Risk implications of new laws and tougher enforcement across the region
China - rapidly increasing enforcement
2015 witnessed another year of intense enforcement activity by China’s regulators. It began with the National Development and Reform Commission’s landmark fine of $975 million imposed on Qualcomm - one of the largest fines ever imposed on a company globally - for abusing its dominance in relation to the licensing of IP/standard essential patents. The year ended with one of the highest cartel fines to date of $63 million in the roll-on, roll-off cargo shipping cartel involving the transportation of vehicles and heavy machinery.
The State Administration for Industry and Commerce published its long-awaited regulations on the interface between IP and antitrust which highlights China’s renewed interest in IP-related antitrust issues.
China should remain high on the list of antitrust focus jurisdictions for multi-national companies. In addition to intensifying antitrust compliance training for personnel, companies will also need to familiarise themselves with investigation procedures in China.
Although rules and regulations exist to protect a company’s rights of defence and ensure due process, investigation procedures in China differ in material respects from those found in other major jurisdictions such as the EU and US.
In particular, the investigation process in China can be opaque, affording China’s regulators wider discretion in practice than their peers in other jurisdictions. Investigations are conducted at speed with responses to questions due in considerably shorter periods than in many other jurisdictions, which leaves companies feeling pressure to admit wrong-doing.
Investigations are expected to continue to focus on cartels, resale price maintenance and abuse of dominance cases in consumer-facing sectors, such as consumer goods, pharmaceuticals, high-tech, automotive and shipping.
Dawn raids are on the increase as China’s regulators intensify ex officio investigations. The number of complaints and leniency applications is also increasing the likelihood of detection of anticompetitive conduct and enforcement.
“With the authorities emboldened by complaints and leniency applications, we are seeing more and more antitrust investigations in China. Multi-nationals will have seen the size of the fines that have been imposed. Mitigating antitrust risk should be high on the agenda for companies operating in China.”
Ninette Dodoo, Counsel, Beijing
Hong Kong - ready to enforce
After much anticipation, Hong Kong’s competition law (the Competition Ordinance) finally entered into full force on 14 December 2015.
Organisations whose business interests touch Hong Kong, whether or not they are located in the territory, should be aware that the Hong Kong Competition Commission (HKCC) appears to have the tools and the appetite to start enforcement activities without much delay:
- The HKCC has a skilled management team and investigations unit comprised of a number of senior individuals who have previously held posts in competition authorities of established and active regimes. The wider team includes highly trained competition lawyers, barristers, economists and other regulatory investigators who should need little time to understand how to conduct complex investigations.
- The HKCC has deployed these resources wisely in the run up to the introduction of the Ordinance to engage in extensive outreach to the business community and familiarise itself with aspects of Hong Kong’s economy that are of interest to it.
- The CEO of the HKCC, Stanley Wong, has indicated that initial investigations will likely focus on serious anticompetitive agreements such as price-fixing, market sharing, output restriction and bid-rigging. Most cases are expected to be driven by complaints, rather than own initiative investigations of the HKCC. The HKCC has reported that it has already received a number of complaints, in particular related to cartels and resale price maintenance. Indeed, complaints are believed to be the reason why the HKCC has already commenced market investigations into fuel costs (possibly for price-fixing) and property management (possibly for bid-rigging).
The Chairman of the HKCC, Anna Wu, has stressed that international cooperation and consultation with other competition agencies will be a particular focus of her Chairmanship. This could expedite enforcement both in Hong Kong and also coordinated enforcement with foreign regulators. If nothing else, active international outreach may encourage “copycat” or “me-too” type investigations in Hong Kong, increasing the compliance risk of international businesses with a local presence.
Hong Kong appears to have ambitions to assert itself as a major competition regulator in Asia. Businesses should therefore expect rapid and intrusive enforcement over the next year or so.
“The Hong Kong Competition Commission will come under pressure in 2016 to commence enforcement, and to do so effectively and efficiently. The past years of slow and quiet ramp-up are now over. Businesses with operations and sales in Hong Kong must now be fully compliant with the competition law.”
Nicholas French, Partner, Beijing and London
Asia more widely
- Focus on due process by experienced regulators: with many years of experience and an increasing number of international cases, sophisticated regulators in Japan and Korea are turning their attention towards due process. The Japan Fair Trade Commission has been long criticised for the absence of legal privilege, heavy reliance on lengthy interviews of individuals and other aspects of due process protection. Some members of the business community have expressed concern that its recent proposals for reform do not go far enough. In Korea, reforms are intended to implement global standards, following concerns about the Korea Fair Trade Commission’s investigation procedure and high-profile cases where decisions were overturned because of procedural deficiencies or weakness of evidence collected under deficient investigative procedures.
- Active enforcement including in e-commerce and technology sectors: active enforcement continues across South East Asia with many new regulators tackling behavioural issues such as information exchange, as well as continuing to crack down on bid-rigging and cartels. Technology and e-commerce are particularly in focus in Japan, Korea and some other Asian countries, and the interface between innovation and competition is under the spotlight across the region. Draft guidelines on IP issued by several authorities have drawn comments from practitioners and academics around the world, with some concern being expressed about the approach being taken to the definition of market power, “fair, reasonable and non-discriminatory” (FRAND) principles and abuse of dominance in Asia.
- New laws and new regimes: with the launch of the ASEAN Economic Community on 1 January 2016, eight ASEAN states have already enacted competition laws, with Brunei, Myanmar and the Philippines being the latest to do so. In the early days of enforcement, the outcomes of investigations tend to be less predictable, emphasising the importance of instructing experienced antitrust counsel where possible.
“Across Asia, antitrust enforcement continues to become more important as a means of regulating market excesses and encouraging growth and innovation. As the authorities become more sophisticated and cooperate better, multi-nationals will have to adapt to make sure that their compliance programmes develop sufficiently in order to mitigate this increased risk effectively.”
Kaori Yamada, Counsel, Tokyo
Looking ahead to 2016:
- China’s increasingly assertive antitrust enforcement: Multi-nationals need to be aware of increasingly assertive prosecution of cartel and abuse of dominance cases in China. The speed of investigations and expectations around admissions of liability are very different to what might be expected in the EU or US. Businesses under investigation should plan defence strategies accordingly.
- Hong Kong competition law goes live: The HKCC is likely to start enforcing competition law vigorously in 2016 under its new powers. It has indicated a particular focus on cartels and resale price maintenance and has also noted that it will be cooperating with regulators in other jurisdictions. It is anticipated that this will result in a large rise in allegations of anticompetitive conduct in private courts in Hong Kong.
- Japan, Korea and Taiwan: We expect to see continued active enforcement by these more established competition law regulators. Concerns about procedures and checks and balances are unlikely to slow down or prevent cases being investigated.
- Rest of Asia: We are likely to experience continuing appetite for cooperation in cases among the more established regimes, in particular in Singapore, Malaysia and Indonesia. The ASEAN Economic Community launches in 2016, further enhancing antitrust enforcement by new regimes, such as those in Brunei, Myanmar and the Philippines.