Hong Kong finally adopted its first comprehensive competition law in June this year, almost four years after the Chinese mainland adopted its Anti-Monopoly Law. The law is not expected to enter into force before the end of the year. However, businesses in Hong Kong need to start preparing for the time when the law comes into force. Many businesses are wondering what the city's first competition law will mean for them and whether they will need to make changes in the way they do business.

The law prohibits agreements between market operators that have the effect of restricting competition. Examples are agreements between competitors fixing prices for their products/services. It also prohibits abuses of market power by a single firm, thereby restricting the behavior of companies with large market shares. The law will be enforced by the Competition Commission before the Competition Tribunal. The Tribunal will have the ability to impose fines for any violation, and to impose that such violation be terminated.

The Competition Commission may initiate investigations, but may also act on complaints from consumers or businesses. While it is impossible to anticipate what direction the Commission will take, we expect they will need to be selective and are likely to concentrate on serious anti-competitive conduct (such as price fixing agreements, market allocation and bid rigging) that may have a significant impact on the prices consumers pay for products/services.

Given the openness of the Hong Kong economy, it is unlikely that the Competition Commission would specifically target multinational corporations (MNCs), unless they operate in industries or market sectors the Commission decides to target. The law is broadly in line with competition laws applicable in many market economies around the world. As many MNCs apply the same competition law policy around the world, in many cases they will have already implemented arrangements that comply with anti-trust laws in other jurisdictions, and hence already comply with the fundamental principles under the new law in Hong Kong.

One of the concerns raised during the legislative process was that the law would open the floodgates for litigation that could force small companies out of business.

To address this concern, the law provides that initially only the Competition Commission (a government body), and not private parties, will be able to take enforcement action under the law. If it believes that the law has been infringed, the Competition Commission will have to take action against the alleged violators before the Competition Tribunal.

Private lawsuits between companies will only be possible after the Competition Tribunal has decided on a case, for example, as a means for a victim of anti-competitive conduct to obtain damages.

All businesses in Hong Kong should conduct a comprehensive review of all their activities, and especially their dealings with competitors, to ensure they are not doing anything that is not in compliance with the law. This not only includes formal agreements with competitors but also more informal contacts, for example within the framework of trade or industry associations. In addition, companies with a market share of 25 percent or more should review their activities to make sure that they do not violate the prohibition on abuses of substantial market power. Finally, they should implement a robust compliance policy to detect and prevent anticompetitive conduct.

Sbastien Evrard and co-author Don Hess are partners at Jones Day. The views expressed here are entirely their own.

(HK Edition 08/14/2012 page2)