Abuse of Market Dominance Under China's 2007 Anti ... - Springer Link

Rev Ind Organ (2012) 41:77–107 DOI 10.1007/s11151-012-9346-8

Abuse of Market Dominance Under China’s 2007 Anti-monopoly Law: A Preliminary Assessment Zhiyong Liu · Yue Qiao

Published online: 1 March 2012 © Springer Science+Business Media, LLC. 2012

Abstract In this article we introduce the abuse of dominance provisions in China’s Anti-monopoly Law (AML) that was enacted in 2007, and we put this in context by briefly describing the laws on the abuse of dominance that existed before the AML, and their relationship with the provisions in the AML. We then discuss the interpretation and enforcement of the AML’s abuse of dominance provisions, on the one hand generally in the context of China’s new market competition environment and its political-legal system, and on the other hand specifically through a consideration of some recent antitrust cases on the abuse of market dominance. Finally, we offer a preliminary appraisal of the law and its enforcement. Keywords Abuse of market dominance · AML · Antimonopoly · Antitrust · Antitrust enforcement · Market power

1 Introduction: China’s Relevant Competition Policies Before the Anti-monopoly Law In this article we introduce the abuse of dominance provisions in China’s Anti-monopoly Law (AML henceforth) that was enacted in 2007, and we also briefly describe the laws on the abuse of dominance that existed before the introduction of the AML and

Z. Liu Scott College of Business, Indiana State University, Terre Haute, IN 47809, USA e-mail: [email protected] Y. Qiao (B) School of Economics, Shandong University, 27 Shanda Nanlu, Jinan 250100, China e-mail: [email protected]

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their relationship with the provisions in the AML. We then turn to a discussion of the interpretation and enforcement of the new law, both generally in the context of China’s new market competition environment and its political-legal system, and also specifically by assessing some recent cases on the abuse of market dominance. We conclude with a preliminary appraisal of the law and its enforcement. Since the AML is still in its infancy, there have been only a small number of cases that have been brought and/or ruled on to date, and so the analysis of the law must be regarded as tentative and preliminary, until more of the implications and dynamics of the law can be observed in the future.

1.1 The Evolution of China’s Recent Competition Policy on the Abuse of Dominance In the past three decades China experienced spectacular economic growth along with its economic reform, transforming a socialist planning economy into a market-oriented economy. As is well known, the rules or institutions that govern economic behavior, especially the ones governing market competition, are crucial for economic performance. Therefore, it is essential to investigate the institutional change, and specifically the evolution of its competition policy,1 behind the economic growth of China. In contrast to Eastern Europe’s big bang market reform strategy in the 1990s, China is famous for its gradualist reform philosophy.2 Consistent with this general sense of gradualism, China’s competition policy has evolved over time with a marginal accumulation of rules that have been established by various administrative and legislative branches. This evolution of China’s market competition rules reached its peak in August 2007, when China passed its first comprehensive anti-monopoly statute: the AML. In the early stages of its economic reform, China took mostly a “dual-track” approach (see Lau et al. 2000; Xu 2011), with a significant proportion of economic transactions running under the planning system, and the rest operating experimentally under the market mechanism. The market-based portion grew over time, with the gradual introduction of private firms and township-village enterprises (see Che and Qian 1998; Jin and Qian 1998) into the economy, and the rules of competition in this domain were mainly set and enforced by administrative branches of the central government. When the market-based percentage expanded into a dominating one in the economy, the effectiveness (and appeal) of the substitution of administrative interventions for competition laws faded, and the economy demanded a comprehensive competition policy to promote efficiency, especially since the accelerated reform that started in the 1990s. We now briefly describe some of the competition laws that were enacted in the 1 Competition policy is, according to a definition given by Motta (2004, p. 30), “the set of policies and

laws which ensure that competition in the marketplace is not restricted in such a way as to reduce economic welfare”. 2 For discussions on gradualism versus big bang approaches for the transition to a market economy, see Li (1999), Wei (1997), Woo (1994), Sachs (1993), Dewatripont and Roland (1992, 1995), and Lipton and Sachs (1990).

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1990s relevant to preventing and punishing the abuse of dominance, or monopolization behavior.

1.1.1 1993 Anti Unfair Competition Law The Anti Unfair Competition Law enacted in 1993 was China’s first competition law. It mostly aimed at consumer protection and the prevention and punishment of fraudulent commercial practices, such as ignoring others’ registered trademarks, bribes, false advertisement, and the infringement of business secrecy. However, part of the law is related to preventing and penalizing the abusive behavior of dominant firms. Article 6 prohibits exclusive dealing by public utilities and other enterprises that legally monopolize their markets. Article 11 forbids predatory pricing for the purpose of raising entry barriers or inducing the exit of competitors. Article 12 prohibits forced tying and bundling in selling commodities. The Anti Unfair Competition Law is not as comprehensive as the AML in terms of dealing with abuse of dominance, and more importantly, as pointed out by Lin (2003), it is enforced primarily by the State Administration of Industry and Commerce (SAIC)3 and its local branches, which traditionally have been ineffective in deterring and penalizing violations by local interests due to sectoral and regional protectionism.

1.1.2 1997 Price Law The 1997 Price Law was enacted to regulate the pricing behavior of both firms and of the government.4 Relevant to behavior that constitutes an abuse of a dominant market position, Article 14 prohibits any firm from price fixing, dumping commodities at below-cost prices to damage competitors, and price discrimination. The Price Law is enforced by the National Development and Reform Commission (NDRC)5 and by local price administration agencies.6 Again this may hamper the effectiveness of enforcement given the existence of capture by local interests to some extent (see Lin 2003).

3 The SAIC is an administrative agency under the State Council, and it is traditionally responsible for protecting market order. Its other duties include “administration of business licenses, registration of trademarks, and enforcement of other laws such as the Trademark Law and the Advertisement Law” (Lin 2003, p. 23). 4 Pricing behavior of the government includes the government-guided prices and the government-set prices, as explained in Article 3 of the Price Law. 5 The NDRC is a macroeconomic regulatory agency (widely-perceived as having the broadest range of authorities on economic policies) under the State Council, with a mandate to develop national economic strategies, long term economic plans, and annual plans. Besides its many responsibilities, it is in charge of organizing and enforcing the pricing regulations. See details (in Chinese) at: http://www.ndrc.gov.cn/jj/ default.htm. 6 Most local (county, city, and provincial-level) agencies in charge of pricing regulations corresponding to the NDRC are named “Development and Reform Commission (DRC)” at the local levels, but some of them still maintain the old name of “Pricing Bureau”.

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1.1.3 2007 Anti-monopoly Law After the Anti Unfair Competition Law and the Price Law were passed, several sectoral or regional regulations and some amendments to previous rules were enacted. All of these in general do not deal with anti-competitive behavior in an integrated and comprehensive way. After several years of preparation from various administrative and legislative branches (and competition for acceptance of their own versions of the law), China passed its first Anti-monopoly Law in 2007 (effective from August 1, 2008), which will be our focus of discussion in this article. In particular, we will review the AML’s provisions that regulate the anticompetitive behavior of dominant firms with market power. 2 Abuse of Market Dominance Under China’s Anti-monopoly Law As listed in Article 1 of the AML, “This Law is enacted for the purpose of preventing and restraining monopolistic conduct, protecting fair competition in the market, enhancing economic efficiency, safeguarding the interests of consumers and the social public, promoting the healthy development of the socialist market economy”. Thus, the purpose of China’s AML is to prevent and restrain monopolistic conduct. One of the most important kinds of monopolistic conduct is the abuse of dominant market positions. Market power itself, even monopoly, is not a negative per se, since economies of scale and other efficiency reasons may result in a market equilibrium with asymmetrically large firms. What is detrimental to efficiency or total surplus7 is firms’ abusive use of their market power in lessening competition. An abuse of dominance will either raise barriers to the entry of potential competitors or damage existing competitors (sometimes inducing their exit), to benefit the dominant firm at the expense of lowering total surplus. Therefore, some authors (for instance, Tor 2010, p. 847) call the abuse of dominance as a violation “on the road to monopoly”. From the perspective of having a deterrent effect on violations that might damage efficiency, restraining monopolization or the abusive use of market power might be arguably the most important task of the AML.8 2.1 Abuse of Dominance Provisions in the AML Article 6 of the AML generally forbids abuse of dominant positions: “Any business with a dominant position may not abuse that dominant position to eliminate, or restrict competition”. Then Article 17 lists the particular abuses of dominance that are prohibited: Article 17 A business operator with a dominant market position shall not abuse its dominant market position to conduct the following acts: 7 Total surplus is defined as the sum of consumer surplus and producer surplus. 8 Whinston (2006, p. 2) summarizes that antitrust analysis can be roughly classified into two categories,

one dealing with “collusion” (broadly defined), and the other with “exclusion”.

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(1) selling commodities at unfairly high prices or buying commodities at unfairly low prices; (2) selling products at prices below cost without any justifiable cause; (3) refusing to trade with a trading party without any justifiable cause; (4) requiring a trading party to trade exclusively with itself or trade exclusively with a designated business operator(s) without any justifiable cause; (5) tying products or imposing unreasonable trading conditions at the time of trading without any justifiable cause; (6) applying dissimilar prices or other transaction terms to counterparties with equal standing; (7) other conduct determined as abuse of a dominant position by the Anti-monopoly Authority under the State Council. The AML defines a “dominant market position” as a market position held by a business operator having the capacity to control the price, quantity, or other trading conditions of commodities in the relevant market, or to hinder or affect any other business operator to enter the relevant market. Specifically, Articles 18 and 19 delineate the characteristics that will identify a dominant market position. Article 18 The dominant market position status shall be determined according to the following factors: (1) the market share of a business operator in the relevant market, and the competition conditions in the relevant market; (2) the capacity of a business operator to control the sales market or the raw material procurement market; (3) the financial resources and technical capabilities of the business operator; (4) the degree of dependence of other business operators on the business operator in transactions; (5) the level of difficulty for other business operators to enter the relevant market; and (6) other factors relating to the determination whether the subject business operator has a dominant market position. Article 19 Where a business operator exhibits any of the following circumstances, it may be assumed to have a dominant market position: (1) the relevant market share of a business operator accounts for 1/2 or more in the relevant market; (2) the joint relevant market share of two business operators accounts for 2/3 or more; or (3) the joint relevant market share of three business operators accounts for 3/4 or more. A business operator with a market share of less than 1/10 shall not be presumed as having a dominant market position even if it falls within the scope of the second or third item. If a business operator who has been presumed to have a dominant market position can present evidence showing otherwise, it shall not be determined as having a dominant market position.

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Some general comments are in order here: Article 17 lists particular abuses of market dominance: extortionate prices; predatory pricing; refusal to deal; exclusive dealing; tying without justifiable cause; price discrimination, and other unspecified conduct. Article 18 identifies the factors to be taken account of when determining a position of market dominance. Article 19 articulates a quantitative approach to the identification of market dominance. Considering all three articles, we can see the following main characteristics of the AML with regard to identifying abuse of market dominance violations: First, compared with the relevant provisions in previous laws such as the Anti Unfair Competition Law and the Price Law, the AML is more comprehensive, covering more aspects of the abusive behavior of dominant firms. Second, the AML takes a twostep approach in dealing with abuse of dominance violations: the first step is to identify the market dominance status including joint market dominance as reflected in Article 19;9 the second step involves checking whether violations have taken place. Third, as to what constitutes abuse of dominance violations, the AML mostly takes a rule-of-reason instead of a simple “black-letter-rule” approach (see Ordover and Saloner 1989 for a survey of the debate on the comparative advantages of simple judicial rules versus rule of reason in antitrust).10 Besides the listed violations, Article 17(7), a catch-all provision, allows the anti-monopoly authority to prosecute “other conduct determined as abuse of a dominant position”. Furthermore, the anti-monopoly authority has broad flexibility to determine what constitutes “justifiable” causes for certain practices that seem to be abusive of dominant market positions. The rule-of-reason approach indeed gives more flexibility in antitrust enforcement; but on the other hand, the extensive discretionary power also requires that the enforcement authorities have a much greater understanding of economics principles. Otherwise, the vague provisions in the law may prove ripe for misuse (or at least confusion) by the regulators. This will be further discussed in the next section on enforcement.

9 Joint dominance is also regulated under the 1986 Canadian Competition Act (Church and Ware 1998). Iacobucci and Winter (2010a) report that recently the Canadian Competition Bureau offered new draft guidelines on joint abuse of dominance. Under the new guidelines, the Bureau no longer considers the adoption of facilitating practices for supra-competitive pricing as a potential abuse of joint dominance. On the other hand, in the assessment of abuse of joint dominance, the Bureau no longer requires some form of explicit coordination; rather, now it may consider parallel abusive conduct by jointly dominant firms as potential violation of the abuse provisions. In a separate paper (Iacobucci and Winter 2010b) using a dynamic collusion model, they demonstrate that duopoly firms, by signing long-term exclusionary contracts (abuse of joint dominance), might more easily (jointly) achieve and maintain exclusion than can a monopolist. 10 In line with Europe’s recent advocacy of a more “economics-based approach” in implementing competition policy (Vickers 2005, 2008), the US antitrust legal standard seems also to be evolving more toward a rule-of-reason approach. For example, in the landmark decision Leegin v. PSKS Inc. of June 28, 2007, the US Supreme Court overturned the long-standing precedent of per se illegality of resale price maintenance, and decided that all vertical price restraints should be judged by the rule of reason standard (Katsoulacos 2009).

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2.2 Relation to Relevant Provisions in Previous Competition Rules As described in Sect. 1, many previous laws and regulations already dealt in part with abuse of market power violations. However, the AML establishes a framework that is much more comprehensive and effective than were its predecessors in dealing with abuse of dominance. For example, Article 6 of the Anti Unfair Competition Law forbids public utilities and other enterprises from engaging in exclusive dealing, but it only applies to such firms with a legal monopoly status. In contrast, the exclusive dealing clause in Article 17 of the AML applies to all firms with significant market power. Article 11 against predatory pricing in the Anti Unfair Competition Law does apply to a broader range of firms, not just firms with dominant positions, but it only lists four possible exceptions for below-cost pricing to be justifiable, while Article 17(2) of the AML allows more flexibility in determining illegality. Similar observations can be made about Article 12 of the Anti Unfair Competition Law compared with Article 17(5) of the AML in dealing with tying and other conditional sales. In particular, the phrase “without justifiable cause” in Article 17(5) of the AML allows more flexibility in shielding justifiable tying (see Tirole 2005; Ahlborn et al. 2004; Mathewson and Winter 1997; Whinston 1990; Baldwin and McFarland 1963; and Burstein 1960 for discussions of tying sales) and other restrictive sales from antitrust charges. Article 14(1), (2) and (5) of the Price Law follows a similar approach to the Anti Unfair Competition Law in combating price fixing, predatory pricing and price discrimination. In comparison, the AML’s treatment is both more comprehensive and flexible. The higher degree of comprehensiveness of the AML is consistent with the goal of making this law able to deal with anticompetitive behavior in a more integrated fashion. The flexibility that is built into the AML in principle would be conducive to increasing the effectiveness of China’s antitrust effort, but this outcome is conditional on a strong and competent enforcement mechanism, which will be discussed below. 3 Enforcement of the Law and Cases on Abuse of Dominance An effective enforcement mechanism is crucial for achieving the objectives of an antitrust law. In China, the effectiveness of even the general legal system is to some extent restricted due to its weak enforcement, which is a shared characteristic of many developing countries. With particular relevance to antitrust enforcement, on the one hand it is often subject to administrative interventions into the judicial process,11 which 11 Under the current structure of China’s court and political systems, local governments have considerable influence on the selection and promotion of judges, as well as on the financial and material resources that are available to the courts. A recent case of administrative intervention in the midst of litigation can be found in QQ v. 360, where a government agency, the Ministry of Industry and Information Technology (MIIT), intervened to request QQ to restore its compatibility with 360 software following media reports and users’ online protests about the inconvenience that had been caused by the incompatibility. A summary

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damage the independence of the judicial system;12 and more importantly, on the other hand, it hinges on how well the regional and/or sectoral administrative monopoly issue can be addressed (see also Zhang and Zhang 2007), since in many cases the abuse of market dominance in China is very much correlated with regional and sectoral administrative monopoly. The regional and sectoral protectionism is a strong constraint in pursuing efficient antitrust enforcement. 3.1 The Landscape of China’s Anti-monopoly Enforcement Structure and the Anti-monopoly Commission Before the AML, most competition laws and regulations were enforced by corresponding administrative agencies and their local branches. For instance, the Anti Unfair Competition Law was enforced by the SAIC and its local agencies. The Price Law was enforced by the NDRC and its local agencies. This is problematic at least on two grounds. First, the effectiveness of enforcement by administrative agencies, which typically have other objectives that interfere with or even conflict with the antitrust goal, is devalued, especially when it is enforced by the local agencies who are disposed towards protecting local business interests; and second, enforcement by various agencies that encounter similar antitrust violations may be subject to differential standards, resulting in the absence of a unifying criterion in terms of expected punishment and deterrent effect. The enactment of the AML unfortunately did not change the basic landscape of China’s anti-monopoly enforcement. In practice, the State Council divides antimonopoly authority into three agencies: the Ministry of Commerce (MOFCM), the National Development and Reform Commission (NDRC), and the State Administration of Industry and Commerce (SAIC). MOFCM is in charge of merger control. NDRC has jurisdiction over anticompetitive agreements, abuses of market dominance and abuses of administrative power that eliminate or restrict competition, provided that the anticompetitive conduct is related to pricing. SAIC is responsible for investigating and sanctioning the same types of anticompetitive conduct as the ones under the jurisdiction of the NDRC, except that the violations are not related to pricing.13 Therefore, the NDRC and SAIC are both responsible for controlling the abuse of dominance. The former is in charge of parts (1) and (2) of Article 17 of the AML, while the latter is in charge of the remaining parts. Footnote 11 continued of the case report (in Chinese) can be found at http://cyqfy.chinacourt.org/public/detail.php?id=1500. More information on this case is provided below. 12 The administrative interventions may not necessarily reduce efficiency in specific cases, but on average they create a veil of uncertainty for anticipation of what rule will be applied to future business conduct, and another veil of uncertainty for the credibility and deterrent effect of the law.This may especially reduce the credibility and deterrent effect of the law for local business interests, which often benefit from interventions by local governments out of regional or sectoral protectionism. 13 The SAIC is also responsible for enforcing another competition-related law: the Anti Unfair Competition

Law.

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This division of authority may cause overlap, and hence disputes, between these two agencies. Since most non-price violations might result in price-related effects, distinguishing the responsibilities of the two agencies may become problematic, and coordinating their policies will be challenging. Even though it is not a comprehensive solution to these concerns, the AML’s requirement to create an independent enforcement authority—the State Council Anti-monopoly Commission (SCAC)—is a great step forward. The SCAC has been established under Article 9 of the AML. According to the AML, its responsibilities put it “in charge of organizing, coordinating, guiding anti-monopoly work”.14 However, the SCAC acts as a policy maker rather than an enforcement agency. As discussed above and confirmed by some recent cases (e.g. see QQ v. 360), the road to effective enforcement that is isolated from local business and administrative captures is still a long one to travel. Nevertheless, the establishment of the SCAC is conducive to the building of a more effective and comprehensive antitrust enforcement mechanism in China. For instance, the SCAC has provided guidelines for relevant market definitions,15 which are helpful to courts that hear antitrust cases, as is reflected in Renren v. Baidu,16 which is discussed below. Furthermore, since many cases will be resolved through private litigation, the passage of the AML itself is a great step towards a more effective antitrust enforcement, because it at least provides a more unifying and comprehensive framework than did previous laws and regulations for plaintiffs and courts to identify and combat antitrust violations, or for entities to avoid potential violations from the deterrent effect perspective (a more effective “shadow of the law”). However, the time is still too recent since the inception of the AML to evaluate the overall performance of the new enforcement framework, with only a few cases brought under the new AML to date, and given the fact that all these cases have been private legal actions and not public prosecutions. The Government’s strategies through its enforcement agencies and their actions have not yet been revealed.

14 Specifically, according to Article 9 of the AML, the Anti-monopoly Commission is charged with carrying out the following responsibilities or duties: (1) to research and formulate competition policies; (2) to organize investigations, assess the overall market competition conditions, and publish assessment reports; (3) to formulate and promulgate anti-monopoly guidelines; (4) to coordinate the anti-monopoly administrative enforcement work; and (5) to undertake other duties as designated by the State Council. 15 On May 24 2009, the SCAC issued its Guidelines on Relevant Market Definition and posted them on the Ministry of Commerce website on July 7 2009 (in Chinese), http://www.gov.cn/zwhd/2009-07/07/ content_1355288.htm. 16 See the summary of the case report (in Chinese) at: http://bj1zy.chinacourt.org/public/detail.php?id=612,

and the summary of judgment (in Chinese) at: http://bj1zy.chinacourt.org/public/detail.php?id=675.

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3.2 Guidelines and Regulations Related to Enforcement of the AML Against the Abuse of Dominance As supplements to the general provisions of the AML, guidelines and regulations issued by the enforcement agencies that specify more explicit rules, methods, and factors that underlie the provisions in the AML are important for the actual enforcement of the law. In May 2009, the State Council’s Anti-monopoly Commission issued a guideline for identifying relevant markets, for the purpose of enforcing the AML. The guideline depicts in detail the factors and steps in identifying a relevant market. It emphasizes the need to account for substitutability in demand, supply or geographic locations when identifying relevant markets. Chapter 3 specifies the method and factors to consider in identifying relevant markets, and Chapter 4 articulates the specific method of implementing the hypothetical monopoly test. In December 2010, the SAIC released the Regulation on Prohibiting Abuse of Dominant Market Positions. The regulation provides more specific guidelines on the abuse of dominance provisions in the AML. For instance, Article 4 of the regulation lists different kinds of specific refusal to deal behavior by dominant firms. Articles 5–7 specify in detail the abusive practices of dominant firms in terms of exclusive dealing, tying or restrictive sales, and discriminatory trading, respectively. Similarly, other articles in the regulation provide more explicit explanations about identifying dominant positions in relevant markets, enforcement and legal liabilities, etc. Also in December 2010, the NDRC released the Regulation on Anti Price Monopoly, which provides more specific guidelines on enforcing the AML’s provisions on anticompetitive pricing behavior. In particular with regard to abuse of dominance, Articles 11–19 of the Regulation specify violations of Article 17 of the AML in detail, and they specify much more explicitly the ambiguous “justifiable” causes in Article 17 of the AML,17 making those provisions more workably operational, which will be very helpful for the courts and public enforcement agencies in dealing with lawsuits or violations. Article 17 of the Regulation defines a dominant market position in greater detail, emphasizing a dominant firm’s ability to control and influence the relevant market conditions.

17 For example, Article 12 of the Regulation lists a few justifiable causes of selling commodities at belowcost prices, which shall not be determined as predatory pricing: (1) on sale of seasonal or fresh products with close expiration dates, and on sale of over-inventory products; (2) liquidation of assets in the process of bankruptcy or reorganization; (3) promotional sale of new products, and (4) other justifiable reasons for selling products at below-cost prices.

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3.3 Recent Antitrust Cases on Abuse of Market Dominance There are some dozen private antitrust actions relating to alleged abuse of market dominance that have been heard in the courts in China since the AML became effective in August 2008.18 We now discuss some of these cases.19 3.3.1 Sursen v. Shanda and Xuanting This case was the first court ruling in a dominance case under China’s AML. Shanda Interactive Entertainment Ltd. (Shanda) and Shanghai Xuanting Entertainment Co. Ltd (Xuanting) co-own China Qidian Net (Qidian, http://www.qidian.com), a Chinese online literature hosting website. Qidian published one of the most popular online Chinese novel series, called “Star Change”. Later, Reading Bar Net (http://www.du8. com), another Chinese online literature publisher owned by Beijing Sursen Electronic Technology Co. Ltd (Sursen), commissioned two authors to write a novel series entitled “Star Change Sequel”, which bore striking similarities to the content of “Star Change”.20 The “Star Change Sequel” soon gained widespread popularity among online readers as well. Shanda and Xuanting sued Sursen for infringement of their intellectual property. As a result of this suit, the authors of “Star Change Sequel” apologized to Qidian on Qidian’s website, and ceased publishing the sequel on Reading Bar Net. Later, Sursen filed a suit against Shanda and Xuanting for abuse of their dominant position in the Chinese online literature market. Specifically, Sursen claimed that Shanda and Xuanting’s restriction on the authors of “Star Change Sequel” from publishing their work on Sursen’s Reading Bar was a violation of Article 17(4) of the AML with regards to exclusive dealing. In order to prove Shanda and Xuanting’s dominant position in the Chinese online literature market, Sursen relied on several news articles including one on Qidian’s own website, all claiming Shanda and Xuanting possessed a market share well beyond 60% 18 An incomplete list of such cases filed up to date is: (1) Li Fangping v. Beijing Netcom; (2) Tangshan Renren v. Baidu; (3) Zhou Ze v. China Mobile; (4) Sursen v. Shanda and Xuanting; (5) Chongqing Western Bankruptcy Liquidation Ltd. Co. v. China Construction Bank; (6) Huzhou Yiting Termite Prevention Service Co., Ltd. v. Huzhou Termite Prevention Research Institute; (7) Zhongjing Zongheng Information Center v. Baidu; (8) ZhengMinjie v. Verisign China and ICANN re a to z.com; (9) ZhengMinjie v. Verisign China and ICANN re 0 to 9.com (in cases (8) and (9) the plaintiff alleged that the respondent engaged in conduct amounting to a refusal to deal, thus constituting an abuse under the AML); (10) Liu Fangrong v. Chongqing Insurance Association; (11) HudongBaike v. Baidu; (12) Li v. QQ (complaint filed with SAIC); and (13) Wuxi Baocheng Vehicle Cylinder Inspection Co. Ltd v. Wuxi China Resources Gas Co., Ltd.Chinese courts do not systemically publish case reports and judgments, but information on selected cases is released from time to time through “summary of the judgment” or “news of the case” by press offices of the courts. For all of the above cases, their basic information can be accessed at the website of China’s Supreme Court (in Chinese), http://www.chinacourt.org. 19 As the litigation information is typically not widely accessible by the public, the selection of cases that we discuss is mostly based on the availability of information, but to some extent also on the saliency and interest of the cases. 20 Not only that, the authors’ pen name is “Don’t Eat Tomato”, while the pen name of the author of “Star

Change” is “I Eat Tomato”.

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of the Chinese online literature market. Furthermore, Sursen claimed that Shanda and Xuanting’s exclusive dealing conduct lacked justifiable reasons. Shanghai No.1 Intermediate People’s Court21 heard the case, and it handed down the judgment in October 2009,22 dismissing Sursen’s claim, based on the following reasons: First, the court rejected anecdotal evidence as being sufficient to establish the respondent’s dominance status in the relevant market. The news articles did not clearly define a relevant market, nor did they specify the methodology and data that were used to reach their market share conclusions. In particular, the court pointed out that the news article on Qidian’s own website touting its dominant market share was more of a marketing or promotional effort rather than a scientific study.23 Even though Shanda allegedly had a dominant position in China’s online gaming business, the court in fact did not find that Shanda and Xuanting had a dominant position in the “online literature market”, as the plaintiff had not proven the relationship between the respondent’s online literature market and its online gaming business. Second, the court discovered that the respondent’s conduct of protecting its intellectual property rights and preventing the plaintiff from misleading the public to believe that the sequel was written by the same author of the original series was “justifiable”. Sursen appealed the decision, but the Shanghai Higher People’s Court dismissed the appeal and upheld the first instance court in December 200924 based on the same reasons put forward by the lower court. This case emphasized the evidentiary threshold in supporting a plaintiff’s claims. The evidence has to be “objective, fair and accurate”. Anecdotal evidence does not suffice for that purpose. Also, it is necessary to identify clearly relevant markets to establish the presence of market dominance. The case reaffirmed that the AML does not prohibit dominance, but only abuse of dominance. 3.3.2 Renren v. Baidu As one of the first private antitrust lawsuits brought under the AML, this case received tremendous attention from both economists and lawyers. Tangshan Renren Information Service Co. Ltd (Renren) complained in November 2008 to the SAIC that Beijing Baidu Netcom Science and Technology Co. Ltd (Baidu) abused Baidu’s dominant market position to manipulate its search ranking results, as a means to coerce Renren to use more of its paid search advertising service, violating the exclusive dealing provision 17(4) of the AML. 21 Under China’s court system, besides the national highest court—the Supreme People’s Court of the People’s Republic of China—there are three levels of courts in each province: the County or District People’s Court, the Intermediate People’s Court, and the Higher People’s Court. 22 See a summary of the judgment (in Chinese) at http://ipr.chinacourt.org/public/detail_sfws.php? id=33654. 23 The court pointed out that Reading Bar Net itself also claimed to have a dominant market share in the online literature market on its own website, which again does not constitute a proof of actual market share. 24 See more information (in Chinese) at http://www.chinalawinsight.com/2010/10/articles/corporate/

antitrust-competition/accaaaecaccaceaa-aecaaaeeaaaaeeaea/.

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The SAIC had not responded by April 2009, when Renren filed a private suit against Baidu. On December 18 2009, Beijing No.1 Intermediate People’s Court publicly released its judgment, dismissing Renren’s abuse of dominance claim for failure to satisfy the burden of proof. Baidu is the leading Chinese language search engine provider. Similar to Google and Yahoo!, Baidu provides free search engine services to Internet users; on the other hand it offers a paid search advertising service to firms, which provides most of its operating revenues.25 Baidu’s paid search ranking service is implemented in a similar fashion to Google’s AdWords, where the client firms bid for search ranking listing slots for keyword searches.26 However, unlike Google and Yahoo! which distinguish the natural (organic) search results from paid search ranking results,27 Baidu mingles the natural search results (called “Baidu Quick Webshot”) with paid advertising search results (called “Promotion”) together. This unavoidably decreases the accuracy and reliability of Baidu’s search ranking results, and in many cases, unsophisticated Internet users may not discern the difference between these two categories of search results. Renren is an operator of a medical information intermediary website—http://www. qmyy.com. Renren started using Baidu’s search advertising service to promote its website in March 2008. When 3 months later Renren reduced its spending on Baidu’s search advertising service, it immediately witnessed a sharp reduction of visits to its website, and Renren found that Baidu had actually blocked its website from searches. Renren accordingly alleged that Baidu had abused its dominant market position to coerce Renren to use more of its search advertising service, violating Article 17(4) of the AML which prohibits exclusive dealing without justifiable cause. To prove Baidu’s market dominance status, Renren relied on two news articles from the media, both reporting Baidu’s dominant market share in China’s search engine market, which significantly surpasses the 50% threshold in Article 19(1) of the AML. In the lawsuit, Renren sought damages of 1.106 million RMB (about US$162,051) and removal of the omission of its website from search results through Baidu. In response, Baidu contested that Renren had not provided substantive evidence that proved that Baidu possessed market power, since the media articles that Renren submitted only reflected transitory and short-period estimations that were not based on scientific and objective methodology. Further, Baidu argued that since the search engine service is free to Internet users, it does not constitute a “relevant market” under the AML. Baidu did not contest that it had blocked Renren’s website, but argued that it did so because Renren’s website contained too many junk links, which triggered blockage by Baidu’s automatic search ranking algorithm aimed at enhancing the reliability and accuracy of search results for Internet users. Furthermore, Baidu argued that this 25 According to the 2008 annual report of Baidu.com, the revenue from online marketing services (mainly the search ranking service) accounts for 99.8% of its total revenue. 26 For a given keyword, firms bid for a ranking slot in the search results listings via a second price auction, i.e., the highest bidder wins the slot by paying the second highest bidding price. 27 For example, Google puts natural search results at the left-hand side of the screen, and puts the paid

advertising search results at the right-hand side.

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automatic ranking algorithm only affected the natural search results, but not the paid search ranking results, which were determined by auctions. Thus Renren’s reduction of spending on its search advertising service was irrelevant to the blockage. The Beijing No.1 Intermediate People’s Court dismissed Renren’s allegation of Baidu’s abuse of market dominance,28 on the ground that the plaintiff did not provide sufficient evidence to establish the defendant’s market dominance. The two news articles that were submitted by Renren did not clearly define a relevant market, and failed to specify the estimation methodology and underlying data in the computation of Baidu’s market share. Thus the plaintiff failed to provide sufficient information to prove the alleged dominant market position of the respondent. Specifically, the court commented that media exposures or popular perceptions cannot substitute for rigorous economic analysis in establishing market dominance in relevant markets. Moreover, the court found that Baidu’s policy of prohibiting junk links on websites to increase the reliability and accuracy of search information was transparent, and there was no evidence showing that this policy was discriminatory against Renren. Renren had in fact added many irrelevant junk links to its website in order to boost its ranking in the search result listings. However, the court rebutted Baidu’s argument that the search engine market is not a relevant market in the context of the AML because it provides free search engine services to Internet users. Based on Article 12(2) of the AML on defining relevant markets, the court identified the relevant market in this case as China’s search engine market. Even though it is free to Internet users, the search engine service is interdependent with other services and markets that charge consumers; thus the fact that it is free does not render the search engine market as not constituting a relevant market for antitrust purposes. However, because the plaintiff failed to establish sufficient proof of Baidu’s dominant position in the relevant market, and because Baidu showed evidence of legitimate business reasons for blocking Renren’s website, while Renren failed to provide substantive evidence that the blockage by Baidu constituted an abusive practice, the court rejected Renren’s petition for damages and removal of the blockage. Renren appealed to Beijing Higher People’s Court, but the trial is still in process at the time of writing. This case is important for several reasons, both from the perspective of ex post enforcement and from the perspective of ex ante precedent effect for future potential antitrust litigation parties: First, consistent with international standards, the court explicitly imposed an evidentiary threshold on the plaintiffs. They had to bear the burden of proof for their claims. On the one hand this has a deterrent effect on frivolous lawsuits, and on the other hand it enhances the efficiency of the antitrust mechanism since the litigation parties, compared to a third party such as the court, typically would have advantages in the collection and verification of the relevant information. However, a high burden of proof may constitute a disincentive in cases that involve a significant asymmetry of information between litigation parties. For instance, in cases

28 See the summary of judgment (in Chinese) of the case at: http://bj1zy.chinacourt.org/public/detail.php?

id=675.

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of individual consumers’ suing dominant firms, the plaintiffs may face insurmountable barriers of scientific evidence acquisition, especially in China’s environment with very limited access to the court record and other lines of information. In particular, the court’s emphasis on rigorous economic analysis in order to identify a dominant position status in relevant markets, on the one hand, is important to avoid enforcement errors, be they type I or type II errors; but on the other hand this sets a high threshold for individual consumer plaintiffs (see, e.g. Li v. QQ and Zhou v. China Mobile, which are discussed below). Of course, to ensure justice and efficiency, the way to address this concern is not to lower the standards of allowable evidence. Rather, taking steps to improve access to information, especially improving access to public records, would be helpful. Since Renren v. Baidu is a case involving firms, and the parties should already have observed the lesson on allowable evidence from Sursen v. Shanda and Xuanting, it is puzzling to us why Renren repeated the same mistake of relying on simple media reports as proof of market dominance, as we believe it would have been possible for Renren to hire academics or consulting firms to carry out more rigorous research to prove its claims in the litigation. This may be due to bad advice that Renren received from its legal team, a lack of development of litigation consulting services in China, and still possibly the limited access to information. This will be further discussed in the general comments after the case discussions. Second, the court explicitly stated that a dominant market position or economies of scale per se do not violate the AML. The issue for antitrust scrutiny is abuse of a dominant position, or anti-competitive behavior of dominant firms. This clears the picture for justifiable business practices for dominant firms and for firms that compete for legitimate higher market shares (in other words, this not only prevents damaging the incentives for competition in the market, but also aims to not damage the incentives in competition for the market). Third, the court correctly recognized the interdependence among different markets in which a firm might operate. In Renren v. Baidu, the court recognized that even though the search engine service is free, it is interdependent with other services such as the search advertising service provided by Baidu and for which it requires payments. Therefore, the court correctly rejected Baidu’s argument that a market for free services automatically was exempt from antitrust concerns. However, this very early case filed under the AML touches a very complex area in antitrust—information goods—that produced many challenges to the law and the enforcement system. Baidu operates in a two-sided market, or provides a two-sided platform, where it connects advertisers on one side and Internet users on the other side. Multi-sided markets (see, e.g., Evans and Schmalensee 2007; Armstrong 2006; Rochet and Tirole 2003; Caillaud and Jullien 2003) pose complications and challenges for defining relevant markets and analyzing market power in antitrust enforcement. Should all markets in which the firms are involved be relevant markets in the case of multi-sided markets? How can market power be estimated in the presence of interdependent demand? (E.g., if a firm changes its price on one side, what would be the consequences on the other side of the platform?) All of these are complicated questions and require careful analyses.

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Though the court in Renren v. Baidu recognized the interdependence of various services that are provided by an information intermediary, it did not fully factor this into its definition of the relevant markets. In this case, not only the search engine market, but also the search advertising service market is a relevant market. Neither did the court delineate a method to estimate market power in situations involving multiple interdependent markets. It is hard to determine whether seemingly abusive practices have legitimate procompetitive justification. The court’s ruling on the legitimacy of Baidu’s downgrading of Renren’s website because Renren kept many junk links on its website in the hope of boosting its search ranking may be correct, but is not completely convincing.29 The importance of this ruling may not rest on its accuracy but rather on the implied neutrality of market dominance per se, and on the implication that it requires rigorous economic analysis (again, on the plaintiff’s part) to prove the abusive nature of conduct by firms in a dominant market position. 3.3.3 QQ v. 360 and Li v. QQ “QQ”, a product of Tencent Technology (Shenzhen) Ltd (“Tencent” henceforth), is the most popular instant messaging software in China. “360” is a security software provided by Beijing Qihoo Technology Ltd (“Qihoo” henceforth). In September 2010, Qihoo launched a software program called “360 Privacy Protector”, and alleged in an article on its website that its 360 Privacy Protector had recently detected that some instant messaging software (though it did not name which software, the article shows a web shot of QQ’s logo) was violating the privacy of users. Following this, in October 2010, Tencent filed a suit (we will call it “QQ v. 360” for simplicity) with the Beijing Chaoyang District People’s Court, alleging that Qihoo breached Article 14 of the Anti Unfair Competition Law30 by spreading false facts to damage QQ’s reputation in the market. The interesting and surprising development of the dispute was what happened in the following days. Upon acceptance of its lawsuit by the court on November 3, 2010, Tencent issued a statement to its users that it had made the use of its QQ instant messaging service incompatible with the use of the 360 privacy or anti-virus software for fear of its inability to ensure users’ privacy if they continued to use the 360 security software. Instead, Tencent requested that users use its own “QQ Computer Housekeeper” or some other antivirus or security software. This stirred up a wave of online protest from users of QQ for the inconvenience caused by the incompatibility of QQ with 360. A few days later, the Ministry of Industry and Information Technology (MIIT) intervened, and the compatibility of the two products was restored quickly. 29 If the plaintiff could provide evidence of Baidu’s differential treatment of client firms similar to the plaintiff that had a comparable extent of junk links on their web pages but have maintained usage of Baidu’s search advertising service, or the respondent can provide evidence of its uniform treatment to similar client firms as just described, it would be more illuminating for the Court’s ruling on the legitimacy of Baidu’s handling of the issue. 30 Article 14 of the Anti Unfair Competition Law states that “A firm shall not fabricate and/or spread false

facts to damage the reputation of a competitor or of its brand.”

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On April 26, 2011, Beijing Chaoyang District People’s Court handed down its judgment on QQ v. 360.31 The court corroborated the claims of the plaintiff that the respondent had made false statements about the product provided by the plaintiff and damaged the plaintiff’s reputation. In the judgment, the court ordered Qihoo to stop distributing and using the “360 Privacy Protector”, delete the relevant web content that infringed the plaintiff’s rights from its webpage, apologize publicly on Qihoo’s website and on Legal Daily for 30 days, and pay a damages award of RMB 400,000 (about US$61,244) to Tencent. It is reported that Qihoo is still considering whether to appeal the judgment. In a further development, on November 4, 2010, Mr. Li Changqing, a lawyer in Beijing, filed a complaint with the SAIC requesting an antitrust investigation against Tencent, alleging that QQ had abused its dominance by restricting QQ users’ choice of security software without a justifiable reason, in violation of Article 17(4) of the AML. For proof of QQ’s market dominance, Li submitted a study report issued by iResearch Consulting Group, which showed that QQ’s market share in the instant messaging software market was approximately 76.2%. There has been no further information available regarding the two cases. In Li v. QQ, interestingly, Mr. Li supplied proof of QQ’s market dominance (albeit based solely on market share) that was perceived to be more objective than what was provided by the plaintiffs in prior cases such as Renren v. Baidu, even though it remains to be seen if the SAIC or a court would deem the report issued by the iResearch consulting group to be sufficient evidence of QQ’s dominance in the relevant market. Furthermore, again this case involves multi-sided markets and network effects, where at least two correlated markets (the instant messaging service market and the privacy/security software market) intertwined in the alleged violation. The proof that was supplied by Mr. Li might (in an optimistic view) establish QQ’s dominance in the instant messaging service market, but not in the privacy/security software market. An interesting question would be whether QQ could and did leverage its dominance in one market to exert exclusive dealing in another market. 3.3.4 Li v. Beijing Netcom and Zhou v. China Mobile On August 1, 2008, Mr. Li Fangping filed a suit with Beijing Chaoyang District People’s Court32 (which later transferred the case to Beijing No.2 Intermediate People’s Court), alleging that Beijing Netcom engaged in discriminatory treatment against customers who were not Beijing residents, restricting them from being able to sign preferential post-paid mobile service contracts unless they provided a guarantee for their fixed-line telephone bills, or paid in advance. These conditions were not required for customers with a Beijing residency. Li alleged that Beijing Netcom, as a dominant mobile service provider in Beijing, abused its market dominance in its discriminatory treatment of non-Beijing resident customers. 31 A media summary (in Chinese) of the judgment can be found at: http://www.chinacourt.org/html/article/ 201104/27/449378.shtml. 32 The court accepted the case on September 19, 2008, making it the first civil AML case that was accepted

by a court. See Wushi Daily on September 20, 2008.

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Beijing No.2 Intermediate People’s Court rejected Li’s allegations in December 2009, for the following reasons: (1) Li had not proved Beijing Netcom’s market dominance with sufficient evidence; and (2) the respondent’s conduct was reasonable to manage potential credit risks, and it was not discriminatory since customers with Beijing residency but also with an overdue payments history were required to join the pre-payment plans as well. Li appealed, and on June 9 2010 Beijing Higher People’s Court upheld the first instance judgment. Another case involving an individual consumer suing a state-owned enterprise was Zhou v. China Mobile. On March 4, 2009, an activist lawyer, Mr. Zhou Ze, filed an antitrust suit with a Beijing district court, which later transferred the case to Beijing No.2 Intermediate People’s Court. Zhou alleged that China Mobile abused its dominant position in China’s mobile telecommunications market by engaging in unlawful price discrimination, in violation of Article 17(6) of the AML. Particularly, Zhou alleged that China Mobile discriminatorily charged him a “monthly rental fee” that was not charged to other customers. Zhou sought damages and an injunction order to stop the discriminatory charges. Later on October 23, 2009, the parties reached a settlement. China Mobile allowed Zhou to change his plan to one without a “monthly rental fee” and to keep his same mobile phone number. As compensation to Zhou’s “input to the pricing issues”, China Mobile rewarded him RMB 1,000 (about US$146). Zhou withdrew the case. This case was the first one under the AML to conclude with compensation being paid by the respondent. It is also interesting in several other respects: First, this is an antitrust case brought by an individual consumer under the AML. Second, the respondent was a state-owned enterprise: a type of entity covered in the AML with ambiguous provisions.33 Third, this case reached a settlement, reflecting the AML’s “shadow of the law” effect in bargaining between parties to a dispute.34 3.4 On the Enforcement of the AML Against Abuse of Market Dominance So far the enforcement record in general has been very encouraging, but also is in need of great improvement. (1) The AML provides a more comprehensive framework than have previous laws and regulations to deal with anticompetitive behavior, not only in regard to ex post enforcement, but also in regard to ex ante deterrence and the “shadow of the law” reference point effect on settlement bargaining. Therefore, we observe that even individual consumers that deal with powerful state-owned enterprises have started taking advantage of the new law to protect their welfare and challenge 33 For example, Article 7 of the AML points out that industries that are controlled by state-owned enterprises may involve concerns about “the lifeline of the national economy and national security”, thus calling for special attention. 34 However we believe that the amount of the compensation that was agreed upon in the settlement was more symbolic and may not produce a sizable effect on deterrence. There was another settled case where Chongqing Western Bankruptcy Liquidation Ltd Co. sued China Construction Bank for abuse by engaging in discriminatory treatment of customers. The case was settled and withdrawn in 2008, but relevant information about the settlement has not been released.

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potentially abusive practices. Also, facing many challenges with little or no experience of ruling under the new antitrust law, the courts and judges have been bold in ruling with a somewhat well-founded understanding of the law and its application to abuse of dominance cases. The evidentiary threshold that has been set in the observed cases is reasonable. Anecdotal evidence cannot substitute for objective and accurate economic analysis to provide sufficient support for the claims. The burden of proof goes to the party making the claims. However, even for cases that have been brought by competitors, such as Sursen v. Shanda and Xuanting, and Renren v. Baidu, we observe that parties may face tremendous barriers in information collection to provide sufficient supporting evidence to prove their claims. This is on the one hand due to a lack of transparency of business and legal case information in China, and on the other hand due to a lack of competent professional litigation consulting services fully adapted to local language and businesses, or due to the affordability of such services to litigation parties. In the US, there exist many such service providers. As was illustrated earlier, in cases involving individual consumer plaintiffs, the informational barrier in general would be even higher due to their inability to access all the necessary information. Therefore, improving access to information and providing more legal aid would be welcome. A discovery process such as the one in the US legal system might be a sensible direction in this regard. As reflected in the above cases, identifying relevant markets and the market power in the respective market is a challenging task, especially for judges (and litigation parties as well) in China where there is little experience in dealing with antitrust cases and with few precedents under the new law. In identifying relevant markets, analyzing the demand and supply substitutability of the product requires not only simple statistical calculations, but also more rigorous empirical and econometric studies. The demand for rigorous econometric analysis is even stronger for identifying market power and the abusive nature of competition conduct. For example, using the Lerner Index may be helpful but not sufficient to identify market power. The SSNIP (small but significant non-transitory increase in prices) test (the hypothetical monopoly test) is a standard technique for defining relevant markets in merger cases (see Motta 2004, Chapter 3). With the enactment of the AML in China, there is a strong need for rigorous antitrust analysis using advanced econometric methods. So far all of the cases have been private actions. There has been no public prosecution under the AML that has been reported. This is understandable since the interpretation of the law and producing specific guidelines as to the enforcement of the law by the different enforcement agencies takes time. Hopefully for those enforcement agencies the private actions provide great opportunities to learn about the effectiveness of, and potential gaps in, the law. With the guidelines and regulations in regard to AML enforcement now in existence, we would expect more public enforcement on abusive practices by dominant firms in the near future. As observed in the provisions, the AML allows considerable flexibility in determining (il)legality. This extensive discretionary power is consistent with

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the comprehensiveness of the AML—the broader the coverage is, the less specificity it can afford. However, this leaves much ambiguity in the law and requires competent enforcers to interpret the provisions according to the law and its supplementary regulations. To promote efficiency, it is important to apply an economics-based approach in the interpretation and enforcement of the law. We believe that this calls strongly for rigorous training in antitrust law and economics in China’s law schools and its legal profession. (6) The presumed objective of China’s competition policy would nonetheless affect the enforcement of the law. Many (e.g., Vickers 2008; Lin 2005; Motta 2004) have articulated that promoting economic efficiency should be the core objective of a country’s competition policy. We agree with this standpoint. Even though there may be some other objectives such as consumer protection35 and fairness, the AML and its enforcement should nonetheless seek a basic goal of maximizing total surplus and efficiency in resource allocation. For instance, if a seemingly abusive practice actually enhances total surplus, then it might be “justifiable” and exempted from antitrust scrutiny. (7) Article 47 of the AML specifies the legal liability for abuse of dominance violations. Upon confirmation of the violation, the anti-monopoly authority shall confiscate the violating firm’s illegal gains and impose a penalty of 1–10% of the sales revenue in the previous year. In terms of the scale of penalties, the AML takes a European approach in proportional fines, instead of an American approach of imposing fines up to a capped absolute amount,36 which was the approach taken in the previous Anti Unfair Competition Law. Also Article 49 supplements the provision to account for other factors when determining the amount of fines such as the nature, extent and duration of the violations. The expected penalty, which is the product of the probability of detection and the size of penalty, sets the deterrence threshold of the law. Since the detection is always imperfect, compensatory damages typically are not an adequate remedy and it is necessary to allow for over-compensatory damages to achieve the desired deterrence (Lin 2003, 2005).37 Indeed, Article 47 allows up to 10% of the convicted firm’s sales revenue in the previous year to be applied as a penalty besides confiscating the illegal gains.38

35 See arguments in Motta (2004) why total surplus, but not consumer surplus, should be the criterion in

enforcing competition laws. 36 Notice that the 1987 US Sentencing Guidelines allowed an alternative fine of either twice the con-

victed firm’s pecuniary gains or twice the victim’s losses. The US Department of Justice first employed this alternative in 1995 (see Whinston 2006, p. 9). 37 However, Becker (1968) classic result of imposing maximum fines to save enforcement costs may not readily apply in the antitrust context, since imposing maximum fines on violating (and dominant) firms most likely will affect competition itself in the market in subsequent periods. 38 Assessing the illegal gains would be a challenging task, because the antitrust authority typically suffers from the problem of asymmetric information in the process of enforcement, in the sense that it does not know the true cost and revenue of the firm, and the range and extent of violations, but obtaining this information may be necessary to estimate the illegal gains of the violating firm. See more discussion of the information asymmetry problem in Sect. 4.

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However, it is quite a challenging task to estimate the violator’s illegal gains and the effect on competition, in determining the exact amount of penalty, especially in cases that involve significant asymmetry of information. In order to achieve optimal deterrence, it is also desirable to reduce the type I and type II errors in the detection. Since the efficiency is determined by comparing the gains to the violator and the harms done to the victims of the violation, the victims’ losses—as well as the illegal gains—should be important factors in setting an optimal antitrust deterrent threshold. Suppose that the gain to the violator is g, the loss to the victims is l, the likelihood of detection is p, and T is the penalty for the convicted violation. Then, as Harrington (2008) illustrated (see also Polinsky and Shavell 2000), the efficient penalty should only deter the welfare-reducing activities, i.e., pT ≥ g if and only if l ≥ g. Therefore, the optimal penalty T ∗ = l/ p. This suggests that assessing the loss to the victims of violation might be more important than estimating the illegal gains to the violator in terms of setting a desired deterrence threshold in the antitrust enforcement. However, this is not reflected in Article 47 of the AML. (8) As briefly discussed before, under China’s special political and economic system the anticompetitive violations are often closely related to the (regional and/or sectoral) administrative monopoly. Therefore, limiting administrative abuse could be quite effective in cutting off an important source of abusive violations. However, containing the administrative monopoly is not an easy task under the pressure from various interest groups that seek to maintain monopoly rents, and the inertia of the existing political structure. We discuss some further issues on the law and its enforcement in the next section. 4 Further Discussion 4.1 Dynamic Analysis, Intellectual Property Rights, and the Abuse of Market Power Under the AML It seems that, as is the case with competition laws of many other jurisdictions, China’s competition policy including the AML did not explicitly and sufficiently address concerns for dynamic (Schumpeterian) competition and innovations.39 Rather, most countries have taken a static (neoclassical) competition perspective. There might be a tension between antitrust concerns and innovation incentives. For example, antitrust policies that restrain incumbent firms’ behavior toward entrants may reduce the expected payoff of a successful innovator, thus weakening incentives to innovate at the ex ante stage. In other words, upholding competition “in the market” may in certain circumstances weaken competition “for the market”. This is especially worthy of concern for the antitrust authority in dealing with innovative or high-tech 39 As illustrated by Motta (2004), the welfare (total surplus) criterion of competition policy should be

interpreted not only in a static, but also in a dynamic sense, because “future welfare matters as well as current welfare”.

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industries, which are becoming increasingly important in today’s economy.40 The result of the attempts by US antitrust authorities to incorporate more dynamic analysis has been “inconsistent across …different doctrinal areas of antitrust law” (Sidak and Teece 2009, p. 584), and they call for a more systematic revision of the law and guidelines. Nevertheless, China’s antitrust authority should take the US experience as a good reference in later revisions of its law and regulations, especially with respect to dynamic antitrust analysis. In light of recent litigation41 in China that involves both the protection of intellectual property rights (IPRs) and the potential abuse of market dominance, dynamic analysis should play an important role in enforcing Article 55 of the AML that deals with the tension between antitrust and intellectual property. The orthodox view with regard to IPRs is that stronger IPRs strengthen innovation incentives (see, e.g., discussions quoted in Vickers 2010). However, antitrust concerns may conflict with the protection of IPRs, since IPRs can grant innovators monopoly power, which, albeit providing ex ante incentives for innovation, may reduce consumer welfare and stifle competition and sequential innovations.42 Furthermore, studies show that the aforementioned orthodox view may not necessarily hold, and in many settings (especially in the case of sequential innovations) weak IPRs protection may actually motivate innovations more efficiently (Segal and Whinston 2007; Vickers 2010). Consistent with these findings, the EU antitrust jurisdiction, compared with its US counterpart, seems more inclined to impose strict restrictions on incumbent firms’ behavior towards entrant rivals, and more likely to mandate that the dominant firms license or disclose their IPRs to rivals (as in the Microsoft case).43 In contrast, the US antitrust authority is more “conservative” in this regard, and is less likely to impose compulsory licensing or mandatory disclosure of IP held by dominant firms in similar cases.44 Due to the short history of the AML and the ambiguity in Article 55, there 40 Segal and Whinston (2007) developed a framework to analyze antitrust policies with concern for innovation incentives. Their framework disentangles the effects of antitrust policy on incumbent and entrant firms. Sidak and Teece (2009) have provided an excellent survey of the recent trends inUS antitrust treatment with respect to dynamic analysis. They argued that an antitrust framework that emphasizes dynamic analysis would put more weight on evaluating potential competition and firms’ competitive capabilities in the assessment of market power and put less weight on market share and concentration. 41 See, e.g., Dong v. Microsoft, which will be briefly discussed below. 42 A different perspective from Regibeau and Rockett (2007) may also warrant attention. They argue that

IP laws and competition policy actually are not necessarily in conflict. A separation of the two doctrines is desired: IP laws should be concerned with assigning and defending the IPRs shortly after the rights have been created, while competition policy should concern the use of those rights. They argue that the following simple principle of separation and regime-stability would resolve potential conflict and advance efficiency: a commitment in competition policy not to revisit ex post the rights granted by IP laws; and a commitment in IP laws to make large changes in IP regimes only when very large changes in ex post regulation occur. 43 This is highlighted in the European Commission’s recent guidance on exclusionary abuse. The Commission considers that “consumer harm may, for instance, arise where the competitors that the dominant undertaking forecloses are, as a result of the refusal, prevented from bringing innovative goods or services to market and/or where follow-on innovation is likely to be stifled…” (European Commission, 2008, cited from Vickers 2010), even though the Commission indeed will consider the justifiable defense of the dominant undertaking for the refusal to deal or refusal to license its IP. 44 In the Microsoft case (United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001)), the US Court of Appeals

did not find Microsoft’s non-disclosure of its Windows inter-operability information to rival firms an alleged

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is a cloud of uncertainty about how China’s antitrust authorities will handle cases involving the potential abuse of intellectual property (IP) by dominant firms. In pursuit of its economic interests, China has steadily established its IP law system over the last 30 years. China became a member of the World Intellectual Property Organization in 1980 and started legislating to protect IP rights in its jurisdiction. In 2001, China joined the World Trade Organization (WTO) and accordingly ratified the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). China revised its IP law system in compliance with TRIPS. The legal framework for protecting IPRs in China currently rests on three national laws: the Patent Law, the Trademark Law and the Copyright Law, and several administrative regulations. Under this framework, IPRs can be enforced in two ways: through an administrative procedure or through private litigation. At the same time as the AML was enacted, China established specialized IP courts that have jurisdiction over Antimonopoly Law-related IP cases. The establishment of these courts arguably signals that there are possible conflicts between IP laws and the AML. As stipulated in Article 1 of the AML, the purpose of the law includes “enhancing economic efficiency” and “safeguarding the interests of consumers”. IP laws also seek to promote dynamic efficiency per se. It is clear that China’s AML and IP laws have certain goals in common, particularly in terms of promoting innovation and enhancing consumer welfare (Tian 2010). However, their means to pursue these goals are different. The AML aims to maintain opportunities for firms to submit themselves to the test of the market (Martin 2010). IP laws aim to motivate innovations by granting property rights, which may yield a monopoly that enables IPRs holders to prevent others from commercializing products or services that make use of their IP (Nicholson and Liu 2008). This conflict creates potential tensions in enforcement of the laws. Therefore, the AML draws a boundary between these two legal regimes. Article 55 of the AML provides that “This law is not applicable to undertakings who exercise their intellectual property rights in accordance with the laws and administrative regulations on intellectual property rights. However, this Law shall be applicable to the undertakings that eliminate or restrict market competition by abusing their intellectual property rights.” Article 55 first acknowledges that IP laws are considered to have equivalent legal status to the AML. It also implies that the AML and IP laws are complementary in the context of enforcement. Under this article, the AML does not apply to legitimate conduct by firms that excise their IPRs in accordance with IP laws and regulations. However, by Article 55, the AML is applicable to conduct constituting “abuse of IPRs” with a purpose to eliminate or restrict competition. Nevertheless, the AML has neither provided a clear definition of the abuse of IPR, nor has it detailed potential liability for IP abuses (Tian 2010). This creates some legal uncertainties for firms that

Footnote 44 continued violation, while the European Court of First Instance decided in 2007 that Microsoft’s refusal to share its IPR protected inter-operability information “had to be addressed by compulsory licensing” (Katsoulacos 2009).

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hold IPRs, especially those with dominant market positions. For instance, a dominant firm that refuses to license its patent may be accused of “abusing” its IPRs. This ambiguity becomes a concern by IPRs holders that the freedom of private licensing and protection of their IPRs may be impeded by the uncertain standards in applying the antitrust law, especially with respect to cases that involve the imposition of conditions in IP licenses45 and refusal to license to certain parties.46 This concern is even more salient given the fact that China has been frequently criticized by its major trading partners for its inadequate protection of IPRs (see, e.g., Kanji 2006). In addition, it is not clear whether Article 55 has extended the scope of the prohibition on abusing market dominance to the conduct of firms without dominant positions in IP contexts. If so, a “test of (non) dominant position” will not be sufficient to provide a safe harbor for IP firms in monopolistic litigation. Under the Regulation on Prohibiting Abuse of Dominant Market Positions that was released by the SAIC in 2010, firms’ IPRs are one of the factors to be considered in the evaluation of their dominant market position. However, the Regulation did not clarify either the evaluation method of market dominance or the weights of the factors to be used in the evaluation. Nevertheless, the regulation implies that IPRs will become an important issue in the enforcement of the AML. Furthermore, Article 55 may require that similarly favorable licenses be granted to any other firms or licensees in the market once a license is granted to the original licensee. As Nicholson and Liu (2008) pointed out, by requiring IP holders to treat “similar third parties in a similar way”, the AML may potentially create a compulsory IP licensing system. This might have a significant negative impact on dynamic efficiency and is in conflict with the essential purpose of IP laws. To date, the only publicly known “abusing IPRs” related Anti-monopoly Lawsuit in China is Dong v. Microsoft.47 In 2008, Mr. Zhengwei Dong, a Chinese lawyer, submitted a document, “Proposal for Protecting Citizen Property Rights”, to China’s anti-monopoly enforcement agencies and suggested an anti-monopoly investigation into Microsoft. Dong alleged that Microsoft was using its dominant market position to manipulate software prices in China, and had breached Articles 6, 17, and 19 of the AML, which prohibit abuse of market dominance. Dong also suggested a US$1 billion fine on the basis of Article 47 for Microsoft’s violation of the AML.

45 It is quite typical to observe the imposition of exclusivity, territorial restraints, and price restraints in license contracts. Nonetheless, it is often difficult to draw a line between IPR owners’ conduct that is merely exercising their inherent IPRs and conduct that aims to achieve an anticompetitive outcome. 46 Foreign investors have concerns that applying Article 55 may result in dominant firms’ being systematically forced to license their IP to competitors. This concern has been elevated following the EU antitrust decision on Microsoft v. Commission on September 17 2007, where the European Court of First Instance decided that Microsoft’s refusal to share its IPR protected inter-operability information on Windows had adverse effects on innovation and consumer welfare, and “had to be addressed by compulsory licensing” (Katsoulacos 2009). 47 See more detailed case information at Chinese Lawyer applying for an anti-monopoly investigation

against Microsoft and suggesting to impose 1 billion USD fine ,Xinhua News Agency, August 17, 2008, available at: http://news.xinhuanet.com/legal/2008-08/17/content_9424867.htm.

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In response to the allegation, Microsoft claimed that it never had a dominant market position in China because “genuine Microsoft products have a very low market share in China” due to widespread piracies (see Fong 2008). Later on, the Ministry of Commerce announced that the application had been transferred to its Treaty and Law division. Until now, the investigation has not been completed, and no lawsuit has been filed. Another previous case pursuant to the Anti Unfair Competition Law may provide some further insights on the issues at the intersection of IP laws and the AML. In 2004 a leading manufacturer of batteries in China, TSUM, alleged that Sony (TSUM v. Sony)48 made its popular cameras incompatible with batteries made by competitors, such as TSUM, in violation of Articles 2 (commercial “morals”) and 12 (prohibition of “unreasonable” tie-in sales) of the Anti Unfair Competition Law. Sony denied the charges by claiming that it installed a digital key (which uses Sony’s patented Info Lithium technology) on its cameras for safety reasons, in response to “reports of smoke, explosion, and burning caused by the use of non-Sony batteries in Sony’s digital cameras and camcorders” (Zhou 2009, p. 724). This digital key renders other-brand batteries incompatible with Sony cameras. Sony asserted that its IP right allows it to use its patented technology without the fear of antitrust liabilities. In December 2007, Shanghai No.1 Intermediate People’s Court ruled in favor of Sony because, first, Sony proved that the installation of the digital key for which Sony holds patent protection was necessary to ensure safety,49 and, second, there was insufficient evidence proving that Sony used the digital key to foreclose competition. In summary, the AML does not provide either a clear definition on “abusing IPRs” or detailed restrictions on the conduct of IP firms. The lack of detailed implementing regulations and judicial interpretations on the relation between IP laws and the AML has created uncertainties for the innovation conduct of firms and may affect their competition strategies. The heavy grey area underlying Article 55 calls for more specific guidelines or regulations as to the application of this provision to IP-owner firms. Otherwise, absent clarification of the undefined “abuses” of IPRs, the article may exacerbate concerns about the problem of inadequate IPR protection in China. 4.2 Foreign Direct Investment and Its Enforcement Treatment Under the AML Foreign direct investment (FDI) has played an essential role in China’s economic growth. Especially in the early stages of China’s economic reform, FDI provided the necessary capital, technology and modern enterprise management system. According to US CIA’s World Fact Book, the estimated stock of FDI in China on December 31, 2010, was US$574.3 billion.50 The growth opportunity that is provided by the fastestexpanding economy in the world has been magnetic to many western corporations. More than 400 out of the Fortune 500 corporations have invested in China (SAIC 2004). 48 See more detailed case information in Parloff (2007). 49 Zhou (2009) argued that the US Supreme Court might accept Sony’s argument if indeed competitors

could not manufacture comparable batteries that address the safety concern. However, by applying the EU approach, a court may find that Sony should license its technology to competitors to gain itself an IP exemption to any antitrust scrutiny. 50 https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html#Econ.

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However, besides the concerns and frustration about inadequate IPR protection and local and sectoral protectionism in China, a new concern of foreign investors following the enactment of the AML has been whether the enforcement of the law would display discriminatory treatment against FDI by multinational corporations. In 2004, the Anti-monopoly Office of the Fair Trade Bureau of the SAIC published a report (SAIC 2004) covering the anticompetitive behavior of multinational corporations in China, and discussed in the report the legislative and policy measures that particularly target the anticompetitive behavior of those firms. Pointing out that many multinational corporations in China held dominant market positions, the report in large part focused on abuse of market dominance by FDI firms, and especially provided illustrative examples where it raised concerns about abuses by Microsoft, Kodak, and Tetra Pak (although the allegations were vigorously denied by those firms51 ). Therefore, it is natural for foreign investors to show concern about possible differential antitrust treatment that is applied to them relative to domestic firms, and particularly in the enforcement of the abuse of the market dominance-related provisions of the AML. However, even though the SAIC report did raise particular concerns about abusive practices of dominant FDI firms (in general and some firms in particular), there has been little direct case evidence showing any discrimination in antitrust enforcement against dominant foreign firms. For instance, in TSUM v. Sony, the court upheld the respondent Sony’s defense and dismissed the abuse allegations that had been filed by the domestic plaintiff. Furthermore, in principle, the FDI firms should receive equal treatment considering China’s committed compliance to the WTO agreements.52 However, the real enforcement and implementation of the antitrust law warrants close monitoring of its compliance to the WTO agreement regarding equal treatment for foreign players and domestic firms.53 In reality, with few exceptions,54 the vast majority of FDI enterprises in China do not have dominant market power in their respective markets. Therefore, it seems that abuse of dominance provisions in the AML will not be a major concern for most FDI firms. Rather, the FDI enterprises may be concerned about whether the enforcement 51 See, e.g., Kodak Denies Monopolistic Accusations, CHINA DAILY, June 8, 2004, available at: http:// www.chinadaily.com.cn/english/doc/2004-06/13/content_338954.htm. 52 In 2001, China concluded negotiations with the WTO. Among some of the commitments undertaken by China are the following: “China will provide non-discriminatory treatment to all WTO Members. All foreign individuals and enterprises, including those not invested or registered in China, will be accorded treatment no less favorable than that accorded to enterprises in China with respect to the right to trade.” “…the WTO Agreement will be implemented by China in an effective and uniform manner by revising its existing domestic laws and enacting new legislation fully in compliance with the WTO Agreement.” (WTO 2001). 53 Perhaps after more cases that involve dominant FDI firms are filed under the AML and ruled on, we will be in a better position to check if substantive differences in antitrust enforcement against foreign and domestic firms do exist. 54 For example, Carrefour and Walmart were reported to hold significant market shares and be expanding aggressively in China. See http://articles.economictimes.indiatimes.com/2008-02-21/news/ 28456873_1_wal-mart-vice-president-wal-mart-battle-retail-giants. However, Carrefour was recently reported to be losing market share in China: see http://news.alibaba.com/article/detail/business-in-china/ 100260535-1-carrefour-losing-market-share-overseas.html.

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of the AML would show more favorable treatment of China’s dominant SOEs,55 especially with the vague language that is used in Article 7, which provides that the state shall protect the legitimate businesses of SOEs and statutory monopolies. There has been some evidence that FDI enterprises may be victims of supplier cartels either through SOEs or through state-sponsored industrial associations (Williams 2009).56 Moreover, the pervasive local and sectoral protectionism given to SOEs in China adds extra costs for FDI firms doing business in China. 4.3 Industrial Policy and the AML The goal of national industrial policies usually is to direct investments into “key industries” with anticipated comparative advantages. This may conflict with competition policy, which aims at promoting consumer welfare and economic efficiency. Along with economic reform and development, China’s policy makers have gradually formed a consistent belief that its industrial policy must be “to encourage firms to develop themselves and become bigger and stronger through means such as mergers and restructuring, to develop the economies of scale, increase economic efficiency, strengthen their innovation ability, and thus increase the overall developing level and international competitiveness of the economy” (Zhao 2008). When China’s government started to draft the AML in 1994, how to address the country’s industrial policy in the law and how to coordinate industrial policy and the AML in practice had been the focus of legislative debate (see Bush 2007 and Bush and Bo 2011 for the drafting process of the AML). In the AML the industrial policy perspective was embedded mostly in Article 7 which stipulates that the law shall “protect the lawful business activities” of firms in “industries that are controlled by the state-owned economy and that are critical to the wellbeing of the national economy and national security.” In the context of abuse of a dominant market position, most rules against specific abuses under Article 17 are formulated as prohibitions relating to engaging in certain practices “without justification”. However, the AML itself does not clarify the 55 A recent example is that the Shanghai Pricing Bureau imposed a fine of RMB 2 million (about US$307,692) on Unilever for its violation of the Price Law in “fabricating and spreading price rise information to push up prices to excessively high levels”, according to Article 14(3). Some commentators argue that this treatment of Unilever was unfair, considering that the executives of Unilever just expressed in interviews that prices may go up as responses to the rise in the costs of raw materials, which was a reasonable business and pricing strategy. Commentators also argue that the appropriate background law with which to check the legality of these practices should be the AML instead of the Price Law, and they hint that regulators have often skipped scrutiny over similar pricing messages spread by executives of monopolistic SOEs through interviews, thus displaying asymmetric treatment towards SOEs. See the case and commentaries (in Chinese) at: http://money.163.com/special/focus291/#fr=index, and at: http://news.creaders.net/ headline/newsViewer.php?nid=471152&id=1061861&dcid=2. 56 In a pending class action antitrust case filed in the US, In Re Vitamin C Antitrust Litig. [584 F.Supp.2d 546 (E.D.N.Y. 2008)], American commercial consumers alleged that they suffered damages from price fixing by Chinese SOE vitamin manufacturers. The respondents defended by showing proof of government involvement in the cartel’s activities and claimed foreign sovereignty immunity. See more information of the case at Williams (2009, footnote 54, p. 135) and http://www.law.com/jsp/article.jsp? id=1202425997056&slreturn=1&hbxlogin=1.

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principles and methodologies of identifying whether an alleged practice is “without justification”. This is likely to be a deliberate incompleteness to allow enforcement agencies to seek to coordinate industrial policy in their decisions. In addition, the SAIC keeps this incompleteness in its 2010 Regulation on Prohibition of Abuse of Market Power, which may signal that, for the convenience of practicing industrial policy in its future enforcement, the agency does not want to clarify what constitute the “justifications” either. Alternatively, as many authors have pointed out, due to the existence of state-owned enterprises, the Chinese government has strong economic incentives to deviate from the goal of maximizing competition.57 For this reason, some officials and influential scholars insist that when industrial policy and the AML collide, “industrial policy should prioritize competition policy” (e.g. Zhao 2008; Nicholson and Liu 2008). However, they agree that, in the absence of overriding industrial policy, there isa pressing need for a strict implementation of the AML. Nevertheless, enforcement agencies are very conservative. Although many complaints have been made about the abuse of dominance to the SAIC, it has not yet announced any formal enforcement actions. This may imply that the enforcement agency is not yet confident about how to balance industrial policy and the AML, or it is still waiting for further instructions from those to whom it reports. 4.4 Market Forces as Self-discipline in Abuse of Market Dominance Following the notions that have been developed by the Chicago School, some authors such as Zhang (2011) warn not to over-emphasize the importance of explicit competition laws and their enforcement, since market forces (for example, the long-term reputational concern) themselves in many circumstances will implicitly discipline the behavior of firms. Therefore, there exists substitutability and complementarities between the implicit market forces and explicit laws in regulating firm behavior. This perspective could be helpful to courts and judges in exercising their discretionary power to decide the legality of firms’ conduct. For instance, in deciding whether there are “justifiable” reasons for certain behavior that otherwise would be deemed abusive, the judges might go through the thought experiment of a “what-if” test—as a dominant firm in the market place, if I undertake an abusive business practice like this, would I face any serious punishment from market forces implicitly due to the consequent rational choices of consumers and competitors? If yes, how strong is the self-disciplining effect of the implicit market forces likely to be? 5 Conclusion The AML has provided the first comprehensive legal framework in China for dealing with anticompetitive behavior. However, implementing and enforcing the law demands a systematic effort from various parties. The ambiguity embedded in the 57 See Deng and Leonard (2008) for a review of the AML and state-owned enterprises, and Naughton (2007) for the reform of state-owned enterprises.

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new law allows more flexibility in its enforcement. But on the other hand, the ambiguity may bring about inconsistency of legal standards applied in the enforcement, and uncertainty faced by market participants. Our discussion has been centered on abuse of a dominant market position, leaving other anti-competitive conduct regulated by the AML for other studies in this issue. In practice, identifying abuse of dominance behavior is far from an easy task, since it is often hard to distinguish abuse from pro-competitive behavior by dominant firms that benefits consumers. Moreover, antitrust enforcement is often faced with asymmetric information. For example, in identifying predatory pricing by dominant firms, the enforcement authority may face difficulties learning about the costs of those firms (see Rey 2002; Besanko and Spulber 1989). Naturally, our discussion has been limited due to the constraints of having only a few case observations since the enactment of the AML. We expect a more effective evaluation of the legal framework will be possible after more cases and information become available. Nevertheless, from the reactions of various parties (government, firms, and consumers) in the economy and the limited case observations, we may preliminarily conclude that the AML, as China’s first comprehensive antitrust statute, not only provided a broad framework for fighting anticompetitive business practices, but also induced competitors and consumers in the marketplace, and the regulators and enforcers, to be more effective monitors to ensure and promote competitive markets and economic efficiency, using the new law as a trigger background to discourage potential monopolistic conduct. We believe that, albeit facing many challenges and constraints under the current economic, legal, and political system, the AML, coupled with complementary amendments and guidelines produced by the antimonopoly authorities, can contribute significantly to China’s full transition to a market economy and its search for strategies and sources of long-term sustainable economic development. Acknowledgements We greatly appreciate the detailed comments that were provided by the guest editors of this issue, Ping Lin and David Round, and the editor of this journal, Larry White, which significantly improved the paper.

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