Television Broadcasts Ltd v Communications Authority: Implications for the New Competition Ordinance

On 29 January 2016, the Court of First Instance handed down an important decision on the procedural and substantive aspects of competition law. Justice Godfrey Lam, sitting in the Court of First Instance, decided to quash the 2013 decision of the Communication Authority (“CA”) that Television Broadcasts Limited (“TVB”) had violated the competition provisions in the Broadcasting Ordinance, for which TVB was fined a sum of HK$900,000 and ordered to rectify its practices. The judge decided that the CA’s decision should be quashed for procedural unconstitutionality and, alternatively, part of the decision should be quashed for the disproportionate remedies ordered. The judge nonetheless upheld the CA’s competition law analysis of TVB’s practices.

The Competition Ordinance, which is Hong Kong’s first cross-sector competition legislation that came into full operation on 14 December 2015, has now replaced the competition provisions in the Broadcasting Ordinance. As the first competition case decided after the full commencement of the Competition Ordinance, the TVB decision is important and sheds light on how the Competition Tribunal (of which Justice Godfrey Lam is the President) and other courts may decide similar procedural issues, analyse competition law issues and order remedies under the new Ordinance.

TVB’s Anti-Competitive Practices

The anti-competitive practices in question relate to certain contractual clauses and policies which TVB had imposed against its artistes and singers between 2007 and 2010. They include:

  • Exclusive clauses, which restrict artistes’ and singers’ appearances for other Hong Kong television broadcasters.
  • The “no original voice” policy, under which artistes and singers cannot use their original voice when appearing for other broadcasters.
  • The “no promotion” policy, which disallows participation in the promotional events of other broadcasters.
  • The “no Cantonese” policy, under which artistes and singers cannot speak Cantonese when appearing for other broadcasters.

These practices, which tend to limit other broadcasters’ access to artistes and singers, were found by the CA to have the purpose and effect of harming competition in the television programme service market, contrary to the competition provisions in the Broadcasting Ordinance. TVB challenged the CA’s decision by judicial review, which led to the present decision.

Procedural Unconstitutionality of the CA’s Decision

Justice Lam held that the CA’s decision should be quashed for procedural unconstitutionality – the legal framework did not provide TVB with a hearing by an independent and impartial tribunal despite the fact that it had its rights and obligations determined in a suit at law, contrary to Art. 10 of the Hong Kong Bill of Rights, which is constitutionally protected under the Basic Law.

First, the CA is not independent and impartial because it is both a policy-maker and a competition enforcement body in the broadcasting sector. Any views formed by the CA in fulfilment of its policy-making role (such as when the CA advised the Government on liberalisation of the broadcasting sector) regarding the competitive situation in the sector may influence its views on similar issues in a competition case. Secondly, the Chief Executive in Council (“CEIC”), to which the CA’s decisions may be appealed, is a political and non-judicial body which cannot fulfil the requirement under Art. 10. Besides, the possibility to challenge the CA’s decision by judicial review does not render the system constitutional, as the scope of challenge is necessarily limited, and excludes any challenge on the legal or factual accuracy of the CA’s decision.

The judge dismissed TVB’s alternative argument that the CA ought to have proved beyond reasonable doubt that TVB had violated the competition provisions. Even if TVB were faced with “criminal” charges under those provisions for the purposes of the Hong Kong Bill of Rights (which the judge disagreed), the applicable standard of proof would still remain as the ordinary civil standard of “on the balance of probabilities”. The judge confined the Hong Kong Court of Final Appeal decision in Koon Wing Yee v Insider Dealing Tribuna[2008] 3 HKLRD 372 (regarding the application of the criminal standard to insider dealing proceedings) to its context, observing that the economic nature of competition cases renders the criminal standard unsuitable for competition proceedings.

As to how similar issues will be addressed under the Competition Ordinance, the following observations can be made:

  • The independent and impartial requirement under Art. 10: This is likely to be satisfied by the Competition Tribunal which is newly established under the Competition Ordinance, given its independence from the Government and the Competition Commission (which is in charge of investigation and enforcement) and its only role as an adjudicator.
  • Likely “criminal” nature of the conduct rules under the Competition Ordinance: This follows from the fact that, in contrast to the Broadcasting Ordinance provisions, the conduct rules are broadly applicable to business entities in different sectors (not just the broadcasting sector) and offenders may be fined up to 10 percent of their local turnover, which is potentially a much higher maximum penalty than that under the Broadcasting Ordinance.
  • Standard of proof: Despite the likely criminal nature of the conduct rules, the recent TVB decision would suggest that cases under the Competition Ordinance would be decided according to the ordinary civil standard of proof. By parity of reasoning, for competition cases going forward, Koon Wing Yee would not be binding on the courts and the criminal standard would not be appropriate.

The CA’s Competition Law Analysis was Upheld

In upholding the CA’s competition law analysis, Justice Lam clarified the following legal principles, which are also relevant to future cases decided under the Competition Ordinance:

  • The focus is on whether the practices in question have the purpose or effect of harming competition in the relevant market (in this case, the television programme service market), instead of where (ie, in which market) the practices occurred.
  • It is not necessary for the CA to formally define the upstream market for the supply of inputs (in this case, the services of artistes and singers) if the issue is whether the practices have an anti-competitive purpose or effect in the downstream output market (in this case, the television programme service market).
  • In assessing market power, the CA is entitled to measure a firm’s market share by reference to a relevant metric (in this case, television viewership), provided that relevant factors other than market share, such as entry barriers and countervailing buyer power, are also considered in the overall assessment.
  • Market power relates to a firm’s ability to increase prices, decrease output or quality (in this case, decreasing the quality of television programmes), or do other things to boost profits, rather than whether or not the firm has actually done those things.
  • In evaluating the evidence, the CA is entitled to draw “sufficiently compelling” inferences from the relevant circumstantial evidence considered in its entirety.
  • It suffices for the CA to demonstrate that the practices in question have a potential, likely anti-competitive effect, as opposed to an actual effect, for the purposes of proving that they have the effect of harming competition in the relevant market.

The judge made extensive reference to overseas authorities, including EU, UK and Australian decisions, in clarifying the legal principles above. Since the Competition Ordinance is modelled after the competition laws in the EU, UK and Australia, legal authorities developed in these jurisdictions are likely to be of continual relevance to future cases concerning the Competition Ordinance.

Remedies against TVB were Disproportionate

The judge accepted that it was disproportionate for the CA to order TVB to eliminate all anti-competitive clauses and policies for all types of artiste or singer contracts, and that such an order should be set aside in any event. In the judge’s view, the anti-competitive situation could possibly be rectified if the restraints were removed for only some of the contracts, such that other broadcasters could hire the artistes and singers under those contracts.

The courts are likely to take a similar approach under the Competition Ordinance in requiring any remedies ordered to be proportionate, in that they should not go beyond what is necessary to cure the anti-competitive problem. However, EU authorities (eg, Hoffmann-La Roche v Commission [1979] ECR 461Intel v Commission [2014] 5 CMLR 9) and the Hong Kong Guideline on the Second Conduct Rule (para. 4.14) would suggest that it is possible to consider exclusive dealing imposed by a powerful firm as a restriction by object under the Second Conduct Rule if it serves no purpose other than to prevent competition from rivals. If the clauses and policies imposed by TVB are considered to have the purpose (ie, object) of harming competition, it may be an appropriate remedy to order TVB to remove all such clauses and policies, since the problem to be rectified is the anti-competitive purpose of each of these clauses and policies, not simply their (cumulative) anti-competitive effect.

Conclusion

In conclusion, Justice Lam’s recent TVB decision has provided welcomed clarifications on important issues of procedure, competition law analysis and remedies in competition cases. The decision provides helpful guidance on how the new Competition Ordinance may operate in future cases.

Jurisdictions: 

The University of Hong Kong, Assistant Professor
Des Voeux Chambers, Barrister

Mr. Kwok specialises in competition law as a practising barrister at Des Voeux Chambers and as an academic at the University of Hong Kong. He has experience handling competition law matters involving dispute resolution, exclusion/exemption-related applications and advisory work. He currently teaches competition law at HKU and publishes internationally on the subject. He also serves on the Bar Association’s Special Committee on Competition Law, the Consumer Council’s Competition Policy Committee, and the Hong Kong Competition Association’s Executive Committee, and as a Non-Governmental Advisor to the International Competition Network.