What You Need To Know About Hong Kong Competition Law (Part 3) - The Second Conduct Rule

Author:Mr Simon Berry, Alec J. Burnside, Viola Jing, Michael Liu, Jane Ng and Charles F. (Rick) Rule
Profession:Cadwalader, Wickersham & Taft LLP
 
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The implementation of the new Competition Ordinance (Chapter 619 of the Laws of Hong Kong) (the Competition Ordinance) on 14 December 2015 will mark the first time that Hong Kong has a general and cross-sector competition law.

Background

The Competition Ordinance was enacted on 14 June 2012 as a general and cross-sector competition law to curb anti-competitive conduct, and will come into full effect on 14 December 2015.

Three major forms of anti-competitive conduct are prohibited under the First Conduct Rule, the Second Conduct Rule (collectively referred to as the Conduct Rules) and the Merger Rule. In this issue, we will discuss the Second Conduct Rule.

What is the Second Conduct Rule?

The Second Conduct Rule1 prohibits an undertaking that has a substantial degree of market power from abusing that power by engaging in conduct that has as its object or effect the prevention, restriction or distortion of competition in Hong Kong. This rule applies to unilateral conduct by an undertaking, regardless of whether the undertaking itself is, or the abusive conduct takes place, inside or outside of Hong Kong. Abusive conduct which takes the form of an agreement may also contravene the First Conduct Rule.

A flowchart illustrating how the Second Conduct Rule works is set out in the Appendix.

Key terms used in the Second Conduct Rule

Undertaking Same as the term used in the First Conduct Rule2 Market Has both a product dimension and a geographic dimension Definition depends on the specific facts of the case based on: Market structure Buyers' preference Particular competition concern Substantial degree of market power No statutory definition of "substantial degree of market power", but the following matters may be taken into consideration in determination: Market share Power to make pricing and other decisions Barriers to entry Other relevant factors specified in the Guidelines Substantial market power can be thought of as: the ability to charge prices above competitive levels, or to restrict output or quality below competitive levels, for a sustained period of time (the length of which depends on the facts, in particular with regard to the product and the circumstances of the market in question)3; or the ability and incentive to harm the process of competition by, for example, weakening existing competition, raising entry barriers or slowing innovation4 According to the Competition Commission, small undertakings...

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