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DominanceContributing editorsThomas Janssens and Thomas Wessely

2016© Law Business Research 2016

Dominance 2016Contributing editors

Thomas Janssens and Thomas Wessely Freshfields Bruckhaus Deringer

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Adam [email protected]

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© Law Business Research Ltd 2015No photocopying without a CLA licence. First published 2oo3Twelfth editionISSN 1746-5508

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CONTENTS

2 Getting the Deal Through – Dominance 2016

Global Overview 7Onno Brouwer, Thomas Janssens, Thomas Wessely and Joanna GoyderFreshfields Bruckhaus Deringer

Australia 12Elizabeth Avery, Adelina Widjaja and Morelle BullGilbert + Tobin

Austria 18Thomas Lübbig and Franz StenitzerFreshfields Bruckhaus Deringer

Belgium 24Laurent Garzaniti and Tone OeyenFreshfields Bruckhaus Deringer

Brazil 31Carlos Francisco de Magalhães, Gabriel Nogueira Dias, Francisco Niclós Negrão and Thaís de Sousa GuerraMagalhães e Dias – Advocacia

Canada 36Susan M HuttonStikeman Elliott LLP

China 47Nicholas French, Ninette Dodoo, Vivian Cao, Donghao Cui and Tracy LuFreshfields Bruckhaus Deringer

Colombia 55Ximena Zuleta-Londoño and Alberto Zuleta-LondoñoCardenas & Cardenas Abogados

Croatia 59Marijana Liszt and Tin OraićPosavec, Rašica & Liszt

Denmark 65Martin André Dittmer, Erik Kjær-Hansen and Michael MeyerGorrissen Federspiel

Ecuador 70Daniel Robalino-Orellana and David ToscanoFerrere Abogados, Ecuador

European Union 75Thomas Wessely and Angeline WoodsFreshfields Bruckhaus Deringer

Finland 84Erkko Ruohoniemi and Satu-Anneli KauranenMerilampi Attorneys Ltd

France 90Maria Trabucchi and Jérôme FabreFreshfields Bruckhaus Deringer

Germany 101Ulrich Scholz and Tim VohwinkelFreshfields Bruckhaus Deringer

Greece 108Cleomenis YannikasDryllerakis & Associates

Hong Kong 114Jenny Connolly, Nicholas French, Timothy Lamb and Elske RaedtsFreshfields Bruckhaus Deringer

India 121Shweta Shroff Chopra and Harman Singh SandhuShardul Amarchand Mangaldas & Co

Indonesia 127Ardian Deny Sidharta and Verry IskandarSoemadipradja & Taher

Ireland 133Helen Kelly and Kate LeahyMatheson

Israel 140Mattan Meridor, Lior Saar and Moran AumannAgmon & Co, Rosenberg Hacohen & Co, Law Offices

Italy 145Gian Luca Zampa and Tommaso SalonicoFreshfields Bruckhaus Deringer

Japan 157Akinori Uesugi and Kaori YamadaFreshfields Bruckhaus Deringer

Korea 164Sung Man KimLee & Ko

Luxembourg 170Léon Gloden and Carmen SchanckElvinger, Hoss & Prussen

Malaysia 176Sharon Tan SuyinZaid Ibrahim & Co

Mexico 182Rafael Valdés Abascal and José Ángel Santiago ÁbregoValdés Abascal Abogados SC

Morocco 187Corinne Khayat and Maïja BrossardUGGC Avocats

Netherlands 192Onno Brouwer, Paul van den Berg and Frouke HeringaFreshfields Bruckhaus Deringer

Norway 201Siri Teigum and Odd StemsrudAdvokatfirmaet Thommessen AS


www.gettingthedealthrough.com 3

CONTENTS

Portugal 205Mário Marques Mendes and Pedro Vilarinho PiresGómez-Acebo & Pombo

Romania 211Raluca Vasilache, Anca Jurcovan and Andreea OprișanȚuca Zbârcea & Asociaţii

Russia 216Alexander ViktorovFreshfields Bruckhaus Deringer

Singapore 222Lim Chong Kin and Scott ClementsDrew & Napier LLC

Slovenia 227Andrej Fatur and Helena Belina DjalilFatur Law Firm

Spain 233Francisco Cantos and Rafael PiquerasFreshfields Bruckhaus Deringer

Switzerland 238Martin Ammann, Christophe Rapin and Renato BucherMeyerlustenberger Lachenal

Turkey 245Gönenç Gürkaynak and K Korhan YıldırımELİG, Attorneys-at-Law

United Kingdom 251Alastair Chapman, Deba Das and David GallagherFreshfields Bruckhaus Deringer

United States 259Thomas Ensign and Christine LaciakFreshfields Bruckhaus Deringer


HONG KONG Freshfields Bruckhaus Deringer


Hong KongJenny Connolly, Nicholas French, Timothy Lamb and Elske RaedtsFreshfields Bruckhaus Deringer

General

1 Legislation

What is the legislation applying specifically to the behaviour of dominant firms?

Hong Kong’s Competition Ordinance (Cap 619) (CO) took full effect on 14 December 2015. It is the first competition law that applies to all sectors of the economy in Hong Kong.

Section 21 of the CO provides that an undertaking that has a ‘sub-stantial degree of market power’ (SDMP) is prohibited from abusing that power by engaging in conduct that has as its object or effect the prevention, restriction or distortion of competition in Hong Kong. This prohibition is referred to as the ‘Second Conduct Rule’. Such abuse may, in particular, consist of:• predatory behaviour towards competitors; or• limiting production, markets or technical development to the preju-

dice of consumers.

To determine whether an undertaking has an SDMP in a market, the fol-lowing non-exhaustive list of matters may be taken into consideration:• the market share of the undertaking;• the undertaking’s power to take an independent pricing decision and

other decisions;• any barriers to entry into the relevant market for competitors.

On 27 July 2015, the Competition Commission and the Communications Authority (the sectorial competition authority for telecommunications and broadcasting) published the Guideline on the Second Conduct Rule (the Guideline), which sets out how both agencies intend to interpret and administer the Second Conduct Rule. The Guideline does not have the force of law, but is indicative of how the agencies propose to apply the Second Conduct Rule.

Prior to entry into force of the CO, a competition regime was already in place for the telecommunications and broadcasting sectors, and it dealt with the behaviour of dominant firms. The relevant provisions were:• sections 7K, 7L and 7N of the Telecommunications Ordinance (TO),

which contained statutory prohibitions against anti-competitive prac-tices in general, abuse of a dominant position and discrimination by a dominant licensee; and

• sections 13 and 14 of the Broadcasting Ordinance (BO), which set out the two main prohibitions against anti-competitive conduct in general and abuse of dominance by television programme service licensees.

These provisions were repealed with the entry into force of the CO and this conduct is now covered by the Second Conduct Rule. At the same time, with the entry into force of the CO, section 7Q was added to the TO, which prohibits exploitative conduct of a licensee in a dominant position in a tel-ecommunications market. Examples of prohibited conduct provided are:• fixing and maintaining prices or charges at an excessively high level;

and• setting unfair trading terms and conditions.

2 Non-dominant to dominant firm

Does the law cover conduct through which a non-dominant company becomes dominant?

The CO has no provision that explicitly covers conduct through which a non-dominant company becomes, or attempts to become, dominant. The Guideline is also silent on this subject. There is, of course, the merger con-trol provision that applies to specific transactions involving the telecom-munications industry, which could potentially apply to transactions that may lead to dominance being obtained.

3 Object of legislation

Is the object of the legislation and the underlying standard a strictly economic one or does it protect other interests?

The object of the Second Conduct Rule is to prohibit and deter under-takings in all sectors from adopting abusive conduct that has the object or effect of preventing, restricting and distorting competition in Hong Kong. The main object of the CO is economics-based. In an October 2014 press release, the Chairperson of the Competition Commission, Anna Wu Hung-yuk, stated that the CO ‘serves to safeguard and enhance a com-petitive environment for consumers and businesses in Hong Kong’. The Competition Commission has also stated that its main enforcement focus will be on ‘exclusionary’ abuses, which aim to unjustifiably exclude com-petitors from the market. However, the Competition Commission added that it is also not prevented from targeting ‘exploitative’ abuses (eg, unfair pricing or other unfair trading conditions).

4 Non-dominant firms

Are there any rules applying to the unilateral conduct of non-dominant firms?

Yes. The Second Conduct Rule prohibits undertakings with an SDMP from abusing that power by engaging in conduct that has the object or effect of preventing, restricting or distorting competition in Hong Kong. As a conse-quence, firms that are not dominant but have an SDMP would be subject to the Second Conduct Rule. No guidance is provided on what market share may constitute an SDMP (see question 12).

5 Sector-specific control

Is dominance regulated according to sector?

The concept of SDMP is not regulated on a sectoral basis. The Second Conduct Rule imposes a cross-sector competition prohibition that applies to the entire economy.

As indicated in the answer to question 1, sector-specific prohibitions against the abuse of dominance by telecommunications licensees and by players in the television services sector used to be enforced by the TO and BO, respectively. However, such sector-specific regulation was repealed with the entry into force of the CO, with the exception of section 7Q (see question 1).

A difference will remain in place as far as enforcement of the Second Conduct Rule is concerned. The Communications Authority shall retain jurisdiction to investigate the conduct of companies in the telecommuni-cations and broadcasting industries that may violate the Second Conduct Rule (see question 7).


Freshfields Bruckhaus Deringer HONG KONG


6 Status of sector-specific provisions

What is the relationship between the sector-specific provisions and the general abuse of dominance legislation?

With the entry into force of the CO, the competition provisions under the BO are completely repealed, but the TO retains the concept of dominance in relation to licensees holding a dominant position in a telecommunica-tions market, pursuant to the introduction of section 7Q.

7 Enforcement record

How frequently is the legislation used in practice?

The Competition Commission has the power to investigate conduct and bring proceedings before the Competition Tribunal. If it is satisfied that an infringement of the Second Conduct Rule has occurred, the Competition Tribunal can impose sanctions for such infringement.

Specifically in relation to the telecommunications and broad-casting sectors, the TO and the BO were previously enforced by the Communications Authority, which oversees the converging telecommuni-cations and broadcasting sectors (the Communications Authority was cre-ated in 1 April 2012 as a result of the convergence of the Telecommunications Authority and the Broadcasting Authority). The CO stipulates that the Communications Authority will have concurrent jurisdiction with the Competition Commission over conduct of undertakings that are:• licensees under the TO or BO;• persons whose activities require them to be licensed under the TO or

BO but who are not; or• persons who have been exempted from the TO.

See question 33 for details on the method in which the Communications Authority and the Competition Commission will coordinate the perfor-mance of their functions under the CO.

As the CO only recently entered into force, no examples of the enforcement of the Second Conduct Rule can be given yet. It is, however, expected that the Competition Commission will actively enforce the CO, including the Second Conduct Rule. The Competition Commission has indicated that it is already monitoring various situations and conducting studies and research on certain issues (press release of the Competition Commission and the Communications Authority, dated 30 March 2015). There are also indications that it has received complaints about potential anti-competitive practices in some instances.

Competition provisions under the TO and the BOThe Communications Authority has, so far, imposed and issued only one antitrust fine and corrective order (in September 2013 against TVB for engaging in anti-competitive conduct and abuse of dominance contrary to the BO). Since September 2013, the Communications Authority has reviewed other alleged anti-competitive conduct based on complaints and found no reasonable grounds for suspecting a breach or to proceed to full investigation.

8 Economics

What is the role of economics in the application of the dominance provisions?

Economic evidence may be considered by the Competition Commission in assessing whether there has been a breach of the Second Conduct Rule. The Guideline provides, for instance, that market definition assessment often involves the ‘hypothetical monopolist test’ (explained in question 11). As for the assessment of effect, it will examine what the market conditions would most likely have been in the absence of the conduct and compar-ing these with the conditions resulting where the conduct is present (ie, the counter-factual). The Competition Commission has appointed Derek Ritzmann as its Chief Economist.

The Communications Authority relies on expert economic evidence in the conduct of its investigations. In the November 2010 FMIC Tariff case, for example, the then Telecommunications Authority invited com-ments from all the mobile network operators and fixed network operators on the impact of the tariff increase and even detailed the coverage of the economic evidence required from interested parties, who were asked to submit economic evidence in support of their submissions.

In addition, section 141 of the CO expressly permits the Competition Tribunal to ‘appoint one or more specially qualified assessors’ in any pro-ceeding under the CO. This suggests that economists may be appointed.

9 Scope of application of dominance provisions

To whom do the dominance provisions apply? To what extent do they apply to public entities?

The Second Conduct Rule under the CO applies to all undertakings that are entities or natural persons engaged in economic activity. The CO does not apply to ‘statutory bodies’ (unless specified by the Chief Executive) or ‘specified persons’ (being statutory bodies or natural persons identified in subsequent regulations to be made by the Chief Executive).

In this context, it is noted that the Second Conduct Rule does not apply where the undertaking is entrusted by the Hong Kong government to oper-ate services of general economic interest insofar as compliance with the Second Conduct Rule would obstruct the performance of the particular task or where the conduct that the undertaking is engaged in is for the pur-pose of complying with Hong Kong law.

In addition, the Chief Executive may, by an order published in the Hong Kong Gazette, make exemptions to the Second Conduct Rule based on public policy grounds or to avoid conflict with international obligations (see question 18 for further discussion on exemptions).

10 Definition of dominance

How is dominance defined?

The CO uses the concept of SDMP, a term that appears to have a lower threshold than the concept of dominance. The CO provides the following non-exhaustive list of factors that may be taken into account to determine whether an undertaking holds an SDMP:• the market share of the undertaking;• the undertaking’s power to make pricing and other decisions;• any barriers to entry into the relevant market; and• any other relevant matters.

The Guideline, although not binding on the Competition Commission or the Competition Tribunal, provides that:

a substantial degree of market power arises where an undertaking does not face sufficiently effective competitive constraints in the relevant market. Substantial market power can be thought of as the ability profitably to charge prices above competitive levels, or to restrict out-put or quality below competitive levels, for a sustained period of time.

Normally a period of two years can be considered to amount to a sustained period, although it can be longer or shorter depending on the case. The Guideline also provides for the possibility that more than one undertak-ing has an SDMP in a relevant market, particularly if the market is highly concentrated with only a few large market participants.

11 Market definition

What is the test for market definition?

The guidance on the definition of the relevant market generally follows internationally accepted competition law principles. A relevant market should normally contain two dimensions: the product market and the geo-graphic market.

The Guideline sets out that demand-side substitution is a central fac-tor for the purpose of defining the relevant market. The relevant product market comprises all those products that are considered interchangeable or substitutable by buyers because of the products’ characteristics, prices and intended use. The relevant geographic market comprises all those regions or areas where buyers would be able or willing to find substitutes for the products in question. For this purpose, the Competition Commission will generally apply the ‘hypothetical monopolist test’, under which the Competition Commission would examine the reactions of customers to a hypothetical ‘small but significant non-transitory increase in price’ (SSNIP) of 5 to 10 per cent. If enough buyers switch to substitute products or sup-pliers located in other areas in the face of a SSNIP to make the attempted price increase unprofitable, the candidate market should be expanded to include the substitute products (for product market definition) and other areas (for geographical market definition) to which buyers would turn.




The Competition Commission may also consider supply-side substi-tutability but views customer-side substitutability to be central for the pur-poses of market definition.

12 Market-share thresholdIs there a market-share threshold above which a company will be presumed to be dominant?

No. The CO provides that the market share of the undertaking in question is one of the relevant factors in determining whether an undertaking has an SDMP. The Guideline indicates that undertakings are more likely to have an SDMP where they have high market shares but that a high market share does not necessarily imply an SDMP (or vice versa).

During the legislative passage of the CO, the Commerce and Economic Development Bureau (CEDB) proposed to adopt a ‘minimum’ market share threshold of 25 per cent, although an SDMP could still be established below the level if other relevant factors provide strong evidence of such market power. Such a proposal deviates from the 40 per cent benchmark that was originally envisaged in the public consultation document pub-lished in May 2008.

Ultimately no market share threshold was adopted. In a press release of the Competition Commission and the Communications Authority, dated 30 March 2015, the Competition Commission indicated it does not wish to give any indication at this time because it holds the view that mar-ket share alone does not determine whether an undertaking has substan-tial market power. Factors such as ease of entry and expansion, availability of supply-side substitution and buyer power have the capacity to prevent a firm with a high market share from having a substantial degree of mar-ket power. Chairperson of the Competition Commission, Anna Wu Hung-yuk has also indicated in an article in December 2014 that ‘to make such a determination, you have to look at whether or not a business’s conduct is such that it is prohibiting others from coming in (…). Emphasis will be on abuse, not on market share’. (Hong Kong Lawyer, the official journal of the law society of Hong Kong, December 2014, page 19).

13 Collective dominanceIs collective dominance covered by the legislation? If so, how is it defined?

While the CO does not refer to the term or a comparable concept of col-lective dominance, the Guideline explains that the definition of SDMP does not preclude the possibility of more than one undertaking having substantial market power in a relevant market, particularly if the market is highly concentrated with only a few large market participants. No further guidance is provided as to whether such undertakings may under certain circumstances be considered to jointly engage in conduct that violates the Second Conduct Rule, but this possibility is not excluded either.

14 Dominant purchasersDoes the legislation also apply to dominant purchasers? If so, are there any differences compared with the application of the law to dominant suppliers?

Yes. It appears from the Guideline that market power may equally arise on the buyer side of the market (referred to as monopsony power) whereby a buyer has the ability to obtain purchase prices below the competitive level for a sustained period of time.

Abuse in general

15 DefinitionHow is abuse defined? Does your law follow an effects-based or a form-based approach to identifying anti-competitive conduct?

The CO mentions two types of conduct that may particularly amount to an abuse: ‘predatory behaviour towards competitors’ and ‘limiting produc-tion, markets or technical development to the prejudice of consumers’.

The Guideline identifies the following (non-exhaustive) examples:• predatory pricing;• tying and bundling;• margin squeeze conduct;• refusals to deal; and• exclusive dealing.

The Guideline explains that certain types of conduct by undertakings with an SDMP can be regarded, by their very nature, to be harmful to the proper functioning of normal competition in the market. In such a case, there is no need for the Competition Commission to examine or demonstrate their effects. Such conduct is considered to have the object of harming competi-tion. Examples mentioned in the Guideline include pricing below average variable costs (predatory pricing), certain exclusive dealing arrangements and pay-for-delay arrangements.

On the other hand, conduct that does not have the object of harm-ing competition may, nevertheless, be in violation of the Second Conduct Rule if it has an actual or likely anti-competitive effect (eg, higher prices, restriction in output, and reduction in product quality or anti-competitive foreclosure). In that case the Competition Commission is required to show that the conduct of an undertaking with an SDMP has the effect of harming competition.

16 Exploitative and exclusionary practices

Does the concept of abuse cover both exploitative and exclusionary practices?

Under the CO, both exploitative and exclusionary practices can constitute abuse. Interestingly, however, the Guideline focuses only on exclusion-ary abuses in the examples provided. While this cannot be taken to mean that exploitative conduct will not infringe the CO, it might indicate the Competition Commission’s envisaged enforcement focus.

17 Link between dominance and abuse

What link must be shown between dominance and abuse?

The existence of an SDMP is an objective condition for the Second Conduct Rule to apply to conduct of an undertaking. The Guideline explains that to contravene the Second Conduct Rule, the undertaking must abuse its SDMP by engaging in conduct that has as its object or as its effect harm-ing competition in Hong Kong. It is, however, possible that an undertaking with an SDMP in one market could commit an abuse in contravention of the Second Conduct Rule in another market. In this regard, the relevant undertaking might leverage its market power in the first market to harm competition in the second (eg, anti-competitive tying that aims at monopo-lising a neighbouring market may fall under the Second Conduct Rule).

18 Defences

What defences may be raised to allegations of abuse of dominance? Is it possible to invoke efficiency gains?

The CO does not mention the concept of efficiency-based defences to rebut the finding of an abuse of an SDMP. It is, however, indicated in the Guideline that undertakings may argue that conduct does not in fact contravene the Second Conduct Rule because it entails efficiencies suffi-cient to guarantee no net harm to consumers. A key consideration will be whether the claimed efficiencies are, in fact, passed on to consumers.

The Competition Commission may also accept defences to rebut the finding of an abuse of an SDMP on the basis of which it is demonstrated that the conduct concerned is indispensable and proportionate to the pur-suit of some legitimate objective. For example, a refusal to deal may not be abusive where an undertaking with an SDMP refuses to supply a particular input to a customer because the customer is, as an objective matter, insuf-ficiently creditworthy.

Moreover, Schedule 1 to the CO lists a number of general exclusions and exemptions to the Second Conduct Rule, which are, in short:• compliance with legal requirements;• services of general economic interest;• mergers; and• conduct of lesser significance (conduct of an undertaking concerned

that has a turnover (whether in or out of Hong Kong) not exceeding HK$40 million for the previous financial year).

Pursuant to sections 31 and 32 of the CO, the Chief Executive in Council of the Competition Commission may adopt other exemptions by order either on public policy grounds or to avoid a conflict with international obliga-tions that directly or indirectly relate to Hong Kong.

Undertakings can assess for themselves whether their conduct falls within the terms of a particular exclusion or exemption, but may also apply to the Competition Commission for a decision on whether this is indeed




the case. Either way, undertakings may assert the benefit of any exclusion or exemption as a ‘defence’ to any proceedings before the Competition Tribunal or other courts.

Specific forms of abuse

19 Price and non-price discriminationThe Guideline does not explicitly mention price and non-price discrimi-nation as examples of abusive conduct. However, in the context of refusal to supply (see question 24) reference is made to discriminatory pricing in relation to licensing of intellectual property rights (IPR) where the IPR holder has given a commitment to license on fair, reasonable and non- discriminatory terms (FRAND commitment) (see question 28). Given that the list of potentially abusive conduct is non-exhaustive, it is possible that discrimination by an undertaking with an SDMP could amount to abuse outside the scope of IPRs as well.

20 Exploitative prices or terms of supplyNeither the CO nor the Guideline mentions exploitative pricing or terms of supply as an example of abusive conduct. Given that the list of types of potentially abusive conduct in the CO is non-exhaustive, it is possible that exploitative prices or terms of supply imposed by an undertaking with an SDMP could amount to abuse.

21 Rebate schemesThe Guideline refers to ‘conditional rebates’ as a type of ‘exclusive deal-ing’ arrangement (see question 25), which potentially qualifies as abuse of an SDMP. Retroactive rebates are mentioned as having the potential to foreclose the market significantly when granted by an undertaking with an SDMP. Incremental and standardised rebates are less likely to raise con-cerns, unless they are of a predatory nature (see questions 22).

22 Predatory pricingUnder the CO, ‘predatory behaviour towards competitors’ is expressly listed as a type of abusive conduct. The Guideline refers to the setting of low prices to force out competing undertakings as an example of such pro-hibited predatory behaviour.

In relation to the level of prices at which there may be competitive con-cern, the Guideline mentions that:• where the price is below the average variable cost (AVC) of production

for a sustained period of time, the Competition Commission is likely to conclude that the conduct has the object of harming competition in the absence of evidence to the contrary; or

• where the price is above the AVC but below the average total cost of production, the Competition Commission considers that the conduct may be rational commercial behaviour and that evidence of actual or likely anti-competitive effects or documentary evidence of a predatory strategy may be assessed in analysing this type of conduct.

23 Price squeezesThe Guideline refers to margin squeeze as an example of abusive conduct. According to the Guideline a margin squeeze may arise where a vertically integrated undertaking with an SDMP, which supplies an important input to downstream competitors, reduces or ‘squeezes’ the margin between the price it charges for the input to its competitors on the downstream market and the price its downstream operators charge to its own end customers.

When assessing whether margin squeeze amounts to abusive conduct, the Competition Commission will consider:• the nature of the upstream input concerned, in particular, how indis-

pensable is the input; and• the level of the margin squeeze, in particular, the difference between

the input price that the undertaking with an SDMP charges to an oper-ating subsidiary and the prices it charges competitors of this operating subsidiary for the same input.

24 Refusals to deal and access to essential facilitiesThe Guideline refers to refusal to deal as a possible form of abusive con-duct. However, the Guideline provides as a starting point that an under-taking should be free to decide with whom it will or will not do business. Hence, a refusal to deal by an undertaking with an SDMP will only be con-sidered an abuse in very limited or exceptional circumstances.

Factors that are mentioned as being considered when assessing whether a refusal to deal is a violation of the Second Conduct Rule are:• whether or not it is technically and economically feasible for the

undertaking with an SDMP to provide the input in question;• the past history of dealing between the undertakings (the termination

of an existing supply arrangement might more readily be character-ised as abusive); and

• the terms and conditions at which the products in question are gener-ally supplied or are supplied in other contexts.

The Guideline does not explicitly refer to refusal of access to essen-tial facilities as an example of abusive conduct, contrary to the previous draft guidelines published in June 2012. It is, however, indicated that con-cerns may arise, in particular, when the refusal relates to an input that is indispensable for undertakings operating in the downstream market. It is, therefore, possible that refusal to supply an input that is essential for downstream players will more quickly be considered to constitute a form of abuse than under other circumstances.

25 Exclusive dealing, non-compete provisions and single branding

The Guideline refers to exclusive dealing as an example of abusive con-duct. The Competition Commission considers that exclusive dealing may take the form of either an exclusive purchasing obligation or a conditional rebate (since rebates granted by an undertaking with an SDMP can have foreclosure effects similar in nature to those caused by exclusive purchas-ing obligations).

In assessing whether an exclusive dealing arrangement contravenes the Second Conduct Rule, the Competition Commission will have particu-lar concerns where:• the undertaking with an SDMP has imposed exclusive purchasing obli-

gations on many customers; • it is likely that consumers as a whole will not derive a benefit; and • the relevant obligations, as a whole, have the effect of preventing the

entry or expansion of competing undertakings because, for example, the exclusive purchasing locks up a significant part of the relevant market.

On the other hand, where competitors can compete on equal terms for the entirety of each individual customer’s demand, for instance, in bidding markets, exclusive dealing is less likely to harm competition unless the duration of the exclusivity gives rise or is likely to give rise to a foreclosure effect.

26 Tying and leveragingThe Guideline provides that tying and bundling could constitute abuse. Tying occurs when a supplier makes the sale of one product (the tying product) conditional upon the purchase of another (the tied product) from the supplier, whereas bundling refers to situations where a package of two or more products is offered at a discount. Although, generally, tying and bundling are not considered harmful for competition and may often pro-mote competition, the Guideline recognises that an undertaking with an SDMP can use tying and bundling as means to foreclose competitors. The Competition Commission will consider whether the tying and tied prod-ucts (or products in the bundle) are distinct products and, if so, whether the conduct has an anti-competitive effect.

27 Limiting production, markets or technical developmentUnder the CO, ‘limiting production, markets or technical development to the prejudice of consumers’ is expressly listed as a type of abusive conduct. The Guideline treats this as an overarching category of abusive conduct that includes practices such as anti-competitive tying and bundling (see question 26), refusals to deal (see question 25) and exclusive dealing (see question 24).

28 Abuse of intellectual property rightsThe Guideline states that the Competition Commission will only in excep-tional circumstances consider an undertaking’s refusal to license an intel-lectual property right as a violation of the Second Conduct Rule. In addition to the factors typical of a refusal to deal assessment (see question 24), the Competition Commission may also assess, for example, whether a refusal




to license prevents the development of a secondary market or new product or otherwise limits technical development, resulting in consumer harm.

The Guideline further provides that an undertaking with an SDMP may contravene the Second Conduct Rule if it holds a standard essential patent and provided an undertaking to license the IPR on FRAND terms when the standard was adopted by the industry, but refuses to honour that commitment. Such an undertaking may also contravene the Second Conduct Rule if it seeks injunctive relief against a willing licensee in cer-tain circumstances.

29 Abuse of government processNeither the CO nor the Guideline addresses the abuse of government pro-cess. This could, nevertheless, constitute a form of abuse, given that the list of potentially abusive conduct in the CO is non-exhaustive.

30 ‘Structural abuses’ – mergers and acquisitions as exclusionary practices

Schedule 1 to the CO specifies that to the extent that conduct (either on its own or when taken together with other conduct) results in, or if engaged in would result in, a merger. This conduct is exempted from application of the Second Conduct Rule (see question 18).

31 Other types of abuseThe CO’s list of potentially abusive conduct is non-exhaustive. Although the Guideline only references five types of potentially abusive conduct (see question 15), these examples are not meant to be exhaustive. Other types of conduct can, therefore, also be caught by the Second Conduct Rule.

Enforcement proceedings

32 Prohibition of abusive practices

Is there a directly applicable prohibition of abusive practices or does the law only empower the regulatory authorities to take remedial actions against companies abusing their dominant position?

The CO provides for a direct prohibition. However, only the Competition Tribunal may, upon application by the Competition Commission, find an infringement of the Second Conduct Rule, and impose sanctions for the infringement. The CO does not permit private actions in the absence of a prior infringement finding. However, once the Competition Tribunal has found that an infringement of the Second Conduct Rule has taken place, fol-low-on damages actions can be initiated by private parties (see question 36).

33 Enforcement authorities

Which authorities are responsible for enforcement and what powers of investigation do they have?

The CO establishes two new statutory bodies in Hong Kong, namely, the Competition Commission and the Competition Tribunal.

The Competition Commission has broad powers of investigation. These include:• the power to require an undertaking to provide any documents or

information that may be relevant to its investigation;• the power to conduct interviews and require any person to answer

questions on any matter that the Competition Commission believes to be relevant to the investigation; and

• upon obtaining a warrant from the Court of First Instance, the power to conduct dawn raids and search the premises (it is not limited to busi-ness premises and may include homes, cars, etc) of alleged infringers of the competition rules.

Where the Competition Commission suspects that an undertaking has vio-lated the Second Conduct Rule, it may issue an ‘infringement notice’, offer-ing not to bring proceedings before the Competition Tribunal, in return for a commitment or an admission of the infringement. Alternatively, it may proceed directly to bring proceedings before the Competition Tribunal.

However, the Competition Commission does not have the power to make a finding of infringement, and cannot impose any pecuniary sanc-tions. Only the Competition Tribunal has such powers.

Specifically in relation to the telecommunications and broadcasting sectors, the CO stipulates that the Communications Authority will have

concurrent jurisdiction with the Competition Commission over conduct of undertakings that are:• licensees under the TO or BO;• persons (although not licensees) whose activities require them to be

licensed under the TO or BO; or• persons who have been exempted from the TO.

The CO further stipulates that the Competition Commission and the Communications Authority will enter into a memorandum of under-standing for the purpose of coordinating the performance of their func-tions under the CO. Matters that will be set out in the memorandum of understanding include the manner in which the two authorities will per-form their functions in cases of concurrent jurisdiction, dispute resolution mechanism, mutual assistance, allocation of responsibilities and informa-tion sharing.

The Competition Tribunal may, upon application by the Competition Commission (or the Communications Authority), and if it is satisfied that an infringement of the Second Conduct Rule has occurred, impose penal-ties on the undertaking concerned. Private follow-on actions for aggrieved persons suffering loss or damage due to a contravention of the CO, includ-ing the Second Conduct Rule, may also be brought before the Competition Tribunal (see question 36).

34 Sanctions and remedies

What sanctions and remedies may they impose?

The sanctions under the CO may be imposed on both undertakings and individuals. The Competition Tribunal may impose a range of potentially significant civil sanctions.

The Competition Tribunal can impose fines of up to 10 per cent of the Hong Kong turnover of the undertaking for each year in which the contra-vention occurred, up to a maximum of three years (if the contravention occurred in more than three years, the fine will be a maximum of 10 per cent of the Hong Kong turnover for the three years that saw the highest, second highest and third highest turnover).

Moreover, a wide range of orders is at the Competition Tribunal’s dis-posal, including, for example: • a declaratory order that a person or an undertaking has contravened

the Second Conduct Rule;• a ‘cease and desist’ order to prohibit further contravening conduct;• an order that a contravening agreement be modified, terminated, void

or voidable; • an order to pay damages to another person who has suffered loss or

damages as a result of the contravention;• an order requiring a person who has contravened the Second Conduct

Rule to do ‘any act or thing’; • an order for the Competition Commission’s costs;• disgorgement of illegal gains (or avoided losses) as a result of the anti-

competitive conduct, payable to the government of Hong Kong or any other specified person; and

• director disqualification orders, disqualifying the individual for a period of up to five years for being directly or indirectly involved in the anti-competitive conduct.

The Court of First Instance in Hong Kong (but not the Competition Tribunal) may impose criminal sanctions for failure to cooperate with a Competition Commission investigation.

For failure to comply with instructions received from the Competition Commission during an investigation, the Court of First Instance may impose a fine of HK$200,000 and imprisonment of one year for an indict-able offence, or a level five fine (HK$50,000) and six months’ imprison-ment if convicted on a summary basis.

In relation to more serious non-cooperation, including where an undertaking or a person actively obstructs a Competition Commission investigation (such as the obstruction of a dawn raid) or tampers with evi-dence (such as destruction or falsification of evidence or providing mis-leading evidence), the Court of First Instance may impose a fine of HK$1 million and imprisonment of two years for an indictable offence, or a level six fine (HK$100,000) and six months’ imprisonment if convicted on a summary basis.




35 Impact on contracts

What are the consequences of an infringement for the validity of contracts entered into by dominant companies?

The Competition Tribunal may make an order declaring any agreement (the making or giving effect to which constitutes the contravention of the Second Conduct Rule) to be void or voidable to the extent specified in the order. Moreover, the Competition Tribunal may require a person who has contravened the Second Conduct Rule to do ‘any act or thing’, includ-ing prohibiting the person from making or giving effect to an agreement and requiring the parties to an agreement to take steps for the purpose of restoring the parties to any transaction to the position in which they were before the transaction was entered into. This could also involve modifying or terminating an agreement.

36 Private enforcement

To what extent is private enforcement possible? Does the legislation provide a basis for a court or authority to order a dominant firm to grant access (to infrastructure or technology), supply goods or services or conclude a contract?

The CO allows aggrieved persons suffering loss or damage due to a contravention of the CO to bring follow-on private actions before the Competition Tribunal, which is the primary forum for private competition claims. Such a follow-on action may only be brought after a contravention has been established by the Competition Tribunal.

If an action is a composite claim, containing competition and non-competition claims, the competition claim will be heard separately by the Competition Tribunal and the non-competition claims will be heard by the Court of First Instance, unless the Competition Tribunal considers, in the interests of justice, that the competition claim should be heard before the Court of First Instance as well.

At present, private stand-alone actions and class actions are not per-mitted, although there is currently a class action law reform that envisages an ‘opt-out’ regime, which means that once the court certifies that a case is suitable for a class action, any member of the class will be automatically bound by the subsequent litigation unless the member opts out of the class action within the prescribed time limit.

Under section 39A of the TO, a person sustaining loss or damage from an infringement of article 7Q may bring an action for damages, an injunc-tion or other appropriate remedy, order or relief against the person who is in breach. On the face of it, section 39A would appear to allow plaintiffs to seek an order requiring access to facilities, the supply of goods or services, or the conclusion of a contract, although there is no indication that these would be the primary remedies.

Additionally, the Communications Authority has powers under sec-tion 36B of the TO to issue directions in writing to a licensee to comply with, among other things, any provisions of the TO. The TO also contains an access regime that applies to certain telecommunications services and this access regime operates independently of the competition rules.

37 Availability of damages

Do companies harmed by abusive practices have a claim for damages?

Yes. The CO allows aggrieved persons suffering loss or damage due to a contravention of the Second Conduct Rule to bring follow-on private actions before the Competition Tribunal, which is the primary forum for private competition claims (see question 36)

Under section 39A of the TO, a person sustaining loss or damage from either a breach of section 7Q of the TO, or a breach of a licence condition, determination or direction relating to that section, has a claim for dam-ages, an injunction or other appropriate remedy, order or relief against the person who is in breach as long as the claim is brought within three years of the commission of the breach or the imposition of a penalty by the Communications Authority or Court of First Instance (as the case may be), whichever is the later.

38 Recent enforcement action

What is the most recent high-profile dominance case?

No enforcement action has taken place given that the enforcement provi-sions of the CO only entered into effect on 14 December 2015.

There have not been many infringement findings on abuse of domi-nance since the competition provisions in the TO and the BO came into effect in 2000. The most recent completed case under the TO is the FMIC Tariff case referred to in questions 18 and 20. The most recent completed case under the BO is the TVB case.

In the FMIC Tariff case, the former Telecommunications Authority opened an investigation of the alleged anti-competitive conduct of PCCW-HKT after a mobile network operator lodged a complaint that the price increase implemented was anti-competitive. Following a review of submissions from interested parties and the supporting expert economic evidence, the Telecommunications Authority determined that while the fixed network services operation controlled by PCCW (and as the context requires, the licensed fixed network operator of that operation) (PCCW Fixed) was ‘dominant’ in the relevant telecommunications market during the period from 1 June 2008 to 28 April 2009, the increase of the fixed-mobile interconnection charge tariff from 4.36 cents per minute to 5.45 cents per minute by PCCW did not constitute an abuse of dominance in

Update and trends

The first economy-wide competition legislation, the Competition Ordinance, entered into force on 14 December.

With the entry into force of the Competition Ordinance, sections 7K, 7L and 7N of the Telecommunications Ordinance and sections 13 and 14 of the Broadcasting Ordinance have been repealed. Therefore, abusive conduct in relation to the telecommunications and to television programme service licensees is now caught by the Competition Ordinance, with the exception of the newly introduced section 7Q of the TO, which prohibits exploitative conduct of a licensee in a dominant position in a telecommunications market.

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contravention of section 7L(1), 7L(4) or 7K(3)(c) of the TO. SmarTone Mobile Communications Limited (SmarTone) appealed against the Telecommunications Authority’s decision and it subsequently withdrew the appeal in April 2012. More interestingly, PCCW also appealed against the Telecommunications Authority’s decision and its appeal was dismissed on jurisdictional grounds as PCCW was not a ‘person aggrieved’ within section 32N(1).

In the TVB case, the Broadcasting Authority opened an investigation into the alleged anti-competitive conduct of TVB after Asia Television Limited (ATV) lodged a formal complaint in December 2009. Following a review of submissions from TVB and interested parties, and support-ing expert economic evidence, the Communications Authority deter-mined that TVB abused its dominant position in the television viewing market and television advertising market in that certain of TVB’s con-tractual clauses and policies had the purpose and effect of prevent-ing, distorting or substantially restricting competition. They were:

• exclusive occasional-use artist and singer contracts with harsh and unreasonable terms;

• prohibition on artists not fully engaged by TVB from using their origi-nal voices when performing in other television stations’ programmes;

• prohibition on artists not fully engaged by TVB from attending promo-tional activities of the productions of other television stations that also featured the artist; and

• prevention of artists on contracts with TVB from speaking Cantonese (the main language used in Hong Kong) in programmes of other televi-sion stations in Hong Kong.

TVB has appealed against the Communications Authority’s decision (and the decision is pending).


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