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9 June, 2016
The Hong Kong Competition Commission (“HKCC”) has taken steps to ensure that a local trade association withdrew a price increase recommendation issued to members. This is an important step in the Commission's first months as an active regulator. It is in line with the HKCC's on-going focus on trade associations, and serves as a reminder to businesses that the HKCC takes active enforcement seriously, and does not intend to “sit back” in 2016.
The HKCC's actions relate to a letter sent by the Hong Kong Newspaper Hawker Association (“HKNHA”) to its members and posted on social media. The letter recommended that members increase the price at which they sold certain branded cigarette products. It had become apparent to the HKCC that following the letter, a number of the HKNHA members were following this recommendation and had increased their prices.
After becoming aware of the HKNHA's conduct, on 24 May 2016 the HKCC held a meeting with a Trade Association representative, immediately following which the HKNHA withdrew its letter and the relevant price recommendation. The HKNHA followed up on 26 May 2016 by informing its members that they should determine individually the prices of the products they sell.
In a press release dated 31 May 2016, the HKCC stated that is not proposing to take any further action in this case, noting that the conduct was public, in apparent ignorance of the law, and that the HKNHA responded quickly to rectify its conduct.
Interestingly, prior to the coming into force of the Hong Kong Competition Ordinance (“HKCO”) in December 2015, the HKCC had issued a warning to local trade associations urging them not to set recommended prices. Press reports at that time gave the example of the HKNHA, which had refused to sell the Chinese-language Next Magazine in protest against convenience store chain 759 Store selling the magazine for six Hong Kong dollars less than the original price.
It is not clear whether the HKCC issued a “Warning Notice” to the HKNHA as part of this recent process. If one has been issued in this case, it has not yet been published on the HKCC's website.
Under the HKCO, the HKCC must issue a Warning Notice to the relevant undertaking before it can bring proceedings in cases of suspected breaches of the First Conduct Rule not involving “serious anti-competitive conduct”. By contrast, it is not obliged to do so in cases of suspected breaches of the First Conduct Rule involving “serious anti-competitive conduct”.
A Warning Notice requires the addressee to discontinue the infringing activity within a specified period. Where the activity is, in fact, discontinued within the relevant period, the matter is generally closed down and no further action is taken by the HKCC.
The HKCC indicated in its press release of 31 May that the HKNHA's conduct may well have amounted to “serious anticompetitive conduct”, noting that “if associations fix or recommend the prices at which their competing members should sell products, the association and its members are likely to be engaging in serious anticompetitive conduct and contravening the Competition Ordinance”.
As such, it may be that the HKCC was not under an obligation to issue a Warning Notice in this case. Despite the apparently serious nature of the allegedly infringing conduct, it is possible the HKCC elected to take a “softer” approach in this case given the mitigating factors outlined above.
Commentators (including within the HKCC) have criticised the Warning Notice procedure on the basis that it prevents the authority from building a clear body of decisional practice, meaning the authority will lack precedents on which to base its decision-making in future.
However, the HKCC has frequently stated that its main objective is to ensure compliance with the law, not to prosecute or punish offenders. As such, if issuing Warning Notices (or indeed simply liaising informally with the relevant parties) is sufficient to bring the conduct to an end, then this has the benefit of ensuring that anti-competitive practices are nipped in the bud quickly and efficiently, arguably ensuring a better outcome for competition and consumers at comparatively minimal cost.
For further information, please contact:
Mark Jephcott, Partner, Herbert Smith Freehills
mark.jephcott@hsf.com
