The Hong Kong Competition Commission (HKCC) has ruled that a pharmaceutical sales survey proposed by some members of the Hong Kong Association of the Pharmaceutical Industry (HKAPI) is covered by the First Conduct Rule, which prohibits anti-competitive agreements.

The HKAPI had planned to collect sales data from pharmaceutical companies on their prescription and over-the-counter pharmaceutical products in Hong Kong and Macau, with a view to producing a sales survey report which would be published quarterly. The report would provide sales figures in different sectors and formulations.

Hong Kong’s competition law regime, like that of the EU, requires undertakings to carry out a self-assessment as to whether or not conduct is likely to contravene the competition rules. In Hong Kong, however, an undertaking can also apply to the HKCC for a decision as to whether an arrangement is excluded or exempt from the rules. This provides an undertaking with greater legal certainty regarding its conduct but also has the downside of drawing the conduct to the attention of the enforcement authority. Pursuant to this process, HKAPI brought its proposed conduct to the attention of the HKCC voluntarily, and in January 2019 submitted an application for a decision as to the applicability of the competition rules.

HKAPI argued that the survey should be excluded from the First Conduct Rule on the basis of economic efficiencies. Economic efficiencies are often recognised by competition authorities as legitimate grounds for justifying conduct which would otherwise be deemed to be anti-competitive. However, the burden of proving that economic efficiencies exist rests with the person seeking to rely on them and there is a high threshold to meet which involves showing that the arrangements giving rise to them are no more than necessary to obtain these efficiencies. There is also a focus on consumer benefit.

In this case, the potential anti-competitive effects of the survey arose from the fact that it would allow product-specific sales data to be directly or indirectly discerned or “robustly estimated” by competing pharmaceutical product manufacturers. The concern was essentially that the survey would facilitate anti-competitive information sharing.

The HKAPI identified a number of economic efficiencies that would result from the survey, which would lead to benefits for consumers. These included the ability of pharmaceutical companies to better allocate stock, easier introduction of new products into the market, enhanced marketing and distribution efforts of pharmaceutical companies, greater investments in other patient welfare enhancing activities, and development of public policy, academic research and R&D generally.

However, ultimately the HKCC was not convinced that the HKAPI had provided “convincing” or “cogent and compelling” evidence of the existence of efficiencies, or that certain proposals were necessary to achieve the efficiencies claimed (for example, why it was necessary to provide product-level sales data).

This is the second decision published by the HKCC under the mechanism for requesting a view on applicability of competition law rules to particular conduct, the first having been published in October 2018 in relation to the banking sector. The HKCC’s latest decision is a reminder of the difficulties of claiming an economic efficiency justification for potentially anti-competitive conduct. It means that businesses, and their in-house counsel, will need to be alive to the challenges they may face when trying to justify their conduct in the face of scrutiny by the HKCC. Businesses in both the pharmaceutical sector and in other industries should be wary of the difficulties that relying on such arguments pose, even where there are certain benefits that are perceived to be obvious.

This is true not just in Hong Kong but in many other jurisdictions, where a similarly critical view is taken of economic efficiency arguments. It is of particular importance in sectors under scrutiny by competition authorities such as the pharmaceutical sector, which also remains a focal point for the European Commission and a number of Member State authorities. This scrutiny is also evident in Asia. In China, for example, the State Administration for Market Regulation earlier last year fined two pharmaceutical companies for abuse of dominance. The authority has made it clear that it will target parts of the economy that directly impact people’s livelihoods, such as the pharmaceutical sector.

The HKCC’s statement of reasons supporting its decision can be found here.

Contacts

Adelaide Luke
Adelaide Luke
Partner, Hong Kong
+852 21014135

Frederick Good
Frederick Good
Associate, Hong Kong
+852 21014121