On 27 March 2020, the Hong Kong Competition Commission (“Commission”) issued a statement regarding the application of the Competition Ordinance (Cap. 619) (“Ordinance”) during the COVID-19 outbreak (“Statement”). Given the unprecedented nature of the COVID-19 outbreak across the globe, the Statement provides useful guidelines for businesses to assess the risks of enforcement in respect of different kinds of cooperation between businesses necessitated by the epidemic.

Application of the Ordinance during the COVID-19 outbreak

The Commission emphasizes that the Ordinance remains in effect during the COVID-19 outbreak. Despite this, the Commission acknowledges that, on a temporary basis, there is a need for additional cooperation between businesses in certain industries, particularly to maintain the supply of essential goods and services to consumers.

Under the Ordinance, the First Conduct Rule prohibits arrangements between market participants which prevent, restrict or distort competition in Hong Kong. The Commission intends to adopt a "pragmatic approach" in its enforcement and advisory functions in respect of the temporary collaborative measures which are genuinely necessitated by the COVID-19 outbreak and in the interests of the Hong Kong consumers and society.

Relevant types of cooperation between businesses

The Commission listed out four relevant types of cooperation between businesses during the COVID-19 outbreak, namely (1) joint buying, (2) joint production agreements, (3) sales-related joint ventures, and (4) exchange of information.

Joint buying

Generally speaking, so long as the parties do not have market power in the relevant downstream markets, it is unlikely for joint buying to give rise to non-compliance concerns as there could hardly be any anti-competitive effects.

However, if the parties have sufficient market power, joint buying may result in the parties achieving significant commonality of costs such that they can more easily coordinate on retail prices and/or output, which may be harmful to competition and in contravention of the First Conduct Rule. Businesses are advised to conduct comprehensive assessment on the legal implication of any arrangements of joint buying.

Joint production agreements

Where a joint production agreement allows parties to produce a product that they would not, objectively, be able to produce alone, the agreement will not likely have the object or effect of harming competition and the risk of contravening the First Conduct Rule would be relatively low.

The Commission will consider whether the production joint venture as a whole has the effect of harming competition. Businesses should be mindful of the practical effect of any potential or existing production joint ventures, especially when the arrangements involve price-fixing, output limitation and/or exchange of competitively sensitive information between the parties.

Sales-related joint ventures

Businesses engage in sales-related joint ventures where they agree to jointly sell, distribute or market particular products. Examples of sales-related joint ventures include collaboration in respect of advertising, joint provision of after-sales service, and joint selling which involves the joint determination of price.

In general, where a sales-related joint venture is objectively necessary for a party to enter a market it could not have entered on its own or with a smaller number of parties than those actually involved in the collaboration, such joint venture is unlikely to give rise to enforcement concerns under the Ordinance.

However, businesses must note that the sales-related joint ventures might fall within the scope of the First Conduct Rule where the relevant arrangements result in anti-competitive effects, such as price fixing, output restriction, market sharing or the exchange of competitively sensitive information, even if they do not have the object of harming competition in the first place.

Exchange of information

Businesses may, in the ordinary course of business, share information on matters such as best practices, publicly available information or information which allows them to better predict the market demand.

However, enforcement concerns may arise where competitors in the market exchange competitively sensitive information, which includes information relating to, among the others, price, customers, quantities, sales, market shares, sales to particular customer groups or territories, product quality, and marketing plans.

Whether or not the exchange of information gives rise to concerns under the First Conduct Rule depends on the factual circumstances of the case including, among other things, the characteristics of the market and the type of information exchanged. For the sake of prudence, before entering into any agreements to share information, business should consult with professional legal advisors to look into the terms of the agreements and evaluate the potential risks of non-compliance.

New informal engagement process

The Commission introduces an informal engagement process for businesses that intend to propose “temporary cooperative measures which are genuinely necessitated by the COVID-19 outbreak and in the interests of Hong Kong consumers and society” (“proposed measures”).

The main objective of the informal engagement process is to provide a channel for the businesses to contact and discuss with the Commission in respect of the application of the Ordinance to their proposed measures before actual implementation.

The Commission will aim to handle such engagement on an expedited basis and will endeavour to provide initial views on an informal basis within five working days of receiving all necessary information, subject to the availability of the Commission’s resources.

The Commission further explains in the Statement that the informal engagement process does not negate the ability of businesses to self-assess their own conduct or to seek independent legal advice, which may in most instances be the preferable course of action.

Key takeaways

The Statement serves as a reminder to the general public that the Ordinance continues to apply in full amid the COVID-19 outbreak. Of note is that the Commission intends to take a pragmatic approach in times of COVID-19 with the provision of general guidelines in its Statement and the introduction of the informal engagement process. This is in line with the Competition regulators of other jurisdictions such as UK, Europe, Australia and New Zealand.

In order to minimise potential enforcement risks, businesses which intend to adopt temporary cooperative measures and/or any other commercial arrangements during the COVID-19 outbreak should, before making or giving effect to the relevant arrangements, touch base with the Commission through the new informal engagement process and obtain professional legal advice.

For enquiries, please contact our Litigation & Dispute Resolution Department:

E: competition@onc.hk                                T: (852) 2810 1212

W: www.onc.hk                                             F: (852) 2804 6311

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.