AAT exclusive, COMESA, mergers

Pepsi / Pioneer deal carefully eyed by East African merger authorities

As reported by AAT here last month, the PepsiCo / Pioneer Foods mega deal has caused the parties to agree to a number of conditions imposed by the South African Competition Commission, despite there being no material overlap between the parties which give rise to any legitimate competition concerns.

Now, COMESA has joined the field, with its Competition Commission likewise reviewing the transaction’s effect on the common market under its jurisdiction, pursuant to Notice 39/2019.  The Competition and Tariff Commission of Zimbabwe will likely provide its confidential input as to the transaction to the CCC.  According to local news outlets, the proposed U.S. $1.7 billion takeover by American conglomerate giant Pepsi has sent Zimbabwean and other local and regional competitors “into panic mode.”

In the specific context of the Zimbabwean non-alcoholic beverage market, local beverage producer Varun Beverages sells Pepsi’s brands and already enjoys significant tax benefits from its “special economic zone” status.  The local competitors’ concern is that, if Varun also obtains the full rights to distribute all of Pioneer’s FMCG products, it will put smaller rivals at a disadvantage.

Taken together with other regional taxation incentives (in Zambia, Varun had temporarily been granted a deferment of value-added tax and excise duty for five years, which was however reversed upon a finding of likely illegality), the impact may indeed affect the competitiveness of Varun’s rivals.  However, it remains to be seen whether the Pepsi/Pioneer deal itself has any material adverse competitive effects overall, as this is the transaction under review after all, comments legal practitioner Andreas Stargard.  “Besides, merger reviews pursuant to established antitrust law concern themselves not with the welfare of competitors, but with the maintenance of overall competition in the total relevant market.  Just because some rival is hurt does not make the deal anti-competitive per se,” says Stargard.  Moreover, there are major competitors still to reckon with, such as Delta brands, which has historically dominated the Zimbabwean market, and only recently lost market share to Varun, which has budgeted US$150 million in investments over the next five years.  “These investments and the increased rivalry between a potentially strengthened Varun and the existing market leader Delta may actually be considered pro-competitive indicators by the competition regulators, such as the CCC and the Zim authorities,” concludes Stargard.

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AAT, price discrimination, Uncategorized

South Africa News Alert: Price Discrimination and Buyer Power Provisions brought into effect.

On 13 February 2020, exactly a year since the price discrimination and buyer power provisions were signed into law, President Ramaphosa and Minister Patel have brought into effect the operation of the amended section 9 of the South African Competition Act (price discrimination) as well as section 8(4) (buyer power provisions) together with the respective Regulations.

Both provisions are aimed at ensuring that small or medium owned businesses or firms controlled by historically disadvantaged persons are able to “participate effectively” in the market.

While the buyer power provisions are largely consumer protection provisions – which require large firms to impose fair trading terms vis-a-vis their smaller customers, the amended section 9 of the Act has material ramifications not only for large suppliers but consumers as well.

At the heart of section 9, is a prohibition of volume based rebates/trading terms. While the Act permits for certain efficiency based pricing differentials (provided they are proportionate and reasonable), suppliers are prohibited from competing purely based on quantities. Low margins high volume type strategies would in many instances be prohibited – with the concomitant imposition of administrative penalties.

The motivation behind the amendments is to assist smaller players participate in the market. A noble objective. Although it seems quite apparent that those in support of the amendments have not fully recognized, appreciated or cared about the unintended consequences which are likely to flow from section 9.

Pro-consumer welfare pricing strategies may, under the amended Act, be outlawed. So while the counter factual is that certain small businesses may benefit, is this an industrial policy victory if consumer welfare is diminished? Hardly.

Although section 9 and section 8(4) where brought into effect on the eve of President Ramaphosa’s State of the Nation Address – certainly not coincidental – a challenge to the rationality of section 9 seems most likely.

The Competition Commission’s price discrimination draft guidelines expressly preclude any considerations to the level of efficiency of downstream customers or any impact (good or bad) on consumer welfare).

Seriously concerning stuff and large suppliers (across all industries) should take note of these amendments with urgency.

 

 

 

 

 

 

 

 

 

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BRICS, Grocery Retail Market Inquiry, mergers, public-interest, South Africa

South Africa: PepsiCo acquisition of Pioneer recommended for approval, at a price!

On 11 February 2020, the South African Competition Commission (SACC) recommended that PepsiCo’s acquisition of Pioneer Foods, be approved, subject to a number of conditions.

Despite there being no material overlap between the parties which give rise to any competition concerns, the Commission has proposed substantial public interest related conditions – including the establishment of an enterprise development fund and a BBBEE deal worth R1.6 billion in order to spread ownership among historically disadvantaged persons.

It is not yet confirmed whether the merging parties have agreed to these conditions although I strongly suspect that they have so as to avoid third party intervention.

The Commission has, as per its media release, recommended that the Tribunal approves the merger subject to several public interest commitments including:

(i) A moratorium on merger related retrenchments for a certain period;

(ii) The creation of additional jobs at the merged entity;

(iii) Significant investment in the operations of the merged entity, the agricultural sector and the establishment of an enterprise development fund; and

(iv) A B-BBEE transaction to the value of at least R1.6 billion that will promote a greater spread of ownership and participation by workers / historically disadvantaged South Africans.

Many of our readers will recall that the AB InBev/SAB and SAB/Coca-Cola mergers in 2016 were only recommended for approval by the SACC (in the face of Minister Patel’s intervention in these mergers) following the merging parties’ commitment to establish similar development funds. Further, Minister Patel (responsible for the executive portfolio which overseas the competition authorities) has on a number of occasions expressly indicated that he will look to intervene in large mergers by foreign firms in order to extract additional commitments to advance socio-economic objectives.

Those who monitored the AB InBev/SAB transaction will recall that executives of the merging parties engaged Minister Patel directly and negotiated the “public interest” conditions. A transaction of that nature, two of the world’s largest beer manufacturers, took approximately 6 months to obtain final approval in South Africa. Approval which included approximately a R1 billion “development fund”.

Prior to this merger, SAB and Coca-Cola had engaged with the SACC for approximately 18 months in order to obtain approval. After AB InBev acquired SAB, SAB also offered a supplier development and agreed to pay R600 million to this fund. The transaction was approved shortly thereafter. This was despite the Commission not having identified any material competition concerns.

While the merging parties may have consented to these conditions in an effort to avoid protracted hearings before the adjudicative bodies, the blatant extortion of foreign firms seeking to invest in South Africa is concerning and certainly does not assist or support President Ramaphosa’s foreign investment drive. Minister Patel has been prone to utilising market inquiries in an effort to address perceived high levels of concentration in the market (despite the vast unintended consequences of destabilizing those industries, sectors and private firms who are actually sustainable in challenging economic times and offer consumers great products and prices). It would be interesting to have a market study commissioned that attempts to quantify the amount of “lost foreign investment” into South Africa as a result of the political climate, interference and policy uncertainty. The number of jobs and spinoff benefits from that foreign investment is likely to substantially exceed any “supplier development fund” benefits which Patel seems to be vindicated in extracting from those firms who are actually prepared to invest in South Africa. Such a study wouldn’t even be particularly difficult to conduct. Survey foreign firms and ask how interested would they be to invest in South Africa if the merger filing fee for multinational foreign firms was lets say R1 billion (USD65 million)? South Africa would have to be a very attractive environment to operate in to justify that sort of commitment.

 

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AAT, East Africa, Kenya, mergers, Uncategorized

KENYA: AIRTEL//TELKOM KENYA MERGER CONDITIONS TAKEN ON APPEAL

By Ruth Mosoti

In December 2019, the CAK approved the merger between two Kenyan telecom firms, Airtel and Telkom Kenya, subject to a number of wide ranging conditions.

The merging parties, however, were not satisfied with the conditions and have decided to take the CAK’S decision on review to the Competition Tribunal. Kenya’s Competition Tribunal was fully constituted and became operational in May 2019 after four members were appointed to the panel.

In terms of  the Kenyan Competition Act, any party aggrieved by a decision of the CAK in relation to a merger has 30 days to file for a review of that merger before the Tribunal. The 30 days period commences from the date the CAK’s decision is published in the gazette. Accordingly, although the merger was formally approved in October 2019, the merging parties had to wait until December 2019 for the gazette, containing the CAK’s decision, to be published before a notice for review could be filed.

The Tribunal has a broad range of powers and may overturn, amend or confirm the decision of the CAK. The Tribunal may also, if it considers it appropriate to do so, refer the matter back to the CAK for reconsideration of certain issues.

Turning to the conditions themselves, one of the contentious conditions relates to having the spectrum revert back to the government upon expiry of the merging parties’ license.

This is concerning as it is the Communications Authority of Kenya that issues and renews licences. The spectrum allocation by Communication Authority is an asset in the hands of the holder. Assuming that the spectrum is being utilized in accordance with the licence, ordinarily renewal is guaranteed.

The CAK’s decision that the license must revert back to the government is concerning as it seems to overlap with the Communications Authority’s mandate. John Oxenham, a director of Primerio, says that the interplay and conflict between the roles of competition and communications agencies are not unique to Kenya. In South Africa there have also been a number of issues which have raised as to which agency is best suited to assess ‘competition law matters’. A memorandum of understanding between the South African Competition Commission and the Independent Communications Authority of South Africa (ICASA) has been concluded in an effort to ensure consistency and enhanced collaboration between the two agencies in this regard.

The CAK’s conditions in this merger seem to be at odds with the CAK’s approach adopted in previous matters. For instance, when Yui exited the Kenyan market, both Airtel and Safaricom acquired Yu’s assets (including licenses). Although Safaricom had a larger chunk of the 2G spectrum, the CAK did not seem to take Safaricom’s market size into account when these assets were acquired. Perhaps the CAK appreciates that there was a missed opportunity.

This is will be the Tribunal’s first opportunity to review the CAK’s decision relating to a  merger and it will be interesting to see how robustly the Tribunal scrutinizes the CAK’s decision with reference to economic evidence. As competition lawyer Michael-James Currie points out, unfortunately, the CAK does not publish detailed reasons which underpin its decisions and it is, therefore, often difficult to fully appreciate the CAK’s reasoning or assess whether the CAK’s decision is sufficiently supported by the underlying evidence. Hopefully the Tribunal’s reasons in this matter will be more comprehensive, thereby contributing positively to creating precedent.

Currie also points out that the CAK imposed a public interest condition relating to a moratorium of any merger specific retrenchments for a two year period. The merging parties are appealing this condition as well and have proposed that the moratorium be reduced to 12 months. The role of public interest factors in merger control has been materially influenced by the South African merger control regime where employment related conditions are a common feature in merger conditions. Moreover, two year moratoriums is usually the ‘benchmark’ standard although moratoriums ranging from 3-5 years have also been imposed on parties in South Africa. It will be interesting to gauge the Tribunal’s approach to public interest factors and whether we will see a unique approach to the assessment of such conditions or whether the Tribunal is likely to follow the South African approach.

[Ruth is a Primerio competition law practitioner based in Nairobi, Kenya.]

 

 

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Uncategorized

Africa’s Economic Growth Story, as Told by a World Bank Chief Economist

By Andreas Stargard

Andreas Stargard

Andreas Stargard

Our editor had the pleasure of attending the Corporate Council on Africa‘s live lecture by Dr. Albert Zeufack on the state of the African economy yesterday.  Dr. Zeufack is the World Bank’s Chief Economist as to the Bank’s Africa Region portfolio.  Here are some notes from this insightful event…:

To lead off with the [sub-Saharan] elephant in the room, the overall economic measures of the African continent are disproportionately affected by its three largest economies, namely Nigeria, South Africa, and Angola.  Together, these three nations make up 60% of the African economy.   And with their own declining or stagnating growth rates, they’ve brought down African GDP growth overall since 2016.  The remaining 45 or so sub-Saharan economies continue to grow at above 4%, however.

The World Bank predicts an above-3% growth for the next two years.  However, in per capita terms, Africa has stagnated or even regressed, given the continent’s high population growth rate.  Job creation (and crucially so in the formal sector) remains a key criterion for the continent’s economic improvement.

Dr. Zeufack presenting at CCA

Two of fastest-growing economies are Ethiopia and Rwanda — not only in Africa but indeed worldwide, as Dr. Zeufack points out.

2020 will remain a challenging year, with brighter prospects for 2021 and beyond according to the World Bank’s Chief Economist on Africa, whose Afronomics podcast can be found here (background here).

Macroeconomically speaking, foreign investment growth is declining (in terms of rate), with absolute levels stagnating.  Also, quite interestingly, the structure of debt is changing across Africa. While public debt (and interest payments) will remain high, its creditors no longer consist of the old “Paris Club” but rather of new bond holders, other Asian emerging markets, etc., thus foreclosing another HIPC bailout.  Private lenders would have to take a big haircut.

Many African HIPC countries spend 90% of their tax revenue on paying off external debt (or even merely interest) and their government salaries.  Eradicating poverty is therefore a long shot for this decade, says Dr. Zeufack.

Climate change likewise disproportionately affects (negatively) the continent, through increased cyclones, drought, and floods on the east coast, and desertification and coastal erosion in the west, affecting the large western seaside urban areas.

On its CPIA scale (which stands for Country Policy and Institutional Assessment), used to allocate World Bank funds, Rwanda performs at the top in Africa and all IDA countries, showing functioning reforms in its investment climate.  Cabo Verde, Kenya and Senegal also perform well.

Mauritius remains the top-performing overall in terms of business climate, with Rwanda, South Africa, Kenya and Senegal likewise scoring comparatively well.

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AAT exclusive, Angola, Botswana, Grocery Retail Market Inquiry, Kenya, Nigeria, South Africa, Uncategorized

Key African Antitrust Highlights of 2019 and What to Keep Tabs on for 2020

The level of antitrust enforcement across Africa has increased markedly over the past decade and with more jurisdictions coming on stream and establishing competition law regimes, the role of antitrust laws and the risk of non-compliance is becoming more pronounced than ever before.

Pan-African competition lawyer, Michael-James Currie, says that the role and applicable standards relating to competition law enforcement in developing countries is more divergent from those established in the more developed jurisdictions. A one-size fits all approach to competition law compliance is becoming less feasible – particularly as the role of public interest or non-traditional competition law factors are increasingly being taken into account in competition policy and legislation. Likewise, the thresholds for establishing “dominance” is generally lower across many of the African jurisdictions than those generally utilised in the United States or Europe and firms’ therefore need to be mindful that the traditional assessments of welfare (whether it is total welfare or consumer welfare) is not necessarily the benchmark. The focus of addressing perceived high levels of concentration in the market and opening up the market to smaller players is hallmark of a number of the more developed African agencies – particularly South Africa and Kenya.

Primerio Director, John Oxenham, says that the next decade of competition law enforcement in Africa is likely to be particularly important as the continent moves closer towards establishing the African Continental Free Trade Agreement. The harmonisation between regional bodies and domestic regimes remains an important challenges facing many agencies and this will become all the more relevant as member states negotiate an appropriate competition law framework suitable for the Continent.

Africanantitrust has throughout 2019 provided our readers with updates, opinion pieces and articles capturing the key competition law developments across Africa as they occur and our editors are committed to continuing doing so in 2020.

To start off the year, the editors at AfricanAntitrust provide a snapshot of the key highlights of 2019 as well as some of the most important developments to be expected in 2020 (although there will no doubt be many more).

Nigeria’s new Commission and the recent release of foreign merger control guidelines

In January 2019 the Federal Competition and Consumer Protection Act (the “Act”) was signed into law in Nigeria.

Nigeria did not have a dedicated competition law regime until then. The Act, which is not too dissimilar from the South African Competition Act, will regulate inter alia merger control, cartel conduct, restrictive vertical practices and abuse of dominance.

The Act is not currently being enforced as the Federal Competition and Consumer Commission (the “Commission”) is yet to be formally established although this is expected to take place soon.

In relation to mergers, section 2(3)(d) of the Act empowers the Commission to have regulatory oversight over all indirect transfers/ acquisitions of assets or shares which are located outside of Nigeria, and which results in the change of control of a Nigerian business.

Pursuant to the above-mentioned clause, on 13 November 2019, the Commission published the “Guidelines on the Simplified Process for Foreign to Foreign Mergers with a Nigerian Component”. The Guidelines specifies the type of information which is required in respect of the merging parties, as well as the mandatory supporting documentation which should accompany a filing. Furthermore, the Guidelines assist parties to a foreign to foreign merger by providing explicit rules on how the merger is to be treated, notified as well as the simplified procedure with regards to the merger.

Primerio director, Andreas Stargard notes that the implementation of the Guidelines will be interesting as the Guidelines are the first of its kind in Africa and is largely influenced by the European merger control regime.

The Guidelines also provide information regarding filing fees – although the calculation of filing fees remains somewhat unclear and requires further clarification.

Kenya’s Buyer Power Provisions

In Kenya, the Competition Amendment Act (the Amendment Act) has provided a new provision, Section 24A, which deals with buyer power.

Abusive “buyer power” is now expressly prohibited and any person who engages in such conduct will be considered to have committed an offence. Such an offence carries the penalty of a fine not exceeding 10 million shillings or imprisonment not exceeding 5 years. The abuse of buyer power is, therefore, viewed as a serious offence.

The “abuse of buyer power” is defined in Section 24A (2) of the Amendment Act as the influence exercised by a purchaser to gain more favourable terms, or imposing:

long-term opportunity cost including harm or withheld benefit, which, if carried out, would be significantly disproportionate to any resulting long term cost to the undertaking or group of undertakings”.

In determining whether an abuse of buyer power exists, the Authority will take into account;

  • the nature and determination of contract terms between the concerned undertakings;
  • the payment requested for access to infrastructure; and
  • the price paid to suppliers as stated in section 24A (5) of the Amendment Act.

The above mentioned provision will likely have the effect of affording suppliers greater protection, particularly small suppliers who have a weak bargaining power in comparison to powerful and dominant purchasers. It is furthermore important to protect such suppliers as the negative effects of the abuse of buyer power are often transferred to consumers, for example high prices.

Most notably, as Michael-James Currie has previously pointed out when critically assessing the new buyer power provisions, it is not a prerequisite to prove that the respondent is “dominant” before the provisions of section 24A(2) may be applicable. Rather, the provision considers the bargaining power between a particular supplier and customer. This provision may be particularly harmful to consumer welfare if suppliers who negotiate favourable prices with suppliers which are passed on to consumers, are deterred from doing so due to the risks associated with contravening this provision.

Recent amendments in the Botswana competition landscape

The Botswana Competition Amendment Act recently came into force on 2 December 2019, and is expected to transform competition law in Botswana in various respects, particularly in terms of horizontal restrictive practices, abuse of dominance, exemptions and merger penalties.

Oxenham says that the previous Act did not provide for criminal liability in respect of cartel conduct, however, under Section 26 of the Amendment Act this position has changed. In terms of the Amendment Act, any director or employee who is found to have engaged in restrictive horizontal practices is liable to a fine not exceeding P100 000 or to a term of imprisonment not exceeding five years or to both.

With respect to abuse of dominance, the Act previously did not list particular conduct that was considered to be an abuse of dominance. The Amendment Act provides clarity on the type of conduct that is likely to be considered abusive. The clarification is welcomed and will hopefully ensure greater compliance since undertakings now have the tools to foster a better understanding of what constitutes abuse of dominance and are better placed to ensure that their conduct does not fall foul of the prohibition.

The Amendment Act also caters for exemptions. The terms and conditions of any exemptions will be determined by the Authority who will take both competition law and public interest factors into account when assessing whether to grant an exemption.

In relation to penalties for gun-jumping (i.e. merger implementation prior to approval), the Amendment Act provides much needed clarity. Section 58(3) of the Acts states that implementing a merger without prior approval by the Authority will attract a fine not exceeding 10% of the consideration or the combined turnover of the parties involved in the merger – whichever is greater. Merging parties are, therefore, advised to ensure timeous notification is made in respect of any merger which meets the thresholds for a mandatory filing to seek merger approval in Botswana.

The Amendment Act has also introduced a provision regarding the consideration of a rejected merger.  Parties can apply for reconsideration of a merger within 14 days from the date of rejection. Such a provision provides the parties with an additional opportunity to provide oral evidence which is also a positive development.

Angola’s competition regime coming on stream

The Competition Act in Angola is now fully in force. The Competition Regulatory Authority (the “CRA”) is responsible for prosecuting offences. Conduct which occurred prior to the establishment of the Authority may still be prosecuted in certain circumstances.

The Competition Act prohibits both horizontal and vertical agreements that restrict competition in the Angolan market. Accordingly, undertakings have to be cautious in relation to the types of agreements they enter into as it may result in liability and prosecution by the CRA. The Act does however provide for exemptions from the prohibitions with the exception of abuse of dominance and abuse of economic dependence. Exemptions are only available upon application and the parties must demonstrate that they comply with certain conditions in order to be granted an exemption.

Importantly, Angola’s Competition Act creates a formal merger control regime. Mergers will now be subject to prior notification to the CRA and they have to meet certain specified requirements. The thresholds requiring prior notification are the following:

  • the creation, acquisition or reinforcement of a market share which is equal to or higher than 50% in the domestic market or a substantial part of it; or
  • the parties involved in the concentration exceeded a combined turnover in Angola of 3.5 billion Kwanzas in the preceding financial year; or
  • the creation, acquisition or reinforcement of a market share which is equal to or higher than 30%, but less than 50% in the relevant domestic market or a substantial part of it, if two or more of the undertakings achieved more than 450 million Kwanzas individual turnover in the preceding financial year.

Mergers must not hamper competition and must be consistent with public interest considerations such as:

  • a particular economic sector or region;
  • the relevant employment level;
  • the ability of small or historically disadvantaged enterprises to become competitive; or
  • the capability of the industry in Angola to compete internationally.

The sanctions for non-compliance with the Act’s merger provisions could result in the impositions of fines of 1%-10% of a company’s turnover for the preceding year, as well as other conditions which the Authority deems appropriate. Should a party fail to comply with relevant sanctions or conditions imposed by the Authority or provide with false information, the Authority may levy periodic penalty payments of up to 10% of the merging party’s average turnover daily.

South Africa

  • Amendment Act

In February 2019, the Competition Amendment Act was signed into law and is widely regarded as the most significant amendments to the South African Competition Act in two decades.

The majority of the provisions contained in the Amendment Act have been brought into force. Those amendments – particularly those relating to buyer power, price discrimination and national security approval regarding foreign mergers are expected to be brought into effect in 2020.

Some important aspects of the Amendment Act include:Mergers involving foreign acquiring firms :

The President is to establish a Committee which will be mandated to consider the implementation of mergers which involve a foreign acquiring firm and the potential adverse effect of the merger on the national security interests of the Republic. Essentially this means that a foreign acquiring firm is required to notify both the Competition Commission, as well as file a notice with the Committee. Security interests are broadly defined.

Buyer power

The insertion of Section 8(4)(a) essentially prohibits a dominant firm from requiring or imposing unfair prices or other trading conditions on a supplier that is a small and medium business (“SMEs”) or a firm controlled or owned by historically disadvantaged persons (“HDPs”). This section also introduces a reverse onus on the dominant firm to prove that its trading terms or conditions are not unfair nor that there has been any attempt to refuse to deal with a supplier in order to circumvent the operation of this clause.

The regulations regarding Buyer Power are currently only applicable to the following sectors:

  • Agro-processing;
  • Grocery retail; and
  • Online intermediation services.

Price discrimination

In determining price discrimination by a dominant firm, the Amendment Act has created two parallel self-standing tests. The Act has retained the traditional test for price discrimination which requires proof of a substantial lessening of competition, but has also prohibited a dominant firm from engaging in price discrimination which impedes the ability of Small or Medium Enterprises (“SMEs”) or firms controlled by historically disadvantaged persons (HDPs) from “participating effectively” in the market. Dominant firms are also not allowed to avoid or refuse selling goods or services to SMEs or firms owned or controlled by HDPs to circumvent the section. Significantly, and unlike the traditional price discrimination provision, Section 9(1)(a)(ii) does not require a complainant to prove any anti-competitive effects or consumer welfare effects.

Penalties

The Amendment Act has removed the “yellow-card” principle and administrative penalties will be imposed for any contravention. Previously, penalties for first-time offences were only applicable to cartel conduct, minimum resale price maintenance and certain abuse of dominance conduct (such as excessive pricing or predation).

Mergers

The role of public interest factors in the merger control assessment has become more prominent by firstly elevating the standard of public interest factors to equal footing with traditional competition law factors (i.e. SLC tests) and also broadening the public interest grounds which must be taken into consideration to specifically include transformation objectives.

  • Important cases

In December 2019, the South African Competition Appeal Court heard the appeal from the Tribunal in relation to the “Banking Forex” Matter.

Oxenham says that this case raises a number of jurisdictional issues in relation to the scope and powers of the South African Competition Authorities to impose penalties on foreign firms for engaging in cartel conduct outside of South Africa. Both personal jurisdiction and subject matter jurisdiction is being contested.

  • Market Inquiries

In 2019, the Commission fully utilized its powers in Section 43A-G and 23 in initiating and conducting market inquiries as well as its duty to remedy adverse effects on competition. Three market inquiries were conducted in 2019, namely:

  • The Health Market Inquiry;
  • The Grocery Retail Market Inquiry; and
  • The Data Services Market Inquiry

The implementation of the Commission’s recommendations of the abovementioned market inquiries will likely be a controversial topic, and much push-back is expected from parties implicated in the recommendations.

 

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AAT exclusive, East Africa, Egypt, mergers, Transportation

Egyptian taxi saga: antitrust watchdog reverses course on $3.1 billion Uber acquisition

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event

Competition law in life sciences (Fordham / Concurrences event)

Concurrences in partnership with Fordham Competition Law Institute will hold the inaugural Antitrust in Life Sciences on Monday, 23 March, 2020 from 1:30 to 6:30 pm at Fordham Law School in New York

Confirmed keynote speakers are: (1) FTC Commissioner Noah Joshua Phillips, (2) Paul Csiszár, European Commission – DG COMP’s Head of Antitrust Unit for Pharma and Health Services, (3) Gail Levine, FTC Deputy Director, Bureau of Competition in charge of Healthcare cases, and (4) Scott Hemphill, NYU Professor and former NY AG Antitrust Chief.

There will be three panels:

  • Panel 1: Generics Exclusion: What Conduct Crosses the Lines? – Product Hoping, Patent Settlement, Class Certification…

  • Panel 2: Do Pharmaceutical Mergers Harm Consumers?

  • Panel 3: The Counsel’s Perspective: How to ensure Antitrust  Compliance?

You can see all confirmed speakers, and register for free on the dedicated website:

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compliance, criminal AT, leniency, South Africa

Winds of Change? DOJ approach to compliance & lessons for South Africa

By Jemma Muller, Junior Contributor

In July 2019, the U.S. Department of Justice Antitrust Division announced new steps towards incentivizing antitrust compliance programs. According to the new model, compliance programs will be evaluated by the Division’s Prosecutors at the charging and sentencing stage in order to make a determination whether or not to recommend a sentencing reduction founded on a company’s efficacious antitrust compliance program.

This transition away from the pure all-or-nothing corporate leniency approach, towards a more inclusive view of all circumstances relevant to the antitrust violation, had been over five years in the making, says Andreas Stargard, a competition practitioner: “For years, this change was debated by experts at conferences and round-table discussions.  Moreover, senior DOJ leadership had been hinting strongly at embracing this more holistic approach, such as Bill Baer in his 2014 Georgetown Law speech and various other enforcers over time.  The current administration has merely sealed the deal,” he notes, pointing to Assistant Attorney General Makan Delrahim’s July speech entitled “Wind of Change: A New Model for Incentivizing Antitrust Compliance Programs.”  Mr. Delrahim noted that ‘the Antitrust Division is committed to rewarding corporate efforts to invest in and instill a culture of compliance’, and in doing so takes cognizance of company’s efforts to invest substantially in vigorous compliance programs (Justice News, ‘Assistant Attorney General Makan Delrahim Delivers Remarks at the New York University School of Law Program on Corporate Compliance and Enforcement’, 11 July 2019).  Mr. Stargard notes that the Antitrust Division is not truly breaking new ground here, as other countries such as Great Britain and France have long advocated for, and recognized the value of, voluntary programs.  In addition, similar changes in government attitudes vis-à-vis internal corporate compliance regimes have already occurred in other divisions of the Department of Justice, such as the Fraud and Criminal divisions.  “Indeed, even Mr. Delrahim acknowledged the long U.S. history of recognizing that ‘prevention is better than a cure’ by invoking Benjamin Franklin’s famous catchphrase in his speech,” he says.

Incentivizing a compliance program is beneficial for consumers as well as companies, as a company with an effective compliance program is likely to detect violations more promptly, thus not only curtailing the resultant harm from the violations, but also allowing those companies the most probable chance of being the first to partake in and secure corporate leniency.  The stance in this approach therefore seeks to ensure prevention, and as a result less ensuing harm, which translates into less efforts and resources spent on enforcement.

To guide prosecutors in evaluating compliance programs, three essential questions should be asked, namely;

(1) Is the corporation’s compliance program well designed?

 (2) Is the program being applied earnestly and in good faith?

 (3) Does the corporation’s compliance program work?”

It is also useful that guidance is given on what elements an effective antitrust compliance program consists of in order for a company to structure its program accordingly.  These elements consist of:

  • The design and completeness of the program;
  • The corporation’s principles of compliance;
  • The resources allocated to antitrust compliance and those responsible for compliance;
  • Risk assessment procedures;
  • Training and communication to employees on compliance;
  • Techniques for monitoring and auditing;
  • Reporting procedures;
  • Incentives for compliance as well as a discipline framework; and
  • Procedures for remediation.

It is important to note that a comprehensive compliance program does not in itself guarantee a sentencing reduction, as Antitrust Division prosecutors are generally tasked with having a holistic outlook, i.e., taking into account all of the specific facts of each case.  Said Delrahim: “The Antitrust Division’s new approach to compliance programs should not be misconstrued as an automatic pass for corporate misconduct.”

With regards to administrative penalties specifically, the new model provides for a possible statutory fine reduction for a company’s recurrence prevention efforts. In considering a reduction, prosecutors will take cognizance of measures taken by a company in discipling those responsible for a particular violation, as well as measures taken to ensure such a violation does not reoccur. Here, prosecutors will consider: the steps senior management has taken to revise the compliance program, as well as the involvement in training and incentivizing compliance; improvements to the pre-existing compliance program; if no compliance program is in place then the design of a compliance program; and lastly the enforcement and/or creation of disciplinary procedures.

Do these winds of change blow all the way east, across the Atlantic, and reach African shores?  Unlike the U.S., South Africa does not — thus far — have a similar approach to incentivizing compliance programs. This means that the cited benefits of incentivizing compliance programs are not necessarily gained. If South African authorities were to implement a similar approach, it would encourage a culture of compliance; it would be beneficial for companies and consumers; and it would assist companies in designing and implementing effective compliance programs which would assist in early detection of violations and thereby assist those companies wishing to apply for corporate leniency in being the first in line potentially to receive immunity.

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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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