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The Proposed Hong Kong Competition Law: Principle Provisions and Problematic Issues

Professor Mark Williams12 December 2008

OutlineCompetition problems in Hong

KongProposed Substantive ProvisionsUnresolved IssuesThreatsOpportunitiesConclusion

Competition Problems in Hong KongGovernment land monopoly – the Faustian

Pact with the developers.Government intervention in the market –

housing, part ownership of some enterprises, public sector ‘mission creep’.

Mainland economic influence both direct and indirect – positive and negative effects.

Utility and transport sectors, cartels, conglomerates and high concentration ratios.

Non-traded services – the professions?

Proposed Substantive Provisions HKSARG Detailed Proposals May 2008 Application to ‘Undertakings’ Anti-competitive agreements and concerted

practices – general prohibition with examples No definitive list No per se prohibitions rather a requirement to

show the purpose or effect is to substantially lessen competition

Application to horizontal agreements or practices only

Hardcore cartel activities – price fixing, market allocation, bid rigging – almost a presumption

Guidance to be issued

Abuse of Substantial Market Power General prohibition with examples No definitive list of banned conduct Guidance to be issued Threshold lower to find SMP than ‘dominance’ as in the

EU. AUS/NZ adopt SMP. But note SG has adopted the EU/UK standard.

Why? Application to vertical agreements – distribution

agreements, RPM. Need to show holder of SMP uses vertical agreements to substantially lessen competition (SLC)

Required to prove that the purpose or effect of the conduct is to SLC

Public enforcementCompetition Commission and TribunalIndependent statutory bodyCorporate Board structure to be the

decision maker cf. with UK OFTChair + 6 Commissioners appointed by

CECEO and executive to investigate and

‘prosecute’ infractionsWide powers of competition advocacy,

sectoral investigation and international co-operation

Investigation and Adjudication Formal separation between investigation and

adjudication Power to require delivery of documents and

information Powers of search and seizure when authorized

by judicial warrant Protection of due process rights very important

given the CFA decision in Koon v Insider Dealing Tribunal FACV(No.10 of 2007)

Greg So mentioned that this structure is under reconsideration; HKSARG may adopt the a modified Irish/Aust or NZ approach rather than the EU/UK enforcement model or some variation.

Penalties Civil ‘penalties’ not criminal but Koon decision; are all

‘penalties’ criminal in nature? Commission power to order cessation or rectification of

effects of conduct Interim orders obtainable from Tribunal Commission power to impose a ‘fine’ for breaches of

conduct rules of up to HK$10 million Tribunal on application by Commission to impose ‘fine’

of up to 10% of total turnover Individual disqualification from holding a directorship or

being involved in management for up to 5 years Adoption of a leniency programme – useful tool in

‘cartel busting’

Competition Tribunal Composition and appointment Powers

On Commission’s application, can impose more severe penalties.

On parties appeal, review of the Commission findings

Approve, substitute or vary a Commission decision on breach and/or penalty

Hear and determine stand alone or following private actions

Further appeal to CA and CFA on point of law or penalty only

Private EnforcementStand alone private right of action for

damages and injunctionSafeguards to prevent nuisance casesMechanism to deal with ‘composite’

casesRepresentative actions Right of Commission interventionGrant of leniency would not immunize

against private claims

Unresolved issues (1)

Jurisdiction - Will the law apply only to actors present in Hong Kong or should agreements or conduct undertaken outside Hong Kong that has an economic effect in a Hong Kong market be caught? Cf. Singapore

China – How will the Hong Kong Ordinance interface with the Anti-Monopoly Law?

Guidance – to be issued with the Bill or would that unduly constrain the Commission?

Structural powers – no powers to require divestiture cf. BAA case

Mergers – Will a merger regime be included in the Ordinance?Pros and Cons

Unresolved issues (2)IPRs

How will the exploitation of IP rights interface with the new Ordinance?

ExemptionsDe minimis and SMEsVertical agreements except

where undertaking has SMPIndividual agreements – net

economic benefitBlock Exemptions

Unresolved issues (3) Exclusions

Public interest – general economic interest Gas, electricity, water supply, public transport, postal services (?) Who will decide? What criteria will be used? Can this be justified if a private monopoly exists without a regulatory framework?

Public Policy Overriding political considerations – government land monopoly (?) Mechanism for exercise of the power by CE.

Government and statutory bodiesWill the law extend to government provided services (health, education, exhibition services) statutory monopolies (gambling) or other statutory bodies the Law Society, HKIPA etc – Now under reconsideration – Greg So.

Political considerations – new Legislative Council

ThreatsCartel operators need to reconsiderParties to restrictive agreements such

as co-operation or joint ventures, or specialization agreements

Firms with SMP who use that power to prevent market entry or to eradicate new entrants or impose vertical restrictions or tie sales of products or the provision of services

Prohibition of parallel imports?Merger and acquisition activity

OpportunitiesAggrieved consumer, commercial or

public sector parties who have suffered damage from anti-competitive activities

Actual or potential market entrantsNimble law firmsAspiring cartel busters, competition

lawyers and competition judges!

Conclusion (1)

Need to keep up to date with developments in the passage of the Ordinance especially during the committee stage

Devise or outsource competition law awareness training for appropriate staff especially sales, marketing and corporate affairs employees of clients

Advise the commercial clients on strategic acquisitions, assets swaps or mergers before the new Ordinance comes into effect thereby removing or reducing regulatory risk

Advise industry/professional association clients about the impact of the law

Conclusion (2) Update compliance procedures and ensure you

undertake an ‘antitrust audit’ of client activities Review existing client conduct especially if they

have SMP Review commercial agreements especially

restrictive covenants and cartel-like arrangements for compliance with the new law

Consider whether any clauses might be rendered void

Prepare to use the new Ordinance as a shield as well as a sword in negotiations and litigation

Conclusion (3)Educate yourself about competition

law and the issues likely to affect your clients

See me and ACLECAsian Competition Law and

Economics Centrewww.af.polyu.edu.hk/aclec/index.html

Thank you!Professor Mark Williamsafmarkw@polyu.edu.hk