In Selling Train Ticket Insurance, Why Did JD.com Deliberately Break the Unfair Competition Law?

Abstract:

(By You Yunting) The greed of JD.com and Ctrip.com (NASDAQ: CTRP) has been fully revealed, for they have added insurance fees as a compulsory sale with its train ticket offerings. In reality, all JD and Ctrip want to do is become engaged in the huge amount of train ticket transactions that take place every year in China, yet not be restricted by the statutorily imposed agency fee of up to RMB five Yuan. Clearly, it is plain to see that these two parties have sold insurance tacked onto ticket agency train tickets as a means of gaining even more profit. However, such a strategy could be considered entirely invalid, and in addition likely in violation of the Unfair Competition Law due to its chasing of illegal profits through such sales.

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A netizen on Weibo posed the following question to the author: JD.com (namely, the previous 360buy.com) has started another business as a train ticket agency, much like what Ctrip is doing, and it is offering a bundled sale of “insurance + ticket,” which means that the user is forced to purchase a RMB 15 accidental insurance policy as a prerequisite to buying a ticket. Keeping in mind the focus of this website, the burning question remains: is such conduct even legal?

The author checked the relevant ticket purchasing sites on both JD.com and Ctrip.com, and confirmed the offering of bundled sales of insurance and tickets. Specifically, JD.com charges users RMB 15 for its insurance policy, and Ctrip.com charges RMB 20. Keep in mind, there is no “choice” as to whether a prospective customer may or may not purchase such insurance: it is entirely necessary in order to purchase a ticket. If we refer to Article 12 of China’s Anti Unfair Competition Law:

“An operator may not, in sales of goods, make a tie-in sale against the wishes of the buyer, or attach other unreasonable conditions to such sales.”

Since insurance and ticket are two independent products, such a practice of tying the two together is clearly a violation of the law.

Even so, the author has kept in mind that, as two large companies in China, both JD.com and Ctrip.com have their own legal departments and in-house counsel; Ctrip has even listed itself on Nasdaq; surely, all these factors combined ensure or encourage them to follow relevant business laws? If we make such an assumption, why would they violate the laws in such an obvious manner? Through some fairly thorough consideration, the author surmises that both companies may have chosen the “less damaging” method in evaluating the possible legal consequences that may follow their flagrant violations of the law.

Those in the ticket agency business must follow national guidelines regarding the sale prices of such tickets, and if JD.com and Ctrip.com intend to conduct business within the relevant boundaries of the law, they cannot charge anymore than RMB 5 for each ticket. Obviously, five yuan per ticket does not guarantee a great amount of profit for a ticket agency. According to the regulations jointly issued by the then Ministry of Railways, the Ministry of Police, the Committee of Reform and Development and the General Administration of Industry and Commerce:

“For train ticket selling agencies, agent services shall not charge more than RMB 5 Yuan for such services, and all ticket agencies or other agent units shall not otherwise charge a consumer in the process of booking a ticket or the sale thereof for any reason or excuse under any terms; furthermore local departments charged with overseeing implementation of such regulations shall not approve of such charges and business practices.”

In conclusion, as provided by the state, an agency fee for a railway ticket shall not exceed RMB five Yuan, or severe legal consequences may result. As provided in Article 39 of the Pricing Law:

“The operator, who refuses to exercise government guided prices, will be penalized in an amount no more than five times the amount made in illegal gains; or a penalty made under consideration of the administration when no illegal gains are made; for severe cases, the operator may be ordered to cease business operations until such illegal acts are rectified.”

In the Anti Unfair Competition Law, we have seen no direct punishments for the violation of relevant laws against tie-in sales as provided for in Article 12. Despite such practices, the Department of Industry and Commerce may also investigate and punish such violations of the law; and yet, due to no specific rules speaking to this issue in the law, such a punishment may not be as strict as that stipulated for in the Pricing Law. For this reason, JD.com and Ctrip.com have deliberately broken the law in selling tie-ins with its tickets and insurance after careful consideration of the possible legal effects, and have likely determined that it is far more profitable for their agency to do so, while at the same time abusing weaknesses in the law as a method of reducing possible legal risks.

The greed of JD.com and Ctrip.com is readily apparent and obvious, for they have continued compulsory purchases of insurance in their respective ticket agency businesses. The fact is, they want to take advantage of the incredibly large ticket market in China, and do not want to be limited by the statutory agency fee of RMB five Yuan. Hence, it’s clear that the tied-in insurance purchases are yet another method by which these two companies gain even more profit. However, such a strategy may eventually be considered legally unsound and invalid; on the other hand, such practices have clearly violated the Unfair Competition Law, because they are blatantly reaping untold amounts of money in illegal profits.

In the meantime, according to a regulation jointly issued by the relevant departments, Article 2 states:

“For fees charged by the railway transportation department and ticket agencies other than those set by the relevant authorities, any extra charges levied by ticket agencies in providing accommodation, catering or other products, is a violation of the Pricing Law.”

Therefore, once a tie-in sale of insurance is interpreted as an extra charge, naturally it would violate the above regulation. For sure, it is less likely to see both companies be punished as per the above regulation, even taking into account the monopoly of online ticket agencies being widely criticized by Chinese netizens.

Before closing, the author would also like to say something about the long-criticized 12306.cn, the official website of China’s Railway Department. Although no handling fee is required for an online ticket purchase its service is inferior to that provided by private companies. Therefore, consumers tend to prefer JD.com or Ctrip.com to the official website, even if such costs are slightly higher. In any case, it’s the author’s understanding that such reasons do not justify both JD.com and Ctrip.com’s practice of requiring tie-in sales to its tickets. After all, both companies should be carrying out business within the scope of the law.

Lawyer Contacts

You Yunting86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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