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Trade Association Survey Subject to Hong Kong Competition Ordinance

November 28, 2019


In January 2019, the Hong Kong Association of the Pharmaceutical Industry, a trade group made up of the world’s largest pharmaceutical companies, asked the Hong Kong Competition Commission to exempt its quarterly sales survey from the territory’s Competition Ordinance.[1]  On September 26, 2019, the Commission rejected the application.[2]  It explained that the trade group failed to provide convincing evidence that the survey would achieve greater efficiencies, be they better products, marketing, or distribution.  The Commission specifically noted that the contemplated exchange of product-level sales data could independently constitute a restraint on competition, allowing the companies to remove inherent uncertainty about how their competitors behave.

1. Background

The trade group suspended its long-running survey—which aimed to collect and distribute product-level data regarding prescription and over-the-counter (OTC) drug sales in Hong Kong and Macau—when the Competition Ordinance took effect in December 2015. In seeking an exemption, the group argued that reinstating the survey would enhance economic efficiency, making it easier to allocate stock and introduce new products, among other benefits.

Specifically, the trade association argued that its survey was as an “agreement enhancing overall efficiencies,” contributing to (1) improved production, distribution, and marketing, as well as (2) greater technical and economic progress.  The association further argued that the survey would not eliminate competition related to the relevant products. 

The Consumer Council, Hong Kong’s consumer watchdog, raised concerns about the request, suggesting that the survey would result in the exchange of competitively sensitive information.  It argued that data regarding sales value should be treated as competitively sensitive information unless the trade group can show concrete and quantifiable consumer benefits arising from the survey. 

2. The Decision

The Competition Commission denied the trade association’s request, making clear that the proposed survey would be subject to scrutiny under the Competition Ordinance.  The Commission’s principal concern was that the survey “could permit the exchange of potentially competitively sensitive information between competing manufacturers of pharmaceutical products,” (Decision ¶ 3.30) thereby removing the ordinary uncertainty between competitors.  Indeed, the survey would have permitted “product-specific data to be directly or indirectly discerned or robustly estimated” (Decision ¶ 3.32), which would soften competition in the market and facilitate explicit or tacit coordination. 

In the Statement of Reasons accompanying its decision, the Competition Commission offered guidance on exemption requests more generally.  Key points include:[3]

  • Any assessment of information exchanges will depend on the context, including the products concerned, the market structure, and the specific characteristics of the information exchanged.
  • Only the sharing of competitively sensitive information—which can include prices, costs, output, sales data, customer information, and strategic plans, among other things—raises competition concerns.
  • In general, the more granular the information, the more problematic its distribution.  Sharing product-level sales data is likely to lead to competition concerns.  Aggregated information—like total company sales for all products or sales across an entire class of products—can be less problematic, although the specific circumstances will be important.
  • The exchange of historical, aggregated, and anonymized data is “less likely to harm competition” (FCR Guideline ¶ 6.47) or reduce independent decision-making.  The same reasoning applies to the exchange of publicly available information.  That said, the Commission noted that (1) quarterly sales data is not historical and its exchange would be too frequent; (2) an exchange that covers a large portion of the products or participants in a given market raises greater competition concerns; and (3) aggregation does not always eliminate competition concerns.
  • Companies seeking an efficiencies exemption from the Competition Ordinance—for a market survey or anything else—should strictly adhere to the First Conduct Rule Guideline and provide “convincing evidence of each of the following: (a) the efficiencies, which must be objective in nature; (b) a direct causal link between the efficiencies and the agreement; (c) the likelihood and magnitude of each efficiency; (d) how each efficiency will be achieved; and (e) when the efficiencies will be achieved.[4]
  • In all events, the Competition Commission will closely scrutinize claimed efficiencies.

It bears emphasis that although the Competition Commission rejected the trade association’s application for an exception, strictly speaking the Commission did not find that the association or any of its actions violated the Competition Ordinance, even if the decision implies that the desired survey would contravene the law.  The Commission’s decision was limited to the question whether the proposed survey could be excluded from the First Conduct Rule under the efficiencies exemption.

[1] See our prior alert here.

[2] All relevant documents are available here.

[3] The Competition Commission refers throughout the Statement of Reasons to Guidelines regarding the Competition Ordinance’s First Conduct Rule, available here.

[4] FCR Guideline, ¶ 2.7. The Competition Commission also cited the Competition Tribunal’s ruling that applicants must provide “cogent and compelling evidence and arguments in support of its application.”  Competition Commission v W. Hing Construction Company Limited [2019] HKCT 3, ¶ 86.

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. Philip Monaghan, an O'Melveny partner licensed to practice law in England & Wales, Ireland, and Hong Kong, Scott Schaeffer, an O'Melveny counsel licensed to practice law in California and the District of Columbia, and Charles Paillard, an O'Melveny associate licensed to practice law in France and a registered foreign lawyer in Hong Kong, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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