On November 16,2016,with a notice from the State Administration for Industry and Commerce,the investigation of Tetra Pak's suspected abuse of market dominance,which lasted for 4 and a half years,was finally settled.Although there are also many antitrust cases punished by the industrial and commercial system,past cases have been investigated and dealt with by provincial bureaus authorized by the General Administration.The Tetra Pak case can be described as the first case handled personally by the General Administration.What are the implications of this antitrust case?

1、Definition of relevant markets

The State Administration for Industry and Commerce defined the relevant markets involved in the case as three markets,namely,the paper based aseptic packaging equipment market(equipment market),the paper based aseptic packaging equipment technical service market(technical service market),and the paper based aseptic packaging material market(packaging material market).The SAIC believes that Tetra Pak has a dominant position in all three markets,with market shares of 50%,80%,and 60%,respectively.

Separating the technical service market from the equipment market is a focus of this case.Generally speaking,the original factory will provide free maintenance of its own equipment within a certain period of time;On the other hand,the original factory may not provide maintenance services for equipment from other manufacturers.Therefore,it is often difficult for the technology services market to become an independent market to some extent.

However,in the Tetra Pak case,the market was not only recognized as a separate market,but also had the highest market share-80%.We speculate that the reason for this situation may be that the equipment has a long lifespan,requires high maintenance requirements,and has a high value for some spare parts.Therefore,it is necessary to separate the technology market.

In the after-sales service,Tetra Pak has obtained a high market share,which indicates that the after-sales market may be more profitable for Tetra Pak,and the price of spare parts should be higher than the profit margin of selling complete equipment.Of course,this is the customary method for hardware companies to open the market with lower products and obtain profits with higher after-sales and consumables.

It is worth noting that the market share of equipment announced by the State Administration for Industry and Commerce is calculated based on the number of equipment(and filling capacity),rather than the sales amount.The reason may be that the market is not a transparent market,so it is difficult to calculate the amount of data.It may also be intentional.If Tetra Pak adopts a strategy of selling equipment at a low price and providing after-sales services at a high price,then using the amount to calculate Tetra Pak's market share may be less than 50%.Using the sales amount to calculate the market share is difficult to conclude with a dominant market position.

2、About tying

Regarding tying,generally speaking,there are two important issues:whether tying is necessary or not;The second is how to carry out the tying sale.

Once the equipment is sold,ownership is transferred,and users are theoretically free to decide which consumables to use.However,manufacturers usually adopt three methods to limit their use:one is to set certain technical barriers,making non original consumables unusable.This practice is common in the electronics industry.For example,non original ink cartridges may not print,which is a relatively naked tie-in.The second is through the agreement of the contract,if the original accessories are not used,the user will bear the responsibility for breach of contract;The third is to stipulate that if non original consumables are used,the manufacturer will be exempted from warranty liability for equipment defects.

We note that the State Administration for Industry and Commerce has determined that Tetra Pak has implemented the above methods 2 and 3.However,for Mode 3,it is not easy to kill with a single blow.Due to the uncontrollable quality of general-purpose consumables,requiring equipment companies to bear broader liability for defect warranty may push up the price of the equipment,which may be detrimental to end users.Therefore,it is recommended that the determination of whether Mode 3 is considered a tying arrangement should still be made on a case by case basis.

3、About Restricted Transactions

The State Administration for Industry and Commerce has determined that Tetra Pak has limited the transactions between Foshan Huaxin Packaging Co.,Ltd.(Huaxin)and its subsidiary,Hongta Renheng Paper Co.,Ltd.(Hongta)in the Zhuhai Special Economic Zone,and third parties.

According to the decision letter,we understand that the two companies mentioned above have a relatively long-term cooperative relationship with Tetra Pak,and Tetra Pak has provided some proprietary technical information to the two companies.

However,the State Administration for Industry and Commerce has determined that the 13 Tetra Pak information items are publicly known information in the industry or are held by other equipment companies,and therefore do not constitute proprietary information.

However,if we go further and assume that these Tetra Pak information constitutes proprietary information,can Tetra Pak limit the transactions of licensees?In theory,the core right of a licensor should be to allow the licensee to use it and to require it to pay a license fee.However,after the licensee has paid the relevant fees,the limited transaction for the finished product may exceed the limit of protecting intellectual property rights.

Therefore,implementing measures to restrict transactions with unrelated consumable manufacturers may pose antitrust compliance risks.

4、About loyalty discounts

The State Administration for Industry and Commerce has determined that Tetra Pak has implemented a loyalty discount.Generally speaking,loyalty discounts encourage trading partners to trade with themselves,which is a very effective marketing measure.However,when the user has a dominant market position,the effect of loyalty discounts is similar to that of low price dumping,which can effectively combat competitors and raise prices after the competitors are expelled from the market,making them anti-competitive.

A typical loyalty discount provides a discount based on the proportion of users'purchases to their total purchases.In the Tetra Pak case,the discounts provided,especially retroactive discounts,may drive users to make more active purchases,and can therefore be characterized as loyalty discounts.

There are few cases where loyalty discounts are penalized.This is because,first of all,on the surface,it provides preferential treatment to the trading counterpart;Secondly,the provision of discounts is relatively covert and does not directly limit trading conditions.

However,this case undoubtedly pioneered loyalty discounts.Therefore,for market segment leaders,how to standardize the management of loyalty discounts has become a matter of concern.

5、About the amount of administrative penalty

We have noted that the"Guidelines of the Anti monopoly Commission of the State Council on Determining the Illegal Income from Monopolistic Behaviors of Operators and Determining Fines(Draft for Comments)"proposes that the initial penalty ratio should be defined as 2%for operators who abuse their market dominance through market competition.This indicates that the anti-competitiveness of abusing market dominance is lower than that of monopolistic agreements.

For Tetra Pak,this penalty amount is 7%.However,how to draw a punishment conclusion for 7%of the cases,and what factors have been comprehensively considered on the basis of 2%,the punishment decision book is vague.We also expect that in future punishment decisions,more reasoning should be given to the determination of the specific range of punishment,thereby providing greater transparency for the penalized enterprises and the public.

6、Compliance recommendations

For market segment monopolists,the Tetra Pak case raises new compliance issues that require attention:

1.The after-sales market may be defined as a separate market;

2.Restricting users to use the original factory consumables,otherwise the contract terms under which the manufacturer does not bear the liability for warranty against defects,will be recognized as tying sales;

3.Restricting the supply of consumables by a consumable enterprise to a third party may be considered illegal,even if it is based on intellectual property agreements,unless the consumable enterprise is a controlling enterprise of the equipment manufacturer;

4.Loyalty discounts should be cleaned up.

Author: Jiang Liyong

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