On 15 September 2022, the Competition Commission (the “Commission“) commenced proceedings in the Competition Tribunal (the “Tribunal“) against The Tien Chu (Hong Kong) Company Limited (“Tien Chu“) for imposing minimum resale prices in the supply of a monosodium glutamate (“MSG”) powder to its two main local distributors.
Notably, this is the first case brought by the Commission against an undertaking for its engagement in resale price maintenance (“RPM“), which occurs whenever a supplier establishes a fixed or minimum resale price to be observed by the distributor when it resells the product affected by the RPM obligation. Vertical price restrictions of this kind are regarded by the Commission as having the object of harming competition at both the supplier and distributor levels, thereby in contravention of the First Conduct Rule of the Competition Ordinance (Cap. 619) (the “Ordinance“). For example, RPM arrangements may undermine suppliers’ incentives to offer lower prices to distributors as well as distributors’ incentives to negotiate lower wholesale prices, which may result in end-customers paying higher prices than they would absent the RPM arrangements.
The Commission’s case is that Tien Chu continued to give effect to and/or engage in RPM arrangements since the Ordinance came into effect on 14 December 2015 until at least 27 September 2017 by establishing minimum resale prices for its MSG powder to be charged by its two main local distributors at the time. Specifically, Tien Chu signed distribution agreements containing a requirement to “avoid improper price competition” with each of the distributors, and subsequently issued notices, reminders and warnings to ensure that the distributors would not sell the MSG powder for less than a particular price. Further, in response to the complaint by one of the distributors in 2016 that the other was snatching customers with lower pricing, Tien Chu took action to secure compliance with the minimum resale prices it had set by using, among other things, disincentives, threats and/or penalties.
The Commission is of the view that Tien Chu intended to, through the above RPM arrangement, prevent its two distributors from offering sub-distributors a discount on the resale price set by Tien Chu for the MSG powder. It has reasonable cause to believe that Tien Chu has contravened the First Conduct Rule and engaged in serious anti-competitive conduct (as defined in section 2 of the Ordinance).
The Commission is seeking before the Tribunal, among other things, an order for pecuniary penalty to be imposed on Tien Chu, and has decided not to pursue the two distributors.