Information is immensely powerful. It can give you an edge over your competitors. It can enhance competition by allowing companies to operate more efficiently and consumers to compare prices and products more easily. But it can also be used anti-competitively, especially where it artificially reduces competition.
Why should you be concerned about information exchange?
Cartel and other anti-competitive conduct inevitably require an exchange of information between competitors as this forms the basis for an agreement or concerted practice. Information exchange, whether it is exchanged directly with a competitor, through a trade association, via a third party such as a supplier or distributor, or by publication, is an important evidentiary requirement to prove a breach of the Ordinance.
The risk of breaching the Ordinance arises where the information exchanged between competitors is competitively sensitive in nature. Information exchange that concerns an undertaking's future pricing or output intentions is inherently risky while historical data or aggregated data which does not allow identification of its source(s) can be less likely to breach the Ordinance.
When is information exchange illegal?
Anti-competitive information exchange falls within the realm of the First Conduct Rule (FCR). The FCR prohibits an agreement or concerted practice between two or more parties, or the making or giving effect to a trade association's decision, that has the object or effect of harming competition in Hong Kong. Decisions concerning matters such as prices, output, market entry and exit, contractual terms and conditions, must be made independently.
Sharing information with a competitor which concerns future pricing or quantities will almost always be viewed as having the object of harming competition and a breach of the law. The Competition Commission will also view an exchange of competitively sensitive information as an illegal concerted practice where it was provided with the expectation or intention that the competitor will act on it and the competitor does or intends to act on it. The Competition Commission will infer that such an intention exists if there is no legitimate business reason for the exchange.
What type of information increases your risk of breaching the Ordinance?
Competitively sensitive information can take many forms and is often strategic information. It includes information about actual, recent or future prices (including surcharges, discounts and rebates), customer lists, production costs, quantities, turnover, sales, actual and future capacity, quality, marketing plans, investment and technology.
Information that is genuinely public, aggregated or historical is less likely to pose a competition law risk. While the frequency of information exchange can be an important consideration a single exchange information can still breach the Ordinance.
Is it illegal to charge similar prices to my competitors?
In highly competitive markets competitors are likely to react immediately to their competitors' actions. It is not illegal to lower your prices to match your competitor's prices to avoid losing market share, but it is illegal to share information about prices or the lowering of prices. The most important factor is to act independently.
When is there a greater risk of anti-competitive information exchange?
Trade or industry associations present fertile breeding grounds for anti-competitive exchanges of information. Matters discussed at trade association meetings and initiatives to improve market conditions, however laudable, are often the subject of cartel cases. Problematic topics include pricing, terms of trade, refusing to deal with or blacklisting certain customers or suppliers and managing capacity. You should ensure that you or your employees who participate in such organisations have received comprehensive competition law training and that safeguards are put in place to minimise the risk of breaching the law.
Another high risk area involves information obtained and provided by your sales and marketing teams. While it is common practice to seek out competitively sensitive information concerning your competitors' activities, the source of this information must not be obtained from the competitors themselves or by using third party conduits. It is good practice to identify the source of other parties' competitively sensitive information to demonstrate that it has been obtained from a legitimate source.
Price-fixing and other anti-competitive exchanges of information can arise where competitors agree to use a supplier or distributor as a conduit to exchange information. Similarly, an illegal concerted practice may arise where an undertaking provides competitively sensitive information to the third party intending that the third party will pass on the information to a competitor to influence its decision making, the information is passed on, and the competitor uses this information.
Distribution and supply agreements, that contain clauses that require the reporting of prices and sales volumes, can be problematic where you also compete with the distributor at the same level of the distribution chain. This risk is becoming more prevalent as manufacturers are increasingly supplying consumers directly as well as supplying their products through a distributor. In such cases, you should consider ring-fencing the information so that it is not used to determine your prices or other terms of trade.
What are the consequences of anti-competitive information exchange?
There are two possible enforcement approaches the Competition Commission can take depending on the seriousness of the alleged offence:
- issue a warning notice, providing an opportunity to cease or alter the offending conduct; or
- institute proceedings in the Competition Tribunal without first issuing a warning.
If the Competition Tribunal finds an offence has been committed, it can issue a fine up to 10 per cent of the undertaking's group turnover in Hong Kong for the duration of the infringement (with a three-year cap) for each offence.
Interested in other aspects of Hong Kong's Competition Law?
You may be interested in reading the related First Conduct Rule fact sheet in this series.