United States: What You Need To Know About Hong Kong Competition Law (Part 1) - General Overview

The implementation of the new Competition Ordinance (Chapter 619 of the Laws of Hong Kong) (the Competition Ordinance) on 14 December 2015 will mark the first time that Hong Kong has a general and cross-sector competition law.

Background

At present, only the telecommunications and broadcasting sectors are subject to competition provisions under the Telecommunications Ordinance (Chapter 106 of the Laws of Hong Kong) (the Telecommunications Ordinance)¹ and the Broadcasting Ordinance (Chapter 562 of the Laws of Hong Kong) (the Broadcasting Ordinance).² The Hong Kong Communications Authority (CA) is vested with powers of investigation and adjudication in enforcing these provisions.

On 14 June 2012, the Competition Ordinance was enacted as a general and cross-sector competition law to curb anti-competitive conduct. Its main objectives include the prohibition and deterrence of anti-competitive conduct, the establishment of a merger control regime (only applicable to the telecommunications industry) and also the provision of extensive investigative powers to regulatory authorities as regards suspected breaches. The Competition Ordinance will come into full effect on 14 December 2015.

Prohibited behavior under the new competition regime

The Competition Ordinance prohibits three major areas of anti-competitive conduct, dubbed the First Conduct Rule, the Second Conduct Rule (collectively referred to as the Conduct Rules) and the Merger Rule:

• The First Conduct Rule: prohibits agreements or concerted practices between undertakings and decisions of an association of undertakings that have the object or effect of preventing, restricting or distorting competition in Hong Kong.³
• The Second Conduct Rule: prohibits an undertaking that has a substantial degree of market power in a market from abusing its power through engaging in conduct that has as its object or effect the prevention, restriction or distortion of competition in Hong Kong.⁴
• The Merger Rule: prohibits a merger involving a carrier licensee under the Telecommunications Ordinance that (whether directly or indirectly) creates the effect of substantially lessening competition in Hong Kong.

When the Competition Ordinance comes into full operation, the current competition provisions in the Telecommunications Ordinance and the Broadcasting Ordinance will be repealed (subject to transitional arrangements) and replaced by the Conduct Rules, and a new section 7Q prohibiting exploitative conduct (the Telco Rule) will be added to the Telecommunications Ordinance. The Telco Rule will only apply to holders of licenses under the Telecommunications Ordinance, and will prohibit licensees who are in a dominant position from engaging in conduct which may be exploitative. Exploitative behavior includes, inter alia, fixing and maintaining prices at an excessively high level and also setting unfair trading terms and conditions.

Who is in charge?

The Competition Ordinance provides for judicial enforcement through the Competition Commission and the Competition Tribunal.

The investigation authorities – The Competition Commission and the Communications Authority

The Competition Commission was established in April 2013 under the Competition Ordinance as an independent statutory body responsible for and tasked with, inter alia, investigating competition-related complaints and bringing enforcement action before the Competition Tribunal in respect of anti-competitive conduct.

Under the Competition Ordinance, competition matters can be transferred between regulators with concurrent jurisdictions. In this regard, pursuant to Part 11 of the Competition Ordinance, the CA has been given concurrent jurisdiction with the Competition Commission to enforce the Competition Ordinance in respect of the telecommunications and broadcasting sectors, including merger and acquisition activities involving carrier licensees.

The adjudication authorities – The Competition Tribunal and the Courts

The Competition Tribunal has been set up within the Hong Kong Judiciary to hear and adjudicate on competition cases brought by the Competition Commission, private actions as well as reviews of determinations of the Competition Commission.

When competition rules are infringed, the Competition Tribunal has broad powers to impose penalties and remedies on undertakings and individuals and to impose costs orders against contravening parties:

Any appeals in relation to decisions of the Competition Tribunal on competition matters will be referred to the Court of Appeal and/or the Court of Final Appeal.

The Hong Kong courts will also have powers to impose criminal sanctions on undertakings and individuals in the following situations:

• Failure to comply with a requirement or prohibition imposed under the Competition Commission's investigation powers – the maximum penalty for a conviction on indictment is a fine of HK$200,000 and imprisonment for up to 1 year.
• Destruction/falsification of documents, obstruction of search, provision of false or misleading documents/information – the maximum penalty for a conviction on indictment is a fine of HK$1 million and imprisonment for up to 2 years.

Current state of play

On 27 July 2015, the Competition Commission and the CA jointly issued the following guidelines to provide guidance on how they intend to interpret and apply the provisions of the Competition Ordinance:

1. Guideline on Complaints
2. Guideline on Investigations
3. Guideline on Applications for a Decision under Sections 9 and 24 (Exclusions and Exemptions) and Section 15 Block Exemption Orders
4. Guideline on the First Conduct Rule
5. Guideline on the Second Conduct Rule
6. Guideline on the Merger Rule

On 23 September 2015, the Competition Commission issued a draft Leniency Policy for Undertakings Engaged in Cartel Conduct (the Leniency Policy) for public consultation. For further details on the draft Leniency Policy, please see our Clients & Friends Memo titled "Hong Kong Competition Commission Consults on Draft Cartel Leniency Policy".

The Competition Commission and the CA are preparing a Memorandum of Understanding on how the two bodies will cooperate and pursue enforcement actions. It is also expected that the Competition Commission will release a draft policy on enforcement for public consultation.

What's next?

The imminent implementation of the Competition Ordinance is a significant step in the evolution of Hong Kong's fledgling antitrust regime and puts Hong Kong on an equal footing with many other countries, such as the European Union, the United States and Australia.

Multinational enterprises doing business in Hong Kong can no longer afford to dismiss the Special Administrative Region as a jurisdiction that has no competition regime or antitrust enforcement. Going forward, Cadwalader will release topic-specific articles on a regular basis to explain the different provisions of the new competition regime. In the next issue, we will discuss the First Conduct Rule in greater detail.

Footnotes

^{1 For the telecommunications sector, the relevant provisions include section 7K (anti-competitive practices), section 7L (abuse of position) and section 7N (non-discrimination) of the Telecommunications Ordinance.}

^{2 For the broadcasting sector, the relevant provisions include section 13 (prohibition on anti-competitive conduct) and section 14 (prohibition on abuse of dominance) of the Broadcasting Ordinance.}

^{3 This mirrors Article 101 TFEU in the EU and Section 1 of the Sherman Act in the United States.}

^{4 This mirrors Article 102 TFEU in the EU and Section 2 of the Sherman Act in the United States.}

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.