OECD kpcdb

1. Scope

Section 6(1) of the Ordinance prohibits undertakings from making or giving effect to agreements or decisions of an association of undertakings, or engaging in concerted practices that have the object or effect of preventing, restricting or distorting competition in Hong Kong. The prohibition in Section 6(1) is referred to as the “First Conduct Rule”.

Under Section 2(1) of the Ordinance, price-fixing, market sharing, output restriction and big-rigging are categorised as serious anti-competitive conduct (and can therefore be subject to infringement notices (see above Section I.4), among other implications).

The First Conduct Rule applies to both horizontal and vertical agreements.

2. Assessment

The CCHK’s Guideline on the First Conduct Rule sets out how the CCHK intends to interpret and give effect to the First Conduct Rule in the Ordinance.

The CCHK considers the First Conduct Rule to require that the CCHK must demonstrate that an agreement has either an anti-competitive object or an anti-competitive effect. There are therefore two alternative ways of showing that the agreement harms competition. Where an agreement has an anti-competitive object, it is not necessary for the CCHK to also demonstrate that the agreement has an anti-competitive effect.

The object of an agreement refers to the purpose or aim of the agreement viewed in its context and in light of the way it is implemented, and not merely the subjective intentions of the parties. Agreements between competitors to fix prices, to share markets, to restrict output or to rig bids are examples of agreements which the CCHK considers to have the object of harming competition.

Agreements which do not have the object of harming competition contravene the First Conduct Rule only if they have the effect of harming competition. Such agreements must have, or be likely to have, an adverse impact on one or more of the parameters of competition in the market, such as price, output, product quality, product variety or innovation. Agreements can have such an effect by reducing competition between the parties to the agreement, or by reducing competition between any one of them and third parties.

The Guideline provides that the CCHK will consider, for example, the market power of the undertakings in a relevant market, and what the market conditions would have been in the absence of the conduct (counter-factual market conditions) in assessing whether an agreement has the effect of harming competition. The assessment of market power of the parties to an agreement does not rely solely on any single factor and includes, for example, an assessment of the (combined) market shares of the parties, market concentration, barriers to entry or expansion in the market, the competitive advantages of the parties, and the existence of any countervailing power on the part of buyers/suppliers.

Schedule 1 of the Ordinance sets out a number of general exclusions from the First Conduct Rule: agreements enhancing overall economic efficiency (efficiency exclusion), compliance with legal requirements, services of general economic interest, mergers, and agreements of lesser significance. Agreements of lesser significance are defined as agreements, concerted practices or decisions where the combined turnover of the relevant undertakings does not exceed HK$200 million (provided that they do not involve serious anti-competitive conduct, i.e. price fixing, market allocation, output restriction and bid-rigging).

Block Exemption Orders: Under Section 15, the CCHK may decide to exclude a particular category of agreement from the application of the First Conduct Rule based on its assessment that the agreements fall under the efficiencies exclusion.

3. Remedies and sanctions

Under Section 82, in First Conduct Rule cases not involving serious anti-competitive conduct, the CCHK must issue a warning notice before commencing proceedings in the Competition Tribunal. This gives the undertakings an opportunity to cease or alter the investigated conduct within a specified warning period.

See Section I.4 above.

There have not yet been any decisions sanctioning anti-competitive agreements.

4. Leniency

Under Section 80, the CCHK operates a leniency programme.

The CCHK’s leniency regime is set out in its Leniency Policy for Undertakings Engaged in Cartel Conduct.

The policy consists of the following key elements: (a) leniency is available only in respect of cartel conduct contravening the First Conduct Rule, (b) only an undertaking may apply for leniency under the policy, (c) leniency is available only for the first undertaking that reports the cartel conduct to the Commission and meets all the requirements for leniency, (d) if the undertaking meets the conditions for leniency, the CCHK will enter into an agreement with the undertaking not to take proceedings against it for a pecuniary penalty in exchange for co‑operation in the investigation of the cartel conduct, (e) the undertaking receiving leniency will agree to and sign a statement of agreed facts admitting to its participation in the cartel.

The leniency agreement submitted to the applicant will require the applicant to confirm that: (a) it has provided and will continue to provide full and truthful disclosure to the CCHK; (b) it has not coerced other parties to engage in the cartel conduct; (c) it has, absent a consent from the CCHK taken prompt and effective action to terminate its involvement in the cartel; (d) it will keep confidential all aspects of the leniency application and the leniency process unless the CCHK’s prior consent has been given or the disclosure of information is required by law; (e) it will provide continuing co‑operation, at its own cost, to the CCHK including in proceedings against other undertakings that engaged in the cartel conduct or against other persons involved in the cartel conduct; (f) it is prepared to continue with, or adopt and implement, at its own cost, an effective corporate compliance programme to the satisfaction of the Commission

The CCHK uses a marker system to establish a queue in order of the date and time the CCHK is contacted with respect to the cartel conduct for which leniency is sought.

 

* This information is based on Competition Law in Asia-Pacific: A Guide to Selected Jurisdictions (2018).