Published on Sep 14, 2021
China’s two biggest e-commerce websites have agreed to settle a closely watched lawsuit in which JD.com (JD) accused Alibaba Group Holding (BABA) of engaging in monopolistic behavior and abusing its market dominance, sources familiar with the matter said.
A settlement in the “great cat-and-dog war,” as the legal fight is known, would end the highest-profile antitrust litigation in China since the country’s Antimonopoly Law took effect in 2008. A truce would also signal that the days of no-holds-barred competition may be ending for the handful of companies that dominate China’s online industry.
Contours of the deal remain unclear because the details are still being finalized, the sources said. But the expected resolution comes as top platforms are feeling intense pressure from China’s political leaders, regulators and lawsuits to curb abuses such as demanding exclusivity and blocking links from rivals on their apps.
JD.com, China’s second-largest e-commerce company, sued its bigger rival in 2017, accusing Alibaba of forcing retailers and other third parties to grant its platform the exclusive right to sell their products online. The lawsuit before the Beijing Municipal High People’s Court claimed 1 billion yuan ($154 million) in damages.
The action alleged that Alibaba had obliged dozens of online merchants since 2013 to sign exclusive agreements that prevented them from selling via rival platforms. Alibaba also compelled merchants to choose between using either its Tmall marketplace or JD.com on China’s biggest annual online shopping days, June 18 and November 11, the lawsuit alleged.
Alibaba filed a jurisdictional challenge to the suit before the country’s highest court in 2018, telling the Supreme People’s Court (SPC) that the case should be heard at the Jiangsu Provincial High People’s Court. The SPC dismissed that challenge, sending the case back to the Beijing High Court.
Spokespeople at Alibaba and JD.com didn’t respond to requests for comments.
Cutthroat competition and link blocking. Fierce rivalry between China’s e-commerce giants has become a familiar feature in the country’s online retail landscape. The shopping frenzy peaks each November with heavy discounts on Singles’ Day, China’s version of Black Friday. Adding to the momentum, JD.com created its own annual sales day on June 18, or “618.”
The cutthroat competition has spawned dubious practices and lawsuits. ByteDance, the owner of video-sharing app Douyin, filed a suit against Tencent Holdings (HK: 700) in February, accusing the tech conglomerate of engaging in monopolistic behavior by preventing users of its instant-messaging app WeChat from sharing Douyin content and links. The complaint before the Beijing Intellectual Property Court sought damages totaling 90 million yuan.
On August 31, the Shanghai Intellectual Property Court accepted an antitrust complaint from a consumer accusing Tencent of engaging in monopolistic conduct by blocking links to Douyin. IP courts in Beijing and Shanghai routinely handle antitrust cases.
But the biggest legal fight in online China is “the great cat-and-dog war,” named after two corporate mascots, Alibaba’s black cat and JD.com’s white dog. A settlement between the two would likely mark a victory for Chinese leaders who are determined to rein in freewheeling Internet operators.
Cracking down. China’s top antitrust and Internet authorities intensified a crackdown on platform abuses over the summer, making the practice of blocking external links a focus of their campaign.
The State Administration for Market Regulation put forward a regulation last month that would forbid Internet operators to block legitimate content or links to services provided by other businesses.
The Ministry of Industry and Information Technology (MIIT), which regulates the Internet sector, backed up that move this week by ordering the country’s largest online operators—including Alibaba, Tencent and ByteDance—to stop blocking links from rivals on their apps.
MIIT Minister Xiao Yaqing told a press briefing on Monday that Internet platforms must open up and maintain interconnection and interoperability to support a healthy development of the online economy.
Big platforms should promote a more open online market by taking proactive steps to facilitate connectivity, MIIT spokesperson Zhao Zhiguo told the briefing, saying the ministry had received many complaints.
The ministry intends to strengthen its administrative guidance on link blocking and to impose penalties on violators, Zhao said. Restricting normal access to Internet links without proper reason “damages the rights of users and disrupts market order,” he said.
Tencent said in a statement that it supports the MIIT’s guidance and planned to “facilitate safe connection to other websites in stages.” Alibaba said it would comply with MIIT’s guidance.
Broader campaign. The order against link blocking is part of a wider clampdown, which has seen the likes of Alibaba and Tencent hit with large fines for antitrust infractions.
In April, SAMR imposed a record fine of 18.2 billion yuan ($2.8 billion) on Alibaba for engaging in anticompetitive conduct. The agency is now getting close to penalizing food-delivery giant Meituan (3690.HK) for abusing its dominance, sources said.
The impetus for the crackdown is coming from the very top of China’s communist leadership. Speaking to the Central Committee for Deepening Overall Reform on August 31, Chinese President Xi Jinping said the country needed stronger antitrust enforcement and policies to create more room for smaller companies to compete online.
That could mean more resources for SAMR, which has suffered from a chronic staff shortage. Though the agency’s Antimonopoly Bureau currently has only some 40 antitrust officials, local legal sources expect the government to beef up those ranks.
The government is also talking about taking measures to increase the bureau’s authority, which might involve elevating it to an independent agency at the sub-ministry level, sources said.