Introduction

Earlier this year, the Competition Commission (“Commission”) for the first time invoked section 67 of the Competition Ordinance (Cap. 619) (“Ordinance”) to issue infringement notices to 6 hotel groups (“Hotel Groups”) and a tour counter operator (collectively, “Recipients”) for facilitating a price fixing cartel between two competing travel service providers, Gray Line Tours of Hong Kong Limited (“Gray Line”) and Tink Labs Limited (“Tink Labs”).

Background

Gray Line operated tourist service counters at different ports of entry to Hong Kong as well as in a number of hotels in Hong Kong. Whereas Tink Labs was a technology company primarily engaged in the licensing, installation and provision of handy devices, on which tickets for tourist attractions and local tours were sold, to hotels in Hong Kong for use by their guest (“Handy Devices”). Through various contractual and licensing arrangements with the Recipients, both Gray Line and Tink Labs had been selling overlapping tourist attractions and transportation tickets (“Relevant Tickets”) at the hotels operated by the Hotel Groups (“Hotels”), either via physical ticketing counters located at the Hotels or through the Handy Devices installed in the rooms of the Hotels.

Gray Line then discovered that Tink Labs was selling its tickets (including the Relevant Tickets) at the Hotels at a cheaper price than Gray Line. This prompted Gray Line to make complaints to the Hotels, requesting the Hotels to instruct Tink Labs to stop selling the Relevant Tickets to hotel guests. Upon a series of communications between Gray Line, Tink Labs and the Recipients, involving the Recipients passing on requests and replies between the said two competing travel service providers, Tink Labs and Gray Line entered into a price-fixing arrangement whereby Tink Labs agreed, among other things, to adjust the selling prices of the Relevant Tickets to match the prices which Gray Line was charging (“Price-Fixing Cartel”). The Recipients also facilitated the Price-Fixing Cartel by passing on pricing information between Gray Line and Tink Labs. Some of the Recipients even engaged in subsequent continuous monitoring of Tink Labs’ pricing of the Relevant Tickets, either at the requests of Gray Line or on their own initiatives.

The Law

Breach of the First Conduct Rule

Section 6(1) of the Ordinance provides that an undertaking must not make or give effect to an agreement or engage in a concerted practice where the object or effect of the agreement or concerted practice is to prevent, restrict, or distort competition in Hong Kong. Such prohibition on an undertaking is commonly referred to as the first conduct rule (“First Conduct Rule”).

“Agreement” is statutorily defined under section 2(1) of the Ordinance as “any agreement, arrangement, understanding, promise or undertaking, whether express or implied, written or oral, and whether or not enforceable or intended to be enforceable by legal proceedings.”  In this regard, an agreement that contravenes the First Conduct Rule may come about as a result of indirect communications between two undertakings through a third party.

A price fixing arrangement is generally deemed as bearing the object of harming competition.  In addition to being regarded as being anti-competitive by object, price-fixing also forms part of “serious anti-competitive conduct” as defined in section 2 of the Ordinance.

Issuance of infringement notice

Under section 67(1) of the Ordinance, the Commission may issue an infringement notice to a person where: (a) it has reasonable cause to believe that a contravention of the First Conduct Rule has occurred that involves serious anti-competitive conduct; and (b) it has not yet brought proceedings in the Competition Tribunal (“Tribunal”) in respect of the contravention.

In other words, the Commission may issue an infringement notice in lieu of bringing proceedings in the Tribunal to an infringing party on the condition such party shall commit to comply with the requirements as stated in the infringement notice. The requirements of an infringement notice may include, inter alia, the following requirements:

1. to refrain from any specified conduct, or to take any specified action, that the Commission considers appropriate; and/or
2. to admit to a contravention of the relevant conduct rule; and/or
   
3. to appoint an Independent Compliance Advisor, namely an external competition law compliance advisor to identify the internal inadequacies of the company’s operation and thereby render appropriate advice and rectifying measures to minimize future risks of contravention of the Ordinance.
   

Where a party makes a commitment to comply with a requirement in an infringement notice, such commitment is specifically enforceable. In the event where the Commission has reasonable grounds to suspect that any party has failed to comply with the infringement notice, the Commission may apply to the Tribunal for an order for specific performance of the same.

As specified in section 68 of the Ordinance, a party is not obliged to make a commitment to comply with the requirements of an infringement notice. Where a party does not do so, the Commission is entitled to institute proceedings against that party.

The Commission’s decision

Upon investigation, the Commission found that Gray Line and Tink Labs, being competitors in the same market, should have independently determined the prices they would charge for the sale of the Relevant Tickets. The arrangement to match prices of the Relevant Tickets effectively constituted a price fixing agreement. Pursuant to the Price-Fixing Cartel, the Recipients acted as facilitators by passing on requests, replies and pricing information between the two competitors and therefore had actively contributed to its implementation. As such, the Recipients had contravened the First Conduct Rule.

In view of the Recipients’ role as mere facilitators of the Price-Fixing Cartel, as well as their active and prompt cooperation throughout the investigation, the Commission considered issuance of infringement notice in lieu of Tribunal proceedings to be appropriate and reasonable. Accordingly, seven respective infringement notices were issued to the Recipients.

Key takeaways

This is the first time that the Commission has taken enforcement action against parties for the facilitation of cartel conduct. This sends a clear message that not only cartelists, but parties facilitating price fixing arrangement and/or other anti-competitive conduct between competing businesses may also attract liability under the Ordinance. Undertakings in all industries should be cautious as to any possible contravention of the Ordinance. It is to be noted that the investigation was ongoing even though the matter happened a few years back. This shows that the Commission will pursue a matter even if it takes a long time if it is a serious anti-competitive conduct matter.