Hong Kong Competition Commission Issues Statement on the Application of the Competition Rules to Cooperation Agreements Between Companies Responding to the COVID-19 Pandemic
March 30, 2020
Although its offices are temporarily closed until further notice in view of the COVID-19 pandemic,1 the Hong Kong Competition Commission (HKCC) issued a statement on 27 March 2020 (Statement) noting that it continues its operations and that the Hong Kong Competition Ordinance (CO) continues to apply in full.2 The Statement also acknowledged, however, that “there could be a need for additional cooperation between businesses in certain industries on a temporary basis, particularly to maintain the supply of essential goods and services to consumers” in view of the COVID-19 outbreak. The HKCC explains it will take a pragmatic approach in its enforcement and advisory functions in that respect and invites businesses to consult with the HKCC on the application of the CO to any proposed “temporary cooperative measures which are genuinely necessitated by the COVID-19 outbreak and in the interests of Hong Kong consumers and society.”
Application of the CO to cooperative arrangements necessitated by the COVID-19 outbreak
Under the CO, the first conduct rule (FCR) prohibits agreements and concerted practices if their object or effect is to prevent, restrict, or distort competition in Hong Kong. The Statement references the HKCC’s FCR Guideline,3 which offers guidance on how certain forms of cooperation between businesses may be undertaken in compliance with the CO. The forms of cooperation that may be particularly relevant at the present time include joint buying,4 joint production agreements,5 sales-related joint ventures,6 and the exchange of information.7 The HKCC explains that—subject to certain conditions summarily mentioned in the Statement—these forms of cooperation are unlikely to give rise to competition concerns.
The HKCC also recognizes in the Statement that there may be a need for additional cooperation due to the COVID-19 outbreak. The HKCC explains it is prepared to “take a pragmatic approach” in its enforcement and advisory functions (this “pragmatic approach” appears based on the HKCC’s enforcement discretion rather than any provision of the CO) in respect of measures which are “genuinely necessitated by the COVID-19 outbreak and in the interests of Hong Kong consumers and society.” However, the HKCC emphasizes that it will continue to enforce the CO to the fullest extent against businesses that may seek to use the emergency as a pretext to collude or enter into other anti-competitive conduct—there are no explicit references to “price gouging” so it remains open whether HKCC considers it has power under the CO to pursue such conduct.
To provide a level of legal certainty to businesses, the HKCC encourages an informal engagement with its officials before making or giving effect to “temporary cooperative measures which are genuinely necessitated by the COVID-19 outbreak.” In this regard, businesses can contact the HKCC to discuss how the CO would apply to the proposed temporary measures.8 The HKCC further commits to review all information related to the proposed cooperation on an “expedited” basis (with initial views provided within five working days). Comparatively in the US, the FTC and the DOJ “will aim to respond expeditiously to all COVID-19-related requests, and to resolve those addressing public health and safety within seven calendar days of receiving all necessary information.”9
The Statement also recalls HKCC’s existing framework for general enquiries or for more formal applications for a decision as to whether or not an agreement or conduct is excluded or exempt from the conduct rules in the CO.10 Under this existing framework, there is no legal requirement to approach the HKCC for comfort that planned cooperative measures (whether or not implemented in response to the COVID-19 pandemic) are lawful. In its Guideline on Applications for a Decision under Sections 9 and 24 (Exclusions and Exemptions) and Section 15 Block Exemption Orders, the HKCC notes that businesses may “self-assess the legality of their conduct having regard to the [competition rules in the CO] and the exclusions and exemptions from those rules.”11 The HKCC reiterates these points in the Statement when it says self-assessment by corporations or seeking independent legal advice may be in most instances “the preferable course of action” rather than contacting the HKCC. And generally businesses considering a collaboration would be well advised to consider the competition law implications for themselves before approaching the HKCC and to weigh any risks that might be associated with engaging with the authority in a given context.
HKCC Statement follows several other competition authorities
Many regulators or competition authorities around the world have announced specific measures to deal with or cater to the COVID-19 pandemic, including by regulators agreeing not to enforce the competition rules against agreements similar to the cooperative measures discussed above. O’Melveny has reported on the position in the European Union as well as in the US in a series of client alerts available on the O’Melveny Coronavirus Resource Center.12
Competition authorities in APAC have also implemented their own measures to allow businesses to cooperate in certain circumstances in the wake of the COVID-19 outbreak. For example, the Australian Competition & Consumer Commission (ACCC) announced that it had granted interim authorizations to certain medical technology companies13 and supermarkets14 to coordinate between themselves. Other sectors where the ACCC appears to tolerate cooperation include banking and regional airlines. In New Zealand, the Commerce Commission stated that it did not intend to take enforcement action against businesses cooperating to ensure New Zealanders continue to be supplied with essential goods and services.15 Other regional regulators—including those in China—have been relatively silent to date in their official statements on the matter of cooperation. It remains to be seen whether they too ultimately decide to follow what is clearly emerging as a global trend.
4 FCR Guideline, paragraphs 6.31-6.37.
5 FCR Guideline, paragraphs 6.95-6.100.
6 FCR Guideline, paragraphs 6.107-6.114.
7 FCR Guideline, paragraphs 6.38-6.49.
9 US Dep’t of Justice & Fed. Trade Com’n, Joint Antitrust Statement Regarding COVID-19 (Mar. 24, 2020).
10 See the HKCC’s Guideline on Applications for a Decision under Sections 9 and 24 (Exclusions and Exemptions) and Section 15 Block Exemption Orders available here.
11 Guideline on Applications for a Decision under Sections 9 and 24 (Exclusions and Exemptions) and Section 15 Block Exemption Orders available here.
12 Available here.
13 Press release available here.
14 Press release available here.
15 Press release available here.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Ben Bradshaw, an O'Melveny partner licensed to practice law in California and the District of Columbia, Riccardo Celli, an O'Melveny partner licensed to practice law in the Capital Region of Brussels, the Law Society England & Wales, and Roma, Courtney Dyer, an O'Melveny partner licensed to practice law in the District of Columbia and New York, Andrew Frackman, an O'Melveny partner licensed to practice law in New Jersey and New York, Philip Monaghan, an O'Melveny partner licensed to practice law in the Capital Region of Brussels, Hong Kong, the Law Society England & Wales, and the Law Society Ireland, Bo Pearl, an O'Melveny partner licensed to practice law in California, Anna Pletcher, an O'Melveny partner licensed to practice law in California, Katrina Robson, an O'Melveny partner licensed to practice law in California and the District of Columbia, Youngwook Shin, an O'Melveny partner licensed to practice law in California, the Republic of Korea, and New York, Ian Simmons, an O'Melveny partner licensed to practice law in the District of Columbia and Pennsylvania, Michael Tubach, an O'Melveny partner licensed to practice law in California and the District of Columbia, Courtney C. Byrd, an O'Melveny counsel licensed to practice law in the District of Columbia and Maryland, Stephen McIntyre, an O'Melveny counsel licensed to practice law in California, Philippe Nogues, an O'Melveny counsel licensed to practice law in the Capital Region of Brussels and Paris, Christian Peeters, an O'Melveny of counsel licensed to practice law in the Capital Region of Brussels and Germany, Rechtsanwalt, Scott Schaeffer, an O'Melveny counsel licensed to practice law in California and the District of Columbia, and Sergei Zaslavsky, an O'Melveny counsel licensed to practice law in the District of Columbia and Maryland, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.© 2020 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, T: +1 212 326 2000.