Introduction

The Competition Commission has recently reached a settlement with three undertakings involved in a cartel case, which marks the city’s first-ever full settlement under the Cooperation and Settlement Policy for Undertakings Engaged in Cartel Conduct (the “Cooperation Policy”).

Background

Quadient Technologies Hong Kong Limited (formerly Neopost Hong Kong Limited) and Quadient International Supply Limited (formerly Neopost International Supply Limited) (collectively, “Neopost”), Toppan Forms (Hong Kong) Limited (“Toppan HK”), and Smartech Business Systems (Hong Kong) Limited (“Smartech”) (collectively, the “Subject Undertakings”) are companies engaging in the sale and rental of machines that automate the insertion of mail into envelopes.

The Competition Commission commenced investigations against the Subject Undertakings upon receiving a complaint in 2018. It discovered that in or around April and May 2018, Neopost had meetings with Toppan HK and Smartech, both resellers of Neopost’s mail inserters in Hong Kong, during which they entered into an agreement not to compete in the sale of Neopost’s products in Hong Kong. In addition, Toppan HK agreed to allow Smartech to win a request for quotation by quoting a higher price where the requesting party was a customer of Smartech, and vice versa. In furtherance of the above, Toppan HK and Smartech also exchanged competitively sensitive information with each other, such as the intended prices and models of the mail inserters, before the submission of quotations to customers.

Breach of the First Conduct Rule

Section 6(1) of the Competition Ordinance (Cap. 619), commonly referred to as the First Conduct Rule, prohibits market participants from entering into arrangements that prevent, restrict or distort competition in Hong Kong. Relevant examples of the prohibited activities include the following:

1. Cartels, whereby competitors agree to fix price, share markets, rig bids or restrict output; and
2. Exchange of competitively sensitive information, including information relating to the price, elements of price or price strategies, customers, costs of production, investments and technologies.

The Competition Commission’s case is that the aforementioned activities by the Subject Undertakings constitute anti-competitive conduct in the form of price-fixing, market-sharing, and bid-rigging, such that they had breached the First Conduct Rule.

The Cooperation Policy

With a view to incentivize cooperation and enhancing efficiency of investigations, the Competition Commission published the Cooperation Policy in April 2019, the details of which were covered in our August 2019 issue: What are the benefits of cooperating and settling with the Competition Commission on cartel conduct? – A further step towards “leniency” approach to cartel conduct.

Pursuant to the Cooperation Policy, the Competition Commission may offer a maximum 50% discount off the pecuniary penalty the Competition Commission would otherwise recommend to the Competition Tribunal, or agree not to commence proceedings against individuals involved in a cartel, including the employees or directors of the undertakings, provided that the undertaking:

1. admits its wrongdoings and cease the anti-competitive conduct promptly;
2. fully cooperate with and facilitate the Competition Commission’s investigation; and
   
3. enhance its corporate competition compliance programmes. 

The factors that the Competition Commission takes into account in determining the discount rate include the order in which the undertakings come forward, the timing, nature, value and extent of the cooperation provided.

The Cooperation Agreements

Since the commencement of the investigation, the Subject Undertakings had fulfilled the aforementioned requirements under the Cooperation Policy. The Competition Commission thus considered it appropriate to enter into cooperation agreements with the Subject Undertakings.

On 25 November 2021, the Competition Commission commenced proceedings in the Competition Tribunal against the Subject Undertakings, with the case number CTEA1/2021. Pursuant to their cooperation agreements, the Competition Commission and the Subject Undertakings will submit joint applications seeking the disposal of the proceedings by consent with the following remedies:

1.       a declaration be made that the Subject Undertakings contravened the First Conduct Rule;

2.       orders for the following pecuniary penalties be imposed after applying the discount recommended by the Competition Commission:

a.       Neopost: HK$1,399,000;

b.       Smartech: HK$808,000; and

c.       Toppan HK: HK$3,372,000

3.       orders be made for the recovery of the costs of investigation and proceedings incurred by the Competition Commission.

Takeaway

This case illustrates the willingness of the Competition Commission to settle with its investigation subjects who provided the required cooperation. It also demonstrates the benefits for the investigation subjects to cooperate, as no proceedings have been brought against the individuals involved in this case and the pecuniary penalties recommended by the Competition Commission are relatively lenient especially in light of the costs of litigation to be incurred if a full blown trial were to take place.