AAT, dominance, South Africa, Uncategorized

SOUTH AFRICA: COMPETITION APPEAL COURT CONFIRMS TRIBUNAL FINDING IN COMPUTICKET ABUSE OF DOMINANCE CASE

By Charl van der Merwe

The South African Competition Appeal Court (CAC) on 23 October 2019 dismissed an appeal by Computicket (Pty) Ltd. (Computicket), following the decision of the Competition Tribunal (Tribunal) that Computicket had abused its dominance in contravention of the Competition Act.

For further information on the Tribunal decision, see the AAT exclusive here

Computicket appealed to the CAC on the substantive basis that the Tribunal erred in its factual conclusions on exclusion and anti-competitive effects.

It was further alleged by Computicket in its appeal that the economic evidence presented by the Commission was untested and speculative and ought to have been dismissed for a lack of independence. The basis for this allegation was that the economic evidence was presented by the Chief economist of the Commission, which presented a conflict of interests as the witness would be biased in favor of the Commission. The CAC rejected this argument and held that the evidence of experts must be assessed objectively on the basis of the criteria specified by the CAC (see Sasol Chemical Industries Limited v The Competition Commission 2015  – where the CAC held that there is no distinction drawn between an expert employed with the Commission and one appointed by a litigant).

On the substantive competition assessment, both experts were in agreement on the relevant market and Computicket conceded that it was dominant in that market in terms of section 7 of the Competition Act (with consistent market shares in excess of 95%).

The abusive conduct in question was that of exclusionary conduct, which can be assessed either in terms of section 8(c) or 8(d), with the latter being the ‘catch all’ provision. In this regard, the CAC confirmed that in terms of section 8(d)(i), it is sufficient for the Commission to prove only that Computicket’s conduct requires “or induces a customer not to deal with a competitor, without having to prove that the conduct also “impedes or prevents a firm from entering into, participating in or expanding within a market”. Once the Commission succeeds in linking the conduct to an identified theory of harm, the respondent bears the burden of proving that the harm is outweighed based on efficiency or other pro-competitive grounds.

Computicket argued against this ‘form based’ approach which, it believed hampered efficiency and could lead to consumer harm. It argued that one must consider the unique features of each market and, where there are other factors which may have exclusionary effects, the case must be dismissed.

This argument was, to some extent, upheld by the CAC who confirmed that there must be a causal relationship between the conduct and the anti-competitive effect (effects doctrine). The key consideration, however, remains what effect must be proven and the CAC confirmed that ultimately the judgment is made in weighing the net effects (harms and gain). In doing so, the CAC considered both actual and potential effects as well as the materiality of such effects. The CAC held that “plainly, a small adverse effect will readily be outweighed by pro-competitive gains”.

Against this legal framework, the CAC ultimately upheld the factual findings of the Tribunal and dismissed Computicket’s appeal.

In assessing the evidence, the CAC dealt with two fairly novel concepts which have become increasingly prevalent in South African competition enforcement, the assessment of negative effects on innovation and the efficiency of small competitors for purposes of the substantive assessment.

With regard to the latter, the CAC dismissed Computicket’s argument that a competitor lacked the requisite size and efficiency to compete with it. The CAC confirmed that the size and efficiency of the competitor are not determining factors in establishing likely competitive effects.

On the issue of innovation, without dealing with the argument in too much detail, the CAC confirmed the Tribunal’s finding that the exclusionary clause had a negative effect on innovation. This was held with reference to the Tribunal’s finding that Computicket had a “reluctance” to “timeously make use of available advances in technology and innovation”.

The Commission’s theory of harm in this case was that, viewed holistically, a decrease in supply by inventory providers; a reluctance by Computicket to timeously make use of available advances in technology and innovation; and the lack of choices for end consumers all cumulatively established an anti-competitive effect. It is not clear whether the delay (or reluctance) in introducing technology can be found to be an independent theory of harm.

In the Commission’s media release, the Commission indicated that it has referred a further case for prosecution to the Tribunal against Computicket and Shoprite Checkers (Pty) Ltd for exclusive agreements entered into between January 2013 to date (a period not covered by the prior case).

Competition lawyer, Michael-James Currie, says that the Commission has had limited success before the Competition Appeal Court in previous abuse of dominance cases with a number of decisions by the Tribunal in favour of the Commission overturned. One of the key concerns raised by the CAC previously is that the Commission failed to present a sufficiently robust economic case based on the available evidence to substantiate the theory of harm. The Commission appears to have, in this case, presented a compelling economic argument.

 

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