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Despite the pandemic, 2020 has been a busy year in the competition law space in Hong Kong.
The year started off with the Hong Kong Competition Commission (“Commission”) commencing proceedings against software reseller Quantr and two textbook retailers, respectively, for contravention of the First Conduct Rule, and concluded with the Commission taking legal action against a medical gas supplier for abuse of substantial market power, the first ever Second Conduct Rule action under the Hong Kong Competition Ordinance (Cap 619) (“Ordinance”).
The Hong Kong Competition Tribunal (“Tribunal”) issued four significant decisions in 2020: it (i) handed down its first ever pecuniary penalty judgment against ten decoration contractors, (ii) made its first director disqualification order; (iii) made its decision on the case against Quantr, and (iv) issued a pecuniary penalty order against four information technology (“IT”) firms.
The year also saw the Commission concluding two of its major investigations by accepting commitments from the relevant parties: In May, it accepted voluntary commitments offered by three online travel agents and concluded its investigation of potentially anti-competitive provisions in the online travel agents’ agreements with various hotels in Hong Kong. In October, the Commission concluded its years-long investigation of the Hong Kong Seaport Alliance (“Alliance”), whose members together accounted for 95% of the container terminal operation capacity in Hong Kong, with the acceptance of commitments offered by the members to limit their future price increases to customers in order to allay the Commission’s competitive concerns over the formation of the Alliance.
Other noteworthy developments in 2020 include two separate statements published by the Commission in response to the impact of COVID-19 on competition between businesses and the anti-epidemic subsidy program; the Commission also revamped its Leniency Policy, and issued a joint Memorandum of Understanding with the Securities and Futures Commission for enhanced cooperation and exchange of information.
In this Review, we provide a chronological summary of the most significant developments in competition law in Hong Kong throughout 2020 that you should know about. We will also provide an outlook for 2021 in respect of the likely development and changes in the competition space in Hong Kong.
“Ocean Park” case
On 22 January 2020, the Commission commenced proceedings in the Tribunal against a software reseller, Quantr, and its director for exchanging competitively sensitive information with a co-tenderer in a bidding exercise in response to Ocean Park’s request for quotation. The Commission alleged the information exchange between the co-tenderers amounted to a price fixing arrangement, a “serious anti-competitive conduct” under the Competition Ordinance (“Ordinance”).
“Textbook retailer” case
On 20 March 2020, the Commission commenced proceedings in the Tribunal against textbook retailers T.H. Lee Book Company Limited, Commercial Press (Hong Kong) Limited and its parent, Sino United Publishing (Holdings) Limited, as well as the General Manager of T.H. Lee Book Company Limited.
The Commission alleged that the textbook retailers have contravened the First Conduct Rule by engaging in price-fixing, market-sharing, and/or bid-rigging in relation to the sale of textbooks to primary and secondary school students in Hong Kong.
The Commission is seeking orders including a declaration of contravention, pecuniary penalties and director disqualification.
Statement on COVID-19
On 27 March 2020, the Commission issued a statement on the application of the Ordinance during the COVID-19 outbreak, in response to the potential need for additional cooperation between businesses in certain industries on a temporary basis.
The Commission provided guidance on whether certain potentially relevant cooperative arrangements which businesses may be contemplating in response to the COVID-19 outbreak would contravene the Ordinance. Businesses are encouraged to contact the Commission to discuss how the Commission assesses proposed measures which are genuinely necessitated by the COVID-19 outbreak and are in the interests of Hong Kong consumers and society.
On 16 April 2020, the Commission published a revised Leniency Policy for Undertakings and introduced a new Leniency Policy for Individuals in order to enhance the effectiveness and transparency of its leniency programme for cartel conduct, and to encourage companies and individuals to come forward to report suspected anti-competitive activities to the Commission.
For undertakings, a key revision is the removal of the condition that required the undertaking receiving leniency to agree to and sign a statement of agreed facts admitting to its participation in the cartel.
A new Leniency Policy for Individuals was introduced, such that individuals involved in cartel conduct, such as employees of a company, can now also seek leniency under this new policy.
For more details, please see our client alert: ‘Competition Commission revises Leniency Policy for Undertakings and introduces new Leniency Policy for Individuals’.
Memorandum of Understanding with the Securities and Futures Commission (“SFC”)
On 28 April 2020, the Commission entered into a Memorandum of Understanding with the SFC to enhance their cooperation and exchange of information. Each party agreed to notify and consult the other party of any issue that it believes may have a significant implication for the other party; for example, the development and publication of policies and guidelines, and information regarding relevant market participants in the securities and futures sector.
Therefore, if the SFC comes across an issue which it thinks may be relevant to competition enforcement, it may share such information with the Commission (and vice versa), thereby heightening the chances of detection of breaches of competition rules and/or securities and futures regulations. This makes compliance an even more important priority for companies operating in the securities and futures industry.
For more details, please see our client alert: ‘Competition Commission entered into Memorandum of Understanding with Securities and Futures Commission to enhance cooperation’.
Tribunal’s first pecuniary penalty judgment
On 29 April 2020, the Tribunal handed down its first ever pecuniary penalty judgment against ten decoration contractors, whom it ruled in May 2019 to have contravened the competition law in Hong Kong by participating in a market sharing and price fixing agreement. The amount of pecuniary penalties imposed on each contractor amounted to 10% to 15% of the respective contractor’s gross revenues generated from the contravening acts.
The judgment sets out a multi-stage framework which the Tribunal adopts in determining the pecuniary penalties. The step-by-step approach lays out the fundamental elements of a general methodology of pecuniary penalty assessment that is applicable to other competition cases.
For more details, please see our client alert: ‘Competition Tribunal sets out structural framework for pecuniary penalty assessment in landmark judgement’
Statement on Anti-epidemic subsidy program
On 8 May 2020, the Commission issued a statement to remind parties involved in the Government Anti-epidemic Fund of the importance of complying with the Competition Ordinance and being vigilant against potential anti-competitive practices that may undermine procurement processes.
To suppliers, the Commission reminded them to avoid participation in cartels, and to refrain from exchanging competitively sensitive information. To businesses receiving the subsidy, they are reminded to stay vigilant during the procurement process, and are encouraged to adopt “Non-collusive Clauses” and include a “Non-collusive Tendering Certificate” in their tender documents and contracts with suppliers. The Commission also called for public bodies which are tasked to administrate subsidy programmes under the Anti-epidemic Fund to take competition concerns into consideration.
Online Travel Agency commitments
On 13 May 2020, the Commission for the first time accepted voluntary commitments offered by three online travel agents with regards to suspected anti-competitive conduct relating to their agreements with accommodation providers which contained parity clauses (also known as most-favoured-nation clauses).
Under the commitments, the online travel agents agreed not to enforce or enter into parity clauses in existing or new agreements with accommodation providers, nor to enforce or enter into agreements that restrict the room rates and the terms and conditions that accommodation providers are able to offer through their own offline sales channels. The commitments will remain in force for five years from the date of implementation.
Tribunal made its first director disqualification order against an individual
On October 30, 2020, the Tribunal made its first director disqualification order pursuant to the Ordinance against Cheung Yun Kam (“Cheung”), a director of Luen Hop Decoration Engineering Company Limited (“Luen Hop”), in the case of Competition Commission v Fungs E&M Engineering Company Limited and Others (CTEA 1/2019). Pursuant to the order, Cheung was disqualified for one year and ten months from October 2020 to August 2022.
The case was against six decorating contractors and three individuals of participating in a price fixing and market sharing agreement in connection with the provision of decoration works to tenants in a newly built public housing estate in 2017. All respondents, including Cheung, admitted the allegations.
For more details, please see our client alert: ‘Competition Tribunal made its first director disqualification order against an individual: Time to review compliance’.
Hong Kong Seaport Alliance commitments
The members of the Hong Kong Seaport Alliance, which holds approximately 95% of the container terminal operation capacity in Hong Kong, entered into a joint operating agreement in January 2019 to operate and manage their 23 berths across 8 terminals at Kwai Tsing Container Terminals in the New Territories. The Commission conducted an investigation into whether the Hong Kong Seaport Alliance would have anti-competitive effects on customers and consumers in contravention of the First Conduct Rule.
On 30 October 2020, the Commission announced the acceptance of commitments offered by members of the Hong Kong Seaport Alliance. The commitments include limiting the ability of the Alliance members to increase various service fees to customers for up to 8 years, which the Commission believes would alleviate its competitive concerns.
“Ocean Park” case judgment
On 3 November 2020, the Tribunal handed down its judgment against Quantr in the Ocean Park case. This case presented many “firsts” of the Commission: (i) it was the first enforcement proceedings to result from a successful leniency application (from one of the co-tenderers); (ii) it was the first time the Commission, as a remedy, made use of an infringement notice, which was issued to another of the co-tenderers; the Commission offered not to bring proceedings against the co-tenderer on the condition that it makes a commitment to comply with the requirements of the infringement notice; and (iii) it was also the first case in which Commission reached an agreement with respondents to resolve both liability and relief portions of the Tribunal proceedings by consent.
We note that the case was concluded within a year from the time when the Commission brought its action in front of the Tribunal, which is considered rather swift, and in fact quite uncommon, in the sphere of competition law matters. This may have been brought about by the respondents’ willingness to cooperate in the case.
Pecuniary judgment against four IT firms
On December 16, 2020, the Tribunal issued an order against Nutanix, BT, Innovix and Tech-21, to pay the Hong Kong Government pecuniary penalties in the amount of HK$2,394,404, HK$2,730,000, HK$1,857,542, and HK$187,740, respectively. The Tribunal ruled in May 2019 that the four IT firms had contravened the First Conduct Rule by participating in a bid rigging scheme in connection with a tender conducted by the Young Women’s Christian Association (“YWCA case”). In addition to the pecuniary penalties, the Tribunal also ordered Nutanix, BT and Innovix to each pay HK$2,887,680 for the Commission’s costs of the proceedings, and for Tech-21 to pay HK$962,560 for the costs.
In its determination of the pecuniary penalties in the YWCA case, the Tribunal adopted the same structural approach which it set out in its April 16, 2020 decision against ten decoration contractors (described above). Starting with a “Value of Sales” reflecting each respondent’s revenues derived from the sales of the product that was the subject of the YWCA tender, for each respondent, the Tribunal applied a 17% Gravity Percentage to its Value of Sales to arrive at a “Base Amount” of fines. The Tribunal noted that the 17% Gravity Percentage, which represents the “blameworthiness” of the contravention, was at the lower end of the range typically applied to “serious anti-competitive conduct” (such as bid rigging), since the bid rigging scheme was a one-off conduct relating to a single tender, and there were no apparent financial rewards to the respondents for engaging in the conduct.
The Tribunal then considered various mitigating and aggravating factors specific to each respondent. Specifically, a 20% discount was applied to the Base Amount for each respondent, as YWCA did not award the contract pursuant to the tainted tender, and hence there was no loss or damage caused by the conduct. In addition, the Tribunal imposed a 40% uplift to the Base Amount for Nutanix, as it was the leader and instigator of the bid rigging scheme.
Further, Nutanix, BT and Innovix each received a discount for their cooperation with the Commission during the penalty stage of the proceedings. BT also received an additional discount for providing assistance to the Commission during the investigation stage with respect to access of devices seized from its premises. Tech-21 did not offer any assistance to the Commission during either the investigation or the penalty stage, and thus received no cooperation discount.
The Commission’s landmark Second Conduct Rule case
Exactly one week after the Ordinance’s 5th anniversary, the Commission took its first legal action under the Second Conduct Rule, which prohibits an undertaking with a substantial degree of market power in a relevant market from abusing its power by engaging in conduct that has the object or effect of harming competition in Hong Kong.
The complaint alleged that the Second Conduct Rule has been violated in the upstream market for the supply of medical gases, which has restricted competition in the downstream market for the provision of medical gas pipeline system (MGPS) maintenance services to Hong Kong hospitals.
Outlook for 2021
Came into full effect on December 14, 2015, the Hong Kong Competition Ordinance celebrated its 5th anniversary last month. While the Commission’s enforcement effort apparently has focused on hardcore cartel behavior such as price fixing, market sharing and bid rigging arrangements among competitors, we will expect to see more actions from the Commission against other types of anti-competitive conduct, including abuses of substantial market power by a dominant firm in a market. The consequences of non-compliance can be severe, including substantial fines and director disqualification. All businesses in Hong Kong, large or small, should review their business practices and company procedures to ensure they are in full compliance with the law.
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