The Ordinance mentions two particular examples of abusive conduct:-
- Predatory behaviour; and
- Conduct limiting production, markets or technical development to the prejudice of consumers.
However, the categories of abusive conduct are non-exhaustive. Common categories of abusive conducts include:-
- Exclusive dealing;
- Margin squeeze;
- Predatory pricing;
- Refusal to deal; and
- Tying and bundling.
The central component in the concept of agreement is whether there is a meeting of minds or a concurrence of wills between at least 2 parties. The form in which it is manifested is not important so long as it constitutes the faithful expression of the parties’ intention. It is not essential to have direct evidence of express communication. The existence of an agreement can be deduced from the parties’ conduct.
The inclusion of ‘understanding’ in the statutory definition shows that tacit dealings suffice and that there can be an agreement even if there is nothing to prevent either party from going back on it.
The Ordinance provides unless the context otherwise requires, a provision of the Ordinance which is expressed to apply to, or in relation to, an agreement is to be read as applying equally to, or in relation to, a concerted practice and a decision by an association of undertakings (but with any necessary modifications).
- That restriction is objectively necessary to the implementation of that operation; or
- That activity and proportionate to the objectives of one or the other.
- There is an agreement;
- The agreement must be made between 2 or more undertakings;
- There is a submission of, refrainment from submitting or withdrawal of bids or tenders that are arrived at by the agreement; and
- The agreement is not made known to the person calling for or requesting the bids or tenders at or before the time when a bid or tender is submitted.
Bid-rigging is considered to be serious anti-competitive conduct.
- The first conduct rule;
- The second conduct rule; and
- The merger rule.
- The first conduct rule; and
- The second conduct rule.
The coordination and cooperation between the undertakings do not require the working out of an actual plan, and must be understood in the light of the concept that each economic operator must determine independently the policy which he intends to adopt on the market.
Although this requirement of independence does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors, it does however strictly preclude any direct or indirect contact between such operators, the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market.
Determination of whether a loyalty or fidelity rebate is abusive requires the analysis of the extent of the undertaking’s market power on the relevant market, the share of the market covered by the rebate, the conditions and arrangements for granting the rebates in question, their duration and their amount and the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the undertaking with a substantial degree of market power.
Decision by association of undertakings
Exclusion involving agreements enhancing overall economic efficiency
- The agreement generates efficiencies;
- It allows consumers a fair share of the resulting benefit;
- It does not impose restrictions that are not indispensable to the attainment of the objectives; and
- It does not afford the undertakings concerned the possibility of eliminating competition.
Although not provided in the Ordinance, the Commission does not rule out the possibility that this efficiency exclusion can also apply to the second conduct rule.
Exclusion involving compliance with legal requirements
- Imposed by or under any enactment in force in Hong Kong; or
- Imposed by any national law applying in Hong Kong.
Exclusion involving services of general economic interest
Exclusion involving mergers
Exclusion involving agreements of lesser significance
- An agreement between undertakings in any calendar year if the combined turnover of the undertakings for the turnover period does not exceed HK$200,000,000;
- A concerted practice engaged in by undertakings in any calendar year if the combined turnover of the undertakings for the turnover period does not exceed HK$200,000,000; or
- A decision of an association of undertakings in any calendar year if the turnover of the association for the turnover period does not exceed HK$200,000,000;
Unless the agreement, concerted practice, or decision of an association of undertakings, involves serious anti-competitive conduct.
Exclusion involving conduct of lesser significance
Exclusive purchasing obligation
Exemption on public policy grounds
- A specified agreement or a specified class of agreement from the application of the first conduct rule; or
- Specified conduct or a specified class of conduct from the application of the second conduct rule.
Exemption to avoid conflict with international obligations
- A specified agreement or a specified class of agreement from the application of the first conduct rule; or
- Specified conduct or a specified class of conduct from the application of the second conduct rule,
If he or she is satisfied that it is appropriate to do so, in order to avoid a conflict between this Ordinance and an international obligation that directly or indirectly relates to Hong Kong.
First conduct rule
- Making or giving effect to an agreement;
- Engaging in a concerted practice; or
- As a member of an association of undertakings, make or give effect to a decision of the association,
if the object or effect of the agreement, concerted practice or decision is to prevent, restrict or distort competition in Hong Kong.
General exclusions from the conduct rules
- Agreements enhancing overall economic efficiency;
- Compliance with legal requirements;
- Services of general economic interest;
- Agreements of lesser significance; or
- Conduct of lesser significance.
- Guideline on the First Conduct Rule;
- Guideline on the Second Conduct Rule;
- Guideline on the Merger Rule;
- Guideline on Complaints;
- Guideline on Investigations; and
- Guideline on Applications for a Decision under ss 9 and 24 (Exclusions and Exemptions) and s 15 Block Exemption Orders.
These guidelines are not subsidiary legislation but the Legislative Council must be consulted before the guidelines are issued or amended. They represent the Commission’s views and policies and provide guidance to the public, but have no binding legal effect on the Tribunal or the Hong Kong courts.
- Either a contravention of the first conduct rule (and the contravention involves serious anti-competitive conduct) or a contravention of the second conduct rule has occurred; and
- The Commission has not yet brought proceedings in the Tribunal in respect of the contravention,
The Commission may, instead of bringing proceedings in the Tribunal in the first instance, issue an infringement notice to the person against whom it proposes to bring proceedings, offering not to bring those proceedings on condition that the person makes a commitment to comply with requirements of the notice.
- The relevant product market;
- The relevant geographical market; and
- The relevant temporal market.
A frequently used method of assessment of the relevant market is to use the ‘SSNIP’ test.
- 2 or more undertakings previously independent of each other cease to be independent of each other;
- 1 or more persons or other undertakings acquire direct or indirect control of the whole or part of 1 or more other undertakings. The creation of a joint venture to perform, on a lasting basis, all the functions of an autonomous economic entity also constitutes a merger within this category; or
- An acquisition by 1 undertaking (“Acquiring Undertaking”) of the whole or part of the assets (including goodwill) of another undertaking (“Acquired Undertaking”) has the result that the Acquiring Undertaking is in a position to replace the Acquired Undertaking, or to substantially replace the Acquired Undertaking, in the business or in part of the business concerned (as the case requires) in which the Acquired Undertaking was engaged immediately before the acquisition.
At present, the merger rule only applies to mergers involving carrier licence holders within the meaning of the Telecommunications Ordinance (Cap 106).
An oligopoly is a market structure with a small number of firms, who realize their interdependence in each others’ market behaviours. Due to such mutual awareness, each firm takes into account the pricing behaviour of the others and as a result the firms have little incentive to compete with each other on price.
Setting prices below average variable costs (ie, those which vary depending on the quantities produced) is prima facie abusive, since such an undertaking ‘has no interest in applying such prices except that of eliminating competitors so as to enable it subsequently to raise its prices by taking advantage of its monopolistic position, since each sale generates a loss.
On the other hand, setting prices below average total costs (ie, fixed costs plus variable costs), but above average variable costs, is abusive if they are determined as part of a plan for eliminating a competitor.
Refusal to deal
- The refusal is likely to eliminate all competition on the market on the part of the person requesting the product;
- The refusal is incapable of being objectively justified; and
- The product is indispensable to carrying on the competitor’s business, in the sense that there is no realistic possibility of creating a potential alternative.
Restriction by effect
If an agreement/conduct has more than one effect, it has the effect of preventing, restricting or distorting competition.
Restriction by object
There must however be sufficiently reliable and robust experience for the view to be taken that that it is by its very nature, harmful to the proper functioning of competition.
In order to determine whether it reveals a sufficient degree of harm to competition to be considered a restriction of competition by object, regard must be had to the content of its provisions, its objectives and the economic and legal context of which it forms a part. When determining that context, it is also necessary to take into consideration the nature of the goods or services affected, as well as the real conditions of the functioning and structure of the market or markets in question.
Although the parties’ intention is not a necessary factor in determining whether an agreement or conduct is restrictive, there is nothing prohibiting the same from being taken into account.
The concept of restriction of competition ‘by object’ must be interpreted restrictively.
Second conduct rule
There are 2 examples of abuse provided in the Ordinance, namely predatory behaviour towards competitors and limiting production, markets or technical development to the prejudice of consumers. Other common examples of abuse include tying and bundling, margin squeeze, refusal to deal, and exclusive dealing.
Section 41 notices
According to the Guideline on Investigations published by the Commission, section 41 notices will often include questions or other requests to provide the Commission with information in a particular format. This may involve the creation of new documents, such as: –
- Written responses to Commission questions set out in the section 41 notice;
- Lists of customers and suppliers;
- Contact details of relevant persons;
- Organisational diagrams and charts; and
- Data extracted in various formats.
Section 42 notices
According to the Guideline on Investigations published by the Commission, any person required by the Commission to appear may be accompanied and represented by a legal adviser admitted to practice law in Hong Kong and, to the extent required by relevant professional regulations or rules of conduct, holding a current Hong Kong practising certificate. Further, recordings and any transcripts made of the interview will be provided to the person interviewed upon request when practicable. These recordings and transcripts will be subject to the person’s confidentiality obligations under the Ordinance.
Section 48 warrant
According to the Guideline on Investigations published by the Commission, the premises specified in the section 48 warrant need not relate to the party under investigation. For example, the premises may belong to the investigated party’s supplier or customer. Further, the Commission is not required by the Ordinance to wait for a person’s legal advisers to attend the premises before commencing its search. However, where parties have requested that their legal advisers be present during a search, and there is no in-house lawyer already on the premises, Commission officers will wait a reasonable time for external legal advisers to arrive.
Serious anti-competitive conduct
- Fixing, maintaining, increasing or controlling the price for the supply of goods or services;
- Allocating sales, territories, customers or markets for the production or supply of goods or services;
- Fixing, maintaining, controlling, preventing, limiting or eliminating the production or supply of goods or services; and
If the Commission has reasonable cause to believe that a contravention of the first conduct rule has occurred and the contravention does not involve serious anti-competitive conduct, the Commission must, before bringing proceedings in the Tribunal, issue a warning notice to the relevant undertaking. In case of serious anti-competitive conduct, the Commission can bring proceedings directly to the Tribunal without issuing a warning notice.
The general exclusion involving agreements of lesser significance does not apply in cases of serious anti-competitive conduct.
Single and continuous infringement
- The agreements and/or concerted practices share an overall plan pursuing a common objective;
- Each undertaking intends to contribute by its own conduct to the common objective pursued by all the participants; and
- Either each undertaking is aware of the offending conduct of the other participants in pursuit of the same objective or each undertaking could reasonably have foreseen that offending conduct would occur and was prepared to take the risk that it would.
Single economic unit
Substantial degree of market power
- The market share of the undertaking;
- The undertaking’s power to make pricing and other decisions;
- Any barriers to entry to competitors into the relevant market; and
- Any other relevant matters specified in the guideline on the second conduct rule, i.e. countervailing buyer power, bidding markets, vertical integration and capacity restraints.
Where an association of undertakings is concerned, turnover means the total gross revenues of all the members of the association whether obtained in Hong Kong or outside Hong Kong.
Tying and bundling
Bundling is similar to tying but refers more strictly to the case where products are effectively offered only as a package, whereas for tying the undertaking may supply the Tied Product (but not the Tying Product) on its own.