Competition Bill Briefing to the legal practitioners 14 January 2011

1. Competition BillBriefing to the legal practitioners14 January 2011 Commerce and Economic Development Bureau

2. 宅男副局

3. Background • Existing voluntary compliance approach of discouraging anti-competitive conduct not very effective in addressing public concerns • Recommendations of the Competition Policy Review Committee (CPRC) in June 2006 • A cross-sector competition law • An independent Competition Commission • Wide community support for CPRC’s recommendations

4. Key elements of the Bill

5. Scope • Prohibit and deter ‘undertakings’ from adopting abusive or other anti-competitive conduct • ‘Undertakings’– entities engaged in economic activity (regardless of legal status and sources of finance) • Each conduct of an entity to be considered on its own merits to decide whether it falls within the scope of the Bill

6. General prohibitions • First conduct rule–anti-competitive agreements, decisions and concerted practices • Second conduct rule–abuse of substantial market power • Object or effect of preventing, restricting or distorting competition in Hong Kong (including conduct outside Hong Kong)

7. General prohibitions (Cont’d) • No ‘per se’ infringement • Merger rule–prohibition against mergers or acquisitions that have or are likely to have the effect of substantially lessening competition in Hong Kong • Merger rule applying only to carrier licenses granted by the Telecommunications Authority

8. General prohibitions (Cont’d) • Drive for transparency and legal certainty • Non-exhaustive list of examples • Competition Commission to draw up regulatory guidelines upon consultation • Allow a transitional period • Competition Commission to conduct promotional and educational work • Undertakings can apply to Competition Commission for exclusion

9. Institutional framework • Independent statutory Competition Commission (Commission) – investigation and bringing of enforcement proceedings • Competition Tribunal (Tribunal) – hear and adjudicate competition cases • Broadcasting Authority (BA) and Telecommunications Authority (TA) － concurrent jurisdiction with the Commission in respect of the broadcasting and telecommunications sectors

10. Competition Commission • Led by a Chairperson and consisting of not less than 5 members (including the Chairman) appointed by the CE • Executive arm headed by a Chief Executive Officer appointed by the Commission with CE’s approval • To start investigation either on receipt of complaints, on its own initiative, or on referral from the Government or a court

11. Competition Tribunal • A superior court of record within the Judiciary • Every judge of the Court of First Instance will, by virtue of his or her appointment, be a member of Tribunal • President of the Tribunal (also a Tribunal Member) to be appointed by CE on the recommendation of the Judicial Officers Recommendation Commission

12. Competition Tribunal (Cont’d) • Hear and adjudicate competition cases brought by the Commission and private actions, as well as review Commission determination • Reviewable Commission’s determinations include variation of commitment or release of undertaking from commitment; decisions on exemptions or exclusions and their rescissions; and termination of leniency agreement • Decisions of Tribunal reviewable in appeals to Court of Appeal

13. Enforcement by Commission • “Reasonable cause to suspect” a contravention has taken place, is taking place or is about to take place before commencing investigation • Require production of documents and information and attendance before the Commission to give evidence • Enter and search premises and seize and retain evidence and property under a court warrant

14. Enforcement by Commission (Cont’d) • Non-compliance with Commission’s investigative power subject to criminal sanctions • Two-tier commitment mechanism • Accept commitments from a person to take or refrain from taking certain action • Issue an infringement notice before bringing proceedings • Leniency agreements

15. Remedies • Pecuniary penalties – up to 10% of global turnover of the undertaking for the year in which the contravention occurs • Other remedies • Interim injunction during investigations or proceedings • Award of damages to aggrieved parties • Termination or variation of an agreement • Disqualification orders

16. Allowing rights of private action • To be brought by persons who have suffered loss or damage as a result of a contravention of a conduct rule • Allow both “follow-on” and “stand-alone” private actions • Court of First Instance empowered to handle composite claims

17. Exemptions and exclusions • Not binding the Government • Competition rules and related enforcement not applicable to statutory bodies or their activities (except those specified in regulations to be made by the CE in Council) • Regulations will be made by the CE in Council only after the commencement of the relevant empowering provisions in the Bill

18. Exemptions and exclusions (Cont’d) • Criteria for applying the competition rules and enforcement provisions on a statutory body • the statutory body is engaging in an economic activity in direct competition with another undertaking • the economic activity of the statutory body is affecting the economic efficiency of a specific market • the economic activity of the statutory body is not directly related to the provision of an essential public service or the implementation of public policy; and • there are no other exceptional and compelling reasons of public policy against making such a regulation

19. Exemptions and exclusions (Cont’d) • General exclusions determined by the Commission • Enhancement of overall economic efficiency • Compliance with a legal requirement • Services of general economic interest • Exemptions pursuant to orders made by CE in Council • Exceptional and compelling reasons of public policy • Avoidance of conflict with international obligations

20. Addressing business sector concerns • Allow a transitional period for businesses to make any necessary adjustments • Appoint person with expertise or experience in industry, commerce or SMEs as Commission member • Commission to issue guidelines and conduct promotional and educational work • Guidelines will cover operation of “de minimis” approach • Commission may refuse to investigate a complaint that is trivial, frivolous or vexatious

21. Determination of pecuniary penalty • 10% of global turnover –just a cap without any restrictions on the methodology to be adopted by the future Tribunal • Clause 91(2) sets out a non-exhaustive list of matters to which the Tribunal must have regard - • Nature and extent of the anti-competitive conduct in question • Loss or damage caused by the conduct • Circumstances in which the conduct took place • Whether the undertaking had prior contravention

22. Application to the Telecommunications Sector • Competition rule applicable to all sectors including the telecommunications sector • First Conduct Rule and Second Conduct Rule to replace sections 7K, 7L and 7N of the Telecommunications Ordinance (TO) • Merger Rule to replace section 7P of the TO

23. Enforcement by the TA • Concurrent jurisdiction with the Commission in investigation and bringing of enforcement proceedings before the Tribunal in relation to conduct of telecommunications operators • The TA’s existing adjudicative function in respect of competition cases to cease • The TA and the Commission (together with the BA) to enter into a Memorandum of Understanding to coordinate the performance of their functions

24. Consequential Amendments to the TO • Repeal of sections 7K, 7L, 7N, 7P and related provisions • A new section 7Q • Targeting exploitative conduct by dominant licensee • to preserve the part of section 7L not covered by the Second Conduct Rule • decisions made by the TA under section 7Q subject to appeal to the Telecommunications (Competition Provisions) Appeal Board

25. Transitional Arrangementsfor the Telecommunications Sector • Conduct that takes place before the Competition Rule becomes effective will continue to be dealt with under sections 7K, 7L, 7N or 7P of the TO • Consequently, decisions made by the TA under sections 7K, 7L, 7N or 7P of the TO will continue to be subject to the appeal mechanism provided for under the TO.

26. Thank You