AAT exclusive, BRICS, collusion, COVID-19, exemptions, South Africa

Pandemic Antitrust Exemptions, or: “The Virus Let Me Do It!”

In antitrust circles, the term “Competitor Collaboration” may refer to quite an innocent practice, but is perhaps more often used as a euphemistic reference for good old-fashioned collusion: namely, a cartel by any other name.  Antitrust enforcers around the globe attempt to harness its “good side” during the viral pandemic…

In the COVID-19 world, several competition-law enforcers, including those in the United States and in South Africa, have tried to act swiftly to create express “safe harbours” for certain types of permissible conduct between (otherwise horizontal and direct) competitors.  The goal of these (usually temporary) exemptions from the strictures of antitrust prohibitions against collaboration, information exchanges, and the like, is to enable medical-supply providers to ensure that urgently-needed products and services can be delivered most expediently to the affected areas, patients, and hospitals.

Andreas Stargard

Andreas Stargard

In the United States, notes Andreas Stargard, an antitrust attorney, the COVID-19 pandemic has shown that the federal antitrust agencies are capable of proceeding with speed when it comes to signing off on such allowable “competitor collaborations”, which are in the best interest of facilitating an efficient health-care industry response to the crisis.  The FTC and DOJ are now swiftly, within one week of the submission of a detailed request for review, sanctioning proposed cooperation agreements by firms that would otherwise compete to supply medicines or equipment.  Applicants for a business-review letter (“BRL”) must provide a detailed explanation of the planned conduct, together with its rationale and expected likely effects, to the agencies.

The first of these opinion letters was issued on April 4th, 2020, under the expedited procedure to McKesson, Cardinal Health and others.  It allows them to collaborate on PPE production, following the call for such action by FEMA and other federal agencies, and pursuing the coordinated response under their supervision for a limited time period (namely the duration of the crisis).  What could be deemed anti-competitive effects, such as an undue price increase, output reduction or the like, is expressly excluded from the permissible conduct.

Applying the “same analytical framework” as the DOJ’s approval of the PPE-related collaboration between McKesson, Cardinal Health, Owens & Minor, Medline Industries and Henry Schein Inc., the Department’s Antitrust Division has now issued a second BRL, dated April 20th, to AmeriSource Bergen and others, approving their similarly designed scheme to distribute medicinal products jointly across the country.  AmerisourceBergen sought the agency’s blessing of the proposal pursuant to the expedited review procedure outlined in the March 24th joint FTC and DOJ guidance on health-care providers collaborating on necessary public-health initiatives, in which the dual antitrust enforcers announced their goal to answer COVID-19-related BRL requests within one week of receiving the BRL applicants’ detailed description of the proposed collaborative conduct.

Mr. Stargard counsels that those firms seeking a BRL exemption should consult with a competent antitrust specialist lawyer.  He notes that the federal agencies have expressly invited providers to take advantage of the expedited BRL procedure, which is temporary in nature and only available during the time of the declared COVID-19 pandemic.

In South Africa, the South African Minster of Trade and Industry and Competition (“Minister”) has taken a similar tack, having published Regulations under Section 78 of the South African Competition Act 89 of 1998 (“Competition Act”).  Unlike the U.S., however, these Regulations go well beyond the medical industry.  John Oxenham, a Johannesburg-based competition lawyer, observes that “these Regulations exempt industry players in certain sectors from prosecution for conduct in contravention of Sections 4 and 5, also known as Block Exemptions.”  They also apply to the prohibition of excessive pricing (and ensuring sufficient supply) by firms selling key supplies.  Related to the exemption process in terms of the Competition Act are the powers of the Minister to publish directions under the recent Regulations issued under section 27 (2) of the Disaster Management Act (GN 318 of 18 March 2020). In this regard, Regulation 10(6) provides that the Minister may issue directions to “protect consumers from excessive, unfair, unreasonable or unjust pricing of goods and services during the national state of disaster; and maintain security and availability of the supply of goods and services during the national state of disaster.”

Block Exemptions

John Oxenham

John Oxenham

Block Exemptions have been published by the Minster in terms of section 10(10) of the Competition Act which provides that the Minister may, after consultation with the Competition Commission (SACC), issue regulations in terms of section 78, exempting a category of agreements or practices from the application of sections 4 and 5 of the Competition Act. As at the date of writing, Block Exemptions have been granted to the Healthcare Sector, the Banking Sector and Retail Property Sector.

Health Care Sector

The exemption include a range of industry players, including healthcare facilities, pharmacies, medical suppliers, medical specialist, pathologists and laboratories, and healthcare funders.  The Block Exemption will similarly allow industry players to coordinate on procurement of supplies, transferring equipment and coordinating the use of staff. In effect, the Block Exemption extends and broadens the scope of the exemption enjoyed by the NHN to include state and private healthcare. While this move is certainly a welcome one to ensure that South Africa is able to effectively deal with the spread of COVID-19, its effect on competition in this market will be most interesting. The health care sector, and particularly large private sector players (Private Health Care), has long been in the cross-hairs of the SACC, with many enforcement actions, heavily contested merger control proceedings and most recently, the market inquiry into the private healthcare sector conducted and concluded by the SACC. Concentration and Coordination has been key to the debate. While the Exemptions will apply only for so long as the state of disaster remains in effect, the effects of these measures on the industry is likely to endure for some time and will reform the debate around the future of health care in South Africa.  On the 8th of April the Block Exemption was amended to additionally cater for the following:

(i)         Those agreements which are exempt can only be undertaken at the request of the Department of Trade, Industry and Competition or the Department of Health. Furthermore, either of these departments may impose further conditions on the agreements or practices; and

(ii)        The Exemption now caters for agreements or practices between manufacturers and suppliers of medical and hygiene supplies.

Banking Sector

The Block Exemption published in favour of the Banking Sector is aimed at exempting a category of agreements or practices between Banks, the members of the Banking Association of South Africa and/or Payments Association of South Africa from application of sections 4 and 5 of the Act and promoting cooperation between these industry participants to mitigate damages and to ensure the effective continuance of banking infrastructure. In this regard, industry participants are to coordinate and agree on, inter alia:

operation of payment systems and the continued availability of notes at ATMs, branches and businesses; debtor and credit management to cater for payment holidays and debt relief (including limitations on asset recovery and the extension of further credit terms).

Retail Property Sector

The Block Exemption in respect of the Retail Property Sector applies only to retail landlords and designated retail tenants (required to shut down in terms of the national shut down currently in place) and aims to provide a framework for cooperation between industry participants in respect of payment holidays and rental discounts and limitations on the eviction of tenants. The Block Exemptions also seek to cater for cooperation on limitations to the restrictions placed on tenants to protect their viability during the nation disaster, likely to allow tenants to alter of expand their product or service offerings to fall within the category of businesses or services exempt from the restrictions currently enforced by Government, thereby ensuring alternative income and increased capacity on key products and services.

Hotel Sector

The Exemption granted to hotel industry operators seeks to enable the hotel industry to collectively engage with various Government departments with respect to identifying and providing appropriate quarantine facilities. The Exemption applies to agreements or practices pertaining to the identification and provision of quarantine facilities, and cost reduction measures in providing accommodation for persons in quarantine.

Block Exemptions have not been widely utilised in South Africa. To the extent that the measures introduced by the Block Exemptions are effectively implemented, however, the use and application of the process of exemptions under the Competition Act may become a more prominent feature of the South African competition law process. The nature of emergencies are such that they expedite the implementation of historical process which were otherwise untouched or contested as the counterfactual has changed.

It is already evident that more and more industries affected by the COVID-19 will apply for or be granted block exemptions to ensure that they are able to effectively avert the negative effects associated with disruptions caused to the business and economy. Examples of these include the Grocery Retail and/or Fast Moving Consumable Goods Sectors, Security Sector and more.

Price Regulation

The Pricing Regulations, are published in terms of a combination of the Competition Act, the Consumer Protection Act 61 of 2008 (2008) and the Disaster Management Act (2002) and apply only to the ‘key supplies identified in the Pricing Regulations and will remain in effect only for so long as COVID-19 remains a ‘national disaster’.  Section 8(3)(f) of the Competition Act provides that in determining whether a price is an excessive price (for purposes of section 8(1)),  it must be determined whether that price is higher than a competitive price and whether such difference is unreasonable, determined by taking into account any regulation published by the Minister in terms of Section 78.  In terms of the Pricing Regulations a price will be considered an excessive price for purposes of Section 8(1) of the Competition Act where, during this period of national disaster, a price increase: does not correspond to or is not equivalent to the increase in the costs of providing that goods or service; or increases the net margin or mark-up on that good or service above the average margin or mark-up for that good or service in the three month period prior to 1 March 2020.

Notably, Section 8 applies only to dominant firms.

In addition to the above, the Pricing Regulations contain a similar assessment for the consideration of what is termed unconscionable, unfair, unreasonable and unjust price increases in the Consumer Protection Act. While it is likely that what constitutes an excessive price under the Competition Act will also constitute an unreasonable price increase for purposes of the Consumer Protection Act, the opposite may not be true. The Consumer Protection Act is enforced by a different authority in South Africa and case precedent has been quite limited, compared to the competition authorities.

The Pricing Regulations also cover quantities and the restrictions on sale to maintain equitable distribution and curb stockpiling. No mention is made of the Competition Act or Consumer Protection Act in these paragraphs, although they should also be considered in the broader context of competition policy and what the Pricing Regulations seek to achieve. Although South African competition policy is not ordinarily concerned with discrimination at the final consumer level, in terms of the Pricing Regulations, retailers are effectively required to ration the quantity sold, as the normal economic mechanism, whereby suppliers sell to those parts of the demand curve with a sufficient willingness to pay, is suspended.

The penalty provisions of the Pricing Regulations require prosecution in terms of the underling legislation, being the Competition Act and Consumer Protection Act respectively as these sanctions exceed the powers given to the Minister in the Disaster Management Act. The Pricing Regulations state that subject to the further specific provisions of the respective pieces of legislation, a failure to comply with the Pricing Regulations may attract a fine of up to R1 000 000 and/or a 10% of a firms turnover and imprisonment for a period not exceeding 12 months (depending on the applicable legislation). In terms of the Competition Act, only cartel conduct under section 4(1)(b) attracts criminal liability.

The Minister has recently announced that a number of firms are under investigation for allegedly contravening the provisions of the Competition Act and/or Consumer Protection Act in a manner prohibited by the Pricing Regulations.

The Disaster Management Act provides that the declaration of a national state of disaster can terminate after the expiry of 3 months or upon notice in the Government Gazette by the Minister before the expiry of 3 months. The Minister can nonetheless extend such a period for one month at a time.

Accordingly, the Disaster Management Act offers little certainty on how and when the measures implemented will come to an end.

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COVID-19, excessive pricing, South Africa

Competition Commission makes good on its promise to clamp down on excessive pricing amid COVID-19 outbreak

Despite the overwhelming amount of excessive pricing complaints being referred to the South African Competition Commission (“the Commission”), it has remained unwavering in its commitment to prioritize and follow-through on bringing the full might of the law down on suppliers and retails who have used the prevailing circumstances to take advantage of consumers by increasing prices on essential goods and services with no cost increase justification.

This is illustrated in a media statement released by the Commission on 15 April 2020, wherein the particulars of the Commissions first referral to the Competition Tribunal (“the Tribunal”) for price gouging on facial masks was expanded upon, and which is due to be heard on 24 April 2020.

Babelegi Workwear Overall Manufacturers and Industrial Supplies CC (“Babelegi”) allegedly engaged in price gouging through its 500% mark-up on facial masks, which is considered as an essential good, for the period 31 January 2020 to 5 March 2020. Babelegi’s supplier is also under investigation by the Commission for allegedly engaging in excessive pricing after it subsequently came to light that the said supplier purportedly increased its input prices.

In a media statement issued on 31 March 2020, the Commission aired its concerns  in and prioritization on suppliers and retailers who charge excessive prices on COVID-19 essentials, as well as complainants who are considered essential service professionals (such as doctors, policemen etc). The Commission also outlined the expedited preliminary investigations it will undertake in complaints. In this respect, respondent firms have 48 hours in which to confirm or rebut the allegations brought against it. Importantly, the Commission has showed that some complaints may indeed be justified where firms provide a valid cost increase justification. Accordingly, not all acts of price increases will be condemned as price gouging.

As highlighted by the Commission, firms can expect to see a wave of prosecutions in the coming days. The Commission has already concluded (but not yet referred) numerous price gouging complaints, to name a few:

  • A pharmacy has increased its mark-up on face marks and sanitizers by more than 300%;
  • A hardware store has allegedly increased the price of surgical gloves from R99.99 to R170.00 within one week absent any cost increase justification; and
  • A wholesaler of chicken has marked-up chicken pieces by up to 50%, also absent any cost increase justification.

It is important to keep in mind that firms engaging in excessive pricing, price fixing, allocation of markets and market shares and bid rigging risk facing a fine of up to 10% of their annual turnover, and risk a fine of up to 25% of their annual turnover in respect of repeat offences. Furthermore, complaints regarding price fixing, the allocation of markets and market shares and bid rigging could result in certain directors who engage in or initiate such contraventions with imprisonment of up to 10 years.

The spike in competition law contraventions amidst the COVID-19 outbreak is not unique to South Africa, the Ministry of Trade in Rwanda has itself imposed fines on 178 companies to the amount of RwF of 15 850 000 to date. Furthermore, the Competition Authority of Kenya (“CAK”) has shown its determination in prosecuting exploitative conduct during the outbreak in the remedial order it issued to Cleanshelf Supermarkets for unconscionably adjusting prices of sanitizers.  Cleanshelf was ordered to find and refund all consumers who purchased the sanitizers above the usual selling price.

There is little doubt that the Commission will continue its endeavor in prosecuting COVID-19 related competition complaints, it may very well be slowed down due to the sheer explosion of complaints, but firms should not be quick to translate this voluminous burden as a gap in competition law enforcement that can be taken advantage of. Akin to his observation, Tembinkosi Bonakele, Commissioner of the Competition Commssion said “The Commission has now gone past the stage of moral suasion and appeals to patriotism to stop abuse of market power by those seeking to exploit consumers at the worse possible time – the law must take its course – we will see a wave of prosecution of firms in the next coming days.”

 

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AAT exclusive, Access to Information, dominance, exemptions, South Africa, Uncategorized

Enforcement Alert: SACC ordered to remedy its complaint referral in 2nd CompuTicket abuse-of-dominance case

By Charl van der Merwe, assisted by Christine Turkington & Gina Lodolo

The South African competition Commission (SACC) has suffered yet another procedural setback- related to the facts pleaded in its referral affidavit – this time, in its ongoing saga with Computicket and Shoprite Checkers, apropos Computicket’s alleged abuse of dominance.

In its initial case against Computicket, which ultimately went to the Competition Appeal Court, SACC succeeded in holding Computicket to account for abuse of dominance in contravention of section 8(d)(i) of the Competition Act (Computicket One). Computicket One was based on the fact that Computicket had entered into exclusive agreements with customers which had the effect of excluding competitors from the market. See exclusive AAT article on Computicket One case here.

The SACC was critical of the conduct of Shoprite Checkers as, in Computicket One, the SACC alleged that the exclusive agreements were entered into between Computicket and Shoprite Checkers shortly after the Computicket was acquired by Shoprite Checkers. Computicket One was based on the agreement entered into for the period 2005 to 2010.

Accordingly and shortly after the conclusion of Computicket One, the SACC referred a second complaint against Computicket for abuse of dominance. The cause of action is substantively similar as that which had been found to be a contravention in Computicket One, however, this time based on the agreements entered into from January 2013 and which are alleged to be ongoing (Computicket Two). In Computicket Two, however, the SACC now seeks to hold Shoprite Checkers jointly and severally liable with Computicket in its capacity as the ultimate parent company of Computicket. Moreover, the SACC appears to seek the imposition of a penalty based on the higher turnover of Shoprite Checkers.

Note that Computicket Two was referred to the Tribunal prior to the enactment of the Competition Amendment Act, which provides for parent companies to be held jointly and severally liable for the conduct of subsidiaries and/or allows for the calculation of an administrative penalty, based on the turnover of the parent company where the parent was aware or ought to have been aware of the conduct of the subsidiary.

The Tribunal, therefore, found the SACC’s referral affidavit to be flawed and lacking of the facts (and points of law) necessary to sustain a cause of action, particularly in so far as it seeks to hold Shoprite Checkers liable. In this regard, the Tribunal expressly held that they view Computicket and Shoprite Checkers as separate economic entities and should thus be treated separately with respect to the allegations made in the Commission’s complaint referral.

The Tribunal went on the emphasize that on the consideration of dominance (which is the statutory first step to an assessment under section 8), “… the Commission conceded that Shoprite Checkers is not active in the market for outsourced ticketing services to inventory providers in which Computicket is active. Unsurprisingly, no market shares attributable to Shoprite Checkers are reflected anywhere in the Commission’s referral. It is simply unclear of what we are to make of the allegations against Shoprite Checkers.”

In order to correct these defects and instead of dismissing SACC’s case, the Tribunal ordered the SACC to file a supplementary affidavit. The Tribunal held that “[g]iven that the Commission’s reliance on the single economic entity doctrine fails and the question of dominance is abundantly opaque, the Commission must rectify its referral to properly reflect and clarify the case against Shoprite Checkers in order for it to meet the case put against it.”

Should the SACC fail to file its supplementary affidavit, within the 30 business days, as order by the Tribunal, Shoprite Checkers and Computicket may approach the Tribunal for an order that the case be dismissed.

John Oxenham, director of Primerio, notes that the Tribunal’s order in allowing the SACC an opportunity to first supplement or amend its referral affidavit is in line with the recent orders of both the Tribunal and Competition Appeal Court to first allow such opportunity for the SACC to remedy its case, instead of ordering an outright dismissal of the case on an interlocutory basis. This is likely to form the precedent for interlocutory applications, even where the facts suggest that the SACC’s case is opportunistic and incapable of being remedied.

According to competition lawyer, Michael-James Currie, the recent orders which have come out of the Tribunal and Competition Appeal Court in interlocutory applications will hopefully have a positive effect on the manner in which cases are referred and prosecuted in South Africa.

The SACC has at times demonstrated a tendency to be overly broad in its complaint referrals, causing respondent firms to engage in costly and time consuming internal investigations to assess the merits of such cases. With the development of the previously underutilized interlocutory processes, respondent firms are now able to, at an early stage of the litigation process, ensure that the SACC sets out its case in a concise manner, substantiated with the requisite factual allegations required to sustain its case, thereby avoiding the unnecessary cost of expansive internal investigations and protracted litigation.

 

 

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AAT, AAT exclusive, excessive pricing, South Africa, Uncategorized

South Africa Competition Tribunal: Regulations published to expedite COVID-19 excessive and unfair pricing complaint referrals

[The editors at AfricanAntitrust wish to thank Jemma Muller and Gina Lodolo for compiling this article]

On 3 April 2020, Minister Ebrahim Patel made amendments to section 27(2) of the Competition Act 89 of 1998 (“the Act”) with regards to the regulations pertaining to the functions of the Competition Tribunal (“the Tribunal”).

The amendment was enacted to regulate complaint referrals for alleged contravention of section 8(1)(a) of the Act which deals with the charging of excessive prices by a dominant firm. The amendment is crucial in light of the current state of affairs, where the charging of excessive prices has become more frequent during the Covid-19 outbreak. Accordingly, the amendment is only applicable for the duration of the period of the declaration of a Natural State of Disaster with regards to COVID-19.

An applicant who wishes to bring a complaint based on an alleged contravention of section 8(1)(a) of the Act, read with the Consumer and Customer Protection Regulations, must file a Notice of Motion and founding affidavit to the Tribunal.

Urgent complaint referral procedure

Who must file the complaint referral?

A complaint referral may be filed by the Commission or a complainant, as soon as possible after the commission has issued a notice of non-referral to that complainant.

Notice of motion requirements

An applicant must allege a contravention of section 8(1)(a), indicate the order sought against the respondent(s) and state the name and and address (electronic or otherwise) of each respondent in respect to whom the order is sought. Applicant’s may also state the date and time on which the applicant wishes the matter to be heard by the Tribunal.

Founding affidavit

The founding affidavit must set out the grounds of urgency and the material points of law and evidence that support the complaint. In addition, the applicant may include confirmatory affidavits from any factual or expert witnesses.

Procedure

The applicant must serve a copy of the Notice of Motion and founding affidavit on each of the respondent(s) named in the Notice of Motion and file a copy of the application with the Tribunal.

The important time periods:

A respondent must serve a copy of their Answering Affidavit on the complainant within 72 hours of service of the complaint referral. Thereafter the person who filed the Complaint referral may serve a copy for their Reply within 24 hours after being served with a copy of the Answering Affidavit.

The Tribunal will then determine the date and time for the hearing of the complaint referral (Tribunal Rules 6,16,17,18,18,47,54 and 55 apply to an application under this Rule unless they pertain to Rules which stipulate time-frames).

These documents may be filed electronically.

Urgent hearing

The Tribunal may direct that the urgent complaint proceedings in terms of the Rules may be conducted wholly as video or audio proceedings.

If no answering affidavit is filed within the period set out in the Notice of Motion or such extended period as may be determined by the Tribunal, the urgent complaint referral may be heard on an unopposed basis.

The Tribunal will determine if there was contravention of section 8(1)(a) of the Act based on the evidence contained in the affidavits unless there is a substantial dispute of fact which cannot be resolved by affidavits. In this case the Tribunal may determine an expedited procedure (which may include oral evidence on an expedited basis by way of video or audio proceedings). The Tribunal may also call for further evidence if it is required (subject to section 55 of the Act).

Remedies

The Tribunal may impose a pricing order if the respondent has been found to contravene section 8(1)(a) of the Act. The respondent may apply to appeal or review the decision on an urgent basis to the Competition Appeal Court (the pricing order will remain in force unless it is set aside by the court on appeal or review).

Consent order

The Commission may at any time (before, during and after and investigation) conclude a consent agreement for a complaint under section 8(1)(a) of the Act and it will be the full and final settlement of the matter  (including settlement of civil proceedings). This consent order may be confirmed by the Tribunal without hearing any evidence.

The amended complaint referral procedures equip complainants with the means in which to assist the competition authorities in penalizing those who have used the prevailing circumstances to exploit consumers, and is thus a commendable and efficient tool invoked by the Minister.

 

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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 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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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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