23 June, 2015
Companies operating in the Asia-Pacific region should be aware that increasingly competition authorities are actively enforcing their antitrust laws and taking strict actions against organisations in breach of the rules. Companies of all sizes and operating in all sectors worldwide with operations in the region should therefore ensure that they have an up-to-date and “effective” competition compliance programme in place, to help avoid infringing antitrust laws and mitigate against any fine.
In this briefing, we set out a number of interesting recent antitrust developments in the Asia-Pacific region.
Constantly Evolving And Diverging Landscape In The Asia-Pacific Region
As increasingly more jurisdictions worldwide adopt competition rules, Asia-Pacific is no exception. The competition law landscape in the region has been rapidly evolving, with new competition regimes continuing to be established and existing competition regimes revising their rules resulting in diverging approaches and making it increasingly difficult for lawyers to advise clients.
In 2007, all ten ASEAN member states committed in the ASEAN Economic Community Blueprint to endeavour to introduce national competition policy and law by December 2015. Only four of the ASEAN member states (i.e. Thailand, Vietnam, Singapore and Indonesia) had competition laws in place at the time. Since 2007 we have now seen competition laws passed in Malaysia and Myanmar, the Philippines establishing a competition authority to begin implementing competition related laws using a sectoral approach and Brunei, Cambodia and Lao PDR all working on draft competition laws.
Hong Kong's Competition Ordinance was passed in June 2012 and is expected to come into effect in 2015. Even Taiwan, an established competition regime, recently implemented significant changes to its Fair Trade Act, for example, by doubling the maximum fines for anticompetitive conduct and extending its statute of limitations. Australia is also currently undergoing a "root and branch" review of its competition laws and policy.
The competition law landscape is therefore constantly evolving in the Asia-Pacific region, with each new competition law regime resulting in greater exposure to competition law for businesses. Local and international businesses will need to constantly review and revise their compliance policies to take into account these new, and revised, competition regimes, in particular, the nuances, as they come into effect.
Aggressive Enforcement Against Cartels
Antitrust agencies globally have continued to aggressively intensify their enforcement activities against cartel activity leading to significant increases in fine levels. Countries in the Asia-Pacific region are not lagging behind with a vigorous determination to enforce their competition laws in relation to both international and domestic businesses.
The US and EU have been breaking the US$1 billion fining threshold with ease, but now even S.Korea in Asia has surpassed this level. Indeed, last year, together with Brazil, S.Korea imposed half of the world's US$5.3 billion cartel fines. In the Asia region, S.Korea and Japan tend to top the list for the highest fines with S.Korea issuing the majority of fines.
China's rise in antitrust enforcement has also been a surprise in recent years. Its fining record was broken three times in 2013 (LCD Panels, Chinese Liquor and Infant Formula). Last year, it fined a dozen Japanese auto-parts makers USD 200m for price fixing. This is the biggest fine for cartel conduct since its rules came into effect, sending a clear message to companies engaging in global price fixing that they should beware China.
Antitrust authorities are imposing fines on international cartels – Singapore doing so for the first time last year in the ball and roller bearings cartel. China, S.Korea and Japan likewise have been investigating foreign companies for their anti-competitive conducts in the region.
Increasing cooperation between antitrust agencies (e.g. China has memorandums of understanding in the EU, US and Korea) and coordinated investigations are also becoming more common (e.g. simultaneous dawn raids in automotive parts by EU, US and Japan).
Agencies are encouraging third party complaints by offering and even increasing the monetary award for those that supply evidence (e.g. China, S.Korea).
As regards the types of anti-competitive activity being most investigated and sanctioned in the Asia-Pacific region, bid rigging is by far the most punished misconduct. Such conduct has been investigated in a myriad of jurisdictions including China, S.Korea, Japan, Indonesia, Malaysia and Singapore in recent years.
It is important to beware that many jurisdictions in the Asia-Pacific region now boast a significant number of examples of successful enforcement activities, including those countries which up until recently were considered to be only emerging (e.g. China, Indonesia, Singapore, Vietnam and Malaysia).
Leniency
Increasing numbers of leniency programmes across the globe, including in Asia, are being used to incentivise companies to self-report antitrust violations in exchange for more lenient treatment. Leniency regimes are considered to be an essential part of an effective competition enforcement regime. For example, in China, the vast majority of investigations now begin with leniency applications.
Within the Asia-Pacific region, S.Korea, Japan, Taiwan, Malaysia, Singapore, Australia and New Zealand all have some form of cartel immunity programme (with the notable exception of Indonesia). There is, however, criticism that some of these leniency regimes are lacking transparency and/or a sufficient level of guidance, in particular on issues of anonymity and confidentiality. For example, in Malaysia, it is unclear as to whether businesses can make an anonymous leniency approach. China has responded to criticism by publishing several decisions, which has provided more transparency on its approach to leniency. Furthermore, each regime tends to have different requirements.
This all adds to the complexity of deciding whether or not to file for leniency. One of the most difficult challenges facing multinational businesses is discovery of a cartel that involves more than one jurisdiction as decisions must be made quickly about how strategically to coordinate immunity applications in each of the respective jurisdictions taking into account the individual nuances of each immunity programme. Increasingly, because of the vast number of authorities and their separate and diverging leniency regimes, companies now more than ever are having to conduct a serious cost-benefit analysis when considering leniency.
Increased Threat Of Criminal Sanctions
Criminal sanctions have long been implemented vigorously in the US against individuals, and other antitrust authorities worldwide, have also adopted stringent criminal sanctions against employees of companies involved in cartel activity (e.g. UK, Brazil, Australia, Russia, etc.). Several Asia-Pacific jurisdictions now also have similar criminal powers – in particular, S.Korea.
In S.Korea, criminal proceedings have become the new "norm" with the Korean Fair Trade Commission ("KFTC") commencing criminal proceedings in almost all of its recent bid-rigging cases. Although in the past many criminal convictions resulted in suspended sentences, in recent cases convicted individuals are being made to immediately serve their prison sentences.
Australia, Japan, Indonesia, Malaysia, Taiwan and Thailand also have criminal powers. Myanmar will have criminal powers when its competition laws come into effect, and New Zealand is currently considering introducing criminal powers.
Given the continued concerns that high fines do not necessarily act as a sufficient deterrent on companies or individuals partaking in cartel activity, it will be interesting to see whether criminal sanctions (i.e. prison sentences, fines) will prove a sufficient deterrent effect – especially given the reputational damage to the individual and the company.
Likewise, an increasing number of jurisdictions worldwide now also have the power to disqualify directors involved in illegal anti-competitive behaviour, albeit such power has not been used as often as expected.
Alternative Approaches To Assessing Resale Price Maintenance ("RPM")
RPM has been an enforcement priority for competition authorities across the globe for many years. The European Commission has tended to classify RPM (i.e. the setting of minimum or fixed resale prices to distributors by suppliers) as a "hard-core" restraint (i.e. a restriction of competition by object without the need to analyse the effects on the market). On the other hand, the US adopts a "rule of reason" analysis assessing the effects on the market weighing up the pro and anti-competitive effects of the RPM.
Although most competition authorities in the Asia-Pacific region have taken a strict approach similar to the EU in their enforcement of RPM (albeit Indonesia, Singapore and Vietnam appear to also require parties to have market power), more recently there have been signs of a more relaxed approach in some jurisdictions. In addition, in some countries also in the region, maximum resale prices which tend to be permitted in Western countries is outlawed (e.g. Japan, China, Taiwan) adding to the complexity and divergence of the application of the rules in this area.
The clearest example of countries moving from a stricter approach to RPM to a rule of reason analysis is Taiwan which decided this in its revised Fair Trade Act. In addition, Japan's proposed revisions to its distribution guidelines (i.e. "Guidelines Concerning Distribution Systems and Business Practices Under the Antimonopoly Act") indicate that there may be justifiable grounds for RPM, such as when it will result in procompetitive effects through avoiding the free-rider problem, increasing demand for a product and promoting competition among manufacturers and distributors, provided that such procompetitive effects could not be achieved through less restrictive alternatives. It will be interesting to see whether this proposal is implemented in the final draft, and how Taiwan approaches RPM in future cases following the revision to the Fair Trade Act.
These policy decisions follow a trend away from the per se illegal approach in case law in the Asia-Pacific region. In Korea, the Supreme Court in Hanmi Pharmaceutical (2010) and Callaway Golf (2011) ruled that minimum RPM may promote consumer welfare and that the KFTC should take into consideration any procompetitive effects arising from an RPM clause.
Furthermore, in China the Shanghai High People's Court in Rainbow/Johnson & Johnson (2013) undertook a detailed analysis of the effects of an RPM clause to assess whether it gave rise to any procompetitive benefits, as opposed to taking a per se illegal approach. This case also provided a future framework for evaluating the competitive effects of RPM.
Recently, Australia issued its first ever RPM authorisation in its Tooltechnic (2014) decision, which may potentially encourage more RPM authorisation applications in the near future. Without prior authorisation, RPM does however remain per se illegal under Australian competition law.
These developments signal a change in Asian competition law enforcement, from a traditional view that merger control and cartels are the leading enforcement focus to vertical agreements. Companies with activities in Asia-Pacific should therefore review their distribution practices, to be better prepared.
Complications In Multi-Jurisdictional Merger Notifications
Some jurisdictions in the Asia-Pacific region have attracted attention for reaching different outcomes to more established regimes such as the US and the EU in some high-profile merger cases, and also for their comparatively long merger review timelines. This has again made it difficult for companies to get any sense of consistency in approach or outcome in merger cases.
When coordinating multi-jurisdictional merger notifications, there is always the risk of different approaches and outcomes between jurisdictions. This risk is particularly pronounced in China, where competition law has political and social objectives to "safeguard the social public interest" and "promote the healthy development of the socialist market economy". A recent example is the P3 Network alliance, which was considered by China, the EU and the US. The European Commission and the US Federal Maritime Commission considered the alliance under their antitrust rules (in particular, the alliance was not a notifiable merger under EU merger control) and did not identify any significant concerns. However, China's MOFCOM took a different approach and assessed the alliance under its merger control rules, and ultimately decided to prohibit the merger.
MOFCOM has also attracted attention for imposing some novel remedies when granting conditional clearances. In the Microsoft/Nokia merger (which had been cleared unconditionally by, amongst others, the US and the EU), MOFCOM took the unusual step of imposing conditions on the seller. Furthermore, in the Seagate/Samsung merger (which again was cleared unconditionally by the US and the EU), MOFCOM imposed extensive global behavioural remedies, including a novel hold-separate remedy. The hold-separate remedy was designed to ensure that the target would be maintained as an independent competitor post-merger for a minimum review period before the parties could apply to MOFCOM for reconsideration and lifting of the remedy. This effectively indefinite hold-separate remedy that can only be lifted after reconsideration by MOFCOM is unique to MOFCOM, and has been applied in subsequent cases including Western Digital/Hitachi and MediaTek/MStar.
However, it is not just highly active and mandatory merger control regimes like China that can cause issues in merger control. Even voluntary regimes, such as Singapore, can give rise to issues. The Competition Commission of Singapore recently issued a rare provisional prohibition decision in the Parkway Holdings/RadLink merger (which was subsequently abandoned by the parties), reminding businesses that its voluntary merger control regime must not be forgotten. The Competition Commission of Singapore also recently cleared its first ever merger on the basis of the "failing firm" defence (Singapore Airlines/Tiger Airlines).
Complications can also arise due to differences in merger review timelines. Some of the longest merger review timelines in the Asia-Pacific region can take anything up to 6 months as compared to others which have shorter time periods of 4 months or less. However, these merger review timelines do not take into account pre-notification discussions, which can take a significant time in jurisdictions such as China. Nor do they take into account the practice of withdrawing and re-submitting a notification (thereby re-setting the timeline).
In the Glencore/Xstrata merger, China was the last jurisdiction to provide merger clearance after Australia, the US, South Africa and the EU. China's merger clearance took almost a year longer than Australia, given that the parties had to withdraw the filing at the end of the original statutory review period and then re-submit it. In the MediaTek/MStar merger, China's merger clearance took more than a year (again, the parties had to withdraw and re-submit the filing). China has recently introduced a simplified procedure under which it will aim to complete its review within 30 days. Although this timeline is only an aim and not a set deadline, early figures show that China has been mostly meeting this objective, albeit pre-notification discussions have taken considerable time in some cases.
Abuse Of Dominance
A number of jurisdictions in Asia-Pacific which were relatively cautious in enforcing competition law involving unilateral abusive conduct have demonstrated a keen enthusiasm to investigate and impose fines. Antitrust authorities in the region are increasingly ready to tackle very complex abuse of dominance investigations, including concepts which would even be challenging for competition agencies in more mature Western jurisdictions.
No more was this evident earlier this year than in the Qualcomm case when it was fined almost US$1 billion by the Chinese authorities for abusing its dominant position in the market for 3G and 4G wireless technology (Qualcomm also agreed to patent licensing commitments with fixed royalty rates). This was more than 3 times as much as the total fines imposed in 2014 for anticompetitive behaviour. It was also the first abuse of dominance case for the agency which addressed some of the most complicated antitrust issues in the high-tech industry, such as market definition, concept of dominance and issues in relation to SEPS (i.e. standard essential patents). Qualcomm is under investigation for similar conduct in the US and elsewhere.
Other jurisdictions in the region are also investigating and imposing penalties on companies for abuse of dominance. For example, S.Korea recently imposed fines on telecoms providers for using market power to squeeze other companies’ profits and Malaysia fined steel manufacturers for unfairly charging high rates and undercutting rivals on price for certain products.
Yet interestingly at the other spectrum, we have jurisdictions in the Asia-Pacific region which lack clarity as to how they will apply their abuse of dominance rules. Hong Kong notably has received many comments asking for indicative market thresholds or other market share tests that could give businesses a rough idea of their susceptibility to antitrust challenge. In the EU and many other jurisdictions worldwide, for example, 40% or more of a relevant market is a good proxy for market dominance.
Spread Of Private Enforcement
Litigation brought by private parties to enforce competition law rights – whether on a standalone basis or following an investigation by an antitrust authority – has been common in the US and is now a frequent occurrence in a number of other jurisdictions, in particular, the UK, Germany and the Netherlands. Private enforcement of competition law is also now growing in Asia-Pacific, albeit the different approaches to private enforcement across the region means it can be difficult for companies to navigate.
New legislation has recently been proposed in S.Korea for class action lawsuits, treble damages and injunctions. The KFTC has indicated that for Korean competition law, enforcement lay in the courtroom through private damages claims alongside public enforcement.
China has seen a significant increase in the number of civil actions filed since the introduction of its law in 2008 – mostly standalone claims related to abuse of dominance. Interestingly, however, most litigation has either failed or been withdrawn. China and Australia also have active "opt-out" class action regimes and Hong Kong may introduce one also.
Japan has also promulgated its Special Act relating to Civil Procedures for Recovery of Damages incurred by Group of Consumers due to come into effect in the next few years allowing consumer groups to bring actions for damages. Although it applies only to damages arising out of consumer contracts and will tend to apply in cases of fraudulent contracts and coerced consumer contracts, it is possible this new procedure will apply to violations of Japan's antitrust rules.
Lack Of Certainty
Lack of legal certainty and due process is a growing problem in the Asia-Pacific region. This is in part due to the nascent nature of many new and revised competition law regimes in the region, the general lack of competition law expertise in certain countries as well as the fact that many rights considered standard in mature regimes are not necessarily available in Asia-Pacific. These include rights such as the right to present evidence, the right to legal counsel before being questioned by an enforcer and legal privilege. This makes it very difficult for companies and their lawyers to assess and advise on competition law risk to their organisations.
In new competition law regimes there is a lack of case law, resulting in uncertainty over key issues such as market definition. In addition, guidance documents in new competition law regimes are still relatively untested. For example, Malaysia recently published guidelines on its leniency regime but at this stage it is unclear from the guidelines whether businesses can make a leniency approach anonymously, and Hong Kong's Competition Ordinance does not provide an indication of what level of market share would likely lead a substantial degree of market power. These issues therefore result in uncertainty for businesses until revised guidance is issued or they are clarified by case law.
Even in the more mature competition law regimes in the region, there can be uncertainty due to a lack of due process and transparency. In China, decisions are rarely published, resulting in a lack of transparency over process. By contrast, the European Commission publishes all decisions in a redacted format. China has recently responded to this criticism by publishing several cases, providing insight into the setting of fines and leniency.
Both China and Japan have received criticism for a perceived lack of due process. In particular, neither China nor Japan recognises the right to legal privilege. China has been the main subject of criticism, with complaints including businesses being pressured to admit guilt without the ability to see and respond to evidence, and the inability to have appropriate legal representation present for dawn raids and on-going proceedings. Chinese officials have, however, cited the recent Qualcomm and Microsoft cases as examples of these concerns being met.
In Japan, an Advisory Panel recently published a report on the recommended investigative procedures of the Japan Fair Trade Commission ("JFTC"). Although non-binding, this report stated that: the JFTC should continue to refuse to acknowledge legal privilege, businesses do not have a right to refuse a dawn raid until a lawyer is present, during a dawn raid businesses may only copy materials being seized by the JFTC if they are necessary for the daily business operations of the company and the copying does not affect the dawn raid, lawyers are not permitted during depositions, and deponents are not permitted to take notes during depositions nor should video and audio recordings be taken. Following this report, the JFTC is expected to clarify its investigative procedures in guidelines.
Although China and Japan receive the most criticism, due process and transparency issues have also been raised in other jurisdictions in Asia, such as S.Korea and Taiwan. S.Korea, in particular, following concerns that companies would be told nothing before a dawn raid and receive little information about the nature of the investigation, now require officials to abide by an inspection manual created by the enforcer to ensure correct and transparent practices are adhered to. Furthermore, there are concerns that similar issues may arise in newer competition regimes once their procedural safeguards are tested in high-profile cases.
Sector Focus
Globally and in the Asia-Pacific region, the financial services sector continues to be the subject of numerous investigations by antitrust authorities tackling the perceived failings arising from the financial crisis. Other sectors are also in the limelight, including IT, pharmaceutical, healthcare, transport (rail, maritime), energy and consumer.
Indeed, in the Asia-Pacific region, there has been a growing recognition of the importance of IPRs to economic development, with antitrust enforcement agencies in Asia-Pacific taking an interest in their use and intersection with competition law and focusing on a number of investigations in the technology sector, in particular in relation to the provision of internet services, digital markets and patent enforcement.
Conclusion
Competition rules in the Asia-Pacific region have long been strongly enforced in the more established jurisdictions, such as Japan, S.Korea, Australia and New Zealand. Numerous other competition authorities in the region are quickly acquiring the capacity and level of sophistication required to act as a real threat to those breaching the competition rules in the region (e.g. China, Singapore, Indonesia, Vietnam and Malaysia). Antitrust authorities are working hard to address issues around lack of legal certainty and due processes to ensure fair and equal treatment, but the reality is that the antitrust regimes in the region are divergent and fast evolving.
Committing resources to compliance training and building competition expertise has never been so important for multinational companies looking to operate and expand in Asia-Pacific. Companies will increasingly need antitrust experts in the region and it will be particularly important that businesses have in place jurisdiction specific compliance programs tailored to the nuances of the various competition regimes and differences in the applications of the rules. Moreover, given that effective compliance policies can help to minimize the risk of a breach of local competition laws and, where a breach occurs, they can provide a useful basis upon which to establish positive interactions with regulators and in some jurisdictions can be taken into account by courts in determining penalties (i.e. reducing the level of the fine).
For further information, please contact:
Chunfai Lui, Partner, Stephenson Harwood
cf.lui@shlegal.com
Giovanna Kwong, Partner, Stephenson Harwood
giovanna.kwong@shlegal.com
Marta Isabel Garcia, Partner, Stephenson Harwood
marta.garcia@shlegal.com
