Introduction

The Competition Tribunal (High Court) hears the first ever case on market power abuse in Hong Kong history on 16 August 2024. The case is Competition Commission v Linde HKO Limited, Tse Chun Wah, Linde GmbH, CTEA 3 / 2020 (the “Case”). The trial has been set down for 21 days and is currently ongoing as of the day of this newsletter. Pending the outcome of the trial, which may still take a while until the same is available, this newsletter reviews the alleged facts of the Case and recaps the basic principles on abuse of market power.

Brief facts

Riding on an anonymous complaint from a member of the public received in 2017, the Competition Commission (the “Commission”) filed the city’s first case on abuse of substantial market power back in December 2020 against Linde HKO Limited (“Linde”), a medical gas supplier, accusing it of abusing Linde’s “substantial degree of market power” in Hong Kong’s medical gas supply market for the period between October 2015 and January 2018 by ceasing or limiting the supply of medical gases to MGI (Far East) Limited (“MGI”), the only other potential medical gas pipeline system maintenance service (“MGPS”) provider for public hospitals. It is the Commission’s allegation that the exclusionary acts of Linde hindered competition in the downstream medical gas pipeline system maintenance market affecting public hospitals’ consumer interests. Not only did the Commission pursue claim(s) against Linde, it also went after the general manager of Linde (the “GM”) for contravention of the Second Conduct Rule of Competition Ordinance (Cap. 619) (the “Ordinance”) for formulating and executing the various exclusionary acts of Linde, such as unjustifiably denying supply of medical gases necessary for carrying out the MGPS maintenance services and imposing various arbitrary and/or unreasonable trading terms so that MGI could not compete and/or perform for MGPS contracts.

The Commission is seeking orders including:

1.       a declaration that Linde and Linde GmbH, as parts of a single undertaking, have contravened the Second Conduct Rule of the Ordinance and that the GM is a person involved in the contravention;

2.       an order for pecuniary penalties to be imposed on Linde, Linde GmbH, and the GM; and

3.       a disqualification order against the GM for up to 5 years.

Legal principles

Section 21(1) of the Ordinance sets out the Second Conduct Rule:

“An undertaking that has a substantial degree of market power in a market must not abuse that power by engaging in conduct that has as its object or effect the prevention, restriction or distortion of competition in Hong Kong.”

There are hence a few elements that the Commission is required to prove before establishing a breach of the Second Conduct Rule: (1) the entity engaged in the relevant conduct is an undertaking, i.e. any entity engaged in economic activity regardless of its legal status, that is, not restricted to a company; (2) this undertaking has a substantial degree of market power in a market; and (3) the undertaking abuses its substantial degree of market power by engaging in conduct that has as its object or effect the prevention, restriction or distortion of competition in Hong Kong.

The issue of whether there is contravention ultimately is a test of proportionality. When investigating cases of alleged abuse of a substantial degree of market power, one factor that the Commission may take into account is whether the undertaking is able to demonstrate that the conduct concerned is indispensable and proportionate to the pursuit of certain legitimate and good faith objective(s) unconnected with the tendency of the conduct to harm competition. However, there are indeed certain types of conduct by undertakings with a substantial degree of market power that can be regarded as harmful to competition by their own very nature such that there is no need to examine their effects. Common abusive conducts include predatory pricing, tying and bundling, margin squeezing, refusals to deal and exclusive dealing etc. While determining the object of particular conduct requires an objective assessment of its aims, evidence of subject intent may be taken into account when determining whether or not particular conduct has the object of harming competition.

Takeaway

Whether there is abuse of market power is often a tricky question to decide as even good competition may often be brutal in the harsh economic reality of Hong Kong. One particular sensitive aspect of the Case is that the public hospitals held an important role here, which serve a vast majority of the population in Hong Kong. While we will all stay tuned for the Court’s ruling in this case, entities are advised to seek independent advice to avoid unintended contravention of the Second Conduct Rule or other provisions of the Competition Ordinance.