22 April 2020

Update on recent enforcement cases by the Competition Commission

This article was written by Edmund Wan and Stephanie Hung.

The Hong Kong Competition Commission (the “Commission”) has commenced two enforcement proceedings in the first quarter of 2020 – (1) the IT Cartel Case and (2) the Textbook Cartel Case. This article provides an update on these two cases.

1. The IT Cartel Case

The IT Cartel Case is the first case where infringing companies successfully settled with the Commission by way of (i) committing to comply with an Infringement Notice and (ii) a successful leniency application. This case marked an important enforcement milestone for the Commission and shed light on the Commission's enforcement trend in encouraging compliance.

Facts

The Commission commenced enforcement proceedings against Quantr Ltd (“Quantr”), alleging that it exchanged competitively sensitive information with its co-bidder (“Co-bidder”) on their intended quotations in a bidding exercise for the procurement of IT services by Nintex Proprietary Limited (“Nintex”). The Commission also found that Nintex’s former representative has also made an agreement with Quantr and its co-bidder that the two were to collude with each other in the bidding exercise. The Commission alleged that Nintex contravened the first conduct rule of the Competition Ordinance, Cap. 619 (“Ordinance”), and such contravention involved serious anti-competitive conduct.

Issuance of the Infringement Notice - Nintex

Before the commencement of the proceedings, the Commission, pursuant to section 67 of the Ordinance, issued an Infringement Notice against the infringing companies, offering not to bring proceedings against them on condition that they would commit to comply with the requirements set out in the Infringement Notice.

Nintex elected to settle with the Commission and committed to strengthen its Competition Compliance Program as required by the Infringement Notice. The Competition Compliance Program includes:

  1. circulating the published version of Infringement Notice and educational brochures regarding anti-competitive conduct to its employees and authorised resellers;
  2. adopting competition compliance policy which is subject to the Commission’s approval and ensuring all its employees sign and acknowledge their understanding of such policy;
  3. adding a specific requirement in its standard reseller agreement to ensure that all its resellers must comply with the Ordinance; and
  4. ensuring all its employees must attend the Commission’s public seminars or workshops on competition law.

Successful Leniency application – The Co-bidder

Pursuant to its Leniency Policy for Undertakings Engaged in Cartel Conduct (“Leniency Policy”), the Commission may offer not to apply to the Tribunal for a pecuniary penalty to a member of a cartel who reports the cartel conduct to the Commission and meets all other requirements as set out in the Leniency Policy.

Leniency is available only for the first undertaking that reports the cartel conduct to the Commission and meets all requirements for leniency in respect of cartel conduct contravening the first conduct rule. When approving a leniency application, the Commission would consider a range of factors in assessing the extent and value of cooperation provided by an undertaking, including whether the undertaking:-

  1. approached the Commission in a timely manner seeking to cooperate;
  2. provided significant evidence regarding the cartel conduct;
  3. provided full and truthful disclosure, and cooperated fully and expeditiously on a continuing basis throughout the Commission’s investigation and any related court proceedings;
  4. coerced any other person to participate in the cartel; and
  5. acted in good faith in dealing with the Commission.

In the IT Cartel Case, upon the successful leniency application by the Co-bidder, the Commission entered into a leniency agreement with the Co-bidder that it would not bring enforcement proceedings for a pecuniary penalty against it or its employees in exchange for their cooperation. As a result, neither the Co-bidder nor any of its employees are named as respondents in the current proceedings.

Following the settlement of Nintex and the Co-Bidder, the Commission eventually commenced enforcement proceedings only against Quantr which did not elect to commit to comply with the Infringement Notice. The Commission has filed the Originating Notice of Application on 22 January 2020.

2. Textbook Cartel Case

The Commission alleged that three companies and an individual, who is the general manager of one of those companies (the “Undertakings”), have contravened the Ordinance by engaging in price-fixing, market-sharing, and/or bid-rigging in relation to the sale of textbooks to students attending primary and secondary schools in Hong Kong*. Although the Undertakings entered into the cartel agreement prior to the full implementation of the Ordinance, they continued to act upon the agreement after the Ordinance came into full effect. The Commission’s Originating Notice of Application was filed on 20 March 2020.

This case sends a clear message to the public that parties to cartel agreements may still be caught by the Ordinance even though such cartel agreements were entered before the Ordinance which came into effect in 2015.

Key Takeaways

  1. Consistent with the Commission’s initial focus on encouraging compliance, the Commission welcomes companies to remedy their misconduct by complying with the Infringement Notice and cooperating with the Commission under a leniency agreement. Companies which are alleged to have contravened the Ordinance may consider these two alternatives to avoid future litigation.
  1. Companies which are already involved in anti-competitive conducts by reaching agreements or sharing competitively sensitive information must be aware of the potential legal risk. They may consider approaching the Commission for leniency cooperation at an early stage.
  1. Market participants including trade associations in all sectors should thoroughly review their commercial practices and desist from any cartel conduct or arrangements, including those that have been established before the Ordinance came into full effect.
  1. Companies may also consider implementing workplace guidelines with reference to the Competition Compliance Program to remind employees and business counterparts not to engage in cartel conducts.

*Any reference to “Hong Kong” or “Hong Kong SAR” shall be construed as a reference to “Hong Kong Special Administrative Region of the People’s Republic of China”.

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