"Package sales promotion" - A promotional measure that bundles several commodities for discount sales or bundles hot selling commodities with slow selling commodities, has always been favored by many enterprises as an effective way to improve enterprise efficiency and promote product sales. Especially when enterprises encounter crises and product sales are not smooth, in order to reverse the adverse situation and recover funds, It is often a preferred promotional measure for various enterprises.

 

However, when specifying specific "package promotion" measures, have various enterprises seriously considered whether such measures contravene the Anti monopoly Law?

 

Article 17 of the Anti monopoly Law stipulates: "It is prohibited for business operators with dominant market positions to engage in the following acts of abusing their dominant market position:... (5) tying up goods without justifiable reasons, or attaching other unreasonable trading conditions to transactions;...".

 

In practice, "package promotion" is based on different enterprise backgrounds and specific details. However, in most cases, "package promotion" is reflected in the fact that enterprises with market advantages utilize their best-selling products while bundling their slow-moving products to sell together, and such enterprises often no longer sell best-selling products separately, forcing counterparties to only purchase package products together to enhance the effectiveness of their "package promotion". The implementation of "package promotion" by enterprises often does not have any other legitimate reasons, and its purpose is only to sell their non competitive slow-moving products as soon as possible and more, in order to maximize their market advantage, extend this advantage to all products, and achieve maximum profits for enterprises. Therefore, in practice, although there are reasonable and legal "package promotions" (see details later in this article), in many cases, "package promotions" have the obvious characteristics of tying sales referred to in Article 17 of the Anti monopoly Law.

 

Based on the analysis of the aforementioned "package promotion" situation, the specific elements of tying in the "Anti monopoly Law" are mainly as follows: 1. The operator has a dominant market position; 2. Contrary to the wishes of the counterparty; 3. There is no justifiable reason.

 

One of the key elements of tying: the operator has a dominant market position

 

Tying generally refers to the behavior of an operator who has an advantageous position in terms of economy, technology, and other aspects in the process of commodity trading, using its advantageous position to force the trading counterpart to purchase other products or services unrelated to the nature or trading habits of the goods it provides. In daily life, tying behavior is usually manifested as the operator taking advantage of their advantageous position to tie in inferior or slow-moving goods when selling high-quality or hot selling goods (hereinafter referred to as "tied in"), or to tie in miscellaneous goods when selling famous brand goods (hereinafter referred to as "tied in"). Tie-in products may be the products of our company or the products of other companies for various benefits.

 

The anti-competitiveness of tying does not lie in influencing the market competition of the paired goods, but rather in influencing the market competition of the paired goods. Tied goods can save costs and can also be used to sell inferior or slow-moving goods, which clearly has a negative impact on the normal market competition of tied goods. After tying up goods with an advantageous position for the operator of the tied goods, the operator unfairly imposes its competitive advantage in the market of the tied goods, resulting in a very unfavorable position for other operators of the tied goods, It is likely to be excluded from the competitive market for tying products.

 

The reason why tying sales can exist and can be implemented smoothly lies in the fact that the operator has an advantageous position in terms of economy, technology, and other aspects for the goods to be tied. For example, (1) the operator has a high market share for a certain category of goods, and lacks competitors for similar products in the relevant market, resulting in the operator having an advantageous position in the economy, The counterparty has to seek a transaction with the operator in order to purchase such goods; (2) An operator has relative control over a certain type of goods due to its technical advantages, and lacks competitors with similar technology in the relevant market. In order to purchase goods using this technology, the trading counterpart has to seek a transaction with the operator. In this case, if an operator with economic or technological advantages is tying up other goods while selling goods, considering that the transaction counterpart will not be able to purchase the goods they wish to purchase (i.e., the tied up goods) if they do not purchase the tied up goods, the transaction counterpart may not want to purchase the tied up goods but still have to accept the tied up goods.

 

If an operator does not have a market advantage in terms of economy, technology, etc., that is, there are other competitors with comparable or higher competitiveness in the relevant market, and the operator does not have the ability to control the relevant market, even if the operator implements a tie-in, and the trading counterpart does not want to purchase the tie-in products, the trading counterpart can completely switch to purchasing the products of other competitors. In this case, the implementation of tying sales by operators will only lose trading opportunities, and tying sales cannot be smoothly implemented, and the market competition of tying products will not be affected.

 

From the above analysis, it can be seen that the establishment of tying must be based on the premise that the operator has a market advantage in terms of economy, technology, etc.

 

It must also be pointed out here that having a dominant market position in economic, technological, and other aspects is not equivalent to having a dominant market position. The "Anti monopoly Law" has strict regulations on the determination of market dominance, and only operators who meet the statutory conditions for market dominance can be considered to have a dominant market position. This can be understood at two levels: (1) If the dominant market position of an operator can meet the statutory conditions for market dominance stipulated in the Anti monopoly Law, the tying behavior of the operator will violate the Anti monopoly Law; (2) "If the operator does not meet the statutory conditions for market dominance stipulated in the Anti monopoly Law, but still has a relative market advantage over the paired item in the relevant market,", The tying behavior of an operator may still violate the Anti Unfair Competition Law (Article 12 of the Anti Unfair Competition Law stipulates that "When selling goods, an operator shall not tie up the goods against the wishes of the purchaser or attach other unreasonable conditions."). The difference between violating the Anti Monopoly Law and the Anti Unfair Competition Law mainly lies in the severity of their anti competition and the degree of punishment.

 

The second element of tying: violating the wishes of the counterparty

 

Another prerequisite for tying behavior to be established is that it must violate the wishes of the trading counterpart, that is, the trading counterpart is forced to purchase both the paired item and the tying item against their own wishes.

 

Regarding the concept of "tying", although there is no clear legal definition, from the perspective of the legislative purposes of the anti monopoly law and the anti unfair competition law (that is, prohibiting operators from restricting market competition), "tying" itself refers to the use of their advantageous position to force the trading counterpart to purchase another commodity, thereby limiting the normal market competition of tying products. Therefore, the term "tying" itself has the characteristic of "forcing the trading counterpart to purchase". If the trading counterpart is not "forced" to purchase the goods and can choose the goods according to their own wishes, it will not constitute "tying". From this perspective, although Article 17 (5) of the Anti Monopoly Law (tying goods without justifiable reasons) does not explicitly add the attribute "against the wishes of the buyer" as Article 12 of the Anti Unfair Competition Law does, "tying" should have the meaning of "against the wishes of the buyer" or "forcing the counterparty to buy". In this regard, the legislative department of the Anti monopoly Law and many experts in anti monopoly law/anti unfair competition law also hold the same view.

 

It must be noted here that tying involves a legal issue of competition. The term "tying" as used in the Anti Monopoly Law and the Anti Unfair Competition Law refers to the use of an operator's economic, technological, and other advantages over the tied goods to force a trading counterpart to purchase the tied goods they are unwilling to purchase; This coincides with the situation where commodity retail enterprises violate consumers' right to choose when selling branded, high-quality, and best-selling goods by rigidly matching inferior, inferior, and slow-moving goods. Article 9 of the Consumer Rights Protection Law stipulates that: "Consumers have the right to choose their own goods or services. Consumers have the right to choose their own operators to provide goods or services, to choose their own types of goods or services, to decide whether to buy or not to buy any kind of goods, to accept or not to accept any kind of services. When choosing their own goods or services, consumers have the right to compare, identify, and select." On the one hand, the tying behavior of operators excludes the possibility of buyers purchasing the same kind of goods as the tying products from other operators, thereby excluding fair competition. On the other hand, it also deprives consumers of the right to choose their consumption and harms their rights and interests.

 

Regarding the aforementioned legal competition issues, The Legal Affairs Working Committee of the Standing Committee of the National People's Congress has made the following explanation: "The tying sale mentioned in this regulation does not mean that retail enterprises rigidly match inferior, inferior, and slow-moving goods when selling famous brands, high-quality, and best-selling goods to consumers. Although the tying sale of inferior and high-priced goods by retail enterprises infringes on the legitimate rights and interests of consumers, from the perspective of competition relations, it is not the Anti Unfair Competition Law." The adjusted content. Such behavior can be regulated in laws related to the protection of consumer rights and interests. "The term tying and other unreasonable conditions attached in the Anti Unfair Competition Law refers to the use of economic and technological advantages by operators to force trading counterparties to purchase goods they do not need or are unwilling to purchase or accept other unreasonable conditions when selling certain products.". "This behavior violates the principle of fair sales, hinders the freedom of competition in the market, and also affects the business activities of trading counterparties in freely selecting and purchasing goods. It can also lead to the consequences of relatively reducing trading opportunities for competitors, and thus has an obvious anti-competitive nature.".

 

According to the above explanation, The term "tying" in the Anti Monopoly Law and the Anti Unfair Competition Law should be limited to "operators using their economic, technological, and other advantages to force trading counterparties to purchase goods they do not need or are unwilling to purchase or accept other unreasonable conditions when selling products." However, acts of commodity retail enterprises that forcibly match high-quality and high-priced goods while selling goods and infringe on consumers' right to choose should be subject to the Consumer Rights and Interests Protection Law Regulation.

 

The third element of tying: no justifiable reason

 

"The Anti monopoly Law lists tying as one of the situations where market dominance is abused. It can be seen that illegal tying should have the characteristics of" abuse. "In the practice of economic behavior, many tying behaviors are for good purposes and are reasonable.". For example, in order to facilitate the use of consumers, improve the comprehensive quality of products, ensure the safety of product use, and so on. Article 17 (5) of the Anti monopoly Law also explicitly adds the attribute "without justifiable reasons" before tying up goods. Therefore, if the tying up of goods is justified, it cannot be considered as an abuse of market dominance.

 

Although the "Anti monopoly Law" does not explicitly specify the specific circumstances of "legitimate reasons", judging from the practical situation of economic behavior, whether the tying behavior implemented by operators with a dominant market position is legitimate and reasonable should generally consider four factors:

 

One is whether tying is based on the trading habits of the product. If, according to trading habits, tying goods are generally sold together with the traded goods and are beneficial to consumers, then the tying behavior of the operator is reasonable. On the contrary, if tying does not conform to the trading habits of the product, the act is suspected of abusing market dominance. For example, when selling mobile phones, use a charger, etc.

 

Secondly, tying is based on the purpose of facilitating consumer use and saving social costs. For example, in order to achieve automated mail sorting and save social costs, the post office sells standard cardboard boxes when providing mail services.

 

Third, if the paired item and the tied item are sold separately, it will damage the performance, safety, or use value of the product, which is to analyze the correlation between the paired item and the tied item. Generally speaking, if tying goods can have a positive effect on the performance, safety, or use of the paired goods, while separate sales can harm the performance, safety, or use of the paired goods, then the behavior of tying goods is reasonable. If there is no correlation between the paired item and the tying item, the tying behavior is not necessarily reasonable. For example, when selling a computer, use computer prerequisite software to improve the performance of the product, and when selling a camera, use a protective cover to store the camera (to improve the security of the product).

 

Fourth, the impact of tying behavior on market competition. From the perspective of effectiveness, the tying behavior regulated by the antimonopoly law must have a serious anti-competitive effect, that is, tying behavior will strengthen the dominant position of enterprises in the relevant market, and bring significant adverse effects on the competition in the tying product market. From the perspective of the legislative purpose of the antimonopoly law, the anti-competitiveness of an act is the fundamental criterion for judging any monopolistic act. If an act has serious anti-competitiveness, it may be suspected of violating the antimonopoly law. For example, canceling the separate sales of paired items and tied items while tying them, resulting in the transaction counterpart having to purchase both paired items and tied items at the same time, is likely to have a serious impact on the market competition of tied items and be suspected of violating the antitrust law; However, if the tied up item and the tied up item are still sold separately while the tied up item is being sold, then in this case, the tied up item is only given an additional trading option to the trading counterpart in addition to the normal single sale transaction mode, rather than forcing the trading counterpart to only choose the tied up item. Therefore, the willingness of the trading counterpart is not forced, and the market competition for the tied up item will not be affected, Such tying arrangements will clearly not violate antitrust laws.

 

Reasonable and legal "package promotion"

 

In the event of a business crisis, there is nothing wrong with the self-help actions taken by various enterprises to respond to the crisis by taking measures such as "package promotions". However, if these promotional measures are improperly exercised, they will not only fail to achieve the self-help effect, but will instead bring legal risks to the enterprise and can be subject to severe penalties from antitrust and anti unfair competition law enforcement agencies.

 

Based on the above analysis in this article, the key to determining the reasonable legality of "package promotion" and breaking the legal constraints lies in not making "package promotion" essentially constitute the aforementioned three elements of tying sales behavior. Therefore, reasonable and legal "package promotion" should pay attention to the following points: 1. While selling the package, various products within the package should still be sold separately to ensure that the "package promotion" is not anti-competitive and does not violate the wishes of the counterparty; 2. Try to make the products within the package relevant and make the package sales conform to trading habits as much as possible; 3. Give a certain price discount to the package to attract transaction counterparties to purchase the package, and further improve the rationality of the package sales.

 

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[1] Refer to "Understanding and Application of the Anti monopoly Law of the People's Republic of China", page 101, Law Press, 2007 edition, edited by the Department of Regulations and Law of the Ministry of Commerce, and edited by Shang Ming.

 

[2] Reference: 1. "Interpretation of the Anti monopoly Law of the People's Republic of China", page 51, Legal Publishing House, 2007 edition, edited by the Legislative Affairs Committee of the Standing Committee of the National People's Congress; 2. "Principles of Anti Unfair Competition Law", p. 494, Intellectual Property Publishing House, 2005 edition, by Kong Xiangjun; 2. "Interpretation of the Anti monopoly Law of the People's Republic of China - Concepts, Systems, Mechanisms, and Measures", page 104, China Legal Publishing House, 2007 edition, edited by Cao Kangtai.

 

[3] Refer to "Principles, Rules, and Cases of Anti Unfair Competition Law", pp. 282 and 283, Tsinghua University Press, 2006 edition, edited by Kong Xiangjun, Liu Zeyu, and Wu Jianying.

 

[4] Refer to pages 32 and 33 of "Interpretation of the Law of the People's Republic of China on Anti Unfair Competition", Law Press, 1993 edition, edited by the Civil Law Office of the Legislative Affairs Committee of the Standing Committee of the National People's Congress.

 

[5] Refer to "Interpretation of the Anti monopoly Law of the People's Republic of China - Concepts, Systems, Mechanisms, and Measures", pages 104 and 105, China Legal Publishing House, 2007 edition, edited by Cao Kangtai.

 

(This article is translated by software translator for reference only.)