Asia Pacific Competition Law Bulletin MAY 2019 – JUL 2019 © Copyright 2019 Linklaters LLP. LIN.LAT.1633.19 Asia Pacific Competition Law Bulletin: Asia Pacific Competition Law Bulletin: APAC Competition Bulletin: MAY 2019 MAY 2019 – JUL 2019 – JUL 2019 11 1 Australia Robert Walker and David Mierendorff, Allens ACCC appeals court decision in Pacific National/Aurizon deal Following the Federal Court’s decision to dismiss the Australian Competition and Consumer Commission (ACCC)’s proceedings against Pacific National and Aurizon in relation to the sale of the Acacia Ridge intermodal terminal, the ACCC recently lodged an appeal claiming the Court had erred in accepting commitments offered on the final day of the hearing. In 2017, Aurizon commenced a sales process for its interstate intermodal business, its Queensland intermodal business and the Acacia Ridge terminal, which resulted in Pacific National becoming the exclusive bidder for the Queensland intermodal business and the Acacia Ridge terminal, and Aurizon seeking to close its interstate intermodal business. The ACCC raised competition concerns with the proposed transaction, on grounds that it would make Pacific National the monopoly intermodal provider in Queensland and allow it to restrict competing access to the Acacia Ridge Terminal. In July 2018, the ACCC instituted proceedings in the Federal Court, seeking an injunction to prevent it from proceeding and alleging the parties had reached an understanding that would substantially lessen competition in the supply of intermodal and steel rail linehaul services. However, in May 2019, the Federal Court found the proposed acquisition did not raise substantial competition concerns, primarily due to a court-enforceable undertaking offered by Pacific National on the last day of the trial. Specifically, the court found: > the ACCC failed to establish its case under section 45 of the Competition and Consumer Act 2010 that the parties’ arrangements would be likely to substantially lessen competition in the relevant markets; and > as a result of Pacific National's court undertaking, which prohibits Pacific National from engaging in discriminating conduct against competitors when providing access to the Acacia Ridge Terminal, the proposed acquisition would not breach the merger prohibition under s50 of the Competition and Consumer Act 2010. The ACCC remains of the view that this type of behavioural undertaking will not address competition concerns from the sale. The ACCC recently lodged its appeal focusing on the activity of courts to accept undertakings in those circumstances and then taking it as a relevant fact to determine whether there is likely a substantial lessening of competition. Related Links: ACCC’s press release can be found here. APAC Competition Bulletin: Asia Pacific Competition Law Bulletin: MAY 2019 – MAY 2019 – JUL 2019 JUL 2019 22 2 ACCC expresses concerns over the rise of digital platforms In a Competition Law Conference, ACCC Chairman Rod Sims noted that the rise of dominant digital platforms such as Facebook and Google poses challenges to the competition regulators worldwide and has triggered debates on the sufficiency of current legal frameworks. This article takes a look at the challenges and competition concerns discussed in the conference. > A broader perspective to address digital platform issues.Issues arising from digital platforms could be multi-dimensional. For example, the collection and use of personal data could raise different issues from a privacy perspective and a competition perspective. These questions usually are inter-related. While the ACCC is resisting calls to broaden the scope of competition laws to cover other policy areas, the Chairman noted that competition law could be used in conjunction with other policy and legislative tools to address wider concerns and objectives. The ACCC’s current inquiry into Digital Platforms was highlighted as an illustration of bringing together competition law, consumer law and privacy and media content policy. > Approach to analyzing competitive effects of digital platforms. The Chairman also noted that it is important to understand the characteristics of digital platforms which can affect the nature of competition and the competitive constraints that the market players face. Despite of its complexity and thus the inevitable economic jargons involved in the analysis, the Chairman stressed that the analysis of competitive effects should not be made inaccessible. The approach the ACCC takes in defining markets and assessing the conduct of multi-sided platforms is the same as the approach in assessing the conduct of any other business. The ACCC will focus on the effects of mergers/conduct involving multi-side platforms rather than the complex issues of market definition. This suggests that the market players in multi-sided platforms may not be able to rely heavily on arguments on market definition to circumvent the scrutiny of merger/conducts by the ACCC. > Potential reforms to merger control. Using Facebook’s active acquisition of startups in the past decade as an example, the Chairman highlighted the inadequacies of Australia’s merger control regime. In particular, there is a concern that large players with deep pockets can acquire nascent businesses before they can potentially become a competitive threat. The Chairman emphasized that merger law should focus on whether the acquisition interferes with the competitive process, stressing the difference between the process of competition for the market and competition within the market. He advocated for reforms to Australia’s merger control laws to better address the loss of competition from potential entrants, particularly in technology markets. The ACCC is expected to provide its views on these complex issues in its final report on the inquiry to be submitted to the treasurer on 30 June. Related links: The speech is available here. Asia Pacific Competition Law Bulletin: APAC Competition Law Bulletin: MAY MAY 2019 – JUL 2019 3 2019 – JUL 2019 1 China Fay Zhou, Linklaters Liao Xi and Larry Zhou, Zhao Sheng Law Firm SAMR fines Eastman China for abuse of market dominance The State Administration for Market Regulation (SAMR) recently imposed a fine of RMB 24.4 million (approx. USD 3.5 million) on Eastman China for abusing its dominant position by imposing exclusivity clauses on customers, effectively locking in the majority of the demand of significant customers. SAMR found that Eastman China had abused its dominant position in the Chinese market for ester alcohol-12, a key ingredient in coating materials by: > imposing a minimum purchase volume on customers, which was made compulsory by the take-or-pay arrangement. Such arrangement had locked in more than 60% (in some cases more than 80%) of the relevant customers’ annual demand for ester alcohol-12; > making a global most-favoured nation (MFN) treatment available to a customer on condition that the customer purchases a certain percentage or more of its global total demand for ester alcohol-12 from Eastman; and > providing additional discounts on top of the global MFN prices on condition that the customer purchases a certain amount of ester alcohol-12 in China. SAMR held that while the global MFN arrangement alone is not sufficient to result in exclusive effect, the combination of the MFN treatment and additional discounts could not be matched by Chinese domestic competitors. SAMR concluded that the take-or-pay and “global MFN prices plus additional local discounts” cumulatively had effectively incentivized customers to acquire most or even all their demand from Eastman China instead of competing suppliers. Notably, the customers “locked in” by Eastman China’s exclusivity clauses accounted for only a limited proportion (over 20% in 2015) of the total demand in the relevant market. However, SAMR found that the conduct nevertheless had an anti-competitive effect because the customers affected were all direct key account customers (rather than distributors), the business of which were vigorously sought after by Eastman China and competing suppliers. This case demonstrates SAMR’s continued interest in taking on abuse of dominance cases and its confidence in tackling controversial issues. It also shows that the Chinese authority will be looking at potential foreclosure effects resulting from arrangements that incentivise and/or press customers into purchasing a significant proportion of their demand volume. Related links: SAMR’s decision is available here (only in Chinese) APAC Competition Asia Pacific Competition Law Bulletin: Law Bulletin: MAY 201 MAY 2019 – JUL 2019 9 – JUL 2019 4 2 Tougher penalties for antitrust infringements in China In a recent interview, the Director General of Anti-Monopoly Bureau of SAMR indicated that illegal gains from antitrust infringements should be sufficiently and correctly calculated in antitrust enforcement actions whenever possible. He also confirmed that the basis to determine antitrust fines in China should be the total turnover of the company in the previous year, instead of the turnover of the relevant products. China’s Anti-Monopoly Law China provides that contraventions are subject to (1) confiscation of illegal gains, and (2) a fine equivalent to 1-10% of the infringing party’s turnover in the previous year. In the past, application of these rules has been inconsistent due to the lack of clear guidance in the relevant laws. The Director General’s recent remarks could have far-reaching implications and suggest heightened penalties for future antitrust infringements in China: > Confiscation of illegal gains will likely become a norm in future. Confiscation of illegal gains has been used infrequently in antitrust enforcement actions in China so far. This was mainly due to practical difficulties in, and lack of clear guidance on, calculating the amount of illegal gains as a result of the infringement. There have been a few recent cases since earlier this year in which SAMR confiscated illegal gains in addition to levying antitrust fines. The Director General’s comments reaffirm this emerging trend that the cumulative confiscation of illegal gains and imposition of antitrust fines will become a norm going forward. > Total turnover is confirmed as the basis to calculate antitrust fines. SAMR and its predecessors had developed a practice of determining antitrust fines on the basis of turnover generated from the products concerned in the infringing act. In some recent cases, SAMR appeared to have calculated antitrust fines on the basis of the infringing party’s total revenue. Nonetheless, SAMR did not explicitly spell out such approach in these decisions, nor did it confirm that this would become a uniform approach in future enforcement actions. This is the first time that SAMR have confirmed its position favouring the use of total turnover as the basis for fine calculation. SAMR’s clarifications were long called for by the antitrust community. The significantly greater deterrence as a result of the possibly rocketing penalties would have implications for companies’ defence strategies in investigations and compliance endeavours during the course of business. Related links: Recent cases where SAMR confiscated illegal gains are available here and here (only in Chinese). Recent cases where SAMR calculated antitrust fines on the basis of the infringing party’s total revenue are available here and here (only in Chinese). APAC Competition Bulletin: Asia Pacific Competition Law Bulletin: MAY 2019 –MAY 2019 – JUL 2019 JUL 2019 5 1 Hong Kong Marcus Pollard and Alexander Lee, Linklaters Court sides with competition authority in first enforcement case The Competition Tribunal (Tribunal) recently handed down its landmark decision in Hong Kong’s first ever competition law enforcement proceedings. A US IT manufacturer and three distributors/resellers were found to have contravened the competition rules by participating in “vertical bid-rigging”. The case concerned a tender issued by the Hong Kong Young Women’s Christian Association in July 2016. The tender was for the supply and installation of IT server equipment based on Nutanix technology. Four IT companies (BT, SiS, Innovix and Tech-21), submitted bids in response to the tender. The Hong Kong Competition Commission (HKCC) alleged that Nutanix and the four IT companies had entered into a series of “vertical bilateral agreements” to submit “dummy bids”. Nutanix, BT and Innovix were also alleged to have entered into a “trilateral agreement” to bid rig. Until the outcome of the pending appeals, the Tribunal has set down a number of fundamental issues of law that will likely have significant implications on future competition law enforcement in Hong Kong. > A criminal standard of proof. The Tribunal ruled that, if the HKCC is seeking the imposition of pecuniary penalties, the HKCC will need to prove its case beyond reasonable doubt i.e. a criminal standard proof is applicable. The main basis for that finding was due to previous case-law of the Hong Kong Court of Final Appeal that is binding on the Tribunal. This was notwithstanding the judge’s views to the contrary expressed obiter in a previous telecommunications sector case in 2016. > Vertical bid-rigging. At trial, the HKCC argued that Nutanix made separate “vertical bilateral agreements” with its distributors/resellers to submit “dummy bids” to the HKYWCA. Despite the paucity of precedent globally for vertical cases of bid-rigging, and in casting aside arguments that cartels are inherently horizontal in nature, the Tribunal accepted the HKCC’s argument and ruled that even in the absence of any horizontal element between the customers, “vertical bilateral agreements” between supplier and customer are sufficient for establishing bid-rigging. > Availability of a “rogue employee” defence. In support of its allegations against one of the resellers, SiS, the HKCC relied heavily on the testimony of an ex-employee of SiS in admitting that he had agreed with Nutanix to submit a dummy bid. However, the Tribunal found that there was insufficient connection between that ex-employee’s act APAC Competition Bulletin: Asia Pacific Competition Law Bulletin: MAY 2019 – MAY 2019 – JUL 2019 JUL 2019 6 2 and SiS as a corporate entity. As such, the ex-employee had “gone rogue” in carrying out the conduct on his own volition, such that the conduct could not be attributable to SiS. > Reliance on overseas case precedents. A striking feature of the Tribunal’s decision is the numerous references to overseas jurisprudence, including EU, UK, Australian, Canadian and US case law. In particular, the Tribunal noted that EU case law is of “obvious value” in the interpretation and application of the Hong Kong prohibition on anti-competitive agreements because the Hong Kong prohibition is modelled on the European provision. This provides a much-welcomed legal certainty going forward, as parties can expect the Tribunal to be adhering to international standards in the future. The decision has now laid the foundations for future competition law enforcement in Hong Kong. Whilst the Tribunal has adopted a number of novel substantive positions that are starkly out of line with international precedents, the procedural elements and the trial itself have proven to be significantly instructive for parties involved in future cases. A future hearing will be held to hear arguments on potential sanctions and costs. In the meantime, the Tribunal’s judgment is subject to appeal to the Court of Appeal that has been made by Nutanix, BT and Innovix. Linklaters represents Innovix in these proceedings. Related Links: The Tribunal’s judgment can be found here. APAC Competition Bulletin: Asia Pacific Competition Law Bulletin: MAY 2019 – MAY 2019 – JUL 2019 JUL 2019 7 3 HKCC succeeds in case against public housing renovation cartel The HKCC scored its second successive victory in the Hong Kong Competition Tribunal relating to a public housing renovation cartel. The Tribunal found that 10 decoration/renovation companies had engaged in market sharing and price-fixing. This was the first case in which the economic efficiency defence was raised – albeit unsuccessfully. The HKCC’s allegations related to 10 local companies appointed by the Housing Authority as contractors licenced to offer decoration services to tenants of a new public housing estate. The HKCC alleged that the contractors had (1) allocated specific floors of the housing project between themselves and agreed not to accept business from tenants on floors allocated to other contractors, and (2) coordinated prices through jointly produced promotional flyers. The Tribunal agreed with the HKCC in its findings of market sharing and price fixing. In doing so, the Tribunal decided on a number of key issues: > The burden of proof for the economic efficiency exclusion. While the HKCC accepted that it had the burden of proving all the elements necessary for establishing a contravention, the exclusion for agreements enhancing overall economic efficiency did not form part of the essential elements of the primary prohibition. The Tribunal therefore held that the parties have the burden of proving that the alleged agreement had not been justified by economic efficiencies. > The standard of proof for economic efficiency exclusion. Given that the burden of proving economic efficiencies are borne by parties claiming such efficiencies, there was a question of the requisite standard to which such efficiencies had to be proven. Some respondents argued that they merely had an evidential burden of invoking economic efficiencies, while the HKCC continues to bear the persuasive burden. The Tribunal disagreed. Noting that respondents are generally better placed to proffer evidence in support of economic efficiencies, the Tribunal decided that it was reasonable for respondents to establish such efficiencies on a balance of probabilities. > Contractor liability for the acts of subcontractors. Some decoration companies argued for a “sub-contractor defence” i.e. that they were merely principals who had sub-contracted decoration works to third parties and had no direct knowledge of the anti-competitive agreements entered into by their sub-contractors. The Tribunal rejected this argument, noting that the principal contractor and the sub-contractor jointly carried out the economic activity in question and should therefore be treated as the same “undertaking” for purposes of attributing liability. One of the defendants has lodged an appeal on the basis of the “sub-contractor defence”. Meanwhile, the case will proceed to a 4-day hearing on potential penalties and costs in January 2020. Related links The Tribunal’s judgment can be found here. Asia Pacific Competition Law Bulletin: Asia Pacific Competition Law Bulletin: MAY 2019 – JUL 2019 MAY 2019 – JUL 2019 88 APAC Competition Law Bulletin: MAY 2019 – JUL 2019 1 India TT&A Conditional approval of electrical and automation deal The Competition Commission of India (CCI) conditionally approved the proposed acquisition of the electrical and automation business of Larsen & Toubro (L&T) by Schneider Electric India (Schneider India), including a follow-on acquisition of 35% shareholding of Schneider India by MacRitchie Investments. This is the first time that the CCI has approved a Phase-II case on the basis of behavioural commitments alone. The proposed transaction involved a consolidation of the two largest players in the low voltage (LV) switchgears industry. The CCI was concerned that the proposed transaction would result in horizontal and portfolio effects leading to reduced competition, increased prices and dominance of Schneider India in LV switchgears market in India. The CCI initially proposed a structural remedy involving two of L&T’s plants to address the anti-competitive effects caused by the proposed transaction. However, Schneider India strongly disputed this as being unviable and disproportionate on several accounts, primarily as these plants manufactured multiple products (in addition to those products that raised competition concerns). Schneider India instead offered behavioural commitments ranging from 3 to 5 years with an aim to strengthen existing LV manufacturers, including offering its products under a white labelling arrangement on a long-term basis, transferring technology on a non-exclusive basis, and removing exclusivity conditions from its distribution network. The behavioural commitments also included commitments on price caps, export commitments, nonrationalisation of its product range and a minimum R&D expenditure. The CCI accepted the remedies offered by Schneider India and approved the deal subject to compliance of those commitments, which would be monitored by a monitoring trustee. The CCI’s acceptance of behavioural commitments as a sufficient remedy is much welcomed. However, considering the temporary nature of behavioural remedies, the ongoing requirement to monitor and difficulties in enforcement, the effectiveness of these remedies remains to be seen. Related links: The CCI’s decision is available here. APAC Competition Asia Pacific Competition Law Bulletin: Law Bulletin: MAY 201 MAY 2019 – JUL 2019 9 – JUL 2019 9 2 The CCI opens investigation into Google’s practices on Android The CCI opened an investigation against Google for allegedly abusing its dominant position in the Android operating system. The investigation is believed to concern Google’s restrictions imposed on device makers on the use of Google’s proprietary mobile apps and services. This is the second time Google is under investigation in India after the “search bias” case in 2018. Google was fined EUR 4.43 billion by the European Commission (EC) in July 2018 for illegally cementing its dominant position by requiring phone manufacturers to pre-install the Google Search app and the Chrome browser app as a condition for licensing its Google Play Store on Android devices. Google has been appealing the EC’s decision since then. The CCI’s investigation into Google is understood to be similar to the EC’s investigation concerning Google’s restrictions on Android device makers and mobile network operators. Given that the EC has already found an abuse of dominance against Google for its practices concerning Android, the CCI may have a strong case against Google. It would not be surprising to see a similar result in India. The investigation is expected to be completed in a year’s time. The senior management of Google will likely be summoned to appear before the CCI during the course of its investigation. This is the second time Google is being probed in India. In February 2018, the CCI issued an order against Google for abusing its dominant position in the online search and advertising market and imposed a penalty of USD 19.3 million. Google has launched an appeal against the CCI’s order before India’s antitrust appellate body, the National Company Law Appellate Tribunal. The result of the appeal is now pending. Android has an overwhelming market share in smartphone operation systems both in India and worldwide. It is therefore believed that the present case is going to bring an impact not only to the Indian market but also the global market in general. In addition, it is interesting to note that the CCI’s two investigations closely mirror those of its European counterparts. This may shed some light on how the Indian regulator will approach similar cases in the future. Related links: The CCI’s order is available here. Asia Pacific Competition Law Bulletin: APAC Competition Bulletin: MAY 2019 MAY 2019 – JUL 2019 - JUL 2019 10 1 Japan Kenji Ito and Aruto Kagami, Mori Hamada & Matsumoto Principles for developing digital platform rules published The Japan Fair Trade Commission (JFTC), in conjunction with two government departments, published two expert opinion reports setting out the fundamental principles for developing rules to govern digital platforms. The principles aim to balance regulation with innovation while framing the rules. We take a brief look at the proposed principles set out in the reports. The first of the two reports focus on the high-level principles for developing rules to maintain fairness and transparency of trade in the digital platforms market: > The report emphasised the importance to maintain a balance between regulation and flexibility to promote innovation in a rapidly changing digital market. However, future regulation should also be designed to address increasing concerns relating to opacity and unfairness of trades in the digital platform market. > The report advocated a number of enforcement measures to regulate the digital economy. This includes the JFTC publishing new policy guidelines designed for the digital market, designating sector-specific unfair business practices, actively utilising the commitment procedure for antitrust enforcement and conducting market studies into digital markets. > In addition to antitrust enforcement, the report urged regulators to develop complementary principles to encourage consumers to make rational choices and lower switching costs for end-users. The report also emphasised the importance of public consultation and urged the government to formulate rules after thorough dialogue with all stakeholders. The second report addresses issues relating to the transfer and disclosure of data: > The report sets out the aim of giving consumers greater control over how their data will be used and transferred, including by direct transfer or application program interface (API) releases. The report also details the important elements to achieving this goal, including measures to enable easy transfer by end-users and data interoperability. > The report considered that rules regulating the transfer and disclosure of data should be enforceable and up-to-date to reflect technological changes and international standards. Going forward, the government will consider the proposed principles set out in the reports. It is hoped that the proposed principles will help the government formulate flexible, effective and balanced rules to ensure a competitive digital platform market. Related links: The JFTC’s public release is available here (only in Japanese). Asia Pacific Competition Law Bulletin: MAY 2019 – JUL 2019 11 APAC Competition Law Bulletin: MAY 2019 – JUL 2019 1 Malaysia Penny Wong, Rahmat Lim & Partners Authority launches guidelines on IP rights and competition law The Malaysia Competition Commission (MyCC) released its Guidelines on Intellectual Property Rights and Competition Law (IPR Guidelines). This is a much-welcomed development as the IPR Guidelines address many uncertainties arising from the complex interface between intellectual property rights (IPRs) and competition law. The MyCC recognises IP licensing as generally pro-competitive, as it incentivises innovators to generate new products or services that could enhance consumer welfare. However, when an IP owner enters into an anti-competitive agreement or abuses its dominant position in any dealings involving IP rights, these will infringe the Competition Act. The IPR Guidelines include some examples of IP licensing that may be considered anticompetitive: Anti-competitive agreements (Section 4 of the Competition Act) > vertical IP licensing agreements (i.e. agreement between undertakings operating at different level of supply chain), including vertical price fixing, territorial and field-of-use restrictions, exclusive licensing, exclusive dealing, tying and grant backs), may raise competition concerns, particularly where one of the parties (usually the licensor) has market power. > although a cross-licensing arrangement can be beneficial for competitors and consumers, it may be considered anti-competitive if the licence is restricted to certain members. Abuse of dominant position (Section 10 of the Competition Act) > Potential abusive conduct includes product hopping, mandatory patent package licensing or imposing unfair trading conditions in conjunction with its IP licensing (e.g. excessive pricing or imposition of payment or royalty after expiration of patent rights). The release of IPR Guidelines provides greater clarity and guidance on the conducts or dealings involving IP rights. Related links: The IPR Guidelines are available here. Asia Pacific Competition Law Bulletin: MAY 2019 – JUL 2019 12 APAC Competition Law Bulletin: MAY 2019 – JUL 2019 2 Merger control guidelines for communications sector in Malaysia The Malaysian Communications and Multimedia Commission (MCMC) has recently released Guidelines on Mergers and Acquisitions (M&A Guidelines) and the Guidelines on Authorisation of Conduct (Conduct Authorisation Guidelines) in the communications sector. These Guidelines were released following the news of the proposed merger between two of the biggest telecommunications service providers in Malaysia (namely Axiata Group Bhd. and Norway-based Telenor Group). > CMA Under the Communications and Multimedia Act 1998 (CMA), licensees are prohibited from engaging in any conduct which has the purpose of substantially lessening competition in a communications market. The CMA also empowers the MCMC to direct a dominant licensee to cease any abusive conduct. > M&A Guidelines The M&A Guidelines are noteworthy as they introduce a voluntary merger control regime for communications sector under the CMA. Malaysia currently does not have a crosssector merger control regime. Pursuant to the M&A Guidelines, companies in the communications sector can proceed with mergers and acquisitions (M&A) without a need to submit to the MCMC for review. However, this may put them at the risk of being the target of an objection or enforcement action later. As set out in the M&A Guidelines, M&A transactions, including mergers, business acquisition, share acquisitions, take-overs, and long term joint venture performing all the functions of an autonomous economic entity, may amount to “conduct” under the CMA and subject to the purview of the MCMC. While the companies can choose to voluntarily notify MCMC of the M&A, the MCMC encourages parties to a proposed M&A to submit the application to the MCMC for assessment of the potential anti-competitive effects of the M&A (Assessment Application) if: (i) at least one licensee is in a dominant position, or (ii) the M&A may result in a licensee obtaining a dominant position in communications market. The Assessment Application can be submitted prior to or after the completion. If, upon conducting further assessment, the MCMC decides that the M&A is anticompetitive, the MCMC will issue a Notice of Objection, which may include a direction prohibiting the licensee from continuing with or completing the M&A and any remedies available to it under the CMA. Asia Pacific Competition Law Bulletin: MAY 2019 – JUL 2019 13 APAC Competition Law Bulletin: MAY 2019 – JUL 2019 3 > Conduct Authorisation Guidelines The Conduct Authorisation Guidelines provide an alternative path for communications licensees to seek authorisation of their M&As from MCMC on the basis that the M&As is in the national interest (e.g. the considerations of establishing Malaysia as a major global centre and hub for communications services). Parties to a proposed M&A transaction can make an application for authorisation of the M&A in parallel with the Assessment Application under the M&A Guidelines. To authorise a M&A transaction under the Conduct Authorisation Guidelines, the MCMC must be satisfied that the benefits arising from the M&A are substantial and is in the national interest. The Guidelines by MCMC are welcoming as they have provided clarity and guidance on the competition assessment in relation to M&A activities in communications sector. The Malaysia Competition Commission has indicated that a general merger control regime is likely to be introduced in Malaysia by the end of 2019. It remains to be seen whether the regime will be similar to the one adopted in telecommunications sector. Related links: The MCMC press release is available here. The MCMC Guidelines is available here. Asia Pacific Competition Law Bulletin: MAY 2019 – JUL 2019 14 APAC Competition Bulletin: MAY 2019 – JUL 2019 1 Singapore Daren Shiau, Elsa Chen and Scott Clements, Allen & Gledhill LLP Regulator ends probe into lift parts suppliers with commitments The Competition and Consumer Commission of Singapore (CCCS) ended its investigation into the supply of lift spare parts after accepting voluntary commitments offered by Chevalier Singapore (Chevalier) and Fujitec Singapore (Fujitec). The two lift parts suppliers were investigated as part of the CCCS’s investigation on alleged refusals to supply lift spare parts for the maintenance of lifts in public housing estates. The investigation began with an alleged refusal to supply lift spare parts for the maintenance of lifts in a public housing estate. The regulator was concerned that, if a lift company or distributor refuses to supply their proprietary but essential lift spare parts, third-party maintenance contractors would be prevented from effectively competing for contracts to maintain and service lifts of that particular brand. In contrast, if a third-party lift maintenance contractor can be engaged for maintaining multiple brands of lifts, instead of procuring lift maintenance services from each original lift installer, there could be potential cost savings. As with three other lift spare parts suppliers, Chevalier and Fujitec proposed commitments to the CCCS to address the CCCS’s competition concerns. The commitments essentially provide that Chevalier and Fujitec will undertake to sell lift spare parts of their respective brands to a purchaser on a fair, reasonable and non-discriminatory basis. The CCCS conducted a public consultation on the proposed commitments in January 2019. After the public consultation, the CCCS was satisfied that the commitments fully address the CCCS’s competition concerns. The CCCS accordingly accepted the proposed commitments and ended its investigation. Related links: CCCS press release and the respective commitments are available here, here and here. Asia Pacific Competition Law Bulletin: MAY 2019 – JUL 2019 15 APAC Competition Law Bulletin: MAY 2019 – JUL 2019 1 South Korea Hwan Jeong, Suruyn Kim and Kee Won Shin, Lee & Ko The Korean Supreme Court’s decision on Qualcomm’s loyalty rebates Earlier this year, the Supreme Court of Korea handed down its first decision on loyalty rebates violating Korean competition law. The landmark decision mostly confirmed the 2009 enforcement decision of the Korea Fair Trade Commission (KFTC) in finding that Qualcomm had abused its market dominance in the mobile chip market via its rebates and discount scheme. Importantly, the decision appears to deviate from the European approach on assessing the legality of loyalty rebates. The original KFTC decision found that Qualcomm provided loyalty rebates to major device makers, such as Samsung Electronics and LG Electronics, from 2000 to 2009 as an incentive for using only Qualcomm’s modem and radio frequency chips in their smartphone models. In addition, Qualcomm charged higher royalties from companies using chips made by Qualcomm’s competitors. The KFTC considered that such conduct foreclosed Qualcomm’s rivals from the market and constituted an abuse of market dominance under the Korean competition law. Qualcomm appealed the KFTC’s decision arguing that the rebates and royalties were essentially price discounts. After this was rejected by the Seoul High Court in 2013, Qualcomm further appealed. In January 2019, the Supreme Court ruled largely in favour of the KFTC. In doing so, the Supreme Court laid down important principles for deciding whether a loyalty rebate is lawful. Key takeaways are as follows: > In order to determine the legality of a loyalty rebate, it is necessary to take into account the review standards of exclusionary dealing and to consider other factors, including: (i) the payment structure of the rebate; (ii) the disadvantages the counterparty would bear when changing suppliers; and (iii) the competitive landscape at the time of the rebate. > In determining whether a rebate scheme was improper, it is not necessary for the KFTC to show, through economic analysis, whether equally efficiency competitors could match the rebate provided by the dominant player from a cost and price perspective. In particular, Qualcomm’s argument on the basis of an “as efficient competitor” test, i.e. equally efficient competitors would have been able to match Qualcomm’s loyalty rebates, was rejected. Instead, the Supreme Court considered that an assessment of “all the relevant Asia Pacific Competition Law Bulletin: MAY 2019 – JUL 2019 16 APAC Competition Law Bulletin: MAY 2019 – JUL 2019 2 circumstances” would be sufficient to determine whether the competitors would be potentially foreclosed. > Market share covered by the rebate practice is one of the relevant circumstances to take into account. Specifically, the Supreme Court questioned the illegality of the incentives offered to LG Electronics, because the market share of LG Electronics in the domestic smartphone market was less than 40% from July 2000 to June 2005 and from January 2007 to July 2009. Also, Qualcomm’s share of the CDMA RF market continued to decrease from 2002 to 2008. The Supreme Court reasoned that such circumstances do not necessarily support the conclusion that LG Electronics’ use of Qualcomm chips effectively foreclosed Qualcomm’s rivals from the market. As a result, the Supreme Court ruled largely in favour of the KFTC. Part of the penalty decision relating to the period of discounts offered by Qualcomm to LG Electronics was referred back for reconsideration. In compliance with the Supreme Court decision, the KFTC reduced the fine imposed on Qualcomm by 18% to KRW 224.5bn (USD 199m). This case is notable because the Supreme Court’s approach is strikingly in contrast to the approach of the European Court of Justice in the landmark Intel judgment, which is widely recognised as a strong endorsement of an effects-based analysis and the “as efficient competitor” test for exclusivity rebates. As the legal position in Korea now stands, loyalty rebates given by a dominant firm could be considered unlawful simply by taking various circumstances into account without a thorough economic analysis. As such, it would be prudent for dominant (or near dominant) firms to seek expert legal advice on this topic before offering loyalty rebates to customers in Korea. Related links: The KFTC’s press release is available here (in Korean only). Asia Pacific Competition Law Bulletin: APAC Competition Bulletin: MAY 2019 – MAY 2019 – JUL 2019 JUL 2019 17 1 Taiwan Matt Liu and Elvin Peng, Tsar & Tsai Law Firm Hitachi’s acquisition of Taiwanese elevator manufacturer cleared The Taiwan Fair Trade Commission (TFTC) approved the proposed acquisition of elevator manufacturer Yungtay Engineering Co., Ltd. (Yungtay) by Hitachi Ltd. (Hitachi). The case was cleared because the TFTC considered that Yungtai and Hitachi had limited horizontal overlaps and the vertical effects post-transaction would be limited. According to the TFTC, both parties are engaged in the sale of elevator products under their own brands and provided assembly and maintenance services for elevator parts. When reviewing the proposed transaction, the TFTC considered both vertical and horizontal effects in the relevant markets: > In the elevator market, the TFTC considered that the market power of the combined entity after acquisition would be limited. The fact that several major competitors are still active in the market indicates the potential coordinated effects after the transaction will not be significant. > In the elevator maintenance market, given that (1) Hitachi only provides part of the required technology and components to Yungtay; (2) Yungtay has many upstream suppliers other than Hitachi and (3) the market is competitive with a great number of players, the TFTC reasoned that the overall benefits of the merger will outweigh any potential adverse impact to customers in the elevator maintenance market. The case has attracted special attention since the corporate control in Yungtay was under spotlight in the industry for the previous years. After an extended consultation with the relevant sector regulator, trade associations and industry players, the TFTC cleared the deal. Related links: The press release of the TFTC is available here (in Chinese only). Asia Pacific Competition Law Bulletin: APAC Competition Bulletin: MAY 2019 MAY 2019 – JUL 2019 18 – JUL 2019 2 Regulator fined five concrete makers for price fixing The Taiwan Fair Trade Commission (TFTC) issued a decision recently to impose penalties totalling USD 2 million on five major suppliers of ready-mixed concrete. With a combined market share of over 75% in Southern Taiwan, the concrete suppliers were accused of having a concerted practice to coordinate prices hikes. According to the TFTC, the suppliers issued letters to their clients respectively in December 2018 informing them that there would be a price increase of ready-mixed concrete effective from January 2019. The price hikes were purportedly in response to a gravel shortage earlier in 2018. However, the TFTC noted that the timing, the increase range, date of notification and effective date of new prices were nearly identical, which was unlikely to be a result of independent decision-making. In particular, the TFTC noted that the price hikes lacked economic rationale for the following reasons: > the sharp rise in prices was inconsistent with the past practice; > the highly homogeneous nature of ready-mixed concrete; > the level of price increases of the five major suppliers was double of their medium- and small-sized counterparts, which could not be explained, given that the five suppliers enjoyed relatively large economies of scale and integration advantages; > the suppliers announced price increases even before determining their respective levels of price increases. Although the regulator did not specify evidence of a cartel agreement between the suppliers, the TFTC found that the alignment of the price increases and the lack of an economic rationale behind such increases were sufficiently compelling for the TFTC to find that there was a concerted practice between the suppliers in coordinating their price increases. The TFTC accordingly found the five suppliers to have breached the prohibition against anti-competitive agreements. The suppliers have now appealed against the TFTC’s decision, on grounds their price rises were merely reflecting their increasing costs and the TFTC had erred in concluding that their conduct was economically irrational. Whether the Court will uphold the TFTC’s finding remains to be seen. Related links: The press release of the TFTC is available here (in Chinese only).