On Oct. 9, 2014, the Hong Kong Competition Commission and the Communications Authority jointly released six draft sets of Draft Guidelines required to be adopted by the Competition Ordinance (Cap. 619) ("Ordinance") for public comments. The release of these Draft Guidelines is a critical step towards the full implementation of the Competition Ordinance, which is expected to take place before the end of 2015. The Draft Guidelines are divided into two groups: (a) substantive guidelines on the First Conduct Rule (joint conduct); the Second Conduct Rule (unilateral conduct); and the Merger Rule ; and (b) procedural guidelines on Complaints, Investigations, and Applications (including exemptions and exclusions).

A.  Substantive Guidelines

1.   Draft Guidelines on First Conduct Rule

The First Conduct Rule of the Ordinance applies to all agreements and concerted practices whose object or effect is to harm competition in Hong Kong, and is comparable to Article 101 of the Treaty on the Functioning of the European Union. These guidelines highlight the types of agreements that the Commission regards as likely to have a significant adverse effect on competition, including horizontal price-fixing agreements, output restrictions, market allocation schemes, and bid-rigging. The guidelines

also explain that the Commission regards resale price maintenance agreements as unlawful "by object," requiring that sellers employing RPM agreements must demonstrate that adverse effects of such agreements are justified by efficiencies.

Using hypothetic examples, these guidelines illustrate the Commission’s proposed interpretations of important concepts relating to the First Conduct Rule, including when different entities would be considered as “a single economic entity,” what constitutes a “decision of an association of undertakings,” how the Commission will assess the “object or effect” of a particular type of conduct and the defenses available when the First Conduct Rule is engaged. The discussions relating to how resale price restrictions, including RPM, may be justified by efficiency considerations are particularly useful for distribution and retail businesses.

2.   Draft Guidelines on Second Conduct Rule

The Second Conduct Rule prohibits abuses of market power that have an adverse impact on competition in Hong Kong, and is comparable to Article 102 of the Treaty on the Functioning of the European Union. These guidelines do not, however, establish any safe harbors or provide any guidance on market share levels that will be presumed to confer, or not to confer, market power. Instead, the guidelines provide that the Commission will use economic analysis to define the relevant market and determine whether an entity has substantial market power.

3.   Draft Guidelines on Merger Rule

The Merger Rule does not create a general merger review regime, and prohibits mergers that substantially lessen competition in Hong Kong only for mergers involving telecommunications companies that hold a carrier license within the meaning of the Hong Kong Telecommunications Ordinance. These guidelines describe the approach that will be taken in the joint review of such mergers by the Commission and the Communications Authority which has concurrent jurisdiction over enforcement of the Merger Rule.

B.  Procedural Guidelines

1.   Draft Guidelines on Complaints

These guidelines provide that complaints on suspected contraventions may be made in any form, including by telephone, email or online, and can be submitted anonymously. Details are given on the types of information the Commission will normally need to properly assess a matter and will typically request following receipt of a complaint. The Guidelines also provide that the identity of a complainant will be treated as confidential, except where disclosure of that information is necessary for performance of the Commission’s duties, or where required by law, such as when disclosure is ordered by a court.

2.   Draft Guidelines on Investigations

These guidelines describe the methods the Commission will use to obtain evidence and establish three stages of investigations on suspected contraventions: (a) receipt; (b) initial assessment; and (c) investigation. They also describe the Commission’s powers to obtain evidence by compulsory process and the procedure for publication of Commission Warning Notices.

3.   Draft Guidelines on Applications (Exclusions and Exemptions)

There is no requirement for undertakings to apply to the Commission in order to secure the benefit of a particular exclusion provided in the Ordinance. However, they may elect to do so for a decision on whether or not an agreement or conduct is excluded or exempt from the First and/or Second Conduct Rules, Separately, the Commission may also issue block exemption orders exempting categories of agreements that enhance overall economic efficiencies, and therefore excluded from the application of the First Conduct Rules. These guidelines explain when and how the Commission may accept an application for a decision or for a block exemption order, or issue such an order. According to the guidelines, no block exemptions will be issued prior to the implementation of the Ordinance.

C.  Public Comment and Implementation

The deadline for filing comments on the procedural Draft Guidelines is November 10, 2014, and for the substantive Draft Guidelines is December 10, 2014. The Commission has stated that, following receipt and consideration of comments, it will prepare a final set of Draft Guidelines as to which it will consult with the Hong Kong Legislative Council. Thereafter, the Commission will adopt and publish the final Guidelines, a step that is required before the Ordinance can become effective.