Transcript Graduate School of Business

The Proposed Hong Kong Competition Law:
Principle Provisions and Problematic Issues
Professor Mark Williams
12 December 2008
1
Outline
Competition problems in Hong Kong
Proposed Substantive Provisions
Unresolved Issues
Threats
Opportunities
Conclusion
Competition Problems
in Hong Kong
Government 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
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Public enforcement
Competition Commission and Tribunal
Independent statutory body
Corporate Board structure to be the decision
maker cf. with UK OFT
Chair + 6 Commissioners appointed by CE
CEO and executive to investigate and
‘prosecute’ infractions
Wide powers of competition advocacy,
sectoral investigation and international cooperation
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 Enforcement
Stand alone private right of action for
damages and injunction
Safeguards to prevent nuisance cases
Mechanism to deal with ‘composite’ cases
Representative actions
Right of Commission intervention
Grant 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?
Exemptions
De minimis and SMEs
Vertical agreements except where
undertaking has SMP
Individual agreements – net
economic benefit
Block 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 bodies
Will 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
Threats
Cartel operators need to reconsider
Parties 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
Opportunities
Aggrieved consumer, commercial or
public sector parties who have suffered
damage from anti-competitive activities
Actual or potential market entrants
Nimble law firms
Aspiring 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 ACLEC
Asian Competition Law and Economics
Centre
www.af.polyu.edu.hk/aclec/index.html
Thank you!
Professor Mark Williams
[email protected]