News & Insights

Draft Guidelines jointly published by the Competition Commission and the Communications Authority

On 9 October 2014, the Competition Commission (Commission) and Communications Authority (CA) jointly published the following draft Guidelines to the Competition Ordinance:

  1. Competition Rule Guidelines
    • Guideline on the First Conduct Rule
    • Guideline on the Second Conduct Rule
    • Guideline on the Merger Rule
  2. Procedural Guidelines
    • Guideline on Complaints
    • Guideline on Investigations
    • Guideline on Applications for a Decision under Sections 9 and 24 (Exclusions and Exemptions) and Section 15 Block Exemption Orders

On the same day, an “Overview of Draft Guidelines under the Competition Ordinance” (Overview) was published by the Commission and CA to summarise the Commission’s approach to preparing the draft Guidelines and the process for interested persons to submit their comments.  The deadlines to submit comments are:-

  • 10 November 2014 for Draft Procedural Guidelines
  • 10 December 2014 for Draft Competition Rule Guidelines

The Overview, makes it clear that the draft Guidelines do not distinguish between particular sectors, business types or industries, except for the draft Guideline on the Merger Rule, (which only applies to telecommunications carrier licensees).  Further Guidelines will also be released by the Commission, including:-

  • SMEs’ Rights and Responsibilities
  • Lenient Agreement Policy; and
  • Enforcement Policy

Draft Guideline on the First Conduct Rule

  • The First Conduct Rule applies to anti-competitive conduct which has the object or effect of harming competition in Hong Kong.
  • Certain key terms used in the First Conduct Rule, are explained, such as “Undertaking”, “Agreement”, “Concerted Practice” and “Decision by an Association of Undertakings”, and hypothetical examples are given.
  • The Commission explains the application of the “object or effect test”.
  • Implications of agreements involving or not involving serious anti-competitive conduct are set out.
  • The Commission has confirmed that the First Conduct Rule applies to both horizontal and vertical arrangements.
  • Although it is noted that vertical arrangements are less harmful to competition than horizontal arrangements, the Commission has specifically pointed out that resale price maintenance amounts to conduct which typically has the object of harming competition or which even amounts to serious anti-competitive conduct.
  • The Commission has sought to explain the following conduct which typically has the object of harming competition by hypothetical examples:
    • Under horizontal arrangements

      • Price fixing, market sharing, output restrictions, bid rigging, exchange of future price and quantity information and group boycotts.
    • Under vertical arrangements

      • Resale price maintenance
  • The Commission also sets out hypothetical examples of the following conduct which may have the effect of harming competition:
    • Under horizontal arrangements
      • Joint purchasing agreements, exchange of information other than future price and quantity information, standard terms and standardisation agreements, membership and certification restrictions and certain joint ventures.
    • Vertical arrangements
      • Exclusive distribution or custom allocation agreements and recommended and maximum resale price restrictions.

Draft Guideline on the Second Conduct Rule

  • The Second Conduct Rule prohibits abuse by an undertaking with a substantial degree of market power.
  • The Commission has adopted the approach  of defining the relevant market by incorporating factors such as product and geographic market boundaries.
  • The Commission has abandoned the inclusion of a minimum threshold as amounting to a substantial degree of market power (it was previously suggested that there be a minimum threshold of 25%).  Instead, the Commission has adopted an economic approach to assess the undertaking’s ability to act with minimal regard to competitive constraint by looking at factors including market share, countervailing buyer power, barriers to entry or expansion, and market-specific characteristics.
  • The Commission will also see if there is a possible parallel application of the First Conduct Rule to the same conduct  to which the Second Conduct Rule applies.

Draft Guideline on the Merger Rule

  • The Merger Rule prohibits any merger by holders of telecommunications carrier licences under the Telecommunications Ordinance that has or is likely to have the effect of substantially lessening competition in Hong Kong.
  • To enable the parties to a merger to assess the transaction in contemplation, the Guideline sets out:-
    • the scope of the Merger Rule;
    • an assessment of the competitive effects of a proposed merger;
    • the Commission’s explanation of exclusion and exemptions from the Merger Rule; and
    • other processes and enforcement procedures (one process undertaken by the Commission is the submission of a notification of a proposed merger for seeking the Commission’s informal advice).

Draft Guidelines on Complaints and Investigations

  • It is noted that both the Broadcasting Ordinance (Cap. 562) and the Telecommunications Ordinance (Cap. 106) contain statutory provisions to ensure fair and effective competition in the television programme service market and the telecommunications market, and the CA has issued guidelines for lodging complaints and conducting investigations.
  • In order to maintain consistency, it appears that a similar approach has been adopted by the Commission and the CA in preparing these  Procedural Guidelines.
  •  The Commission has also declared that the Commission is required to conduct investigations to protect the public interest and not the interest of the complainant.

Draft Guideline on Applications for a Decision under Sections 9 and 24 (Exclusions and Exemptions) and Section 15 Block Exemption Orders

  • As the Commission is empowered to make a decision for exclusion and exemption from the Competition Rules or issue block exemption orders under the Ordinance, this Guideline sets out the application procedures and process for the Commission to exercise such powers.
  • The Commission has also confirmed that prior decision for exclusion and exemption and block exemption orders are not required before any undertaking seeks to rely on an exclusion or exemption.  This is different from the practice of the competition authorities of other jurisdictions.

The Competition Commission has indicated that after this public consultation, it will refine and produce final draft Guidelines for consultation with Legco.  The Commission aims to complete all preparation work by the first half of 2015.  Once the Guidelines are adopted, after the consultation process, a date will be set by the Government for full implementation of the Ordinance.

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