁸ Didi's policy of raising rates at peak hours led to a lawsuit alleging its abuse of dominance.¹⁹ Moreover, in 2018, Didi was under the spotlight again due to safety incidents and was questioned whether its monopoly position stimulated Didi's neglect of security.²⁰ At the same time the ride-hailing market in China continues to welcome new entrants. For instances, food delivery service platforms like Meituan, traditional taxi dispatching companies like Qiangsheng, car makers like BMW, and bicycle sharing service platforms like Hellobike, all have been or are positioning for ride-hailing service recently.²¹

As an ex ante regime, merger control is difficult in anticipating or even speculating about what will happen as a result of a transaction. If turnover, market share, or market concentration are no longer accurate indicators, reliance then falls on subjective standards such as innovation or efficiency. It is also uncertain for what term should the competitive concerns be evaluated— the year immediately after the transaction, five years, or longer. Didi may argue that easy access to ride-hailing market does not support government intervention in its deal, and new entrants can always keep Didi in check. However, an opposite narrative is, despite all the negative news regarding it, Didi still led the market in 2019 with an overwhelming market share, possibly more than 80%.²² If competition law is meant to intervene only to prevent the tipping point, merger control can be justified only when a transaction at issue is the exact cause of reaching that tipping point. However, it is hard to decide on the right moment to intervene. More often, due to fear of inaccuracy or falsification, competition authorities could be hesitant and involuntarily choose to not intervene.

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Footnotes

1. Ken ( Jianmin) Dai and Jet (Zhisong) Deng co-chair the Antitrust Practice Group of Dentons China. Ken Dai specializes in antitrust investigation, antitrust compliance, merger filing, and private antitrust litigation. Dr. Jet Deng focuses his practice in antitrust, data/privacy protection, and dispute resolution.

2. Data Sharing Cut Off as SF Express, Alibaba Spat Continues, CGTN (June 2, 2017), https://news.cgtn.com/news/3d67444e7945444e/index.html.

3. Id.

4. 253 F.3d 34 (D.C. Cir. 2001).

5. See Xu Liu, Antitrust Enforcement Should Not Tolerate Internet Oligopoly, The Paper (Aug. 29, 2018), https://www.thepaper.cn/newsDetail_forward_2390564 (criticizing the Internet giant for not filing merger notifications and circumventing antitrust reviews); see also Shanming Jin, Reflection and Transformation of China's Antitrust Law Research Approach, 34(04) Law Business Studies 71 (2017); Yang Cao, Legal Regulations of Behaviors of Abusing Comparative Advantage in the Internet Field, 34(03) Forum On Law 79 (2019).

6. Google Fined a Record $5 Billion by the EU for Android Antitrust Violations, The Verge ( July 18, 2018), https://www.theverge.com/2018/7/18/17580694/google-android-eu-fine-antitrust.

7. European Commission, Antitrust: Commission Opens Investigation into Possible Anti-competitive Conduct of Amazon ( July 17, 2019), https://ec.europa.eu/commission/presscorner/detail/en/IP_19_4291.

8. European Commission, Antitrust: Commission Opens Investigations into Apple's App Store Rules ( June 16, 2020), https://ec.europa.eu/commission/presscorner/detail/en/ip_20_1073.

9. Does Didi's Acquisition of Uber China Constitute an Industry Monopoly?, China Youth Daily (Aug. 5, 2016), http://zqb.cyol.com/html/2016-08/05/nw.D110000zgqnb_20160805_6-01.htm.

10. Id.

11. Didi Acquires Uber and Has 93.1% Market Share in China, Jiemian News (Aug. 4, 2016), available at https://www.jiemian.com/article/779605.html.

12. QuestMobile Data: Didi's Monthly Activity User Growth Ranks First with Nearly 200%, Sohu (Apr. 25, 2016), https://m.sohu.com/n/446105417/.

13. Marc Bourreau and Alexandre de Streel, Big Tech Acquisitions: Competition & Innovation Effects and EU Merger Control (Centre on Regulation in Europe Feb. 2020), at 15, available at https://www.cerre.eu/sites/cerre/files/cerre_big_tech_acquisitions_2020.pdf.

14. F.T.C. Broadens Review of Tech Giants, Homing In on Their Deals, The New York Times (Feb. 11, 2020), available at https://www.nytimes.com/2020/02/11/technology/ftc-tech-giants-acquisitions.html.

15. According to Article 4 of the Provisions of the State Council on the Thresholds for the Notification of Concentration of Undertakings, "[i]f a concentration of undertakings does not meet the notifying thresholds stipulated in Article 3 of these Provisions, but the facts and evidence collected in accordance with the prescribed procedures indicate that the concentration of undertakings has or may have the effect of eliminating or restricting competition, the competent department under the State Council shall conduct an investigation according to law."

16. SAMR: Conducting Anti-monopoly Investigation on Didi/Uber Merger According to Law, Xinhuanet (Nov. 16, 2018), http://www.xinhuanet.com/fortune/2018-11/16/c_129995829.htm.

17. Bourreau & Streel, supra note 13, at 17-18.

18. Is Didi's Price Increase a "Trouble" Caused by Monopoly?, Shanghai Financial News (Sep. 20, 2016), available at http://wap.cnki.net/touch/web/Newspaper/Article/SHJR20160920B020.html.

19. Huang Wende v. Didi Chuxing Technology Ltd., dismissed by Zhengzhou Intermediate People's Court of Henan Province; appealed to and heard by the Supreme People's Court of China on September 24, 2019 and not decided yet.

20. Media Questioned the Didi Incident: Did Didi Cooperate with the Police in a Timely Manner and Was It Suspected of Monopoly?, The Paper (Aug. 28, 2018), available at https://www.thepaper.cn/newsDetail_forward_2386317.

21. There Are New Players in the Online Ride-hailing Market. Can We Break the Monopoly of Didi?, 36KR, available at https://36kr.com/topics/819242074113.

22. Analysis of the Market Status and Competition Pattern of China's Online Ride-hailing Industry—Intensified Market Competition, Qianzhan Industry Research Institute ( June 16, 2020), https://www.qianzhan.com/analyst/detail/220/200616-8a21c418.html.

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