According to media reports, JD.com staff said that JD.com received a lawyer's letter from the brand owner Hai's. The brand complained that because the JD price of a certain Hai's oven was lower than the price of Li Jiaqi's live broadcast, it violated the "reserve price agreement" they signed with Li Jiaqi, and demanded huge compensation for liquidated damages. Hai's employees' circle of friends also confirmed this. Li Jiaqi’s live broadcast room responded that the contract it signed with the brand did not involve the “lowest price in the entire network” binding clause, and the pricing power of the live broadcast room’s products lies with the brand.
After reading relevant news, the author tends to believe that this lowest price clause exists, except for JD.com, so why does Li Jiaqi’s live broadcast room dare not admit it? Let me talk to you about this matter today.
Let’s first take a look at the terms related to this incident issued by Sina Technology (hereinafter referred to as the “His Li Jiaqi Live Broadcast Room Contract”):
1. What are the illegal risks of the lowest price clause?
In order to prevent operators from colluding to endanger the order of competition and the legitimate rights and interests of consumers, the Anti-Monopoly Law has corresponding restrictive provisions for vertical agreements between upstream manufacturers and downstream sales channels, as well as horizontal agreements between competitors. Hai's Company is a manufacturer of ovens and actually sells them itself, so its legal status is both a manufacturer and a seller. This status results in the Haishi Li Jiaqi live broadcast room contract being both a horizontal agreement and a vertical agreement.
First of all, part of the agreement is an agreement between two competing sales channels (Li Jiaqi promotes Hai's products and also sells products of other brands with similar functions), which involves the horizontal monopoly agreement provisions of the Anti-Monopoly Law: Competing operators are prohibited from entering into monopoly agreements to fix or change commodity prices; according to the "Provisions on Prohibition of Monopoly Agreements" of the State Administration for Market Regulation, the specifics include:
(1) Fix or change the price level, price change range, profit level, or other expenses such as discounts and handling fees;
(2) Agree to adopt standard formulas, algorithms, platform rules, etc. based on which prices are calculated;
(3) Restrict the independent pricing power of operators participating in the agreement;
(4) Fix or change prices through other means.
Secondly, this agreement is also an agreement for the downstream seller (Li Jiaqi Live Broadcast Room) to require the upstream manufacturer (His Oven) to limit sales in other sales channels. Involves the vertical monopoly agreement clause in the Anti-Monopoly Law: operators and transaction counterparts are prohibited from entering into other monopoly agreements identified by the State Council’s anti-monopoly law enforcement agency. According to the "Provisions on Prohibition of Monopoly Agreements" of the State Administration for Market Regulation, these include:
Other agreements, decisions or concerted behaviors that do not fall under the circumstances listed in Articles 8 to 15 of these Regulations shall be deemed to be monopoly agreements and shall be prohibited if there is evidence to prove the exclusion or restriction of competition.
2. The crux of the issue is whether the price limit clause has the effect of eliminating and restricting competition.
Since the contract of Hai's Li Jiaqi Live Broadcast Room involves a monopoly agreement, if they are investigated by administrative law enforcement agencies or sued by competitors, then if Li Jiaqi Live Studio and Hai's Oven want to prove that the agreement does not violate the Anti-Monopoly Law, they must provide evidence that the horizontal and vertical agreements between the two parties do not have the effect of excluding or restricting competition.
The legal basis is Article 7 of the Supreme People's Court's "Provisions on Several Issues Concerning the Application of Law in the Trial of Civil Disputes Caused by Monopolistic Behaviors." If the alleged monopoly behavior falls within a monopoly agreement specified in Items (1) to (5) of Article 13, Paragraph 1, of the Anti-Monopoly Law (2008 Edition), the defendant shall bear the burden of proof that the agreement does not have the effect of excluding or restricting competition. Although this article is about horizontal monopoly agreements, after the newly revised Anti-Monopoly Law clearly adopts the principle of rationality in terms of vertical monopoly agreements (Article 18), if operators can prove that vertical monopoly agreements that limit minimum resale prices do not have the effect of eliminating or restricting competition, they should not be prohibited.
To determine the effect of excluding and restricting competition in a monopoly agreement, we can refer to the four-point standard proposed by the Shanghai Higher People's Court in the second instance judgment of the first domestic vertical monopoly agreement judicial case, Ribang v. Johnson & Johnson. Let's analyze it based on this case:
1. Whether competition in the relevant market is sufficient. If the relevant market is defined as anchors providing shopping guide services to consumers through live broadcasts on the Internet, then competition in this market is very sufficient. Taobao, Tmall, Douyin, Kuaishou, and Xiaohongshu all have this service, and they all have their own head anchors.
2. Whether the defendant’s market position is strong. From the author's understanding of the e-commerce industry, as the number one anchor on Taobao and Tmall, the largest e-commerce platform in China, the market power of Li Jiaqi's live broadcast room is quite strong. After Li Jiaqi's Huaxizi eyebrow pencil controversy, market opinion had a negative opinion on it. Manufacturers from all walks of life are still flocking to it, which is the best proof of its strong market power. We can prove this by using the putative monopolist test in the Anti-Monopoly Law.
In litigation under the Anti-Monopoly Law, in order to define the relevant market, a hypothetical monopolist test is often performed on the substitutability of the relevant market. Specifically, it is assumed that the monopolist can increase the price of the target commodity slightly (usually 5%-10%) for a long time (usually 1 year). An increase in the price of the target commodity will cause demanders to switch to other commodities that are closely substituted, thereby causing the hypothetical monopolist's sales to decline. If the price of the target commodity increases, even if the monopolist's sales volume decreases, it is still profitable, then the target commodity constitutes a relevant commodity market.
However, Internet platforms are often two-sided markets. Basic services are free and value-added services are charged. For example, search engines do not charge consumers and only earn advertising fees from search ads. At this time, it is difficult to use price increases to define the relevant market. The anchor-related market in this case is also a two-sided market, with one side facing consumers. The anchor provides shopping guide services to consumers through Internet live broadcasts. Consumers have to pay for shopping, but the shopping guide services are not charged from consumers. One side is for manufacturers, promoting products through Internet live broadcast, and Li Jiaqi’s live broadcast room charges service fees and other fees from product providers.
The Supreme People's Court pointed out in the case of Qihoo Company v. Tencent Company over abuse of market dominance that the putative monopolist test based on relative price increases is difficult to fully apply in this case, but variations of this method can still be adopted, such as the putative monopolist test based on a decline in quality. Since the degree of quality decline is difficult to assess and relevant data are difficult to obtain, a putative monopolist test of quality decline can be used for a qualitative rather than a quantitative analysis.
If this case is to be tested as a hypothetical monopolist with declining quality, Li Jiaqi offended users due to the Huaxizi eyebrow pencil incident, which led to a decline in reputation and reputation. For the anchor's shopping guide service, it means that the anchor's own appeal quality has declined. But even if there is such a devastating public opinion, Li Jiaqi can still include price limit clauses in contracts with manufacturers, indicating that its market position is still stable. And when promotions on other platforms appear at lower prices, Hai's as its partner will actively (or perhaps passively) find other platforms to defend their rights and ask them to stop low-price competition. This shows that Li Jiaqi has a strong dominance in the market where anchors provide shopping guide services to consumers through Internet live broadcasts, and has spilled over into the market for general e-commerce platform product sales.
3. Defendants' motive for imposing minimum resale price restrictions. This requires proof. In practice, the chat records of the defendant’s staff, especially executives or sales, communicating with others, if there is content to limit the price, can be very convincing evidence.
4． Competitive effects of limiting minimum resale prices. This also requires proof, but the author saw one on Weibo. The anchor of Crazy Little Yang’s live broadcast room said that they sold SKII at a low price, and then because the price was lower than that of Li Jiaqi’s live broadcast room, the product was removed from the shelves by the manufacturer. If this statement is true, the competitor's testimony may constitute evidence of the effect of eliminating or restricting competition.
3. Is this case similar to Alibaba’s “Choose One” case?
Media reports said that after receiving a letter from Hai’s lawyer, a JD.com employee posted on WeChat Moments that the case involved a “choice of two”. If the report is true, does Li Jiaqi’s live broadcast room constitute a “choose of one”? According to the decision of the State Administration for Market Regulation to punish Alibaba, the author believes that it does not constitute a violation. This incident is not a "choose one" but the seller requires the manufacturer not to sell prices on other platforms higher than the seller's sales price.
The reason Alibaba was punished was for abusing its dominant market position. According to the Anti-Monopoly Law, abusing a dominant market position requires first having a dominant market position. A company must have at least 50% of the market share to meet the threshold for presumed dominant position. In this case, although Li Jiaqi is the number one anchor on the Taobao Tmall platform and has a high sales volume, his market share in the anchor service market for selling products through the Internet will definitely not reach 50%.
This is because there are not only Taobao and Tmall platforms for live streaming business, but also almost all mainstream Internet platforms. Short video platforms such as Douyin and Kuaishou also have very large sales. At the same time, manufacturers themselves will also launch live broadcasts to divert sales from leading anchors. Therefore, Li Jiaqi’s live broadcast room will not have 50% market share in any case.
This case involves the issue of an illegal monopoly agreement. More similar to this case is the recent case in which the U.S. Federal Trade Commission sued Amazon for illegal monopoly. In this case, Amazon requires merchants on the platform to sell products at a price that must not be higher than the price on other e-commerce platforms. If merchants violate the rules, their sales will be restricted. For details, you can read another article by the author "What are the game points in the FTC's antitrust case against Amazon?" 》
In addition, if the price limit clause of the Haishi Li Jiaqi live broadcast room contract is found to be illegal, according to the Anti-Monopoly Law, it may be fined 1% to 10% of the previous year's sales. However, this fine should not be determined based on the sales amount of its live broadcast room (it is reported that its sales last year were 21.5 billion yuan), but should be determined based on the anchor service fees it charges to product providers, and this base will be much smaller.
Finally, as far as the author is concerned, it is not uncommon for brands to control prices in channels. All well-established brands will control prices in different ways and to varying degrees, because for large companies, the core of market sales is pricing. Most control measures, if carefully evaluated under the Anti-Monopoly Law with a magnifying glass, will be more or less illegal.
Many times, when it comes to antitrust compliance issues, manufacturers compare whether the control methods are concealed and whether the wording of price control measures appears to be compliant on the surface. If the control methods are disclosed, or the terms are written too straightforwardly, for example, the author wrote a while ago "Is the limited-price sale of the Forbidden City Calendar illegal?" "The Forbidden City Press's Weibo and official accounts in the article want to limit prices, which is a very risky behavior. Having written this, everyone should be able to understand why Li Jiaqi’s live broadcast studio denied the exposed agreement and price limit clause.
Author: You Yunting, intellectual property lawyer at Shanghai Dabang Law Firm