Category: RPM

Toyota’s distribution & pricing agreements under COMESA scrutiny

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Regional bloc’s antitrust enforcer further steps up investigations in the Common Market

By Gina Lodolo
On 16 June 2022, the Common Market for Eastern and Southern Africa (“COMESA”)’s Competition Commission (“CCC”) provided notice, as required by Article 22 of the COMESA Regulations (“Regulations”), that it launched an investigation into Toyota Tsusho Corporation (“Toyota”) in case no. CCC/ACBP/NI/3/2022.


Where the CCC has reason to believe that competition in the Common Market has been restrained, Article 22 of the Regulations requires the entity involved to be notified of the investigation, and further requires the investigation to be completed within 180 days of the notification. In this regard, the Toyota investigation was launched following allegations that the company contravened Article 16 of the Regulations. Article 16 (generally covering ‘restrictive business practices’) prohibits agreements that “may affect trade between Member States; and have as their object or effect the prevention, restriction or distortion of competition within the Common Market”.


The specific conduct referred to by Dr. Willard Mwemba, the Director and Chief Executive Officer of COMESA — who has revitalised the relatively young antitrust authority’s conduct investigations and increased its caché internationally by following best practices and engaging competition practitioners globally in the agency’s development and capacity-building process — includes Toyota’s distribution agreements with its authorised distributors. These vehicle distributors sell Toyota cars, trucks, and spare parts across the region, within their contractually designated territories. In this regard, the CCC is now investigating suspicions that the distribution agreements violate Article 16 of the Regulations in various ways — they may:
• Provide prohibitions on authorised distributors to sell outside of allocated geographic areas;
• Prohibit authorised distributors from indirectly selling outside of allocated geographic areas through selling to third parties, who they suspect will sell or transfer to another territory; and
• Indicate resale price maintenance by providing prices of Toyota products in the Common Market.

Andreas Stargard, a competition partner at Primerio Ltd. said, “this development shows how ‘CCC 2.0’ is truly emerging as a fully-fledged African antitrust enforcement authority and not a mere merger ‘toll booth’ regulator, which it essentially was for the first few years of its existence. The CCC has come a long way from the early days and is now pursuing abuse-of-dominance cases that it would not have had the capacity to tackle a decade ago”. Stargard observes that the Toyota case is “now the 3rd announced anticompetitive-business practice investigation of the year 2022 so far,” which is an absolute record for the CCC. “We’re talking proper grey-market / parallel-export restriction and RPM investigations here, this is no longer just a merger-fee collections agency.”

The agency invites public comment and further insight into Toyota’s dealings by 30th of July. Interested parties are invited to make comments to the Commission by 30 July 2022.

New CCC Chief addresses World Competition Day, lays out future of COMESA antitrust policy

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As we previously reported, long-time COMESA Competition Commission executive, Dr. Willard Mwemba, was recently promoted to his new role of permanent CEO of the CCC, after having been appointed Acting Director in February of this year. In this new capacity, he recently gave a thus-far unreported speech on the occasion of “World Competition Day” on December 5th, 2021.

In his short address, Dr. Mwemba lays out the mid-term future he envisions for the antitrust policy under his aegis in the Common Market, as follows.

Highlighting the importance of competition law for efficient and fair markets, with the goal of benefiting businesses (as opposed to being perceived as an impediment to business interests), Mwemba mentions key building blocks of the CCC’s enforcement going forward. These include resale-price maintenance and exclusive-dealing enforcement (around 1-1:30 in the little-known video, which has thus far only garnered two dozen views on the YouTube platform and is not yet published on the CCC’s own web site). He then moves on to merger regulation (2:45 onward), and further discusses the importance of the effectiveness of the actual competition law itself — noting that the CCC plans to amend its Regulations and Guidelines within the next year (3:40). Noting that the CCC cannot undertake this process very well alone, Mwemba highlights the cooperative approach of the Commission, partnering with and relying on other groups and stakeholders (such as the COMESA Women in Business group, OECD, and others).

Mwemba notes that the CCC’s “focus for the year 2022 will be on strict enforcement, especially against blatant anti-competitive conduct and blatant violations of the COMESA Competition Regulations, and in this case I mean cartels.  It is said that cartels are the supreme evil of antitrust … because it robs consumers, government, and businesses of huge sums…  So in line with this theme, our focus for 2022 shall be on cartels, and we shall make sure that we weed out all possible or potential cartels operating in the Common Market.”

The CCC chief concludes his address by saying that competition authorities “are not there to frustrate businesses, we are not the enemy of business”; instead, he sees the CCC’s role to ensure that markets operate fairly for all — a welcome reminder to the southern and eastern African business community to understand and embrace the precepts of antitrust law as an efficiency-enhancing mechanism for trading in the Common Market.

Competition enforcer terminates RPM investigation into Coca-Cola

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COMESA’s second restrictive trade practices investigation ends inconclusively

Having now concluded two non-merger cases (the first was an exclusivity issue in football broadcasting and sponsorship agreements, see here), the COMESA Competition Commission’s (“CCC”) second investigation into restrictive vertical distribution practices engaged in by Coca-Cola and its distributors has culminated in somewhat of an indeterminate ending.

No fines were imposed, and the Coca-Cola parties agreed to eliminate the price-maintenance clause from their distribution contracts, as well as committing to implementing a generic compliance programme.

Says Andreas Stargard, a competition practitioner with Primerio Ltd., in an in-depth analysis of the short Decision (dated 6th December 2018, but only released recently):

I am very disappointed in this missed opportunity.  The Decision lacks intellectual rigour and avoids critical detail, to assist practitioners or business going forward in any meaningful way.

This investigation began in earnest well over a year ago, when the CCC opened formal Article 22 proceedings against the parties in January 2018.  In its disappointingly short 9-paragraph decision, lacking any degree of detailed reasoning, factual or legal analysis underlying its conclusions, the Commission has now determined the following:

  1. The relevant product market is the sale of non-alcoholic carbonated beverages.  I note that the wording of this definition would presumably include sparkling mineral water, which appears to be an outlier from the ‘soft drinks’ category that is actually at issue here (“Coke,” Fanta,” “Sprite,” etc.).
  2. A relevant geographic market was notably not defined at all (!).  The absence of this key dimension is unfortunate — it is not in accordance with established competition-law principles, as market power can only be measured in well-defined product and geographic markets.  While the decision mentions the countries in which the parties are active, it fails to identify whether each country was viewed as a relevant sub-market, or whether Coca-Cola’s market power (or dominance) was assessed across the entire COMESA region.  This appears to be a glaring oversight.
  3. The CCC found relatively low entry barriers, as well as apparently actual “new product” entry (NB: does “new product” imply products by a new or different competitor?).
  4. Yet, despite ‘non-prohibitive’ entry barriers, the Commission somehow views the mere fact that the respondent’s brands “continued to command a majority share of the relevant markets” (NB: where is the plural (‘markets’) coming from here? I thought there was only a single market for ‘non-alcoholic carbonated beverages’?) as leading to a finding of dominance.
  5. Crucially, the actual conduct complained-of (the vertical restraints, the alleged RPM, etc.) is barely identified and lacks any significant detail.  Paragraph 7 merely provides that there are “clauses which stipulate the profit margins to be enjoyed by the distributors, as well as the commission at different levels of the market. … [and] vertical restraints which constrain the distributors’ conduct in the relevant markets” (note the plural again).  This absence of key information — ‘what were these so-called vertical restraints’? how were distributors constrained in their conduct? — in an official ‘Decision’  by the enforcement agency wholly fails to assist businesses seeking antitrust guidance for operating within the legal boundaries in the COMESA region.
  6. Finally, the CCC’s overall conclusion is rather weak: the Decision states that the Commission merely “registered its concern that the stipulation of prices [I thought it was profit margins?] may have anti-competitive effects in the market [back to a single market?].”  To address these ‘potential’ ‘concerns’, Coca-Cola appears to have voluntarily committed to removing the offending contract language and instituting a (wholly undefined) “compliance program” that exclusively concerns Part III of COMESA’s regulations.

In sum, Coca-Cola seems to have got away easy here: no fine was imposed at all (which could have been as much as 10% of the parties’ COMESA revenues), a limited, voluntary training exercise was agreed, as was the removal of the RPM provision.

The CCC, on the other hand, missed a truly golden opportunity to draft a more well-reasoned decision.  Its 9-paragraph reasoning (which notably concludes with a finding of actual dominance nonetheless!) can literally fit on a single page… Remember: resale price maintenance is considered in many jurisdictions to be a “hard-core” offence, and is often deemed per se illegal.  In this regard, the Decision likewise fails to make any mention of the relevant legal standard under the COMESA Regulations for evaluating the RPM (and the other unidentified, vertical) conduct.

Andreas Stargard
Andreas Stargard

The flaws outlined above — from the lack of geographic market definition, missing market share data and other highly relevant details, zero explanation of why low entry barriers somehow did not preclude a finding of dominance, use of tautological and circuitous verbiage (“restraints which constrain“?) — preclude this “conduct” case,  notably already a rarity in the CCC’s portfolio, to be a lightning rod for the assent of the COMESA Competition Commission to become a respected competition enforcer.  This was a chance for the agency to be placed on the radar screen of international businesses, agencies and practitioners, to be seen together on the map with its respected peer antitrust enforcers such as the South African Competition Commission — yet, it was a chance unfortunately missed…

 

Seeking exemptions from Resale Price Maintenance rules

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Kenya’s RPM regime of exemptions to floor price-fixing regulations

The Kenya Ships Contractors Association (KSCA) recently became the latest in a long line of industry associations that have approached the Competition Authority of Kenya (CAK) for an exemption to set minimum prices.  Other recent applicants include the Law Society of Kenya (LSK); the Institute of Certified Public Accountants of Kenya (ICPAK), the Institute of Certified Public Secretaries of Kenya (ICPSK) and the Institute of Surveyors of Kenya.

kenyaSection 21 of the Kenyan Competition Act 12 of 2010 (the Act) prohibits firms or associations from entering into any agreement that “involves a practice of minimum resale price maintenance” (‘RPM’).

Under sections 25 and 26 (read jointly), however, firms or associations may apply to the CAK to be exempted from this prohibition by way of an application to the CAK in the prescribed form, especially in instances where they believe there are exceptional and compelling reasons (of public policy) justifying setting such resale price floors.

In evaluating requests for exemption, the CAK will consider whether the granting of an exemption will promote exports, bolster declining industries or, more generally, the potential benefits outweigh the cost of a less competitive environment due to the RPM conduct.

Kenyan competition lawyer Ruth Mosoti, with Primerio Ltd., notes that, “although each exemption will be considered on its own merits, the CAK’s recent decisions in applications of a similar nature seem to have created a precedent unfavourable to the KSCA’s request being approved.” In this regard, the CAK in the ICPAK application rejected the application and stated that the “[i]ntroduction of fee guidelines will decrease competition, increase costs, reduce innovation and efficiencies and limit choices to customers and is in fact likely to raise the cost of accountancy services beyond the reach of some consumers”.

The CAK’s Director General, Mr. Wang’ombe Kariuki has now issued a notice requesting input from the public regarding the application.

Resale Price Maintenance in COMESA?

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Second Non-Merger Investigation Opened by COMESA Enforcer

Coca-Cola’s Africa operations — recently sold in a majority shareholder exit in late 2016 by Anheuser-Busch InBev (which owned 54.5%) — were due for a major overhaul of the company’s long-term strategic plan to grow its market presence across Africa.  Yet, it is now under investigation for restrictive trade practices by the COMESA Competition Commission (“CCC”).

This is a first, of sorts: After the CCC’s original non-merger investigation into exclusive marketing practices of broadcasting rights and sponsorship agreements in relation to football tournaments (AAT reported here) ended — or hasn’t ended — with something of a thud (nothing having been reported by way of conclusion thereof), we and the world’s largest soft drink manufacturer are bracing ourselves for the outcome, if any, of the latest COMESA salvo delivered by the CCC to prove its worth to its Board.  (We surmise so as this latest, second-ever, non-merger investigation may have been prompted at least in part by the fact that the CCC’s budget was recently slashed by the regional body, and that the Commission wishes to reestablish itself in the eyes of the COMESA directorate as a worthwhile agency to fund and to bolster).

The COMESA “restrictive practices” investigation into Coca-Cola’s distribution agreements may come on the heels of its (announced, yet likely neither begun nor concluded) market enquiry into the grocery retail sector, similar to comparable market-wide investigations undertaken in Kenya and South Africa; moreover, the South African Competition Commission has likewise undertaken past investigations into restrictive vertical distribution practices engaged in by Coca-Cola in South Africa.

Actual or would-be soft drink competitors may have also brought claims of foreclosure to the CCC’s attention — likely alleging resale price maintenance, as well as possibly lack of access to key distributors due to Coca-Cola’s exclusive or quasi-exclusive contracts and the like.  According to the official COMESA Notice, the agency is investigating allegations against The Coca-Cola Company’s African subsidiary (Coca-Cola Africa (Proprietary) Limited) in relation to its distribution agreements with downstream entities in Ethiopia and Comoros, both of which are COMESA member states, albeit historically rather inactive when it comes to competition-law enforcement.

According to the antitrust-specialist publication Global Competition Review, the CCC has stated that Coca-Cola’s alleged restrictive conduct worked as planned only rarely in practice.  Yet, the agency’s spokesperson noted that the risk of anti-competitive effects remained real: “Coca-Cola is dominant in these countries, it is important that they do not abuse that dominance through distribution agreements which frustrate competition in the relevant markets”, the spokesperson said, according to GCR‘s reporting.  The magazine also quoted Pr1merio antitrust lawyer Andreas Stargard as saying that the CCC can issue injunctions and impose fines of up to 10% of Coca-Cola’s turnover in the common market for the year prior to the conduct.

Andreas Stargard
Andreas Stargard

Stargard tells AAT further that “[a]ny agreement contravening Article 16 of the COMESA Regulations is automatically void.  In addition, while the CCC is breaking new ground here (as it has not yet successfully brought any non-merger investigation to conclusion to date), the applicable Regulations foresee not only injunctive relief (cease-and-desist orders and conduct-based injunctions forcing the party to ‘take whatever action the Commission deems necessary to remove and/or diminish the effect of the illegal conduct’) but also fines, as cited above.  However, no such fine has yet been imposed in any anti-competitive conduct investigation by the CCC.”

He continues: “Under the COMESA Competition Regulations, the agency normally has an initial ‘consultative’ time period of 30-45 days to evaluate whether or not to launch a full-fledged investigation.  This period may include meetings with the concerned party or parties, any complainant, or other stakeholders.  Thereafter, if the Commission votes to open an investigation, the latter must be concluded within 180 days from the date of receipt of the request for the investigation, if it was brought by a complainant.  Here, the official Notice provides that an investigation was in fact opened, meaning the clock has begun ticking.”

Interested stakeholders have until February 28, 2018 to issue comments.

The African WRAP – SEPTEMBER 2017 Edition

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Since our June 2017 Edition of the African WRAP, we highlight below the key competition law related topics, cases, regulatory developments and political sentiment across the continent which has taken place across the continent in the past three months. Developments in the following jurisdictions are particularly noteworthy: Botswana, Kenya, Mauritius, Namibia, Tanzania and South Africa.

[AAT is indebted to the continuous support of its regular contributors and the assistance of Primerio’s directors in sharing their insights and expertise on various African antitrust matters. To contact a Primerio representative, please visit Primerio’s website]

Botswana: Proposed Legislative Amendments

Introduction of Criminal Liability

The amendments to the Competition Act will also introduce criminal liability for officers or directors of a company who causes the firm to engage in cartel conduct. The maximum sanctions include a fine capped at P100 000 (approx. US$10 000) and/or a maximum five year prison sentence.

Fines for Prior Implementation

Once finalised, the legislative amendments will also introduce a maximum administrative penalty of up to 10% of the merging parties’ turnover for implementing a merger in contravention of the Act. This would include ‘gun-jumping’ or non-compliance with any conditions imposed on the merger approval.

Restructuring of the Authorities

Proposed legislative amendments to the Botswana Competition Act will likely result in the Competition Commission’s responsibilities being broadened to include the enforcement of consumer protection laws in addition to antitrust conduct.

Furthermore, there is a significant restructuring of the competition agencies on the cards in an effort to ensure that the Competition Authority – which will become the Competition and Consumer Authority (CCA) – is independently governed from the Competition Commission. Currently, the Competition Commission governs the CA but the CA is also the adjudicative body in cases referred to the Commission by the CA.

The proposed amendments, therefore, seek to introduce a Consumer and Competition Tribunal to fulfil the adjudicative functions while an independent Consumer and Competition Board will take over the governance responsibilities of the ‘to be formed’ CCA.

South Africa

Information Exchange Guidelines           

The Competition Commission has published draft Guidelines on Information Exchanges (Guidelines). The Guidelines provide some indication as to the nature, scope and frequency of information exchanges which the Commission generally views as problematic. The principles set out in the Guidelines are largely based, however, on case precedent and international best practice.

The fact that the Commission has sought to publish formal guidelines for information exchanges affirms the importance of ensuring that competitors who attend industry association meetings or similar forums must be acutely aware of the limitations to information exchanges to ensure that they do not fall foul of the per se cartel conduct prohibitions of the Competition Act.

Market Inquiry into Data Costs

The Competition Commission has formally initiated a market inquiry into the data services sector. This inquiry will run parallel with the Independent Communications Authority of South Africa’s market inquiry into the telecommunications sector more broadly.

Although the terms of reference are relatively broad, the Competition Commission’s inquiry will cover all parties in the value chain in respect of any form of data services (both fixed line and mobile). In particular, the objectives of the inquiry include, inter alia, an assessment of the competition at each of the supply chain levels, with respect to:

  • The strategic behaviour of by large fixed and mobile incumbents;
  • Current arrangements for sharing of network infrastructure; and
  • Access to infrastructure.

There are also a number of additional objectives such as benchmarking the standard and pricing of data services in South Africa against other countries and assessing the adequacy of the regulatory environment in South Africa.

Mauritius

Amnesty re Resale Price Maintenance

The Competition Commission of Mauritius (CCM) has, for a limited period of four months only, granted amnesty to firms who have engaged in Resale Price Maintenance. The amnesty expires on 7 October 2017. Parties who take advantage of the amnesty will receive immunity from the imposition of a 10% administrative penalty for engaging in RPM in contravention of the Mauritius Competition Act.

The amnesty policy followed shortly after the CCM concluded its first successful prosecution in relation to Resale Price Maintenance (RPM), which is precluded in terms of Section 43 of the Mauritius Competition Act 25 of 2007 (Competition Act).

The CCM held that Panagora Marketing Company Ltd (Panagora) engaged in prohibited vertical practices by imposing a minimum resale price on its downstream dealers and consequently fined Panagora Rs 29 932 132.00 (US$ 849,138.51) on a ‘per contravention’ basis. In this regard, the CMM held that Panagora had engaged in three separate instances of RPM and accordingly the total penalty paid by Pangora was Rs 3 656 473.00, Rs 22 198 549.00 and 4 007 110.00 respectively for each contravention.

Please see AAT’s featured article here for further information on Resale Price Maintenance under Mauritian law

Tanzania

Merger and Acquisition Threshold Notification

The Fair Competition Commission has published revised merger thresholds for the determination of mandatorily notifiable thresholds. The amendments, which were brought into effect by the Fair Competition (Threshold for notification of Merger) (Amendment) Order published on 2 June 2017, increases the threshold for notification of a merger in Tanzania from TZS 800 000 000 (approx.. US$ 355 000) to TZS 3 500 000 000 (approx.. US$ 1 560 000) calculated on the combined ‘world-wide’ turnover or asset value of the merging parties.

Kenya

            Concurrent Jurisdiction in the Telecommunications Sector

In June 2017, Kenya’s High Court struck down legislative amendments which regulated the concurrent jurisdiction between the Kenya Communications Authority and the Competition Authority Kenya in respect of anti-competitive conduct in the telecommunications sector.

In terms of the Miscellaneous Amendments Act 2015, the Communications Authority was obliged to consult with the Competition Authority and the relevant government Minister in relation to any alleged anti-competitive conduct within the telecommunications sector, prior to imposing a sanction on a market player for engaging in such anti-competitive conduct.

The High Court, however, ruled that the Communications Authority is independent and that in terms of the powers bestowed on the Communications Authority by way of the Kenya Communications Act, the Communications Authority may independently make determinations against market participants regarding antic-competitive conduct, particularly in relation to complex matters such as alleged abuse of dominance cases.

Establishment of a Competition Tribunal

The Kenyan Competition Tribunal has now been established and the chairperson and three members were sworn in early June. The Tribunal will become the adjudicative body in relation to decisions and/or taken by the Competition Authority of Kenya.

The Operational Rules of the Tribunal have not yet been published but are expected to be gazetted soon.

Introduction of a Corporate Leniency Policy

The Competition Authority of Kenya (CAK) has finalised its Leniency Policy Guidelines, which provide immunity to whistle-blowers from both criminal and administrative liability. The Guidelines specifically extend leniency to the firm’s directors and employees as well as the firm itself.

Only the “first through the door” may qualify for immunity in respect of criminal liability, but second or third responds would be eligible for a 50% and 30% reduction of the administrative penalty respectively, provided that provide the CAK with new material evidence.

It should be noted, however, that receiving immunity from criminal prosecution is subject to obtaining consent from the Director of Public Prosecution as well. As per the procedure set out in the Policy Guidelines, the Director pf Public Prosecutions will only be consulted once a leniency applicant has already disclosed its involvement in the cartel and provided the CAK with sufficient evidence to prosecute the other respondents.

It is not clear what powers the Director of Public Prosecutions would have, particular in relation to the evidence which has been provided by the leniency applicant, should either the CAK or the Director refuse to grant immunity from criminal prosecution.

Namibia

Medical aid schemes

In a landmark judgment, the Namibian Supreme Court overturned the High Court’s decision in favour of the Namibian Association of Medical Aid Funds (NAMAF) and Medical Aid Funds (the respondents) finding that the respondents did not fall within the definition of an “undertaking” for the purpose of the Namibian Competition.

Despite the substantial similarities between the Namibian and the South African Competition Act, Namibia’s highest court took a very different interpretative stance to its South African counter-part and held that because the respondents did not “operate for gain or reward” they could not be prosecuted for allegedly having  engaged in collusive behaviour in relation to their ‘tariff setting’ activities in terms of which the respondents collectively  determined and published recommended bench-marking tariffs for reimbursement to patients in respect of their medical costs.

 

 

Mauritius Competition Commission announces Amnesty for Resale Price Maintenance

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By AAT guest contributor Sanjeev Ghurburrun of Geroudis

The Competition Commission of Mauritius has just launched an amnesty program open from 5th June to 5thOctober 2017 for companies which consider they have practices which may amount to resale price maintenance (see here for a recent example of RPM resulting in fines in Mauritius).

Why bother?

In Mauritius, resale price maintenance (RPM) is a per se prohibition and any agreement which provides for it is void and prohibited to that extent. There is comparatively no justification which is allowed under our law to justify RPM.

In RPM cases, the Competition Commission of Mauritius (CCM) can impose financial penalties, for intentional or negligent breaches, which go up to 10% of turnover of offending party, and can extend back for a period of 5 financial years.

What does RPM mean and include?

The CCM defines RPM as “an agreement between a supplier and a dealer with the object or effect of directly or indirectly establishing a fixed or minimum price or price level to be observed by the dealer when reselling a product or service to his customers.” In short, Suppliers should not require resellers to stick to an agreed price or even to the price printed on the product packaging or to sell above a certain price.

This prohibition includes and extends to imposing conditions preventing resellers from discounting or making special offers or, for example, having agreed maximum discounts applicable between supplier and reseller.

Examples of situations which could, in general, be considered as RPM:

  1. The retailer shall apply a shelf price of MUR 77.50 for the first quarter and the corresponding promotional price shall not be below MUR 70.50
  2. The retail price consists of the purchase price plus a minimum mark up of 18%
  3. Supplier X sends an email to dealers A, B, C “as agreed during our last negotiations, the minimum retail price of MUR 227,50 will not be undercut as long as main competitors A, B and C stick to the said price”
  4. A supplier informs its resellers that it will affix the resale price of its product on the product label. Neither does the product label mention that the affixed price is a ‘Recommended price” nor do resellers negotiate the resale price with the supplier individually. Dealers purchase the products with the affixed resale price and do not show any resistance to supplier’s pricing policy.
  5. A supplier agrees with a reseller to grant the latter a 1.5 % rebate or ‘ristourne’ on the wholesale price provided that the retailer adheres to the recommended minimum resale price. The rebate will be deducted from the amount invoiced to the retailer on a quarterly basis upon proof of implementation of the recommended resale price.

When does RPM not apply?

There are two situations where RPM may not apply:

  • A supplier may recommend resale prices to its resellers provided there is no mechanism to entice or make sure that the reseller sticks to the resale prices recommended, and pricing expressly contains the RRP notice.
  • RPM may be permissible within an agency agreement or arrangement, in which one enterprise acts on behalf of another but does not take title of the goods or services. Care should be taken to make sure that the agency infrastructure is not such as made only to bypass the restrictions provided on law.
  • Agreements may set a pricing ceiling preventing resellers from raising prices, are permitted.

Clarification: RPM restrictions apply to all companies, and not only to monopolies (e.g. those with more than 30% market share in their respective markets)

Criteria for Amnesty:

In order to benefit from the amnesty, a company needs to:

  • Admit its participation in an agreement involving RPM
  • Provide to the CCM all information, documents, and evidence available to it regarding the RPM, and as required by the CCM;
  • Maintain continuous and complete co-operation until the conclusion of any action by the CCM in relation to the matter;
  • Offer undertakings that satisfactorily address the competition concerns of the CCM

Essentials:

Should a company consider amnesty, it should also consider the following risks:

  1. For the Amnesty application:
    • Whether there is an RPM issue;
    • A proper impact assessment review of extent and scope of the RPM
    • Full information and issues pack creation
    • Undertakings to propose to the CCM as part of the solution and its impact on the business as well as likelihood of acceptance or amendment by the CCM
  1. In addition to making the application, do consider:
    • The risk of any third-party claims against the company for having to admit liability in order to obtain the amnesty.
    • What else the CCM may find from the information required to be disclosed to them – e.g. the company is to make sure its house is in order.
    • Some restraints contain both vertical and horizontal elements, such as a when a supplier also sells to customers directly making it a competitor and a supplier to the reseller. In such cases, assess and consider how the CCM may analyse this and risks for the company.

Namibia Competition Commission: New Franchise Laws to Address Anti-Competitive Concerns

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By AAT Senior Contributor, Michael-James Currie

The CEO of the Namibian Competition Commission (NCC), Mr. Mihe Gaomab II, recently announced that the NCC has made submissions to the Minister of Trade and Industry in relation to proposed legislation which will regulate franchise models in Namibia.

Currently, there is no specific ‘franchise law’ in Namibia and moreover, franchisees are not required to apply to the Minister of Trade and Industry for registration of an ‘approval’ licences. Accordingly, there is minimal regulatory oversight in respect of franchise models.

While recognising the benefits of franchise models, the NCC is, however, concerned that there are a number of franchises in Namibia which may be anti-competitive in that the franchisor-franchisee relationship creates certain barriers to entry.

The NCC has specifically identified the practice, by way of an example, whereby certain franchisors deliberately ensure that there is a lack of competition between franchisees in the downstream market. The rationale behind this commercial strategy is allegedly so that the franchisor may extract greater royalties or franchise fees from the respective franchisees, as the franchisee is assured of a lack of competition.

The NCC views this practice as well as a various similar practices as potentially anti-competitive as the structure of certain franchise models may result in collusion between franchisees.

Unlike a number of jurisdictions, including South Africa, however, collusive conduct is not prohibited per se and a franchise agreement or model will, therefore, only amount to a contravention of the Namibia Competition Act if there is (or likely to be) an anti-competitive effect which cannot be justified or outweighed by other pro-competitive or efficiency arguments (i.e. rule of reason arguments).

The rule of reason analysis also extends to ‘minimum resale price maintenance’ (MRPM) under Namibian competition law. Again, unlike the position in South Africa, MRPM is not a per se prohibition (i.e. there is rule of reason defence available to a respondent). MRPM in terms of the South African Competition Act is a controversial topic as in many instances, the very success of a franchise model is dependent on uniformity in pricing across all franchisees. Furthermore, issues such as protecting brand reputation are also generally acceptable commercial practices which may amount to a contravention due to the strict application of the MRPM provisions under South African law.

In Namibia, franchisors therefore have somewhat more flexibility when recommending minimum resale prices than their South African counterparts. It should be noted, however, that the NCC is monitoring franchise models closely to ensure that franchisors do not overstep the mark by implementing a franchise model which has as its object or effect, the lessening of competition in the market.

MAURITIUS COMPETITION AUTHORITY PENALIZES FIRM FOR ENGAGING IN RESALE PRICE MAINTENANCE

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By AAT Senior Contributor, Michael-James Currie

In a landmark judgment, the Competition Commission of Mauritius (CCM) recently concluded its first successful prosecution in relation to Resale Price Maintenance (RPM), which is precluded in terms of Section 43 of the Mauritius Competition Act 25 of 2007 (Competition Act).

The CCM held that Panagora Marketing Company Ltd (Panagora) engaged in prohibited vertical practices by imposing a minimum resale price on its downstream dealers and consequently fined Panagora Rs 29 932 132.00 (US$ 849,138.51) on a ‘per contravention’ basis. In this regard, the CMM held that Panagora had engaged in three separate instances of RPM and accordingly the total penalty paid by Pangora was Rs 3 656 473.00, Rs 22 198 549.00 and 4 007 110.00 respectively for each contravention.

The judgment is important as it not only demonstrates the CCM’s increasing enforcement efforts and risk of non-compliance with the Competition Act (this decisions follows on CCM’s recent findings against firms for engaging in abuse of dominance conduct) but has created a particularly strict threshold on firms in relation to what constitutes price maintenance in terms of Mauritius competition law. RPM is a prohibited vertical practice, in which suppliers restrict or prescribe the manner in which customers resell the relevant products or services. Minimum resale price maintenance is prohibited in most jurisdictions. Whether the contravention is a “per se’ contravention (i.e. that there is no rule of reason defence available to a respondent) or whether proving an anti-competitive effect is a necessary requirement to prove a contravention is generally the key difference in the manner in which competition agencies enforce RPM.

In relation to Panagora,  the company was found to have contravened the Competition Act as a result of having affixed the resale price on two of its ‘Chantecler’ branded chicken products (chilled and frozen), without affixing the words ‘recommended price’ next to the stated price.

In addition, Panagora engaged in promotional sales to dealers  utilising a ‘deal sheet’ which contained the following clause “Le fournisseur se reserve le droit d’annuler le tariff promotionnel au cas ou certains produits sont vendus en dessous du prix normal” (the supplier reserves the right to cancel the promotional price in the event that certain products are sold below the normal price).

Importantly, in reaching its determination, the Executive Director held that although foreign case law, particularly Australian, UK and EU legal precedent serves as a useful guideline. The Mauritius Competition Act (in so far as it relates to RPM), differs vastly from its international counter-parts. In this regard, the Competition Act merely requires evidence supporting the contention that there was an object or effect of directly or indirectly establishing a fixed or minimum price or price level to prove a contravention. The Mauritius Competition Act  does not require that the conduct in any way prevented, restricted or distorted competition in the market.

Andreas Stargard, a competition practitioner with Africa boutique firm Primerio Ltd., notes that ‘[a] further important aspect of the CCM’s ruling is that sanction (or threat of a sanction) is not a requirement to prove a contravention of the RPM prohibition. Accordingly, the inquiry did not consider whether the downstream customer retained the discretion to price below the “stated price”.’

The legal precedent created by the CMM’s ruling provides much needed clarity as to how the CMM will evaluate resale price maintenance cases and firms need to be particularly cautious in relation to the terms of engagement with customers who on-sell their products.