Introduction

The Competition Commission (the “Commission”) has recently published a decision (the “Decision”) under section 11 of the Competition Ordinance (Cap. 619) (the “Ordinance”), holding that a proposed pharmaceutical sales survey is not excluded from the first conduct rule by the economic efficiency exclusion.

The Application

On 31 January 2019, the Commission received an application for a decision (the “Application”) under section 9 of the Ordinance from the Hong Kong Association of the Pharmaceutical Industry (the “Applicant”), an industry association of companies engaged in the research or development of pharmaceutical products. According to section 9 of the Ordinance, undertakings may apply for a decision from the Commission as to whether a particular agreement is exempt or excluded from the application of the first conduct rule which prohibits agreements the object or effect of which is to prevent, restrict or distort competition in Hong Kong (the “First Conduct Rule”).

The conduct in question involves the collection of sales data by a survey from pharmaceutical companies on their prescription and over-the-counter pharmaceutical products in Hong Kong and Macau (the “Proposed Survey”). After such collection, the data would then be compiled into a sales survey report (the “Sales Survey Report”) which will be published quarterly and made available for purchase.

The Applicant sought a decision from the Commission confirming that the operation of the Proposed Survey is excluded from the First Conduct Rule by reason of the economic efficiency exclusion contained in section 1 of Schedule 1 to the Ordinance which provides an exclusion for agreements enhancing overall economic efficiency (the “Efficiency Exclusion”). In particular, the claimed benefits of the Proposed Survey are as follows:

• better, more efficient allocation of stock for existing products by pharmaceutical companies;
• easier introduction of new products into the market by pharmaceutical companies;
• enhanced marketing and distribution efforts of pharmaceutical companies;
• greater investments in other patient welfare enhancing activities; and
• development of public policy, academia and research and development generally.

Representations and Submissions

On 1 February 2019, the Commission published notice of the Application on its website and invited interested parties to make representations about the Application in accordance with section 10 of the Ordinance. Broadly speaking, representations were invited as to the following:

• intention to subscribe to the Sales Survey Report;
• potential alternative sources of market data;
• level of details provided in the Sales Survey Report; and
• competitive sensitivity or concerns arising from the Sales Survey Report.

A total of eight representations, including one confidential representation, were received by the Commission. The Commission also requested information from the Applicant and made enquiries of third party organisations. The Applicant subsequently provided a written supplementary submission on the views expressed.

The Decision

The Decision was that the Proposed Survey is not excluded from the application of the First Conduct Rule by the Efficiency Exclusion.

Possible Competition Concerns

The Commission considered that some aspects of the Proposed Survey would be likely to give rise to competition concerns under the First Conduct Rule while some would not. For instance, the Commission considered that the sharing of company total sales data through the Proposed Survey would be unlikely to give rise to concerns under the First Conduct Rule as it would be too general (being unlikely to relate to or permit identification of sales of any particular product) to be capable of decreasing incentives to compete or facilitate coordination, provided that the value of sales figure for a participant company comprises four or more products. On the other hand, the sharing of product level sales data is the most likely to give rise to competition concerns under the First Conduct Rule, as it would allow direct monitoring by undertakings of the sales of competing products. Competing pharmaceutical product manufacturers would thus be able to directly or indirectly discern or robustly estimate product-specific sales data, decreasing competing undertakings’ incentives to compete or facilitating coordination among them.

However, it should be noted that the Commission did not rule on whether the Proposed Survey would contravene the First Conduct Rule as it was beyond the scope of the Decision.

Application of the Efficiency Exclusion

The Efficiency Exclusion applies where the following four conditions are met:

• the relevant agreement contributes to improving production or distribution, or promoting technical or economic progress;
• the relevant agreement allows consumers a fair share of the resulting benefit;
• the relevant agreement does not impose on the undertakings concerned restrictions that are not indispensable to the attainment of the benefits; and
• the relevant agreement does not afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the goods or services in ques

An applicant bears the burden of proving that each of these cumulative conditions is satisfied. Upon perusing the submissions and evidence, the Commission found that they did not amount to “convincing” or “cogent and compelling” evidence to substantiate the claimed efficiencies so as to satisfy the first condition of the Efficiency Exclusion. Further, the Commission found it unlikely that the inclusion of product level sales data in the Proposed Survey would be indispensable to achieve the claimed efficiencies.

General principles on the exchange of information

In its Statement of Reasons, the Commission usefully cited some general principles on the exchange of information contained in its Guideline on the First Conduct Rule. While undertakings may exchange information on a variety of matters with no risk to the competitive process (or even enhancing competition), competition concerns may however arise where competitors exchange competitively sensitive information, such as information relating to price and quantities concerning sales, market shares, sales to particular customer groups or territories. On the other hand, the exchange of historical, aggregated and anonymised or publicly available data is less likely to harm competition as the independent decision-making by undertakings is less likely to be impaired.

Conclusion

The Decision provides useful guidance for market participants and practitioners in relation to the application of the First Conduct Rule and the Efficiency Exclusion. The key takeaways are that: (1) the sharing of product-specific or less aggregated data may give rise to competition concerns under the First Conduct Rule; and (2) an applicant for the Efficiency Exclusion must demonstrate sufficiently cogent evidence to the satisfaction of the Commission. To minimise the risk of contravening the competition law, market participants are encouraged to make an application under section 9 of the Ordinance prior to engaging in the relevant conduct. It is important to remember that the mere exchange of information in some circumstances may be considered as anti-competitive.

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.