HONG KONG: Putting an end to restrictive practices
Clive Thorne asks whether, given its changed constitutional circumstances, it is not time for Hong Kong to introduce competition laws to banish its monopoly practices once and for all
With the coming into effect in the UK of the Competition Act 1998, consideration has once again been given in post-1997 Hong Kong to the desirability of competition legislation. The Hong Kong legal regime has so far been free of competition law.The argument in favour of introducing competition legislation is based on the fact that Hong Kong is now an advanced western consumer society. There are suppliers operating in Hong Kong that are operating a monopoly or oligopoly and the time is right to limit and regulate their activity. One of the significant features of the UK legislation is its intention to create readily enforceable rights that reflect the competition provisions of the Treaty of Rome. It is intended that these rights will be effectively and cheaply justiciable in the domestic courts.Hong Kong has relied upon a strong intellectual property (IP) law, which has been enforced without the restraints and defences provided by UK and EU competition law.At the heart of any system of IP protection is the underlying tension between the owner of IP rights, who by the nature of things veers towards a ‘monopoly’ and the potential infringer or licensee whose interest is in unrestricted dealing or access to such rights. Inevitably, as in the case of the UK Competition Act, defences and counter claims have proliferated and will proliferate further under the 1998 act as the vogue for IP protection increases.A further factor, which is perhaps more prevalent in Hong Kong than in the UK, is the ready access to the distribution of counterfeit products. For this reason the Hong Kong courts have always been live to the need to control product piracy by using IP law and to exert jurisdiction over products in shipment from China that pass through Hong Kong. The Hong Kong courts have also taken a strong line to prevent parallel imports and grey market goods being imported into Hong Kong without restriction. Hong Kong has the luxury of avoiding the strictures of ‘fortress Europe’ which have manifested themselves in recent decisions of the European Court of Justice such as the Silhouette case and perhaps the forthcoming decision in Davidoff. The Hong Kong courts have readily accepted the use of trademark, copyright and patent law to enforce IP rights against parallel importation. Good examples were the litigation taken by leading pharmaceutical companies to prevent the parallel importation of proprietary drugs such as Smith Kline Beecham’s actions to protect the market for Zyloric by using its Hong Kong patent rights.A warning against the unrestricted use of IP law was given by the Privy Council in 1988 in the Hong Kong appeal Interlego AG v Tyco Industries. This was a design copyright case in which the Hong Kong High Court and Court of Appeal found for Interlego when it sought to establish originality in small emendations to design drawings for Lego bricks. In delivering the advice of the Privy Council, Lord Oliver observed that the proceedings were a further illustration of the “undesirable practice of seeking to expand the boundaries of IP rights beyond the purposes for which they were created in order to obtain an unintended and undeserved monopoly”. By contrast, more recently, in Canon KK v Green Cartridge HK the Privy Council declined to apply the British Leyland spare parts exception on the basis that there was no public policy in Hong Kong, which required the prevention of a manufacturer from using copyright in order to control an after market in spare part photocopier cartridges. Lord Hoffmann considered at length the British Leyland doctrine in Hong Kong terms. However, he declined to form any view on whether the existence of copyright is capable of giving the rights owner anti-competitive economic power in the after market, contrary to the public interest. He added that the courts were ill-equipped to pronounce upon such matters that inevitably involve questions of economic policy and should generally be left to specialised bodies such as the Monopolies and Mergers Commission. He compared the attitude of the English courts to the “sophisticated economic arguments” deployed in similar cases in the US. Perhaps the time is now right, given Hong Kong’s changed constitutional circumstances and inevitable economic change as part of the South China economic zone to reconsider whether a competition law should be introduced.Clive Thorne is a partner in the media and technology practice at Denton Wilde Sapte.
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