2019 Competition Law Review

HKCC launched formal investigation of Hong Kong Seaport Alliance

The Seaport Alliance was formed by Hong Kong International Terminals Limited, Modern Terminals Limited, COSCO-HIT Terminals (Hong Kong) Limited and Asia Container Terminals Limited, which together account for around 95 per  cent of seaport operations in Hong Kong. The four container terminal operators have entered into a joint operating agreement to operate and manage their 23 berths across eight terminals at Kwai Tsing Container Terminals in the New Territories. (Please refer to our 18 January 2019 Client Alert for more details.)

A spokeswoman of the HKCC confirmed to the press in December 2019 that the investigation was still continuing.

HKCC published Cooperation and Settlement Policy

The Cooperation Policy also provides for a Leniency Plus programme under which companies that are prepared to extend cooperation with the HKCC in a cartel investigation by disclosing the existence of another cartel may, in addition to immunity that may be granted to it for the second cartel, apply for an additional discount of up to 10 per cent off the recommended pecuniary penalty in connection with the first cartel.

The purpose of the Cooperation Policy is to provide incentives for companies to extend its cooperation with the HKCC in order to obviate the necessity of a trial.

First two Judgments in the history of Hong Kong Competition Law enforcement

YWCA Case

On 23 March 2017, the HKCC commenced its first-ever legal proceedings in the Tribunal against five IT firms. The HKCC alleged that the five firms had participated in a bid-rigging scheme in connection with a tender conducted by the Young Women’s Christian Association in July 2016 for the supply and installation of an IT server system in violation of the First Conduct Rule under the Ordinance.

The Tribunal found that four of the five IT firms had infringed the First Conduct Rule, while the complaint against one of the IT firms was dismissed since the junior employee who submitted the bid was not acting in the course of his employment, and did not have the authority to act on behalf of the company. The junior employee’s acts were accordingly not attributable to his employer.

Renovation Contractor Case

On 14 August 2017, the HKCC commenced its second legal action in the Tribunal against ten residential renovation contractors, alleging that the contractors had violated the First Conduct Rule by participating in a floor allocation and package price fixing scheme by which each of them was allocated designated floors to carry out decoration work for individual tenants at a newly constructed public housing estate in Kwun Tong. The package prices for certain renovation work items were printed on a joint promotional flyer distributed to the tenants.

The Tribunal agreed with the HKCC that the floor allocation and the package price arrangements amounted to “serious anti-competitive conduct” in the form of market sharing and price-fixing, and therefore contravened the First Conduct Rule. (Please refer to our Client Alert dated 20 May 2019 for more details.)

Three of the four IT firms in the YWCA Case found to be in violation of the First Conduct Rule, and one of the ten contractors in the Renovation Contractor Case has lodged an appeal against the Tribunal’s ruling. A pecuniary penalty hearing with respect to the Renovation Contractor Case was held in mid-January 2020 to determine the pecuniary penalties to be imposed. Judgment was reserved by the Tribunal which may be handed down in mid-2020.

HKCC commences third legal action against residential renovation contractors

The First Conduct Rule prohibits undertakings from entering into any agreement or engaging in any concerted action that has the object or effect of harming competition in Hong Kong.

This case is the HKCC’s fourth legal action since the Ordinance came into full effect in December 2015. It is also the HKCC’s third legal action against residential renovation contractors who provide decoration services to tenants at newly constructed public housing estates. All three actions involve residential renovation contractors who have engaged in alleged cartel conduct by entering into agreements to allocate customers among themselves in the provision of decoration services to tenants, and to fix prices for the services.

This latest legal action against residential renovation contractors is also the HKCC’s second legal action in which individuals are named as respondents. Two of the individual respondents were direct participants in the alleged customer allocation and price fixing agreements, and the remaining individual was a director of one of the renovation contractor respondents.

Agreements among competitors to allocate customers or fix prices are considered “serious anti-competitive conduct” under the Ordinance. The HKCC may commence legal proceedings against a company or individual without the need to first issue a Warning Notice if it suspects the company or individual has engaged in a serious anti-competitive conduct, which is what happened in the present case, as well as the previous two legal actions against residential renovation contractors. This latest action sends a clear message to businesses in Hong Kong that the HKCC is committed to exercising its power to enforce the competition law, and will not hesitate to take actions against companies or individuals that contravene the law.

HKCC publishes Decision on proposed Pharmaceutical Sales Survey

The HKCC concluded that the Proposed Sales Survey is not an exclusion from the First Conduct Rule on the grounds of economic efficiency, as the HKAPI has not provided sufficient evidence to meet the conditions for the efficiency exclusion. Moreover, the HKCC expressed concerns that certain data contained in the survey may facilitate the exchange of competitively sensitive information among competing pharmaceutical suppliers.

While the HKCC identified possible competition concerns in its Statement of Reasons, the HKCC did not form a view on whether the Proposed Sales Survey would contravene the First Conduct Rule, as such a determination was beyond the scope of the decision required.

HKAPI’s application for decision

The HKAPI proposed to conduct a survey to collect data from its members, on a voluntary basis, on their respective actual sales of prescription and over-the-counter pharmaceutical products (in dollars), separately to each of the “key” sectors in Hong Kong – i.e., Government (hospitals and clinics operated by the Hospital Authority or the Department of Health); Private (private hospitals, clinics and doctors); and Trade (pharmacies, drug stores and retailers). The HKAPI would then collate, process and compile the raw sales data into a sales survey report, which it plans to publish quarterly and make available to the public for purchase.

Notably, in its application for a decision, the HKAPI emphasises that the sales survey report would not contain any information on prices, sales volume, stock keeping units or patient numbers. Moreover, the HKAPI also indicated that it used to conduct similar quarterly sales surveys since as early as 2011 until the Ordinance came into full effect in December 2015, after which the survey has been suspended.       

The HKAPI applied for a decision from the HKCC to confirm that the operation of the Proposed Sales Survey would be excluded from the First Conduct Rule on the grounds of economic efficiency under Schedule 1 of the Ordinance (Agreements enhancing overall economic efficiency).

HKCC’s findings

In applying for a decision for exclusion from the First Conduct Rule on the grounds of enhancing overall economic efficiency, the HKAPI bears the burden of proving that the four cumulative conditions of the exclusion set out in the Ordinance are met, that is, the Proposed Sales Survey (i) contributes to “improving production or distribution” or “promoting technical or economic progress”; (ii) allows “consumers a fair share of the benefits”; (iii) is not indispensable in attaining the claimed efficiencies; and (iv) does not eliminate competition regarding a substantial part of the market.

The HKCC concluded that the HKAPI has not provided sufficiently convincing evidence to support its claims of economic efficiency from the Proposed Sales Survey, and thus failed to satisfy the first condition of efficiency exclusion. The HKCC also found that the HKAPI has not demonstrated that the inclusion of product sales data in the Proposed Sales Survey would be “indispensable” to achieving the claimed efficiencies, and hence failed to meet the third efficiency exclusion condition. As such, the HKCC concluded that the HKAPI has not shown that the Proposed Sales Survey met the conditions of the efficiency exclusion, and hence the Proposed Sales Survey is not excluded from the First Conduct Rule.

In addition, the HKCC found that certain data to be included in the Sales Survey Report could be commercially sensitive. In particular, the HKCC expressed concerns that the sales information on specific drug products contained in the sales survey report may allow product-specific data (such as unit prices) to be directly or indirectly discerned or robustly estimated by rival pharmaceutical suppliers. The direct or indirect exchange of competitively sensitive information may decrease rival pharmaceutical suppliers’ incentives to compete vigorously, and/or facilitate explicit or tacit coordination among competing suppliers, which may harm competition.

Nevertheless, the HKCC notes that whether the exchange of information would give rise to anti-competitive concerns depends on the characteristics of the relevant market, the nature of the information exchanged, the circumstances of the case, as well as other relevant factors. In general, the HKCC will consider the sharing of competitively sensitive information, such as information relating a company’s future prices or pricing strategies, or sales to particular customers or sectors, as highly problematic. In contrast, it is less likely that the exchange of information which is historical, aggregated, or publicly available will harm competition.