Is it unfair competition for luckin coffee to send an open letter to Starbucks on suspicion of monopoly?

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Is improper prosecution an act of unfair competition?

As a matter of fact, manufacturers or entrepreneurs in China who have a little "Internet gene" like to use "small and broad", but sometimes they may be suspected of "porcelain-like" marketing.

A few days ago, an unknown Chinese company sued Starbucks on the grounds that it was suspected of monopolizing the company in China. For a time, Starbucks did not seem to pay much attention to whether it constituted a monopoly, but the company became "famous".

Of course, the company's "unknown" is relative to Starbucks, Costa Coffee, etc., whether in terms of the number of offline stores, user perception, sales, etc., the gap between the company and them is still significant.

So is it necessary for a small company like this, including established coffee shops such as Starbucks, to deal with it by so-called measures of restricting or excluding competition?

Send an open letter: how to define the act legally?

A few days ago, a company called Luckin Coffee released an open letter to Starbucks under its own name, entitled "giving the industry a chance to compete fairly and give Chinese consumers more choices."

In the open letter, the company claims: (1) Starbucks already accounts for more than 50% of China's chain coffee market; (2) Starbucks has exclusive terms in its contracts with many properties; and (3) Starbucks frequently presses our supplier partners to take sides.

If this is true, how did you get the contract between Starbucks and the property?

According to the general business practice, the contents and details of the contract are only known or known by both parties to the contract, and many of them belong to the scope of enterprise trade secrets. How did Luckin Coffee, as a third party, get the contract text between Starbucks and other units? Is the way in which it is obtained legal? Is the text obtained authentic?

In accordance with the provisions of China's Anti-unfair Competition Law, "obtaining the trade secrets of the obligee by theft, bribery, fraud, coercion or other improper means" or "disclosing the trade secrets obtained by the aforementioned means" and "disclosed by a third party knowing or should know that others improperly and illegally acquire", are acts of infringing trade secrets.

To put it simply, regardless of whether Luckin Coffee's reasons for accusing Starbucks of suspected monopoly are true, its improper acquisition and public disclosure of what may be Starbucks trade secrets is itself suspected of violating the law.

Whether there is monopoly or not: whether to exclude and restrict competition is the core.

According to the provisions of China's Anti-monopoly Law, whether it is "monopoly agreement", "abuse of dominant market position" or "concentration of operators", whether these business acts constitute a monopoly and whether they should be dealt with against monopoly, the core lies in whether these business practices have the objective effect of "excluding and restricting competition".

So, has Starbucks reached the boundary of monopoly in China?

A lawyer commissioned by Luckin Coffee quoted statistics from Euromonitor International as saying that in 2016 and 2017, Starbucks' market share in Chinese coffee shop services was 57.5% and 58.6%, while in the market for chain coffee shop services, its share was as high as 78.8% and 80.7%. The number of outlets accounted for 58.6% and 61% of the total number of coffee chains. The total number of transactions accounted for 71.4% and 73.3% of the chain coffee shop service market.

So, in accordance with the provisions of the Anti-monopoly Law, does Starbucks already have a "market dominant position"?

Before answering this question, let's review the development of shared bicycles. Suppose mobike is the first bicycle sharing company in China. Before the emergence of other bicycles, because there was only one market participant, mobike's market share can be presumed to be 100%. Can we assume that mobike Bicycle has a "market dominant position"?

The answer is obviously no.

The reason is simple, because mobike can't prevent other bike-sharing companies or platforms like ofo from entering the market. Therefore, the temporary market share lead does not presume that it has a dominant market position.

In fact, according to the provisions of the Anti-Monopoly Law, only "operators have the ability to control commodity prices, quantities or other trading conditions in the relevant markets, or the market position that can hinder or influence the ability of other operators to enter the relevant market" can be presumed to have a "market dominant position".

So can Starbucks prevent other brands of cafes from entering the market?

Event reflection: more original innovation and less hitchhiking

Coming back to the coffee shop industry, there are many well-known market participants in China, such as Starbucks, Costa, Pacific Coffee, MAAN coffee, C. Straits Cafe and so on. If you add in some small cafes in the regional market, there are a large number of market participants, which is only the leading market share of Starbucks in the current stage, and does not produce the objective facts and ability to "hinder and influence" other operators to enter the relevant market. In addition, as a new coffee chain, Luckin Coffee claims to be under pressure from Starbucks to "choose one of two" suppliers, which is very puzzling.

If Starbucks does have similar behavior, it should mainly target well-known competitors such as Costa and Pacific Coffee, rather than an unknown new brand.

Of course, more importantly, if Starbucks cannot be proved to have a dominant position in the market, then the so-called "exclusive restrictions on lease agreements" and "exclusive cooperation with suppliers" are in fact reasonable means for market participants to build competition barriers and a protective means to prevent other market participants from "hitchhiking" on brands, users and sales.

Just imagine a small cafe adjacent to Starbucks. Starbucks is the one whose rights and interests are damaged. Or this little cafe?

For Chinese chain coffee brands or innovators who have certain "Internet genes" such as Luckin Coffee, generally speaking, users and the market should witness its birth and growth with a tolerant mentality, but this does not mean that because it is a Chinese brand, it should be given "superior" legal protection.

In fact, Luckin Coffee publicly accused Starbucks of suspected monopoly with a lawsuit that may not have occurred (planned prosecution, which has not yet been accepted or filed) or even an investigation (planned report, which has not yet been accepted or filed). If it is finally found to be untrue, then, is Luckin Coffee's market behavior suspected of constituting unfair competition to denigrate the goodwill of others?

This article only reflects the opinions of expert authors and does not represent the position of this newspaper. ]

Author: Li Junhui

Current: special researcher, intellectual property Research Center of China University of political Science and Law

Introduction: the author, Mr. Li Junhui, is a special researcher at the intellectual property Research Center of China University of political Science and Law, who has long been concerned about the Internet, intellectual property rights, and related regulatory policies and legal issues (China).