Hong Kong competition regulator issues COVID-19 guidance and takes ‘textbook’ case to court

COVID-19 guidance and offer of informal guidance 

On 27 March 2020, the Commission issued a statement (PDF) on the application of the Competition Ordinance during the COVID-19 outbreak. 

The statement covers four key issues:

First, it recognises that there could be a need for additional co-operation between businesses in certain industries on a temporary basis, particularly to maintain the supply of essential goods and services to consumers. 

It notes that it intends to take a pragmatic approach in its enforcement and advisory functions in respect of measures which are genuinely necessitated by the COVID-19 outbreak and in the interests of Hong Kong consumers and society.

Second and relatedly, it provides a reminder of its existing guidance for businesses entering into agreements with third parties, and notes in particular the guidance on:

• joint buying, which typically should not raise concerns where the parties involved do not have market power in the relevant downstream markets;
• joint production agreements, which are unlikely to raise concerns where the agreement allows parties to produce a product that they would not be able to offer alone;
• sales-related joint ventures, which do not give rise to concerns where the JV is objectively necessary for a party to enter a market it could not have entered on its own; and
• exchange of information, where businesses may share information on matters such as best practices or publicly available information without risks so long as competitively sensitive information is not involved.

Third, where businesses propose temporary co-operative measures which are genuinely necessitated by the COVID-19 outbreak, the Commission has offered to provide informal guidance on the application of Ordinance to businesses or industry bodies that approach it. It will endeavour to provide initial views on an informal basis within five working days of receiving all necessary information.

Finally, it issues a reminder that the Ordinance continues to apply in full, and that the Commission will remain vigilant to protect consumers from anticompetitive conduct by businesses seeking to take advantage of the outbreak or using the outbreak to justify improper collusion or other anticompetitive conduct.

Comment

The Commission’s statement is to be welcomed and strikes a sensible balance between reminding businesses not to exploit the outbreak of COVID-19 for anticompetitive gain, and recognising that businesses may need to co-operate together more than usual and that the Commission will take a pragmatic approach in respect of such activities. 

While the competition regime remains essentially a self-assessment regime – where businesses should take their own legal advice on whether certain proposed conduct is competition compliant – the offer of informal guidance from the Commission is helpful and should be considered by businesses contemplating COVID-19 related collaborations.

Textbook cartel case

In other news, on 20 March 2020, the Commission issued proceeding in the Competition Tribunal (PDF) against three leading booksellers – T.H. Lee Book Company Limited, Sino United Publishing (Holdings) Limited and Commercial Press (Hong Kong) Limited – as well as an individual, Mr Hui Chiu Ming, General Manager of T.H. Lee Book.

In response to a price war among booksellers in 2011, the Educational Booksellers’ Association called for its members to reach an agreement to set a discount limit for retailers / tenders in relation to the sale of textbooks to students attending primary and secondary school. T.H. Lee Book and Commercial Press were members of the Association and Mr Hui was the Chairman at the relevant time.

Although the Competition Ordinance was not in place back in 2011, T.H. Lee and Commercial Press allegedly continued to apply the discount limit after the Ordinance came into full effect in December 2015. 

The two companies are therefore accused of running a cartel, depriving students of a fair-market price for textbooks. Also, Mr Hui is accused of involvement in the contravention while Sino United Publishing is accused of being jointly and severally liable as the parent company of Commercial Press.

Comment

The case is notable for a number of reasons.

First, it’s the sixth cartel case taken before the Tribunal, the first in the retail sector and the fourth where the Commission has sought sanctions against an individual (in this case a pecuniary penalty and director disqualification order).

Second, it indicates a willingness by the Commission to take action against entrenched business practices that are systematic and long-lasting, including those initiated before Hong Kong’s competition laws came into effect.

Finally, it’s the first time the Commission has brought proceedings against a parent company for the actions of its subsidiary.