Hong Kong’s Competition Commission publishes draft guidance on leniency

Hong Kong’s Competition Commission published a consultation draft of its leniency policy on 23 September.  The draft policy is in anticipation of the full implementation of Hong Kong’s new competition law under the Competition Ordinance 2012 which is scheduled for 14 December. 

The Commission has also published draft guidance explaining its proposed policy whereby the Commission may make a leniency agreement with a person to the effect that it will not bring or continue proceedings in the Tribunal for a financial penalty in exchange for the person’s cooperation in an investigation or in proceedings under the Ordinance.

The draft policy resembles many of the features of other leniency regimes internationally and applies only to serious cartel conduct under the Ordinance (i.e. price fixing, market sharing, output limitation and bid rigging).

Notable points are the following:

-       The policy will apply only to the first cartel member who reports the cartel.  The Commission will not grant reductions in the potential penalty for other (second, third or later applicants).

-       The Commission states, however, that “favourable treatment” may be afforded to parties who do not qualify for leniency including through the possibility of making joint submissions with the cooperating undertaking to the Tribunal on the pecuniary penalty.  It remains to be seen how this would work in practice having regard to the timing, nature and extent of the cooperation required.

-       The Commission will not exclude through the operation of the leniency policy the possibility of private actions for damages being brought against a successful leniency applicant.  No apparent protection will be provided for protection against disclosure of leniency documents in such follow-on proceedings.

-       Currently the Communications Authority (which has concurrent jurisdiction with the Commission to apply the Ordinance in the telecommunications and broadcasting sectors) has an open mind as whether it will adopt a leniency policy and whether on its own or jointly with the Commission.

The majority of the Asia-Pacific jurisdictions offer some form of immunity or reduced penalties in return for cooperation by the company concerned with a competition law investigation.  Exceptions are Thailand and Vietnam.  Indonesia has a proposal to introduce a leniency policy. 

At this stage and against the specific jurisdictional system operating in Hong Kong where only the Tribunal may impose a penalty in cases under the Ordinance and the Commission is not a final decision-maker, there is no published guidance on the level of penalty.  Leniency will only be attractive to business if the net benefit to the company exceeds the real and likely penalty to be imposed.  The lack of decisional practice or guidance on the likely level of penalty or the potential size of the reduction for cooperation by later applicants can seriously undermine a country’s leniency policy and with it the ability to root out and successfully prosecute cartels.  If the Commission’s policy is going to be effective, it is likely that parties seeking leniency will need greater reassurance than is set out in the draft policy as to what information they will need to provide and at what stage in the Commission’s investigation of a possible infringement in order to qualify for the once and for all leniency currently on offer.

By way of comparative example, although Indian competition law allows for leniency there are no detailed guidelines on the circumstances in which leniency will be available.  There is a lack of clarity in terms of nature and quality of evidence that is required for the applicant to qualify for leniency.  There is no guidance on the extent to which the Competition Commission of India (CCI) will permit disclosure of leniency documents to private litigants and third parties in private damages actions in India or elsewhere.  Over six years into the life of the CCI’s enforcement there is no published case of a company being granted a leniency reduction. 

By contrast, in a landmark decision in April 2012, Pakistan’s Competition Commission (CCP) granted Siemens total immunity from fines for its cooperation in a cartel investigation relating to bid rigging in supplies to power companies.  This case is reportedly the first time that the new authority has received and granted a request for leniency

A culture against whistleblowing may also undermine the leniency regime, although guidance on leniency will reinforce the message that the authority’s work is to be taken seriously and may encourage other businesses to come forward with evidence of a cartel.

The Commission has invited comments on its draft leniency policy by 23 October 2015.

Watershed in criminal cartel prosecution

In the latest development in the prosecution of the criminal cartel offence under section 188 of the Enterprise Act 2002, a six-month suspended sentence has been handed down to an individual after he pleaded guilty to dishonestly agreeing to fix the prices of galvanised steel water tanks.  Peter Snee originally pleaded guilty to the charges back in June 2014. 

There are no sentencing guidelines applicable to a case of this type, although Judge Andrew Goymer said that he considered the gravity, nature, length and degree of Snee’s culpability in implementing and enforcing the cartel.  He considered that two years would be the appropriate sentence, but reduced this by three quarters on account of Snee’s cooperation and guilty plea.  An order of 120 hours community service was also imposed.  The Judge declined to impose a company director disqualification order.

Snee’s counsel argued that the defendant was effectively ‘carrying the can’ and that he had been through ‘three years of sheer hell’.  It was also argued that he acted out of concern for job security and the welfare of other company employees.

The case was the first criminal cartel offence prosecution brought by the CMA.  However, prosecutions against two other individuals - Clive Dean and Nicholas Stringer - who pleaded not guilty ended in acquittals in June this year.

The circumstances of this case are unlikely to be repeated.  Under the (pre 1 April 2014) definition of the cartel offence an individual is guilty of an offence if he dishonestly agrees with one or more persons to make or implement, or cause to be made or implemented, arrangements whereby at least two undertakings will engage in one or more prohibited cartel activity.  In respect of the post 1 April 2014 cartel offence the requirement that an individual must be acting “dishonestly” for these purposes is removed.  This change in the law is expected to make it easier to secure prosecutions.  Nevertheless, the case provides an important insight into sentencing as the potential sanctions are identical. The outcome reflects the reality that a guilty plea and cooperation can avoid prison time.  It seems that a six-month suspended sentence was the minimum that the judge could have imposed in the case.

Competition Commission of India condemns Google’s search engine practices

A report of the Director General (DG) – the investigating arm of the Competition Commission of India (CCI) – alleges that Google has breached India’s competition law prohibition on abuse of dominance.

Although the full terms of the confidential DG allegations are not yet public, reports suggest that the charges resemble some of the theories contained in the European Commission’s statement of objections issued to Google earlier this year and which Google refutes.

The DG maintains that Google acted unlawfully by favouring its own vertical content, allegedly as a result of manual intervention.  Although the European Commission has advanced a similar theory of harm based on alleged undue discrimination, it has claimed that it does not want to second-guess the company’s algorithms which are the basis on which search results appear in a particular way.

The DG has also argued that Google’s non-disclosure of quality scores makes it more likely that it will manipulate search results.  He also maintains that the practice of permitting companies to bid for key words could result in free riding off other companies’ trademarks and goes beyond legitimate search engine optimisation.

Further, there are a host of allegations that Google’s agreements with websites that want to feature Google advertisements are one-sided and anti-competitive, in particular by preventing developers from advertising on multiple search sites.

Google maintains that it does not occupy a dominant position in a relevant market and that its conduct is not abusive.  If the DG’s findings are confirmed, Google could face a fine of up to 10% of its turnover.

The case dates back to 2011 when the internet matchmaking company Bharat Matrimony and the Consumer Unity and Trust Society (CUTS) filed a complaint against Google alleging abuse of market power in search engines. 

The CCI has investigated or is investigating competition cases in relation to other companies or issues that have been or are the subject of investigation by international competition law counterparts.  The case against Google follows a similar pattern.  The CCI has had its behavioural competition law powers since 2009 and has already issued significant infringement decisions in both cartel and abuse of dominance cases.  If the CCI were to confirm the DG’s findings this would be the first case where a competition authority has found Google to have abused a dominant position.  Experience so far with other authorities – in the US and EU – suggests however that the case will be fiercely contested and it is far from over yet.