The Decision of the $2.8-billion Punishment on Alibaba

Translated by DeepL

Preliminarily Proofed by Qiqin Qian and Chen Guan

Renmin University Institute of Law and Technology

April 15, 2021

Table of Contents

I. Press Release by the State Administration for Market Regulation

II. Administrative Punishment Decision Letter

III. Administrative Guidance Letter

I. Press Release by the State Administration for Market Regulation

In December 2020, the State Administration for Market Regulation (SAMR) initiated the investigation of Alibaba Group Holdings Limited (hereinafter referred to as “Alibaba Group”) for abuse of dominant market position in the online retail platform service market within China in accordance with the Anti-Monopoly Law.

The State Administration for Market Regulation set up a task force to conduct on-site inspection of Alibaba Group, investigate and interview relevant personnel, review and copy relevant documents and obtain a large amount of evidential materials; conducted extensive investigation and evidence collection of other competitive platforms and merchants within the platform; conducted in-depth verification and big data analysis of evidential materials in this case; organized experts to repeatedly conduct in-depth case analysis and argumentation; and repeatedly Listened to Alibaba Group's opinions to protect its legal rights. The facts of this case are clear, the evidence conclusive, the characterization accurate, the treatment appropriate, the formalities complete and the procedures are legal.

It has been found that Alibaba Group has a dominant position in the online retail platform service market in China. Since 2015, Alibaba Group has abused this dominant position by imposing "choose one out of two" requirements on merchants on its platform, prohibiting them from opening stores or participating in promotional activities on other competing platforms, and adopting a variety of incentives and penalties with the help of market forces, platform rules, and technical means such as data and algorithms to ensure that the "choose one out of two" requirement is enforced to maintain and enhance its market power and gain an unfair competitive advantage.

The investigation showed that Alibaba Group's implementation of "choose one out of two" excluded and restricted competition in the market of online retail platform services in China, hindered the free flow of goods, services and resources, affected the innovative development of the platform economy, infringed on the legitimate rights and interests of merchants in the platform, and harmed the interests of consumers, which constituted an abuse of dominant market position prohibited by Article 17(1)(4) of the Anti-monopoly Law, "without justifiable reasons, restricting the counterparty to trade only with it".

In accordance with the provisions of Articles 47 and 49 of the Anti-monopoly Law, and taking into account the nature, extent and duration of Alibaba Group's illegal conduct, on April 10, 2021, the State Administration for Market Regulation issued an administrative punishment decision in accordance with the law, ordering Alibaba Group to stop its illegal conduct and imposing a fine of 4% of its 2019 sales in China of RMB 455.712 billion, totaling RMB 18.228 billion. 18.228 billion yuan. At the same time, in accordance with the Administrative Punishment Law, which insists on the principle of combining punishment and education, Alibaba Group was issued an Administrative Guidance Letter, requiring it to carry out comprehensive rectification around the strict implementation of the main responsibilities of platform enterprises, strengthen internal control and compliance management, maintain fair competition and protect the legitimate rights and interests of merchants and consumers within the platform, and submit a self-examination compliance report to the State Administration for Market Regulation for three consecutive years.

II. Administrative Punishment Decision Letter

State Administration for Market Regulation (SAMR)

Administrative Punishment Decision Letter

State Administration for Market Regulation [2021] No. 28

I. Basic information of the party

Party: Alibaba Group Holding Limited

Domicile: 4th Floor, Capital Place, Phase I, George Town, Grand Cayman, Cayman Islands

Basic information: Alibaba Group Holding Limited (hereinafter referred to as the “party”) was established in 1999 and Mr. Zhang Yong is currently the Chairman of the Board and Chief Executive Officer. Its main businesses include online retail platform services, retail and wholesale commerce, logistics services, lifestyle services, cloud computing, digital media and entertainment, and innovation business.

II. Sources of the case and investigation process

Based on the report, since December 2020, SAMR (hereinafter referred to as the “Agency”) has conducted an investigation into the alleged abuse of dominant market position committed by the party in accordance with the Anti-Monopoly Law of the People's Republic of China (hereinafter referred to as the "Anti-Monopoly Law"). During the period, the Agency conducted on-site inspections, investigative inquiries and extracted relevant evidentiary materials; conducted extensive investigation and evidence collection on other competitive platforms and operators within the platform; conducted in-depth verification and big data analysis of evidentiary materials in this case; organized experts to repeatedly and thoroughly conduct case analysis and argumentation; and listened to the party's statements several times to protect their legal rights.

On April 6, 2021, in accordance with the provisions of the Administrative Punishment Law of the People's Republic of China (hereinafter referred to as the "Administrative Punishment Law"), the Agency served the party concerned with the Notice of Administrative Punishment, informing it of the facts of the suspected violation of the Anti-Monopoly Law, the proposed administrative punishment decision, reasons and basis, as well as its right to make statements, pleadings and request for a hearing in accordance with the law. The party waived their right to state, defend and request a hearing.

III. The relevant market of this case

According to the Anti-monopoly Law and the Guidelines of the Anti-monopoly Committee of the State Council on the Definition of the Relevant Market, taking into account the characteristics of the platform economy and the specific circumstances of this case, the relevant market in this case is defined as the market of online retail platform services in China.

(a) The relevant commodity market in this case is the online retail platform service market. During the investigation, the party proposed that the relevant commodity market in this case should be defined as the B2C e-tailing platform service market, on the ground that B2C e-tailing platform service and C2C e-tailing platform service have significant differences in terms of business positioning and business model, and do not have a reasonable substitution relationship.

The Agency believes that the relevant commodity market in this case should be defined as the e-tailing platform service market. E-tailing platform services refer to the online business premises, transaction aggregation, information dissemination and other services provided by e-tailing platform operators for commodity transactions between operators and consumers within the platform, including commodity information display, marketing and promotion, search, order processing, logistics services, payment and settlement, commodity evaluation, after-sales support, etc. The e-tailing platform service market is a double-sided market, serving both groups of operators and consumers within the platform, and its distinctive feature is that it has a cross-side network effect, making both sides’ users' demand for e-tailing platform services closely related. Therefore, defining the relevant market in this case requires considering the correlative impact between the users of both sides the platform. Demand substitution analysis and supply substitution analysis are conducted from the perspectives of both operators and consumers, respectively, to define the relevant commodity market in this case as the e-tailing platform services market.

1. E-tailing platform services and offline retail commercial services do not belong to the same relevant commodity market. Offline retail commercial services provide physical business premises, merchandise display and related supporting services for operators and consumers to conduct commodity transactions, and are functionally similar to e-tailing platform services, but they do not have a close substitution relationship.

(1) From the analysis of operator demand substitution, the two do not have a close substitution relationship.

First, the geographic and service time coverage is different. Offline retail business services, due to the geographical location of business premises and traffic restrictions, usually only enable operators to reach transactions with consumers in the surrounding area, covering a limited geographical area. E-tailing platform services, on the other hand, can break through the geographical and spatial limitations in terms of service scope with the help of the Internet, and enable operators in the platform to transact with consumers nationwide through the logistics system. At the same time, offline retail business services generally have fixed business hours, while e-tailing platform services can enable operators to conduct all-weather business through virtual trading venues.

Second, the operating costs of the operators served are different. The business premises provided by offline retail business services are generally physical stores, and the operating costs of operators mainly include store rent, decoration costs, labor costs and storage costs. E-tailing platform services provide virtual trading venues for operators within the platform, and their operating costs are mainly variable costs such as marketing costs and commission costs, with relatively low error costs.

Third, the abilities to support operators to match potential consumers are different. With the help of big data analysis and algorithms, e-tailing platforms services can aggregate and analyze market demand information such as consumer preferences and "profile" consumers, enabling operators in the platform to precisely match target customers and push goods to more potential consumers through marketing and promotion, reducing their targeted search and matching costs for consumers and improving the supply of goods to meet consumer demand. The platform enables operators to precisely match target customers and push products to more potential consumers through marketing promotions, reducing the cost of targeted search and matching of consumers and improving the speed and extent of matching the supply of goods to consumer demand. Offline retail business services are difficult to provide operators with services such as accurate consumer matching due to lack of corresponding data and technical support.

Fourth, the efficiency of market demand feedback for operators is different. The e-tailing platform service can use the massive data accumulated from transactions such as user reviews to deeply analyze the market demand and its changes, so that the operators in the platform can better adjust the production and supply of goods oriented to the market demand. Offline retail business services provide operators with more limited feedback on market demand, and operators are relatively less efficient in adjusting their production and supply of goods through them.

(2) From the analysis of consumer demand substitution, the two do not have a close substitution relationship.

First, the range of goods available for consumer choice is different. Online retail platform services are not limited by the physical space of the business premises, and can provide a wider variety of goods for consumers to choose. Offline retail business services are not as abundant as e-tailing platform services due to the physical space limitations of the physical business premises and the variety of goods available to consumers.

Second, the degree of convenience for shopping provided to consumers is different. The e-tailing platform service is not limited by time and space, which enables consumers to shop anytime and anywhere, and is closely connected with the logistics system to provide home delivery service for consumers, which enhances the convenience of shopping for consumers. Offline retail services, on the other hand, require consumers to go to the corresponding physical stores to make purchases, and they usually need to compare multiple stores on the ground to find the right products, which is relatively costly in terms of time and does not generally provide home delivery services.

Third, the efficiency of comparing and matching products for consumers is different. The e-tailing platform service can present more abundant and detailed product information, alleviate the problem of information asymmetry, enable consumers to compare products conveniently, search for intended products quickly, and improve the efficiency of comparing and selecting products for consumers. Offline retail commercial services provide relatively limited product information and are limited by the geographical location of business premises and transportation time, so consumers usually need to spend more time and energy to search for intended products and are less efficient in comparing and selecting products.

(3) From the analysis of supply substitution, the two do not have a close substitution relationship.

First, the profit model is different. The e-tailing platform service profits mainly by collecting transaction commissions and marketing promotion fees from operators in the platform. The offline retail commercial service profits mainly by charging operators with fixed store rentals, etc.

Second, it is more difficult to transform offline retail commercial services into e-tailing platform services. To effectively enter the e-tailing platform service market, it is necessary not only to meet the necessary infrastructure and technical support requirements for providing e-tailing platform services, but also to reach the critical scale necessary for the platform economy, and it is costly for offline retail commercial service operators to transform into e-tailing platforms. In recent years, there have been fewer cases of offline retail commercial service operators actually developing into e-tailing platforms.

Therefore, in terms of demand substitution and supply substitution analysis, offline retail commercial services and e-tailing platform services do not have a close substitution relationship and do not belong to the same relevant commodity market.

2. E-tailing platform services constitute a separate relevant commodity market.

First, e-tailing platform services provided to different categories of operators belong to the same relevant commodity market. According to the different operators within the platform, e-tailing can be divided into two models: B2C e-tailing, which refers to the retail mode of corporate sellers to individual buyers, and C2C e-tailing, which refers to the retail mode of individual sellers to individual buyers. The sellers in both models are operators within the platform, to which the e-tailing platform mainly provides online business premises, transaction aggregation, information dissemination and other services to help the operators within the platform transact with consumers. Therefore, there is no essential difference between the platform services under the B2C and C2C e-tailing models, and the e-tailing platform can realize the conversion of the two e-tailing models by adjusting the platform rules. Therefore, the e-tailing platform services provided to different categories of operators within the platform belong to the same relevant commodity market.

Second, the e-tailing platform services provided for different commodity sales modes belong to the same relevant commodity market. In the traditional e-tailing model, the platform usually provides virtual shelf-type goods display place for the operators within the platform, and consumers generally have more specific shopping needs and will actively search and browse goods on the platform. The emerging e-tailing model, on the other hand, mainly recommends products to consumers through live streaming, short videos, graphics and other content display methods, and guides consumers to shop. Under both modes of merchandising, the e-tailing platform provides online business premises, transaction matching, information dissemination and other services to the operators within the platform, and both can meet consumers' online shopping needs. Therefore, the e-tailing platform services provided for different commodity sales methods belong to the same relevant commodity market.

Third, the e-tailing platform services provided for different commodity categories belong to the same relevant commodity market. According to the different commodity categories in the platform, goods available for e-tailing can be divided into clothing, electronic digital, household appliances, food, cosmetics, household products, home improvement building materials and other sub-categories, and each sub-category can be further divided, but there is no essential difference in the content of e-tailing platform services for operators and consumers in the platform. Therefore, the e-tailing platform services provided for different commodity categories belong to the same relevant commodity market.

In summary, the relevant commodity market in this case is defined as the e-tailing platform service market.

(2) The relevant geographical market in this case is within China.

First, demand substitution analysis of operators suggests that the domestic market in China does not have a close substitution relationship with the overseas market. Operators within the platform in China mainly sell goods to consumers in China through the domestic e-tailing platform. If an operator intends to sell goods to consumers in China through an e-tailing platform, it will generally not choose an overseas e-tailing platform but consider an e-tailing platform operating in China.

Second, consumer demand substitution analysis also suggests that the domestic market in China does not have a close substitution relationship with the overseas market. Consumers in China not only face barriers in terms of service language, payment and settlement, and after-sales guarantee, but also have to pay certain import tariffs and have to endure relatively long delivery time for goods when purchasing goods through overseas e-tailing platforms. Therefore, Chinese domestic consumers usually purchase goods through domestic e-tailing platforms and generally do not use overseas e-tailing platforms as their alternative choice for purchasing goods.

Third, supply substitution analysis suggests that the domestic market in China does not have a close substitution relationship with the overseas market. The e-tailing platform service is an Internet value-added telecommunication service, and overseas e-tailing platforms need to apply for business licenses to conduct business in China in accordance with relevant laws and regulations, and at the same time need to build the logistics system, payment system, data system and other facilities required to conduct business, which makes it difficult to enter the domestic market in China in a timely and effective manner and forms a competitive constraint for the existing domestic e-tailing platforms in China.

Fourth, e-tailing platform services provided for different geographic regions in China belong to the same relevant geographic market. The e-tailing platform in China can provide services to operators and consumers nationwide through the Internet, and there are no major differences in the regulatory policies for e-tailing platform services across the country.

In summary, the relevant geographical market in this case is defined as within China.

The above facts are evidenced by the financial reports of the party, minutes of the president's meeting, chat records of the internal DingTalk chatgroups, work summaries, documents such as investigation and inquiry records of relevant personnel, and investigation and inquiry recordss of relevant personnel of competitive platforms and operators within the platform.

IV. The party has a dominant position in the relevant market

During the investigation, the party proposed that it does not have a dominant position in the market for the following reasons: first, the indicators for measuring the market share of online retail platform services are multiple and not unified, and the party cannot be presumed to have a dominant position by a single indicator; second, the platform services market is highly dependent on the development of information technology, and the rapid development of third-party payments and social logistics have greatly reduced the barrier to entry into the industry, and new competitors continue to enter and develop rapidly; third, the development of new platforms has diversified the sales channels of operators and limited reliance on a single platform, which has reduced the switching costs of operators.

The Agency believes that the analysis to determine whether the party has a dominant market position requires comprehensive consideration of relevant factors. The party holds a high market share for a long time and has a high degree of market recognition and consumer stickiness, and the switching cost of operators within the platform is high. According to the provisions of Article 18 and Article 19 of the Anti-monopoly Law, the Agency finds that the party has a dominant position in the market of online retail platform services in China.

(a) The party's market share exceeds 50%. First, the platform service revenue. From 2015 through 2019, the party's e-tailing platform service revenue had a share of 86.07%, 75.77%, 78.51%, 75.44% and 71.17% of the combined service revenue of the 10 major e-tailing platforms within China, respectively. Secondly, the gross merchandise volume (GMV) of the platform. The GMV refers to the amount of merchandise transactions in the e-tailing platform, which is a comprehensive reflection of the operating conditions of all operators and consumer consumption on the platform. From 2015 through 2019, the share of GMV of the party's e-tailing platform in the total e-tailing merchandise transactions within China was 76.21%, 69.96%, 63.58% , 61.70%, 61.83%.

(b) The relevant market is highly concentrated. According to the market share of platform service revenue, the HHI index (Herfindahl-Hirschman Index) of the e-tailing platform service market within China from 2015 to 2019 are 7408, 6008, 6375, 5925, 5350, and the CR4 index (market concentration index) are 99.68 , 99.46, 98.92, 98.66, 98.45, showing that the relevant market is highly concentrated and the number of competitors is relatively small. In the past 5 years, the party has a relatively stable market share and has maintained a strong competitive advantage for a long time, and other competitive platforms have limited competitive constraints on the party.

(c) The party has a strong ability to control the market. First, the party has the ability to control the price of services. In commercial negotiations between the party and the operators in the platform, the party usually directly specify the transaction commission rate and annual marketing and promotion fee expenditure level in standard form contracts, while the operators in the platform negotiation ability is relatively weak. Second, the party has the ability to control whether the operators within the platform could obtain traffic. The party determines the search result ranking of operators and commodities in the platform and their platform display position by formulating platform rules and setting algorithms, thus controlling the traffic available to operators in the platform and having a decisive impact on their operation. Third, the party has the ability to control the sales channels of operators within the platform. The Taobao and Tmall platforms operated by the party account for more than 50% of the total online retail sales volume in China, and are the most important sales channels for operators to carry out online retailing, which has a strong influence on the operators.

(d) the party has strong financial resources and advanced technical conditions. First, the party has strong financial strength. From 2015 through 2019, the party's net profits were (ommited), with an average annual growth rate of 24.1%; its market value grew from 1.32 trillion yuan in December 2015 to 4.12 trillion yuan in December 2020. Strong financial strength can support the party's business expansion in the relevant market and related markets. Second, the party has advanced technological conditions. The party has accumulated a large number of operators and consumers within the platform by virtue of its first-mover advantage in entering the e-tailing platform service market, and has a huge amount of transaction, logistics and payment data, which gives it an obvious advantage over other competitive platforms. The party has advanced algorithms that enable personalized search sorting strategies through data processing technology to target consumer needs and accurately monitor the operations of operators within the platform on other competing platforms. At the same time, the party is the largest public cloud service provider in China, with strong computing power to provide a full set of cloud services such as large-scale computing and big data analysis for the party's e-tailing platform services. The party also has advanced artificial intelligence technology and has established a reliable security system. The above financial and technical conditions consolidate and enhance the market power of the party.

(e) other operators are highly dependent on the party in transactions. First, the party's platform has a strong network effect and lock-in effect on operators within the platform. The evidence shows that the party's platform has a large number of consumer users and their average consumption level far exceeds that of other competitive platforms. At the same time, the party's consumer users are very sticky, with a 98% retention rate across years. Therefore, the party have a strong cross-side network effect and lock-in effect on operators within the platform, and it is difficult for operators within the platform to give up the large consumer base and huge traffic on the party's platform. Second, the party’s platform is an important channel for brand image display. In the online retail platform service market, the party’s platform has a high degree of operator and consumer recognition, and is an important carrier for brand image display. During the investigation, the operators in the platform generally said that, compared with other e-tailing platforms, the influence of the party's platform is greater, consumer acceptance greater, and abandoning the operation in the party's platform will not only affect revenue, but also have a greater negative impact on its brand image. Third, the cost of switching from the party’s platform to other platforms is very high. The investigation shows that the platform is the major online sales channel for most of the operators in the platform, and the proportion of their online sales is generally high. The operators in the platform have obtained many fixed users in the party platform, accumulated a large number of transactions, payments, user reviews and other data, and rely on these data to carry out business activities. Users and data are important resources and intangible assets, which are difficult to migrate to other competitive platforms, and operators in the platform face high costs to switch to other competitive platforms.

(f) Difficulty in entering the relevant market. Entering the e-tailing platform service market not only requires investing a lot of capital to build the platform, establish logistics system, payment system, data system and other facilities, but also requires continuous investment in brand credit, marketing and promotion, which makes it costly to enter the relevant market. At the same time, e-tailing platforms must acquire a sufficient number of users on one side of the platform in order to achieve effective market entry. Currently, the cost of acquiring customers for e-tailing platforms in China is increasing year by year, and it is becoming increasingly difficult for potential entrants to reach the critical mass.

(g) The party has significant advantages in related markets. The party has made layout in logistics, payment and cloud computing to form its own ecosystem, which provides strong logistics service support, payment guarantee and data processing capability for the party's e-tailing platform services, further consolidating and enhancing the party's market power.

In summary, according to Articles 18 and 19 of the Anti-monopoly Law, the party was found to have a dominant position in the online retail platform service market in China.

The above facts are proved by documents such as financial reports and work summaries of the party, agreements signed with some operators in the platform, as well as statistical data from national statistical departments, statistical data from third-party institutions, investigation and inquiry records of relevant personnel of operators in the platform, operating data of competitive platforms and investigation and inquiry records of their relevant personnel.

V. Facts and basis of the party's implementation of the abuse of dominant market position

It has been found that since 2015, in order to restrict the development of other competitive platforms and maintain and consolidate its market position, the party has abused its dominant position in the market of online retail platform services in China and implemented the "choose one out of two" behavior by prohibiting operators in the platform from opening stores in other competitive platforms and participating in promotional activities in other competitive platforms. The party has restricted the transactions of operators in the platform, making them trade only with itself by prohibiting them from opening shops in other competitive platforms and participating in promotional activities of other competitive platforms, and has used various incentives and penalties to guarantee the implementation of the act, which violates Article 17(1)(4) of the Anti-monopoly Law and constitutes an abuse of dominant market position.

(a) Prohibition of operators within the platform to open stores in other competitive platforms. For an online retail platform service provider like the party, the operator within the platform is the key element to attract consumers and enhance its competitiveness. The more operators gathered on the platform, the more consumers can be attracted, forming a positive feedback effect and enabling the platform to maintain its competitive advantage and market power. At the same time, different categories of operators within the platform contribute differently to the competitiveness of the platform. In general, the higher the operator's brand awareness and market share, the greater the contribution to the competitiveness of the platform. The party has divided the operators within the platform into seven levels from high to low, including SSKA, SKA, KA, core waist, waist, long tail and bottom, based on factors such as sales growth, merchandise capacity, user operation, brand power, service capacity and compliance operation, among which operators KA and above (hereinafter collectively referred to as “core merchants”) are the key competitiveness of the e-tailing platform. In order to enhance their competitiveness and weaken the market power of other competitive platforms, the party put forward the requirement of prohibiting core merchants from opening stores in other competitive platforms.

First, in the agreements, the party directly stipulate that they shall not open stores on other competitive platforms. Since 2015, the party has signed various agreements with some core merchants, such as the Strategic Merchant Framework Agreement, the Joint Business Plan and the Strategic Cooperation Memorandum, which explicitly stipulate that the core merchants shall not be stationed on other competitive platforms, shall focus on conducting online retail business on the party's platforms, or use the party's platforms as the only online sales channel in China, shall not consider conducting transactions on their own or by agents through other e-tailing platforms, and that changes to existing e-tailing channels require the party's consent, for the purpose of making the core merchants operate only on the party's platform.

Second, the verbal request not to operate in other competitive platforms. It is found in the investigation that more often, during the negotiation process for signing relevant cooperation agreements or promotional activities, the party verbally proposed that the core merchants operate only in the party's platform, requiring the core merchants not to open flagship stores in other competitive platforms, or required the core merchants to degrade flagship stores on other competitive platforms to non-flagship stores, to control the number of stores, withdraw all the goods, refuse to deliver goods, limit inventory, etc. in other competitive platforms. Since the party has a dominant market position and the operators in the platform have a strong reliance on the party's e-tailing platform services, the above requirements are highly binding. The evidence shows that the party's oral request not to operate on other competitive platforms is generally well implemented.

(b) Prohibition of operators in the platform from participating in promotional activities in other competitive platforms. In order to attract consumers and increase the sales of goods on the platform, online retail platforms regularly conduct massive promotional activities every year, such as "Double 11" and "618", which have a great impact on the sales of goods and become an important timing for the online retail platform to carry out competition. In order to gain a competitive advantage, the party focused on the core merchants in the platform and put forward the requirement of not participating in important promotional activities of other competitive platforms.

One way of putting forward such requirement is by agreement. Since 2015, the party has signed various agreements with some core merchants, such as the Strategic Merchant Framework Agreement, the Joint Business Plan and the Strategic Cooperation Memorandum, which explicitly provide that they shall not participate in promotional activities organized by other e-tailing platforms, or shall not conduct promotions through other e-tailing platforms without the consent of the party, in order to reduce the influence of other competitive platforms.

Another way of putting forward such requirement is by verbal request. Since 2015, during the promotional activities such as "Double 11" and "618", the party have explicitly requested verbally and sent screenshots of the core merchants' promotional pages in other competitive platforms to explicitly or implicitly request that the core merchants not participate in the promotional activities of its competitive platforms, including not to participate in the promotional venues of its competitive platforms, not to label products with promotional labels in its competitive platforms, and not to create an atmosphere for promotional activities in their stores in its competitive platforms. The evidence shows that the above requirements orally proposed by the party are generally well implemented.

(c) The party adopted various incentives and penalties to ensure the implementation of the "choose one out of two" requirement. On the one hand, the party has adopted incentive measures such as traffic support to encourage operators in the platform to implement the "choose one out of two" requirement, and on the other hand, they have monitored operators in the platform in opening stores or participating in promotional activities in other competitive platforms by means of manual inspection and monitoring by technical means on the Internet, and, by leveraging its market power, platform rules and technical means such as data and algorithm, the party penalized operators in the platform who do not implement the relevant requirements of the party, the penalty including reducing resource support for promotional activities, disqualification from participating in promotional activities, downgrading of the ranking in search results, and cancellation of other significant rights and interests on the platform. The above penalties significantly reduce the attention of consumers to the punished platform operators, causing a significant adverse impact on their normal operations, while having a strong deterrent effect, so that more operators in the platform had to implement the "choose one out of two" requirements proposed by the party.

First, reducing the resources supports for promotional activities. During promotional activities, online retail platforms generally attach specific labels to operators and commodities participating in promotions, and give priority to specific operators or commodities when displaying them on the activity page, which is an important way for operators to participate in platform promotions and increase commodity sales. The party penalized some of the platform operators who violated the "choose one out of two" requirement by removing their resources supports during the promotional activities. Evidence shows that the priority to be displayed of some of the operators in the party’s platform has been canceled due to their participation in competitive platforms’ "double 11", "618" and other promotional activities.

Second, cancelling the eligibility for promotional activities. The party has developed a "gray list" system, and the platform operators who open stores on competitive platforms or participate in promotional activities on competitive platforms are included in the penalty list, who have been disqualified from participating in the party's large-scale promotional activities. Evidence shows that some operators in the platform were included in the "gray list" for not implementing the "choose one out of two" requirements of the party, and were then punished, and could only resume participation in the party's large-scale promotional activities and the eligibility for routine promotion activities such as “Ju Hua Suan” and “Tian Tian Te Mai” after implementing the party's request and the party's examination and approval. Evidence shows that most of the operators included in the "gray list" of the platform have implemented the party’s "choose one out of two" requirements.

Third, downgrading search result ranking. The core of the search algorithm is to improve the search conversion rate, so that the goods get more attention from consumers and thus improve the sales of goods, which involves the core rights and interests of the operators in the platform. Downgrading search result ranking directly leads to the platform operator's goods in the platform ranking backward or even unable to be searched, seriously affecting the sales of goods. For some of the operators in the platform who did not implement the "choose one out of two" requirement, the party lowered their search weights as a means of severe punishment. Evidence shows that some operators in the platform, for failure to implement the party’s "choose one out of two" requirements, have been punished this way.

Fourth, cancelling other significant rights and interests of the operators in the platform. For operators in the platform who do not quit the promotional activities of competitive platforms after repeated requests by the party, the party cancel their KA qualification or terminate the cooperation between them, deprived them of relevant service security and other significant rights and interests. Evidence shows that some of the operators in the platform were disqualified from KA or their cooperation with the party was terminated because they failed to implement the party's "choose one out of two" requirements.

During the investigation, the party proposed that the cooperation agreement was signed voluntarily by the operators in the platform, and unique resources would be provided to the operators in the platform as a consideration, which is an incentive measure with justifiable reasons. The party insist that it took restrictive measures against the operators in the platform because they did not perform in accordance with the agreement, and such measures are necessary to protect the party’s specific input for the transaction.

The Agency believe that the reasons put forward by the party is not valid and there is no justifiable reason for the implementation of the relevant acts. First, most of the cooperation agreements containing "choose one out of two" requirements are not voluntarily signed by the operators in the platform. The investigation showed that operators in the platform often tend to open stores and sell goods in multiple platforms at the same time, and signing the relevant agreements is not voluntary. The operators in the platform were punished by the party for violating the requirements of the cooperation agreement, which proved that they did not voluntarily cooperate with the party. Second, the investigation found that some operators in the platform did not receive consideration for implementing the oral requirements of the party, and the cancellation of the consideration was only one of the means for the party to penalize the operators in the platform. Third, exclusive dealing is not necessary to protect specific inputs. The funds and traffic resources invested by the party during the daily operation and promotion are the inputs required for the platform's own operation, not the inputs for the specific platform operators. The incentive measures taken by the party can be rewarded in a variety of ways, and the requirement of the "choose one out of two" behavior is not a necessary choice.

The above facts are proved by the investigation and inquiry records of the relevant personnel, chat records of the internal DingTalk chatgroups, emails, cooperation agreements signed with some of the operators in the platform, the development plans of various business departments, work summaries, "Double 11" "618" investment rules, meeting briefings and other documents, the self-investigation report of the party and the investigation and inquiry records of the relevant personnel of competitive platforms and operators in the platform.

VI. The conduct of the party has excluded and restricted market competition

The party restricted the operators in the platform from opening stores in competitive platforms or participating in promotional activities in competitive platforms, forming a lock-in effect to reduce their own competitive pressure, improperly maintaining and consolidating their market position, deviating from the idea of open, inclusive and shared development of the platform economy, excluding and restricting the competition in the relevant market, harming the interests of operators and consumers in the platform, weakening the drive to innovation and development vitality of the platform operators, and hindering the healthy development of the platform economy in a standardized and orderly innovative manner.

(a) exclusion and restriction of competition in the market of online retail platform services in China.

The party imposed restrictions on the operators in the platform to trade with them only rather than enter competitive platforms or carry out promotional activities in other competitive platforms, which directly weakened the ability of competitive platforms to compete fairly with the party and the degree of competition in the relevant market, unduly raised the market entry barriers for potential competitors, and undermined the fair and orderly order of market competition.

First, it has excluded and restricted fair competition between operators in the relevant market. The party required the operators in the platform not to open stores in competitive platforms or not to participate in the promotional activities of competitive platforms, which improperly inhibited the supply to operators that may be obtained from competitive platforms, weakened the competitive ability of competitive platforms, and excluded and restricted fair competition in the market. At the same time, due to the cross-side network effect of the platform economy, the relevant conduct, while directly leading to the loss of operators on other competitive platforms, will further reduce the number of consumers in competitive platforms, so that the reduction in the number of operators and consumers within the platform forms a feedback loop, weakening the competitive ability of competitive platforms and seriously excluding and restricting fair competition among operators in the relevant market.

The evidence shows that for the sake of competition, the party targeted certain categories of operators or key brand operators and imposed "choose one out of two" requirements on them, suppressing the development of relevant business of competitive platforms or hindering their brand upgrades, and has realized the corresponding effect.

Second, it has excluded and restricted potential competition in the relevant market. As the platform economy features network effects and economies of scale, newly entering platform service providers need to accumulate a certain scale of users to effectively enter the market. The party required some of the operators in the platform not to enter competitive platforms and trade with the party as the only online sales channel in China, etc. While locking the operators in their own platform, such conducts unduly increased the difficulty of reaching cooperation agreements between potential entrants to the relevant market and the relevant operators, making it difficult for them to obtain the necessary resources required to enter the market and participate in competition, raising the barriers to market entry, excluding, and restricting potential competition in the relevant market.

(b) Damage to the interests of operators in the platform.

The relevant conducts of the party have directly restricted the autonomy of operation of the operators in the platform, weakening the intra-brand competition of commodities and harming the interests of the operators in the platform.

First, the operator's autonomy of operation within the platform is damaged. As different platforms focus on different consumer groups, usually the platform operators have a tendency to multi-home, hoping to improve operational efficiency, access to a richer range of sales channels, more widely access to consumers to achieve greater sales through business in multiple platforms. The party requires the operators in the platform to open stores only in the party's platform or participate in the promotional activities of the party's platform, depriving the operators in the platform of the right to independently choose the trading platform of cooperation and limiting their operational autonomy.

Second, the legitimate interests of operators within the platform have been improperly derogated from. Before the promotional activities, the platform operators generally need to stock a large number of goods and incur marketing and promotion fees and other costs. During the large-scale promotional activities, the party imposed on operators in the platform requirements to withdraw from promotions in competitive platforms and other requirements, imposed on them penalties such as cancelling the promotional resources, search result downgrading etc., seriously affecting the normal operation of the operators in the platform, resulting in the lack of stability and fairness of the transactions, directly harming the legitimate interests of the platform operators. That the party require operators within the platform to open stores only in the party's platform or participate only in the promotional activities of the party's platform has also caused them to lose the revenue they could have gained from operating in other platforms.

Third, the degree of intra-brand competition has been weakened. Operators of the same brand of products operating on different platforms can form competition between different sales channels within the brand. In particular, during promotional activities, e-tailing platforms often enable operators within the platform to offer more favorable prices by subsidizing them. The party's requirement that operators within the platform only open stores on the party's platform or only participate in promotional activities in the party's platform has restricted the sales channels and promotional channels for the same brand of goods and weakens intra-brand competition.

(c) impeding to the optimal allocation of resources and limiting the development of the platform economy innovation.

The relevant conducts of the party have hindered the optimal allocation of resources in the online retail platform service market, inhibited the vitality of market players, and restricted the innovative development of the platform economy.

First, it has hindered the free flow of factors and reduced the efficiency of resource allocation. The operators in the platform can freely choose among different platforms according to their operational efficiency, service prices, management levels and service capacity, and reasonably allocate resources. The implementation of "choose one out of two" by the party hinders the free flow of production factors between different online retail platforms, which affects the effective matching of supply and demand of goods and reduces the efficiency of economic circulation.

Second, it has restricted the diversified and innovative operation of operators in the platform. According to the characteristics of different platform users, the operators within the platform can adopt different forms and channels such as flagship stores, franchised stores and specialty stores, and adopt different competitive strategies to carry out differentiated operations, so as to provide more choices for consumers. The party required the operators in the platform to only trade with it, inhibiting the incentive and vitality of the innovative development of the operators in the platform.

Third, it has inhibited the vitality of market players and affects the innovative development of the platform economy. The sustainable and healthy development of the platform economy depends on fair competition and technological innovation. The party maintains and consolidates its competitive advantages through improper means, weakening the motivation of the platform operators to carry out technical and business model innovation, affecting the willingness of other platforms and potential competitors to innovate, which is not conducive to the healthy development of platform economic innovation.

(d) Harming the interests of consumers.

The party's conducts have restricted consumers' right to free choice and the right to fair trade, which have harmed the interests of consumers.

First, it has restricted consumers' rights to free choice. In the online retail environment, consumers' search costs and price comparison costs are significantly reduced, and it is easier for them to compare goods and prices among different platforms and make the best choice. The party's conducts have reduced the brands and products available in competitive platforms, limiting the range of brands and products available to consumers and limiting consumers' right to free choice.

Second, it has limited consumers' right to fair trade. E-tailing platforms provide consumers with diversified services and promotions based on their own business strategies. The party restrict the operators in the platform in opening stores or participating in promotional activities in other competitive platforms, so that consumers can only passively accept the party's trading conditions and cannot enjoy the more competitive prices and services of other platforms, which has restricted consumers' right to fair trade and has harmed consumers' interests.

Third, in the long run, such conducts will bring potential damage to the overall level of social welfare. The relevant conducts of the party has excluded and restricted market competition, reduced the efficiency of platform operation, hindered the innovation of platform business model, prevented potential competitors from entering the market, unduly reduced the intensity and level of market competition, affected the continuous optimization and development of the e-tailing platform services in full competition, and the damaging effect will be transmitted to the consumers’ end, which will not only damage the real interests of consumers, but also damage the expected interests of consumers and reduce the overall welfare level of the society.

The above facts are evidenced by the development plans of the business departments of the party, competition strategies, work summaries, chat records of the internal DingTalk chatgroups, emails and other documents, the party's self-investigation reports and the investigation and inquiry records of relevant personnel of competitive platforms and operators within the platform.

VII. The basis of the administrative punishment and the decision

It has been found that since 2015, the party has abused its dominant position in the market of online retail platform services in China to prohibit operators in the platform from opening stores or participating in promotional activities in other competitive platforms, which has excluded and restricted competition in the relevant market, infringed upon the legitimate rights and interests of operators in the platform, harmed the interests of consumers and hindered the development of economic innovation in the platform without justifiable reasons, which constitutes an abuse of dominant position in the market prohibited by Article 17(1)(4) of the Anti-monopoly Law, which prohibits "restricting the counterparty to trade only with it without justifiable reasons".

According to Article 47 and 49 of the Anti-monopoly Law, taking into account the nature, extent and duration of the illegal acts of the party, and considering that the party was able to conduct in-depth self-examination, stop the illegal acts and actively rectify them, the Agency made the following decisions on the party concerned.

(a) ordered to stop the illegal acts.

1. the party shall not restrict the operators in the platform in operating in competitive platforms; shall not restrict the promotional activities of operators in the platform in competitive platforms.

2. the party shall, within fifteen days from the date of receipt of this administrative penalty decision, submit a report to the Agency on the correction of the violation.

3. In accordance with the principle of "Administrative Punishment Law" insisting on the combination of punishment and education, the Agency, considering the problems found during the investigation, shall make an "Administrative Guidance Letter", requesting the party to carry out comprehensive rectification regarding strictly implementing the responsibility of the platform enterprise, strengthening internal control and compliance management, protecting the rights and interests of consumers, and operating in compliance with the law.

(b) The party shall be fined 4% of its 457.512-billion-yuan 2019 total sales volume within China, totaling 18.228 billion yuan.

According to Article 46 of the Administrative Penalty Law, the party shall, within fifteen days from the date of receipt of this administrative penalty decision, pay the fine at any of the twelve central financial non-tax revenue collection agent banks (ICBC, ABC, BOC, CCB, BOCOM, CITIC, Everbright, China Merchants, PSBC, Huaxia, Ping An, CIB) or their online banks with the payment code in accordance with this administrative penalty decision. The payment code is: ***.

According to Article 51 of the Administrative Penalty Law, if the party fails to fulfill the administrative punishment decision after the due date, the Agency may take the following measures: (a) if the fine is not paid at the due date, a daily fine of three percent of the fine amount will be added; (b) apply for the compulsory enforcement by People's Court.

If the party is not satisfied with the above administrative punishment decisions, it may, within sixty days from the date of receipt of this administrative punishment decision, apply to the State Administration for Market Regulation for administrative reconsideration; or within six months from the date of receipt of this administrative punishment decision, according to law, file an administrative suit to the People's Court. During the administrative reconsideration or administrative suit, the enforcement of this administrative punishment decision is not suspended.

III. Administrative Guidance Letter

State Administration for Market Regulation

Administrative Guidance Letter

State Administration for Market Regulation of the line refers to anti-monopoly [2021] No. 1

Alibaba Group Holding Limited:

The Agency has investigated into your company's abuse of dominant market position in accordance with the Anti-Monopoly Law of the People's Republic of China (hereinafter referred to as the "Anti-Monopoly Law") and made an administrative punishment decision in accordance with the law. According to the Law of the People's Republic of China on Administrative Punishment, which insists on the principle of combining punishment and education, and taking into account the problems found in the investigation, the Agency hereby proposes the administrative guidance, and request your company to carry out comprehensive rectification according to the guidance, operate in compliance with the law, and establish a sound long-term mechanism for fair participation in market competition.

I. Comprehensively regulate your competition conducts

1. immediately carry out a comprehensive and in-depth self-examination against the Anti-monopoly Law, review and regulate your business conduct.

2. file with the authority for concentration of undertakings that satisfies the criteria stipulated in the "Regulations of the State Council on the Filing Standards for Concentration of Undertakings", and shall not unlawfully proceed with concentration of undertakings that has or may have the effect of excluding or restricting competition.

3. shall not use technical means, platform rules and data, algorithms, etc., to perform monopoly agreements and abuse of dominant market position to exclude, restrict market competition.

II. the strict implementation of the responsibility of the platform enterprise

4. strengthen the internal governance of the platform ecosystem, and constantly improve the service agreement, platform operations, resource management, traffic distribution and other transaction rules, objectively and neutrally set algorithms for searching and ranking, fairly and impartially use data resources, effectively improve the openness and transparency of the platform governance rules, and protect personal information and privacy in accordance with the law.

5. cooperate with operators in the platform in accordance with the principle of fairness, reasonableness and non-discrimination, and shall not to engage in acts such as charging unfair and high service fees to operators in the platform, imposing unreasonable restrictions or unreasonable trading conditions to operators in the platform, or treating operators in the platform in a discriminatory manner.

6. establish external evaluation mechanisms for platform enterprises by consumers, platform users, social experts, etc., self-consciously accept social supervision, and continuously improve the internal governance rules of the platform.

III. improve the internal compliance and control system of the enterprise

7. establish and effectively implement an antitrust compliance system, clarify compliance management requirements and processes, and improve internal mechanisms such as compliance consultation, compliance inspection, compliance reporting, and compliance assessment.

8. conduct regular compliance training for company executives and staff to enhance antitrust compliance awareness and improve compliance capability

9. establish a system to ensure regular compliance reporting to the regulatory authorities and self-consciously maintain a fair and competitive market order.

IV. Protect the legitimate rights and interests of operators and consumers in the platform

10. provide comprehensive, true, accurate and timely transaction information for operators and consumers in the platform in accordance with the law, and fully protect the right to know, right to fair trade and right to free choice of operators and consumers in the platform.

11. establish and keep open the complaint reporting channels, improve the complaint handling system and online dispute resolution mechanism, formulate and publicize dispute resolution rules, and deal with the reflections of operators and consumers in the platform in a timely and effective manner.

12. promptly publicize punitive measures taken against platform operators including search results downgrading, cancel of the sale of certain commodities, suspension of services and other punitive measures.

13. to establish a regular analysis system of competition issues reflected by various parties, strengthen communication with the regulatory authorities, and improve the internal system rules in a timely manner.

V. Actively maintain fair competition to promote innovation and development

14. increase the level of opening of the ports of data, payment, applications and other resource within the platform in accordance with the law, fully respect the user's right to choose, shall not refuse transactions without justifiable reasons, and promote cross-platform interconnection and interoperability.

15. take the lead in strengthening industry self-discipline and actively carry out healthy competition through technical innovation, quality improvement, service enhancement and model innovation to achieve innovative development.

16. adhere to the principle of inclusion and sharing, provide convenient and high-quality services for operators in the platform, especially small and medium-sized businesses, and promote the synergistic development of the platform economy and the real economy.

Your company is requested to develop a rectification plan in accordance with the above requirements, clarify the rectification tasks and time frame for completion, report to the Agency by April 30, and submit a self-investigation compliance report to the Agency by December 31 each year for three years from the date of receipt of this guidance. At the same time, it is recommended that your company take the initiative to disclose the compliance situation to the community and accept social supervision.

State Administration for Market Regulation

April 6, 2021