Australia brings fourth criminal cartel prosecution and first gun-jumping case
By Georgina Foster, Anita Thompson and Anthea Burton
In June 2018, following a two-year investigation by the Australian Competition and Consumer Commission (ACCC), the Commonwealth Department of Public Prosecutions laid criminal cartel charges against three banks and a number of their senior executives. Although Australia’s criminal cartel laws have been in force since 2009, the first prosecution did not take place until early 2017. The latest prosecution is the fourth since then, demonstrating that Australia is enforcing these laws seriously.
In July 2018, the ACCC began its first enforcement action for gun-jumping in Australia. The ACCC alleges that Cryosite entered into and gave effect to agreements that restricted the supply of cord blood and tissue banking services and/or allocated potential customers between Cryosite and Cell Care.
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China authority conditionally clears Luxottica/Essilor merger; rejects “single entity” defense in cartel case; publishes information on the assignment of personnel to the Anti-monopoly Bureau and its structure
By Laura Liu and Wenting Ge
In July 2018, the State Administration of Market Regulation (SAMR) approved the merger between Italian eyewear maker Luxottica and French lens maker Essilor, subject to commitments that the merged entity would not bundle or tie products. It was also required to offer any brand licenses on fair, reasonable and non-discriminatory terms, and not to discriminate between trading parties.
Commitments along these lines have been seen in a number of conditional merger approval decisions by the Chinese authorities. Competition authorities in other jurisdictions which reviewed the merger cleared it unconditionally.
Also in July 2018, SAMR penalized two cargo-tallying companies in the western area of the Shenzhen port for market-sharing and price-fixing. The companies claimed that they were not competitors, as they shared a common shareholder that owns a 50 percent stake in each of the two companies. They therefore argued that they formed a single entity and were not separate undertakings. (The Anti-Monopoly Law does not apply to agreements between companies forming part of the same group.)
However, SAMR dismissed this “single entity” defense, for reasons which included the fact that the two companies in practice operated independently from each other. They were therefore to be regarded as separate undertakings. The decision indicates that the defense is not necessarily applicable to 50:50 joint ventures, and that this depends on the circumstances of each case.
In September 2018, SAMR published information on personnel assignments and the division structures of its Anti-monopoly Bureau (AMB). The AMB has ten divisions, organized along function lines, with three dedicated to merger review, three to antitrust enforcement and three dedicated to policy work and international and intergovernmental outreach, etc.. Mr. Wu Zhenguo, former head of the Anti-monopoly Bureau of MOFCOM, has been appointed as the head of the AMB. While there has been a reshuffle of some personnel, most of the AMB officials are from the pre-consolidation agencies, i.e. NDRC, SAIC and MOFCOM. See our client alert here for more information.
Hong Kong government rejects Commission’s recommendations to increase auto-fuels competition; Commission targets individuals in alleged building renovation cartel and seeks disqualification of director
By Stephen Crosswell
In July 2018, the Hong Kong government rejected nearly all of the Hong Kong Competition Commission’s recommendations in the local auto-fuels market. The recommendations were contained in a market study, which the Commission published in May 2017.
In general, the government took the view (contrary to the Commission) that the market was working satisfactorily. There was no sign that the existing number of petrol filling stations (PFSs) could not meet demand, and the market was not unduly concentrated (the number of market players was similar to Tokyo, and higher than Singapore and Taipei). Moreover, the government was concerned that certain Commission recommendations were interventionist and undermined Hong Kong’s market-driven approach or would conflict with other government policies:
- Making more sites available for PFSs (one of the Commission’s suggestions) would detract from efforts to make more land available for housing (a current government priority).
- If the price of petrol was to drop substantially, this might encourage more people to buy cars and motorists to make unnecessary trips. This would conflict with the government’s efforts to improve air quality, reduce traffic congestion and encourage the use of public transport.
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In the third case that it has brought before the Competition Tribunal, the Competition Commission is, for the first time, seeking penalties against two company directors, and a disqualification order against one of them, in addition to penalties against the companies. This constitutes a significant step-up in the Commission’s enforcement efforts, and makes it even more important for companies to have in place effective compliance systems to avoid breaching the Competition Ordinance.
The case concerns three construction companies that are alleged to have shared customers and coordinated prices for renovation services at a public housing state, the second such case that the Commission has brought.
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Indonesian Competition Commission moves up a gear with new initiatives
By Wimbanu Widyatmoko and Mochamad Fachri
Five months have passed since the new commissioners of the Indonesian Business Competition Supervisory Commission (KPPU) took office. Based on various remarks and interviews, we observe the following developments in terms of enforcement and reforms:
- The overall focus is on prevention with the KPPU putting more emphasis on compliance programs. The KPPU’s Chief Commissioner remarked that the KPPU will consider giving more credit to companies for having a compliance program, including possibly considering this as a mitigating factor in calculating the administrative penalty.
- In line with the theme of prevention, the KPPU has opened itself more to discussion with companies, including whether an action or a proposed transaction would violate the law. A recent example was a discussion in August 2018 between the KPPU and Gaikindo (the Indonesian automobile industry association) regarding its practice of collecting detailed industry data from its members. The KPPU gave guidance to Gaikindo members which covered cartel risks while acknowledging that the association was required to gather these data by a Regulation of the Minister of Finance.
- The KPPU has also launched an initiative to reform its case handling procedures which have been the subject of criticism, e.g. due to perceived lack of due process protection. The KPPU has solicited comments from competition lawyers on how its procedures can be improved.
- On 30 August 2018, the KPPU signed a Memorandum of Understanding with the Competition and Consumer Commission of Singapore. The primary purpose of this memorandum is to enhance law enforcement cooperation among these agencies, including possible sharing of information and coordination of enforcement action and provision. The parties will also cooperate in enhancing their technical capacity.
- In terms of industry sectors, it appears increasingly likely that the KPPU will focus on the digital economy. Since August 2018 staff of the KPPU have been assigned on an almost monthly basis to attend trainings and workshops on the digital economy to increase their capacity and knowledge.
- In terms of number of actual cases decided, since the new Commissioners came into office, we are seeing a marked increase of prosecution of failure to submit mandatory post-merger notification in time, with about a half dozen cases having decided or being examined as of the writing of this update. An increase of more than a quarter compared to 2017.
Japan prepares for introduction of commitment system
By Junya Ae and Ryo Yamaguchi
Japan’s new system for accepting voluntary commitments from parties comes into effect from 30 December 2018. This is likely to be of use in cases relating to private monopolization, abuse of superior bargaining position and other vertical restrictions (unfair trade practices). Commitments will not be available for hard-core cartel conduct including bid-rigging and price-fixing, repeated suspected violations by the same entities or other serious violations.
The procedures for adopting commitments are contained in JFTC guidelines (Policies Concerning Commitment Procedures) which were published on 26 September 2018.
Malaysian authority issues proposed decision on abuse of dominance; issues infringement decision regarding tuition and day care centers for price-fixing
By Andre Gan and Alexander Wong
The Malaysian Competition Commission (MyCC) is proposing to fine a trade facilitation services provider RM 17.4 M [about USD 4.25 M] for alleged abuse of dominance. If the proposed decision becomes final, this would be MyCC’s second abuse of dominance decision.
MyCC has provisionally found that the company abused its monopoly in the provision of trade facilitation services by
- Refusing to supply electronic mailboxes to end users who utilized front-end software from software solutions providers that were not its authorized business partners; and
- Creating barriers to entry for potential competitors by imposing exclusivity clauses on its business partners.
In addition to the financial penalty, MyCC is proposing to impose a cease-and-desist order on the company to stop the allegedly infringing conduct, and to require the directors and senior management (and related companies) to undergo a competition law compliance program within a specified time frame.
The company had until 3 September 2018 to make its written representations on the proposed decision to the MyCC.
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MyCC found that seven tuition and day care centers infringed the Malaysian Competition Act by entering into an agreement to collectively fix and standardize the fees charged for their tuition and day care services. In its final decision, MyCC:
- imposed a financial penalty of RM33,068.85 [about USD 7,900] collectively on all seven enterprises for the duration of the infringement; and
- ordered all seven enterprises to:
- immediately cease and desist from the infringing acts and to repudiate the price-fixing agreement with immediate effect; and
- enroll and complete MyCC’s e-learning course on competition compliance for SMEs within one month from the issuance of the decision.
Philippine authority imposes fine and voids non-notified shipping merger; issues guidelines on notification of joint ventures
By Christina Macasaet-Acaban, Charles J. Veloso and Michael M. Manotoc
On 28 June 2018, the PCC issued two decisions regarding two related M&A transactions, which involved the same acquiring party and two separate target companies, all of whom were engaged in the shipping industry.
In the first decision, the parties took the view that the deal fell below the filing threshold of PhP 1 B combined asset value, and therefore did not notify the proposed acquisition to the PCC. The parties’ calculation was based on the net combined asset value. However, the PCC determined that it was the gross value of the combined assets that was relevant for the filing threshold, and on this basis concluded that the filing threshold had been exceeded. The PCC declared the transaction void, for failure to notify the PCC and obtain clearance, and held the parties, together with their ultimate parent entities, jointly liable to pay an administrative fine equivalent to 2 percent of the value of the transaction.
The PCC’s voiding of the completed transaction above actually facilitated the PCC’s approval of a subsequent acquisition (since the unwinding of the acquisition of Trans-Asia eliminated the competition concerns identified in the second merger).
This case highlights the PCC’s far-reaching powers and the significant commercial impact of an inaccurate analysis of the filing thresholds. It also serves as a timely reminder that it is also important to evaluate the risks of taking a commercial decision as to whether or not to file in the Philippines (or elsewhere).
On 10 September 2018, the PCC issued “Guidelines on Notification of Joint Ventures” to help parties determine whether a transaction would constitute a notifiable joint venture under Philippine merger control rules. Those Guidelines explain that a notifiable JV may be formed by incorporating a JV company, entering into a contractual JV, or by acquiring shares in an existing corporation, if joint control would be conferred on the JV partners. They also clarify how to apply the notification thresholds in a joint venture. The Guidelines apply to JVs between public or private entities, and are effective immediately. Parties are therefore advised to consider whether any contemplated transactions may trigger the mandatory requirement.
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Singapore authority conditionally approves joint venture between chicken distributors; penalizes chicken distributors for anticompetitive agreements; challenges chemicals merger; flags new ASEAN Competition Enforcers’ Network
By Melissa Healy and Christine Xu
On 29 June 2018, the Competition and Consumer Commission of Singapore (CCCS) conditionally approved a joint venture between by five fresh chicken distributors. The JV will conduct poultry slaughtering for its parent companies.
Given that the parties would remain competitors in the procurement of live chicken, and the marketing and distribution of fresh chilled chicken, CCCS was concerned that the JV might lead to the sharing of commercially sensitive information between the parties. To satisfy the CCCS’s concerns, the parties gave several commitments, including not to exchange commercially sensitive information, to establish an effective competition compliance program, and to appoint a monitoring trustee to oversee compliance with all the commitments. The commitments are in place for the lifetime of the JV.
The CCCS accepted the parties’ arguments that the JV would give rise to benefits such as cost savings, economies of scale and alleviating land scarcity in Singapore. It took the view that these efficiencies outweighed any residual competition concerns, and therefore the JV qualified for the “net economic benefit” exclusion under the Competition Act.
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In September 2018, the CCCS issued an infringement decision penalizing 13 fresh chicken distributors for colluding in respect of the amount and timing of price increases and agreeing to customer market sharing arrangements in Singapore. The CCCS initiated an investigation on foot of a leniency application and concluded that for a seven (7) year period, the parties shared sensitive pricing information and ultimately coordinated the amount and timing of planned price increases. Furthermore, they agreed to not compete for each other’s respective customers, which covered large supermarkets, hotel chains, wet markets and hawker stalls. In light of the seriousness of the infringements and the length of time, the CCCS imposed its highest combined fine to date of approximately SGD 26.9 M with an individual fine for one distributor group of over SGD 11 M.
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On 25 May 2018, the CCCS provisionally concluded that a proposed merger in the marine water treatment chemicals sector was likely to result in a substantial lessening of competition. Ultimately the parties abandoned the deal and withdrew the filing. This is only the second time that the CCCS has sought to prohibit outright a proposed merger in its more than decade-long existence.
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In October, the CCS reported that the ASEAN Experts Group on Competition had established the “ASEAN Competition Enforcers’ Network” to facilitate cooperation on competition cases in the region and to serve as a platform to handle cross-border cases. The aims of the Network are to enable mutual understanding of members’ enforcement goals and objectives and to encourage information sharing. It will also look into facilitating cooperation on mergers and acquisitions with a cross-border dimension.
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Taiwan authority revokes its own infringement decision and replaces it with settlement; proposes amendments to the Fair Trade Act
By Sonya Hsu
In an unusual move, the Taiwan Fair Trade Commission (TFTC) revoked a decision that it made in 2017 involving the mobile communications chipmaker Qualcomm, and agreed a settlement with the company instead.
The TFTC has also proposed the following amendments to the Fair Trade Act (TFTA) which are subject to approval by the cabinet.
- New powers to impose fines for failure to comply with a TFTC penalty decision on gun-jumping, for making false statements in filing materials as well as non-compliance with remedial measures. In addition to the TFTC’s power to order the dissolution, suspension or termination of the business operation , the TFTC can impose an administrative fine between TWD 200,000 [approximately USD 6,500] and TWD 50 M [approximately USD 1,626,000].
- Extended deadline (under the statute of limitation) for investigating competition infringements. In broad terms, the time limit will be increased from 5 to 10 years though specific rules apply. The proposed amendments are a response to the fact that the TFTC has insufficient time to conduct investigations into cross-border or complicated cases.
- Allowing for the possibility of making payments from a special fund to a whistleblower who reports an abuse of market power, merger control related infringements, resale price maintenance or vertical restrictions. Under current rules, the fund can be used to pay for cooperating with international competition authorities, educating on competition law and for rewarding whistleblowers who report cartel conduct.
Thailand announces implementing regulations for new competition law; issues first enforcement decision under new law
By Pornapa Luengwattanakit, Ampika Kumar and Narumol Chinawong
In a sign that Thailand is gearing up for the full enforcement of its competition law, Thailand’s Trade Competition Commission has announced various subordinate regulations. The regulations below will be used to implement rules on abuse of dominant position, cartel conduct, and unfair trade practices:
- criteria for determining whether business operators are connected as a result of influence or control rights;
- guidelines on abuse of dominant position behaviors;
- guidelines on cartels;
- guidelines for determining relevant market and market share; and
- guidelines for determining unfair trade practices.
In another sign that Thailand is heading towards more enforcement, the Competition Commission issued its first enforcement decision since reforms came into effect last October. It found that a fruit wholesaler had breached the Competition Act by imposing exclusivity obligations on farmers and forcing farmers to sell at substantially reduced prices to those which it had previously agreed with them.
Vietnam strengthens its competition law
By Seck Yee Chung and Minh Tuan Le
Vietnam has adopted significant amendments to its competition law, which will strengthen it considerably. The main amendments, which are due to come into force on 1 July 2019, are as follows:
- The law will make it clear that agreements and conduct that harm competition in Vietnam will be prohibited, irrespective of where they take place. Under the current law, it is unclear whether it applies to overseas entities that have no commercial presence in Vietnam.
- New per se prohibitions are introduced for price-fixing, customer allocation, output restriction, bid-rigging and vertical exclusionary arrangements, while other agreements are prohibited if they have a “significant anti-competitive effect.” Under the current law, there is a safe harbor of 30 percent market share, below which agreements fall outside the law. This safe harbor will be abolished under the new law.
- Accordingly, factors to determine whether an agreement has or may have a significant anti-competitive effect on the market include:
- Market share of enterprises engaging in the agreement;
- Barriers to market entry and expansion;
- Restrictions on research, development, renovation of technology or restricting technological capacity;
- Reduction in accessibility or ownership of essential infrastructure;
- Increase in customers’ costs, time to buy goods, services of enterprises engaged in an agreement or when switching to other related goods, services; and
- Obstruction to competition in the market through control of other specific factors in the sector and domains related to the parties engaging in the agreement.
Further clarifications on the implementation of these factors have been published in the latest draft decree guiding the application of a few Competition Law regulations.
- A new concept of “significant market power” will be introduced, alongside the current 30 percent market share threshold where dominance is presumed.
- Whereas the current criterion for filing mergers is based on combined market share (30 percent or above), the new law introduces three further criteria, namely total assets in Vietnam, total revenues in Vietnam, or the total value of the transaction. In the latest draft decree guiding the application of Competition Law regulations, law makers have suggested a notifiable threshold of:
- VND 1,000 B [USD 44 M] in total assets for either party;
- VND 1,000 B [USD 44 M] in total revenues for either; or
- VND 500 B [USD 22 M] in total value of the transaction.
Meeting any of these criteria will trigger the filing requirement.