Presentation on theme: "1 The Proposed Hong Kong Competition Law: Principle Provisions and Problematic Issues Professor Mark Williams 12 December 2008."— Presentation transcript:
1 The Proposed Hong Kong Competition Law: Principle Provisions and Problematic Issues Professor Mark Williams 12 December 2008
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
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 co- operation
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