Is Tencent’s 51Buy’s “Higher Price Reimbursement” Strategy against 360buy Illegal?

360截图-29354723_副本(By You Yunting) As reported by the media, the e-commerce site 51buy.com has instituted a so-called “higher price compensation” strategy: if clients of 51buy.com, an affiliate of Tencent, find a lower price for an item on 360.com, then 51buy.com will refund the price difference to the client as credits. According to 360buy.com, however, this action violates the Anti-unfair Competition Law and relevant commercial ethics. 360buy.com therefore sent a warning letter to 51buy.com. In reply, 51buy.com used its Weibo to state that the activity is legitimate and will continue.

51buy.com’s response is to be expected. 51buy.com can only be regarded as a small competitor compared with 360buy.com. Currently, according to the Alexa Rank, which records volume of visits around the world, 360buy.com is ranked as 90th, while 51buy.com only ranks as 502nd. The purpose of the higher price reimbursement is to establish an image of selling lower priced products and to narrow the gap between the websites. On the other hand, the letter from 360buy.com is obviously a chance for 51buy.com to promote itself. Because 360buy.com could not get relief through its own actions its only option was to settle the matter through a civil lawsuit. The author believes that from a corporate competition perspective a company facing an opponent seeking to hype itself is better served by directly filing a lawsuit or administrative report rather than issuing a warning letter.

But, if 360buy.com brings a case against 51buy.com, can it win? That involves the issue of the business legitimacy of higher price compensation. In regard to this case, technically the lawsuit would face some difficulties, and the following is the author’s analysis. Before proceeding, the author would like to make clear that he has no business cooperation with either party.

I. Based on the written laws and regulations, 360buy.com would face difficulty in its claim

Based on relevant reports, 360buy.com’s warning letter stated that 51buy.com has seriously violated the Anti-unfair Competition Law and relevant laws and regulations. Additionally, 51buy.com’s actions are against the widely accepted commercial ethics. The closest regulation in the law is that concerning misleading advertising: the operator shall not make any misleading advertising by means of advertisements or other methods. Additionally, the judicial interpretation published by the Supreme People’s Court specifies that misleading advertising may not make unilateral advertising or comparison towards the product and or may not use any ambiguous words or any other misleading ways to advertise the product. Once 51buy.com has made that advertisement and has refunded any detained price difference, however, then the advertisement it made cannot be regarded as misleading or false. As to whether the advertising in this case constitutes “unilateral or misleading words,” in the author’s view, the ordinary consumers are unlikely to misunderstand their meaning. For this reason, 360buy.com may face great difficulty in its rights protection.

II. Using the principles of the Anti-Competition Law also requires pointing out the relevant behavior’s non-complying aspects

As to the “serious violation of public commercial ethics” issue raised in the letter sent by 360buy.com, this is actually one of the principles in the Anti-unfair Competition Law:

“An operator shall, in transactions in the market, follow the principle of voluntariness, equality, fairness, honesty and credibility, and observe generally recognized business ethics.”

All manner of behaviors exist in a market economy, and it is impossible for the law to list all possible cases. Therefore, when an unfair competition behavior cannot match any other provisions of the Anti-Unfair Competition Law, the principles set forth in the law will be referred to by the court in making its decision. Because only a general meaning is provided by the law, however, applying these principles in practice is difficult. What is more important, when 360buy.com would like to invoke that article, it must first point out to the court what commercial ethic has been violated by 51buy.com, which demands a detailed analysis on what 51buy.com has done.

III. 360buy.com could also make its claims based on the Advertisement Law.

Although no mention of Advertisement Law was made in 360buy.com’s warning letter, the author believes that the law could also be applied in the case at trial. As provided in the Advertisement Law:

“An advertisement may not belittle the goods or services of other producers and manufacturers or operators.”

The meaning of “belittle” is to negatively value. Although the introduction of 51buy.com’s higher price reimbursement is correct, it still states that if the site’s price is higher than that of 360buy.com, then 51buy.com will refund the price difference in terms of the credit to the client. But, such a factual description implies that 51buy.com provides a cheaper price than 360buy.com, and that may be taken as “belittling” an opponent.

51buy.com can surely make a defense, which may include statements that its business is complying with commercial practices and that actually in the traditional industries the advertising strategy of higher price reimbursement is often used as a competition measure. The most typical case is statements of supermarkets or shopping malls: if the consumer purchases the same product with a cheaper price from any store with XX miles, it will refund the price difference to the consumer, or even double the refund. But, in traditional industries, these advertisements rarely mention a specific opponent. They may mention a geographical range that only has one opponent, but they will not explicitly name that opponent. But, 51buy.com’s statements had a certain subject—360buy.com. Although naming a name is not that different from making an evident implication, stepping over this line could be the difference between legality and illegality.

Of course, 51buy.com could also fight back with an argument that would embarrass 360buy.com—that the method was actually first developed by 360buy.com. Just at the end of last year, 360buy.com was battling with Gome and Suning in the e-commerce business. 360buy.com’s high management published on the Internet that “360buy.com plans to gain no gross profit in the coming three years, and all major appliances will be ensured cheaper at least 10% lower than those sold by Gome and Suning.” These advertisements quite resemble what 51buy.com has done now and also pointed to a certain subject. Then, why could 360buy.com do that, while 51buy.com is not allowed to so?

In closing, as to the suspicion of 51buy.com’s involvement in unfair competition, the author is not daring to make a judgment. But, the close battling between two main e-commerce websites reflects the fierce competition in the Chinese e-commerce market. Despite how fierce the competition is, however, it must be carried out within a legal frame. If we see this case fought out in court, then to our expectation, the judge shall set a bottom line for the market competition.

Lawyer Contacts

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

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