China’s Antimonopoly Law Enforcement in the Digital Economy

A. Challenges Brought by the Digital Economy to Anti-Monopoly Regulation

Generally, digital economy refers to economic activities based on big data and Internet technologies. Therefore, the digital economy is also referred to as Internet economy or platform economy. Digital economy has more than twenty-year-history in China, considering that China’s access to the web started in 1994 while Tencent and Alibaba were established in 1998 and 1999, respectively. New information technologies built on big data, artificial intelligence, and the Internet have enhanced productivity and improved people’s daily lives in the forms of wider access to education, medical services, and job opportunities, for example. China has more than 1 billion netizens. Digital economy accounts for more than 38.6 percent of China’s gross domestic product (GDP). ¹ Digital economy has become an essential engine for China’s economy development and wealth growth.

Even if digital economy, especially search engine, social network, and e-commerce, has brought convenience and innovation to consumers, it also triggers huge challenges to the anti-monopoly regulation considering the following characteristics: (1) Two-sided platform: ² digital giants are normally two-sided platforms, connecting users from both sides with differentiated needs. ³ (2) Direct and indirect network effects: the former refers to the phenomenon that the benefits a consumer could obtain from a platform strengthen with the increasing number of other consumers. The latter means that increasing number of the consumers from one side of the platform boosts the values that the platform could provide to the consumers from the other side. In other words, one side does not exist without the other side. ⁴ (3) Economies of scale: taking online advertising as an example, top Internet platforms have much stronger search ability in support of more personalized ads, while the cost for each click is minimal. In other words, as for online platforms’ ability to manage data, marginal cost is close to zero. ⁵ (4) “Zero” price: quite often, the business model of platform operators is subsidizing consumers who are more price sensitive on one side with ads revenue generated from consumers on the other side whose demand is less price elastic. ⁶ As a result, household consumers get “zero”-priced products. In short, digital economy inclines to become monopoly or oligopoly, because of huge market entry barriers erected by direct and indirect network effects, data accumulation and integration, economies of scale and close to zero marginal cost. Top online platforms make huge contributions to social welfare on one hand; while on the other hand, they have also brought various problems such as those in relation to data security, privacy, and consumer protection. Established online platforms engage in anti-competitive conducts to maintain their marker power and foreclose competitors, to the detriment of competition. In this scenario, people from all walks of life call for more intensive anti-monopoly enforcement in the digital economy, no matter it is in China, the European Union (EU), or the United States.

B. 2021 Was the First Remarkable Year for Anti-Monopoly in China’s Digital Economy

Anti-monopoly law enforcement in China’s digital economy lags that in the EU and the United States. For a long time, China’s academic circle used to hold that traditional anti-monopoly law does not apply to the digital economy since it is the new dynamics driving the economy and bears the characteristics of cross-sector competition, network effects, and two-sided platform. Academia has widely discussed “whether online platforms have broken anti-monopoly law.” Some argue that “established online platforms are chosen by consumers, while anti-monopoly law should not interfere competition” and that “the boundary of relevant market in the digital economy is not so clear as that in the traditional sectors, and the market share is less indicative. The authority should think twice before reaching the conclusion of monopoly.” ⁷ Under the influence of this trend of thought, China’s competition authority took a “prudent and tolerant” attitude toward digital economy for a long period. Other factors contributing to the relatively lax anti-monopoly enforcement in the past include the authorities’ uncertainty over the legality of certain business arrangements, such as the variable interest entity (VIE), ⁸ and probably firm lobbying. ⁹ Taking the “either-or” in e-commerce as an example, there has been complaint about it as early as 2015, while the State Administration for Market Regulation (SAMR) only initiated relevant investigation by the end of 2020. ¹⁰

The strengthened anti-monopoly in China’s digital economy in 2021 is in line with the trend of time. On one hand, some opine that, acting as the intermediaries, online platforms play the role of infrastructure and obtain monopolistic revenues, which should be dealt with by public policy. ¹¹ On the other hand, China is surely under the influence of overseas counterparts. In December 2020, the European Commission (EC) released proposals for the Digital Markets Act and the Digital Services Act. ¹² In October 2020, the U.S. House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law released Investigation of Competition in Digital Markets (Investigation), ¹³ listing monopolistic and anti-competitive conducts undertaken by Google, Facebook, ¹⁴ Apple, and Amazon in the markets for search engine, social network, mobile app shop, mobile operating system, e-commerce, and others. The Investigation concludes that the monopolistic and anti-competitive conducts above not only damage the free economy in the United States and exert negative effects on start-ups, but also harm politics, culture, freedom of press, and privacy. The Investigation puts forward two proposals: (1) divesting the four digital titans and (2) revolutionizing the current antitrust law. ¹⁵

As a response to the calling for more intensified anti-monopoly enforcement in the digital economy, the Central Economic Work Meeting held in December 2020 points out that,

Anti-monopoly and anti-unfair competition are the internal requirement of improving socialist market economy mechanism and enhancing the development with high quality. The state supports the innovative development of platform economy to obtain stronger international competitiveness, sustains the common development of the public and non-public economies, regulates the development in accordance with laws and regulations, and improves digital rules at the same time. ¹⁶

The SAMR also emphasizes that anti-monopoly law equally applies to the digital economy and non-digital economies. The Anti-Monopoly Guidelines on Platform Economy of the Anti-Monopoly Committee of the State Council (Anti-Monopoly Guidelines on Platform Economy) point out that

The anti-monopoly law enforcement agencies (shall) intensify competition analysis and legal argumentation in light of the development status, development pattern and the characteristics of the platform economy and based on the specific circumstances of cases, continuously strengthen and improve anti-monopoly regulation and ensure further pertinent and scientific anti-monopoly law enforcement. ¹⁷

On November 18, 2021, the State Anti-Monopoly Administration affiliated with the SAMR was established, which posts China’s gesture to upgrade the administrative level of anti-monopoly enforcement agency within the central authorities and the authoritativeness of anti-monopoly law. ¹⁸ On December 16, 2021, the SAMR established the Competition Policy and Big Data Centre to research anti-monopoly, competition policy, and platform economy, and focus on technical-work-related anti-monopoly enforcement, market monitoring, electronic forensics and evidence solidification, big data analysis, and so on. ¹⁹ In November 2021, the SAMR published the Guidelines on Online Platform’s Liabilities (Draft for Public Opinions) and the Guidelines on Online Platform’s Categorization (Draft for Public Opinions), ²⁰ which to some extent transplant from the EU Digital Markets Act to regulate gatekeepers. Since October 2021, the draft amendment to the Anti-Monopoly Law of the PRC (AML) has entered the deliberation agenda of the Standing Committee of the National People’s Congress, which widely responds to the development of the digital economy. ²¹ Because of the active and high-profile legislative activities mentioned above and the intensive anti-monopoly enforcement against digital companies to be discussed below, 2021 was called the first year of Chinese AML in the digital economy.

A. Hurdles of Digital Merger Notification in China Have Been Cleared

The reluctance of Chinese competition authority to review digital mergers in the past could largely be explained by the fact that the structure of most Chinese Internet companies, such as Tencent, Alibaba, and JD, is based on VIE. VIE refers an arrangement through which companies registered overseas control domestic operating companies through a series of agreements instead of shareholdings. ²⁶ High-tech companies make use of VIE to circumvent Chinese authorities’ control over certain industries that have not been totally open to foreign capitals. The gray-area status of VIE was among the paramount reasons why the Chinese competition authority used not to accept notification of digital mergers. Against the macro backdrop of strengthening competition enforcement in the digital economy, the Anti-Monopoly Guidelines on Platform Economy make it crystal clear that “Mergers concerning VIE fall under the purview of merger control.” ²⁷

Besides VIE, turnover of start-up generally does not reach the notification threshold. It is another obstacle of the Chinese competition authority’s review of digital mergers. Accordingly, the Anti-Monopoly Guidelines on Platform Economy prescribes that

The anti-monopoly law enforcement agency of the State Council pays high attention to mergers in the platform economy where one of the business operators is a start-up or emerging platform; the business operators participating in the merger adopt free-of-charge or low-price business mode resulting in low business turnover; the degree of concentration in relevant markets is high and there are small number of competitors. The agency shall investigate and review mergers that do not reach the notification threshold(s) but have or might have the effect of eliminating or restricting competition in accordance with laws and regulations. ²⁸

This provision could be understood as a lesson learnt from Didi’s acquisition of Uber China in 2016. Didi/Uber China attracted widespread attention both home and abroad for two reasons: (1) both parties’ market values are substantial, with those of Uber China and Didi were USD 8.2 billion and USD 28 billion, respectively; and (2) the market share of Didi accounted for about 85 percent of online ride-hailing market, and this acquisition would significantly strengthen Didi’s dominant position. ²⁹ However, this acquisition has not been officially notified to the anti-monopoly enforcement agency mainly for two reasons: (1) the notification threshold set by the State Council was not surpassed and (2) the structure of Didi is based on VIE. ³⁰

B. More Aggressive Substantive Competition Analysis

On July 10, 2021, the SAMR declared to block the merger between HUYA and DouYu, solely or jointly controlled by Tencent, becoming the third prohibited merger ³¹ since the AML came into effect and the first prohibited in the digital area. The SAMR had competition concerns in two relevant product markets: online game operating services and game livestreaming. Tencent was the biggest player in the upstream online game operating services market with more than 40 percent market share. HUYA and DouYu, respectively, had shares of 40 percent and 30 percent in the downstream game livestreaming market. The SAMR was concerned that the merger would strengthen Tencent’s dominant position in the downstream game livestreaming market and foreclose competitors from both the upstream online game operating services and downstream game livestreaming markets. Even though Tencent proposed commitments to make the merger cleared with restrictive conditions, the SAMR believed that the proposed corrective measures were not sufficient to eliminate restrictions on competition and blocked the merger. ³²

On July 24, 2021, the SAMR declared to punish Tencent for the acquisition of China Music Corporation and required it to terminate exclusive online music copyright agreement. ³³ The SAMR defined the relevant market as online music playing platform in China. Since Tencent had more than 80 percent of online music copyright resources, the SAMR was concerned that post-acquisition Tencent would be able to force upstream licensors to sign exclusive online music copyright license agreement and treat itself more favorably, and to raise market entry barriers through excessively high down payment, thus seriously eliminating and restricting competition. ³⁴ Among the remedies, the SAMR required Tencent to restore pre-merger market competition, including to terminate exclusive license agreement, not to pay excessive down payment, and not to require licensors to offer more favorable trade conditions to itself. ³⁵ This case is not related to break-up remedy, but is the first one for Chinese competition authority to impose remedy to restore pre-merger market competition in the digital economy. Since then, competition in online music playing platforms has gradually transferred from grabbing exclusive copyright licenses to improving consumer experience, such as higher quality and more innovation. ³⁶ Besides, the SAMR imposed a fine of CNY 500,000 on Tencent for failing to bear the notification and stand-still obligation. ³⁷

C. Conundrum in Digital Merger Control

In late December 2021, Tencent decreased its shares in JD from 17 to 2.3 percent, ceasing to be the latter’s biggest shareholder. ³⁸ Tencent and Alibaba may also modulate their shareholdings in other entities. Nevertheless, by far, Tencent remains the important shareholder in numerous famous listed companies, including Meituan, Pinduoduo, ³⁹ and others. It is predicted that Tencent would not stop its investment, because Chinese authorities have not directly banned capital expansion in the digital economy, even if against the backdrop of increasingly intensifying regulation. More importantly, only when a competition authority finds competition concerns, such as an estimation of higher price, lower quality, or damage to innovation, based on economic theories, would it challenge a merger. In other words, M&As that combine the complementary assets of merging parties, contribute to economic efficiencies, and bring improved or new products to consumers should be cleared theoretically. ⁴⁰ However, if Internet giants expand their ecosystems through constant M&As, thus expanding economic activities in more sectors, they may also bring side effects to politics, culture, society, and media, beyond economic activities. ⁴¹ China is also confronted with similar concerns raised by the U.S. House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law in the Investigation of Competition in Digital Markets. ⁴²

Both the EU Digital Markets Act and U.S. antitrust authorities have proposed divestment in the anti-monopoly litigation against Google and Facebook. ⁴³ In accordance with Article 16 Digital Markets Act, the EC may impose structural remedies if a gatekeeper systematically fails to bear relevant obligations. ⁴⁴ Structural remedy is a traditional redressive measure, while the competition authority should not arbitrarily take the large scale of digital companies as illegal per se, however. Anti-monopoly law is not the tool to maintain every market at a competitive status all the time. It is normality to have a market dominated by few companies in short period because of the rapid development of science and technologies.

Hovenkamp argues that divestment of highly integrated digital conglomerates would cause serious side effects. In his opinion, the purpose of remedies is to remodel and restore market competition. More specifically, when deliberating on remedies, competition authorities should consider whether the remedies would increase production, decrease price, improve quality, and stimulate innovation. Anyway, remedies should not be the tool to scale down digital companies or reduce efficiencies, thus making relevant economic activities unprofitable, let alone raising price, reducing production, or worsening quality, to the detriment of consumer welfare. ⁴⁵

Chinese competition authority still abides by the same rules when reviewing digital mergers, taking into account all the economic elements into account. According to the Anti-Monopoly Guidelines on Platform Economy, the relevant economic elements include market share, controlling power over the market, concentration level of relevant market, market entry barrier, effects on technical advancement, and others. ⁴⁶ In contrast, the Platform Competition and Opportunity Act of 2021 (PCOA) issued by the U.S. House Committee on the Judiciary is much more aggressive. ⁴⁷ More specifically, it would be illegal for covered platforms to directly or indirectly acquire stock, other share capital, or assets of another person engaging in e-commerce, unless under four situations. ⁴⁸ The PCOA also prescribes that competition, nascent competition or potential competition, includes competition for users’ attention, besides competition for “the sale or provision of any product or service.” ⁴⁹ In a nutshell, the PCOA almost bans all of big digital companies’ M&As, including acquisitions of competitor(s), potential competitors(s), or any assets that may help strengthen or maintain the acquirer(s)’ market position.

Strengthening anti-monopoly regulation in the digital economy seems like a call of the era, while bigger companies should bear heavier legal obligations. It is undeniable that the PCOA exhibits the United States’s ambition to contain the savage M&As in the digital economy, thus slowing down the speed of Amazon, Google, Apple, and other digital titans to expand capital through M&As. Besides, the motivation of the acquirer(s) and the acquired should also be paid attention to, such as to avoid bankruptcy, and to complement each other’s competitive advantages.

Too strict merger control enforcement may block one of the most important ways for the founder of start-ups to exit the market and obstruct dynamic companies to obtain capital to develop and innovate. ⁵⁰ The Center for American Entrepreneurship warns that

the bill, in fact, threatens opportunity, innovation, and consumer choice by endangering the nation’s startup ecosystem. The bill would ban many acquisitions of startups by larger companies—transactions that serve as a critical “exit” for startup founders, employees, and investors, driving the innovation flywheel whereby one generation of startups helps fund the next. ⁵¹

Besides disorderly expansion of capital, the public is also concerned with too strict anti-monopoly regulation that may stifle innovation and competitiveness of the digital economy. ⁵²

Analogous with the EU and the United States, China should find a proper balance between constraining the barbaric expansion of digital ecosystems and promoting and encouraging digital start-ups to innovate. In August 2021, the Central Financial and Economic Leading Group acknowledged and advocated that

How to strengthen the regulation of online platforms and other huge high-tech companies and prevent the disorderly expansion of capital is a global challenge. Almost all the jurisdictions are exploring how to deal with the challenge. China should equally pay attention to and substantially support regulation and development. ⁵³

In other words, Chinese legislator should not only strengthen anti-monopoly against these tech giants but also consider the platform economy as an essential component of advanced productivity, so as to make the best use of digital economy to optimize resource allocation, enhance scientific and technical progress, facilitate people’s lives, and enhance international competitiveness. ⁵⁴ Considering it is no easy work to coordinate “regulation” and “development” of the digital economy, China is ready to cooperate with other jurisdictions for a rational and scientific resolution to solve this global conundrum.

A. SAMR’s Competition Analysis

“Either-or” is also called exclusive dealing, under which one party requires the counterparty to exclusively do businesses with it. Exclusive deal is widely used in product sales or purchase. Taking international trade as an example, a manufacturer grants exclusive distribution right to a local company. The exclusive arrangement helps the manufacturer to overcome language, legal, and other obstacles, and to reduce distribution costs. Therefore, exclusive dealing is particularly helpful for small and medium companies to enter a new market. However, exclusive dealing may also restrict competition because of market foreclosure. ⁵⁷ Under European competition law, when the buyer or the seller in an exclusive dealing reaches a market share of 30 percent, such transactions may be illegal; it depends on the extent of the market foreclosure. ⁵⁸

Nevertheless, the SAMR punished Alibaba in accordance with rules against abuse of dominant market position, instead of those against monopoly agreement. The SAMR followed three steps in this case: (1) market definition, (2) identification of dominant market position, and (3) analysis of competitive injury.

The SAMR observed that online retailing platform services and offline retailing business services did not belong to the same relevant product market because of huge differentiation, especially e-commerce platforms’ “one-stop-shop” service, providing almost all the required products to consumers through one and the same online platform. ⁵⁹ Considering sustained high market share, reputation, consumers locked-in, and others, the SAMR held that Alibaba had a dominant position in China’s online retailing platform services market, competing with JD, Pinduoduo, and other online retailing platforms. ⁶⁰

Dominant market position refers to a company’s ability to control price, quality, innovation, or consumer choice to restrict competition. Market share plays an important indicative role. During 2015–2019, Alibaba, respectively, accounted for 76.21, 69.96, 63.58, 61.70, and 61.83 percent of the online retailing market in China in terms of trade volume. ⁶¹ The SAMR rebutted Alibaba’s argument of low market entry barrier of online retailing intermediary services and lack of dominant market position from several perspectives, especially the perspective that online retailing intermediary platform is two-sided with strong direct and indirect network effects. ⁶² The value of the platform to one side increases with the number of users from the other side. Suppliers often prefer to distribute products on bigger platforms, thus highly reliant on Alibaba to obtain access to huge number of consumers from the other side. As for consumers from the other side, even though they are multi-homing, given that they tend to shop on platforms they have visited multiple times, big platforms tend to lock in the vast majority of consumers as well as advertisers. Even big data accumulated by the big intermediate online platforms should not be recognized as unfair competition advantage, it has constituted a market entry barrier.

The SAMR concluded that “either-or” provision imposed by Alibaba harmed legitimate rights and interests of users from both sides (suppliers and consumers) and competition between online retailing intermediary platforms, deviating from open, tolerant, and sharing spirits of the digital economy. ⁶³ Indeed, the online retailing platform services market in China is highly concentrated, even if there are Tmall, Taobao, JD, and Pinduoduo as online retailing intermediate platforms. Taking into account more than 1 billion active Internet users in China, the number of five players is very limited. On the other side, Taobao and Tmall, both of which owned by Alibaba, have more than 60 percent of the shares in China’s online retailing market in terms of trade volume. In this case, even if the “either-or” provision forced by Alibaba had significantly increased productivity through making use of direct and indirect network effects, rival online retailing platforms at disadvantageous position were gradually foreclosed, however. Anti-monopoly laws do not protect competitors but competition. Nevertheless, when rivals exit the market because of less access to consumers due to the “either-or” provision, instead of higher price, worse quality, or bad sale services, there must be distorted and unfair competition.

B. Reflection on Alibaba Case

A. Agreement Is the Basic Approach to Data Openness

Some opine that super online platforms with huge user base, market share, and influence have become “natural monopolists.” Competition authority should treat them as “essential facility,” requiring them to unconditionally open data access to third parties, including rivals. ⁷⁷ This argument is debatable, since it overlooks the fact that digital economy is also an essential component of market economy, with competition and innovation. ⁷⁸ For example, MySpace, established in the United States in 2003, used to be the largest social network, but was replaced in 2008 by Facebook, which was established in 2004. Google, established in 1998, is not a born monopoly, either. It only won Yahoo! and became the top global search engine in 2002. ⁷⁹ In addition, no one is 100 percent sure that Google and Facebook would maintain their dominant position in the global digital market forever. In a nutshell, digital titans are not natural monopolies, whose dominant positions were won by competition and innovation, and should not be regulated as public utilities or even “nationalized.” ⁸⁰ Likewise, data accumulated by digital titans, an essential input, should not be “nationalized,” either. In this case, data interoperability should be achieved through market economy. Data access and sharing principally fall under the purview of business operators’ economic autonomy and should be achieved through private agreement. This method is beneficial to data security, user privacy, and commercial interests arising from data collection and integration.

Generally, online platform operator is interested in interoperating data with third parties, because it helps to collect and accumulate richer data, obtain new users, and provide more content and diversified services for the old users, and amplify the direct and indirect network effects of the platform, thus attracting more advertisers and capturing more advertising revenue. Alipay and WeChat are two super platforms, loading millions of B2B or B2C mini programs, which is a typical example of cooperation between digital companies. In the end of 2021, Meituan and Kuaishou entered into strategic partnership, based on which Meituan users could log in Kuaishou app through mini program, and Kuaishou users could order food through Meituan app. ⁸¹

It should be pointed out that, according to anti-monopoly law, even if the tech giants in control of big data can conduct data transactions with third parties through contracts, they must open their platforms and data on fair, reasonable, and non-discriminatory conditions, and should not use their market power to unreasonably exclude and restrict competition, including unreasonable rejection of transactions, discriminatory treatment, restricted transactions, tie-in, and so on. ⁸² Similarly, e-commerce law also requires “business operators of e-commerce to stick to voluntary, equal, fair, and good faith principles, to abide by laws, regulations and business ethnics, to fairly compete with rivals . . . when engaging in business activities.” ⁸³ “Business activities” here include opening access to platform and data. As introduced above, Alibaba was severely punished by the SAMR for the elimination or restriction of competition triggered by restraining access to platform and trade of data.

B. Applicability of “Essential Facility” Doctrine

Currently, relevant anti-monopoly enforcement challenge mainly arises from data interoperability between competitors. For example, platform A may argue that the data it accumulates are different from electricity, water, and other services provided by public utilities. Data are important input for its own economic activities and should not be open to the public. Therefore, Platform A refuses the requirement to open continuous and real-time access to its user data to Platform B. In contrast, Platform B would observe that Platform A’s data are an essential input for its competition with Platform A, while “essential facility” doctrine should be applicable to Platform A’s refusal of rivals’ access to its data. ⁸⁴

The disputes between competitors in the digital economy often concern data interoperability. In this respect, there is a judgment made by Beijing Haidian District People’s Court regarding the dispute between Sina Weibo (plaintiff) and ByteDance (defendant). The court concluded that ByteDance’s systematically “copying” and “pasting” Sina Weibo’s content were in breach of Article 2 of the Anti-Unfair Competition Law of the PRC, business moral more specifically, and imposed fines of CNY 21 million on ByteDance. The court observed that competitive advantage obtained by Sina Weibo through long-term investment and legal operation had been seriously impaired by ByteDance within short period. ⁸⁵

The Anti-Monopoly Guidelines on Platform Economy mention the concept of “essential facility” and prescribe that “when analyzing whether a conduct constitutes refusal to deal, the competition authority could consider whether a business operator controlling essential facility refuses to trade with counterparty under reasonable conditions.” However, the guidelines also acknowledge that refusal to deal may have justified reasons, including “trading with counterparty would cause improper impairment to the interests of business operators in platform economy.” ⁸⁶

“Essential facility” doctrine originates from the U.S. antitrust law, which is barely applied nowadays, however. Areeda severely criticized “essential facility” doctrine, commenting that

No one should be forced to deal unless doing so is likely substantially to improve competition in the marketplace by reducing price or by increasing output or innovation. Such an improvement is unlikely (a) when it would chill desirable activity; (b) the plaintiff is not an actual or potential competitor; (c) when the plaintiff merely substitutes itself for the monopolist or shares the monopolist’s gains; or (d) when the monopolist already has the usual privilege of charging the monopoly price for its resources. Even when all these conditions are satisfied, denial of access is never per se unlawful; legitimate business purpose always saves the defendant. What constitutes legitimacy is a question of law for the courts. ⁸⁷

In Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, the U.S. Supreme Court observed that “We think that Professor Areeda got it exactly right: No court should impose a duty to deal that it cannot explain or adequately and reasonably supervise.” ⁸⁸

EC has applied “essential facility” doctrine in a few intellectual property right (IPR)-related cases, including Magill, ⁸⁹ Microsoft, ⁹⁰ IMS, ⁹¹ and Bronner. ⁹² In Bronner, the European Court of Justice listed four conditions for “essential facility” theory of harm to stand: (1) the facility is an indispensable input for market entry; (2) the dominant company’s refusal to grant access to the facility would prohibit consumers from obtaining new products; (3) the dominant company’s refusal is not objectively justified; and (4) refusal to open access to the facility eliminates competition in the downstream market. The key lies in the dominant company having an irreplaceable input. There is no factual substitute to the essential input. No company is capable of entering the market without the essential input because of legal, technical, or economic restrictions. ⁹³

In the digital economy, some would argue that they could not develop new products, or it is not technically or economically feasible to develop new products without access to the data held by a party, which however is difficult to prove. The growth history of high-tech titans, such as Facebook, Google, Alibaba, and ByteDance, shows that none of them had access to rich data at early stage. Technical innovation, not necessarily big data, is obviously the key to the incumbent Internet giant’s success. Spotify is another typical example, having surpassed Apple’s iTunes even without access to comparable scale of data. ⁹⁴ In the authors’ opinion, the “essential facility” doctrine is not unimportant, but data are not “essential facility” since they are not “irreplaceable” for the success of tech giants.

C. Scientific and Reasonable Standard Is the Pre-Condition for Data Interoperability

To decrease the dominance of tech giants in the digital economy and increase social value of big data through the reuse, both the EU and the United States have taken proactive actions to drive mandatory data interoperability. In June 2021, the U.S. House Committee on the Judiciary enacted the Augmenting Compatibility and Competition by Enabling Service Switching Act (Access Act), with aim of eliminating barriers between superpowers in social media sector, paving the way for users to interchange among interoperable service providers. ⁹⁵ The EU Digital Markets Act, which will take into force in 2022, requires gatekeepers to bear data interoperability obligation with respect to its ancillary services, even though its core platform services excluded. ⁹⁶ Moreover, gatekeepers should ensure the interoperability of their instant messaging services’ basic functionalities. ⁹⁷

During the administrative guiding meeting held in September 2021, the Ministry of Industry and Information Technology (MIIT) advocated digital companies to gradually relieve block and restriction within required period, and gradually achieve data interconnectivity step by step. ⁹⁸ Article 3 of the Guidelines on Online Platform’s Liabilities (Draft for Public Opinions) also requires

super platform operator to make its services interoperable with those provided by other platform operators on condition that it is secure and does not infringe the legitimate rights and interests of stakeholders. Without justified reasons, super platforms should not refuse to provide convenience to qualified business operators and users to obtain its services. ⁹⁹

The guidelines could be deemed as a continuance and development of the MIIT’s administrative advocacy against restricting, blocking, and other refusal of data interoperability actions. Super Chinese Internet platforms, such as Tencent, have promised to gradually resolve the long-term problem of restriction and block of redirection to rivals’ platforms step by step. ¹⁰⁰ Ex ante regulation and sectoral regulation of super platforms have become the rudiment of resolving platform interconnectivity and data interoperability problems in China’s digital economy.

Data interoperability is not only the trend of the development of digital economy but also social liabilities that should be borne by the tech giants. Nevertheless, besides promoting data-driven innovation and increasing data’s social value, data interoperability is also accompanied with side effects, such as risks arising from data security, privacy protection, and platform service quality.^101,102 It is quite possible that Internet platforms that operate well do not have the incentive to interconnect with and achieve data interoperability with Internet platforms functioning poorly. Law makers and regulators should set reasonable, scientific, and transparent technology standard and data standard in promotion of data interoperability, accordingly, taking into account relevant technical, legal, and commerce problems ex ante. Mandatory data interoperability may cause serious competition concerns among competitors, such as free riding, which saves rivals costs in competing in the upstream market and costs the incumbent losing competitive advantage in downstream market. ¹⁰³ “Free riding” could not only lead to product homogeneity, but also from the perspective of long run, it undermines the incentive for enterprises to innovate, harming social welfare and consumer welfare. What is worse, it could impair market economy mechanism.

Therefore, when advocating platform interconnectivity and data interoperability, China should also pay due attention to concomitant costs and risks. In January 2022, the General Office of the State Council released the Notice of the Overall Plan for the Comprehensive Reform of Market-Based Allocation of Input, ¹⁰⁴ proposing “establishing and improving rules on data circulation and trade.” The notice advocates authorities at all levels to gradually promote data flow and application sector by sector and category by category. The notice also proposes to explore the establishment of a control system for the circulation and use of data to achieve “controllable and measurable” data use. In a nutshell, China is ready to advance data capitalization in a cautious way in the digital economy which helps to ensure stable and high-quality data in the digital economy, and helps China’s digital economy development toward a healthy, safe, and sustainable direction.