Hong Kong’s antitrust watchdog on Monday brought its first court case on abuse of market power against a medical gas supply giant for allegedly using its de facto monopoly position to exclude competition.
The Competition Commission said Linde HKO, of the Germany-based Linde Group, and its parent company Linde GmbH unlawfully leveraged substantial market power in the production and supply of medical oxygen, medical nitrous oxide and medical air to maintain a stranglehold over the downstream maintenance market.
Linde was also said to have engaged in “predatory behaviour” towards other companies, in particular its closest competitor in the downstream market, MGI (Far East), such that the latter could not compete or perform its service contracts, and ultimately lost business.
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MGI had been a customer of Linde’s since 1992, satisfied with its orders of medical gases and storage cylinders until October 12, 2015 when the supplier changed its trading terms.
Examples of subsequent abusive conduct given in the High Court filing included unexplained denial of supply of medical gases necessary for MGI to perform annual testing and regular maintenance of the medical gas pipeline system (MGPS), even when MGI requested cylinders for Kwong Wah Hospital on the basis it was “critical and would influence the life safety”, on September 6, 2016.
Such contravention of the second conduct rule, which prohibits the abuse of substantial market power, spanned from October 2015 to January 2018, and was said to have “lingering effects” on the final price borne by public hospitals paying for maintenance services.
Commission lawyers believed such conduct was generally motivated by hostility towards MGI, in direct response to the government awarding a regional contract for public hospitals in the New Territories to the firm in September 2015, breaking Linde’s record as the primary provider of MGPS maintenance services.
The need to bring enforcement action in this case was particularly pronounced given the egregious nature of the conduct and the fact that the conduct seriously affected public hospitals
Samuel Chan, chairman, Competition Commission
MGI lost the contract to Linde two months later, allegedly because it was not able to obtain gas supplies for testing works, which caused the government to terminate the deal.
“Linde had a real interest in marginalising MGI from the downstream market,” the lawyers wrote to the Competition Tribunal. “Other than the fact that MGI was capable of winning the [New Territories contract] on merits, Linde knew the prices offered to customers on the downstream market would be affected by whether MGI was a serious competitor to it.”
Commission chairman Samuel Chan Ka-yan said the legal action marked a “pivotal milestone” in the city’s competition regime.
“The need to bring enforcement action in this case was particularly pronounced given the egregious nature of the conduct and the fact that the conduct seriously affected public hospitals which provide close to 90 per cent of hospital services to patients in Hong Kong,” Chan said in a statement.
The watchdog is seeking declarations that Linde had contravened the second conduct rule and that its health care sales general manager Daniel Tse Chun-wah was involved.
It is also seeking court orders for Linde and Tse to pay the government a pecuniary penalty, as well as a disqualification order against Tse, to bar him from directing or managing any company, for up to five years.
Infringements of the Competition Ordinance carry a maximum pecuniary penalty of up to 10 per cent of the entity’s annual Hong Kong turnover per contravention for a maximum period of three years.
As of late November, the commission had received more than 4,600 complaints and inquiries. Around 55 per cent concerned the first conduct rule, which prohibits anticompetitive agreements, while another 17 per cent raised concerns under the second conduct rule.
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