On 19 November 2015, the Hong Kong Competition Commission (“the Commission“) published its long-awaited Enforcement Policy. The same day, the Commission released its Leniency Policy for Undertakings Engaged in Cartel Conduct. These policies come less than a month before the competition law is due to come into force in Hong Kong on 14 December. The documents are linked to some degree in that, while the Leniency Policy addresses how leniency applications will be handled for an undertaking that is first in the door, the Enforcement Policy explains how the Commission proposes to exercise its enforcement discretion in respect of undertakings that are not first in, and individuals.
The Commission has stated that it will prioritize enforcement against three types of conduct: (i) cartels; (ii) other restrictive agreements causing significant harm; and (iii) abuse of substantial market power through exclusionary behaviour. This list does no more than to reflect the ground already covered by the prohibitions in the Competition Ordinance and the previously published Guidelines on the First and Second Conduct Rules. It is, therefore, questionable how much more clarity the Enforcement Policy document really gives to businesses looking to understand the Commission’s focus in the early stages of enforcement.
The Commission has listed four “Severity Factors” which it says it will consider when determining whether and how to pursue an investigation:
- whether the conduct demonstrated a “blatant disregard” for the law;
- the deliberateness of the conduct, including whether there were deliberate steps to avoid detection;
- whether the conduct was engaged in by or under the direction of senior management; and
- the degree to which the person involved has been previously advised of concerns and failed to rectify conduct, received a warning notice or been found by the Competition Tribunal to have contravened the Ordinance.
The Commission states that it prefers remedies which will stop the unlawful conduct speedily and undo the caused harm. However, the Commission says that it will also seek remedies that impose sufficient economic sanction to encourage compliance.
Cooperation and Settlement
In situations in which a person (i.e. either an undertaking or an individual) wishes to cooperate, the Commission will take this into account in considering a proportionate enforcement response. This is important in terms of both cooperation that persons may volunteer at any stage in respect of non-cartel conduct and in terms of persons who have engaged in cartel conduct but have failed to secure protection from penalties because they fall outside the leniency policy. It is important to understand the link between the Enforcement Policy and the Leniency Policy. While the Leniency Policy addresses how leniency applications will be handled for an undertaking that is first in the door, the Enforcement Policy explains how the Commission proposes to exercise its enforcement discretion in respect of undertaking that are not first in, and individuals.
The value of compliance efforts
The Commission has said that it will take into account compliance efforts of persons under investigation, where they can demonstrate “a genuine effort to comply with the Ordinance”, when assessing the appropriate enforcement response. What this means is that it is important for businesses to put in place meaningful and effective compliance programs. These could have a significant mitigating effect on fines and other remedies in the event of inadvertent breaches.
The Commission has, following a public consultation, settled its Leniency Policy.
Key points to be aware of:
- leniency is only available in respect of ‘cartel conduct” (see further below);
- only an undertaking may apply for leniency (individuals must seek mitigation of remedies under the Enforcement Policy) – that said, the Commission says that a leniency agreement will usually extend to any current officer or employee of the undertaking provided they give complete, truthful and continuous cooperation;
- leniency is only available to the first undertaking that reports the cartel (2nd and subsequent undertakings must seek mitigation of remedies under the Enforcement Policy);
- the conditions of leniency must be met before the undertaking then must enter into a leniency agreement;
- the undertaking receiving leniency will be required to sign an agreed statement of facts admitting to its participation in the cartel on the basis of which the Tribunal may be asked to make an order declaring that the undertaking contravened the Ordinance by engaging in a cartel;
- the undertaking will still be exposed to follow-on actions, both for damages and the broad range of other relief that is listed in the Third Schedule.
Scope of policy: only ‘cartels’
The Leniency Policy only applies to ‘cartels’. Businesses need to be aware that there is a distinction between how ‘cartel’ is defined in the Leniency Policy and the concept of Serious Anticompetitive Conduct as defined in the Competition Ordinance. Serious Anticompetitive Conduct is defined to mean any conduct that consists of any of the following or any combination of the following – “(a) fixing, maintaining, increasing or controlling the price for the supply of goods or services; (b) allocating sales, territories, customers or markets for the production or supply of goods or services; (c) fixing, maintaining, controlling, preventing, limiting or eliminating the production or supply of goods or services; (d) bid-rigging.” The Commission has taken the view that Serious Anticompetitive Conduct may be both horizontal (i.e. between competitors) or vertical (i.e. between undertakings at different levels of the production or distribution chain). An example of the latter is resale price maintenance, whereby a manufacturer or supplier establishes a fixed or minimum resale price to be observed by the distributor when it resells the product affected by the RPM obligation. The Commission says that in some circumstances this may amount to Serious Anticompetitive Conduct. However, the concept of ‘cartel’ under the Leniency Policy only applies to horizontal agreements to fix prices, share markets, restrict output or rig bids. In other words, it does not appear to apply to vertical Serious Anticompetitive Conduct, but only applies to agreements among undertakings that are, or otherwise would be if not for the cartel conduct, in competition with each other. Furthermore, the Leniency Policy only applies to cartel conduct that is considered to have the ‘object’ of harming competition.
Communications Authority not adopting leniency policy
Hong Kong’s Communications Authority (“the Authority“) shares jurisdiction with the Commission in respect of competition issues within the telecommunications and broadcasting sectors. However, the Authority declined to adopt a leniency policy saying it will instead consider leniency requests made by telecommunications or broadcasting licensees on a case-by-case basis. This raises potential uncertainty where an undertaking has gone in for leniency to the Commission and the Commission then hands the case over to the Authority or the Authority seeks to take jurisdiction. There is also considerable uncertainty as to how a case that straddles telecommunications / broadcasting and other sectors will be handled.