AAT, dominance, South Africa, Uncategorized

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

By Charl van der Merwe

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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AAT, buyer power, East Africa, Kenya, Uncategorized

KENYA: COMPETITION AMENDMENT BILL INTRODUCES ONEROUS BUYER POWER PROVISIONS

* By Ruth Mosoti

In July 2019, the Competition Amendment Bill was gazetted and looks on course to be adopted by Parliament.

There are several proposed amendments to the current Competition Act although the focus of the Amendments, most notably, relates to the introduction of buyer power provisions which is a self -standing prohibition and does not require a complainant to first establish a dominance on the part of the buyer.

In regard to buyer power, the majority of the substantive provisions in the current  “Buyer Power Guidelines” previously published by the Competition Authority of Kenya (CAK) have been mirrored in the Act. We summarize below some of the features that the Bill seeks to introduce to the Act in regard to buyer power include:

  1. Introduction of a ‘buyer power code of practice’, developed by the CAK in consultation with stakeholders, relevant government agencies and the Attorney General;
  2. The CAK will have power to impose reporting measures on sectors that experience or are likely to experience abuse of buyer power reporting and prudential requirements, in addition to this, these sectors may be required to develop their own binding code of practice;
  3. The Bill proposes minimum requirements for an agreement between a buyer undertaking and a supplier undertaking. The amendment also provides that this agreement does not have to be in writing;
  4. A new section 29A (which is controversial as it appears to be aimed at the advocates remuneration order) is introduced that targets Professional Associations whose rules offend the provisions of the Competition Act and provides for the persons who will be held responsible for any guidelines that are issued by the association.
  5. It is notable that there are no monetary administrative sanctions introduced by these provisions rather non-compliance attracts criminal sanctions.

The Bill, if passed into law, will positively impact the enforcement of buyer power provisions as the  gap on the substantive provisions on the enforcement of buyer power provisions will be filled.

Michael-James Currie, a pan-Africa competition law practitioner notes that that the Buyer Power principles are similar to those typically found in consumer protection legislation and there are no clear benchmarks (such as a substantial lessening of competition) against which to measure or assess the alleged buyer power. The criteria for determining whether buyer power amounts to an contravention is guided by principles of fairness and reasonableness rather than any economic benchmark. This makes compliance as well as objective decision making all the more difficult. John Oxenham, director at Primerio echoes these sentiments and states that from a traditional competition law perspective, buyer power generally only raises concerns in the event that the buyer concerned is able to exercise a substantial degree of market power.

Currie suggests that absent a clear threshold as to what would trigger an offence in terms of the new buyer power provisions, coupled with the criminal liability (which includes a maximum prison sentence of five years), is particularly onerous on firms seeking to comply with the competition legislation. Currie suggests that it would be preferable to change the liability to an administrative penalty as opposed to a criminal offence so as not to hamper or overly prejudice firms operating in the market.

 

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AAT, East Africa, fines, Kenya, mergers, Uncategorized

Enforcement Update: Kenya Competition Authority imposes administrative penalty for gun-jumping (prior implementation of a merger)

  • update by Michael-James Currie

In September 2019, the Competition Authority of Kenya (CAK) formally penalised two merging parties for having implemented a transaction without having obtaining the requisite prior regulatory approval.

The trigger for mandatory notification in this case was a change from joint control to sole control when Patricia Cheng acquired an additional 50% of the shareholding in Moringa School.

The maximum penalty which may be imposed for prior implementation is 10% of the parties’ combined turnover in Kenya. In this case, the CAK imposed a nominal penalty (approximately USD 5000) in light of the parties having voluntarily notified the CAK of their failure to obtain prior approval, having co-operated with the CAK’s investigatory agency and after having subsequently assessed the transaction, the CAK concluded that the merger was unlikely to have any adverse effects on competition and would have positive public interest benefits.

The public interest benefits included the fact that the school would offer coding technology to over 1000 students and employees over 100 staff members.

In light of the mitigating factors, the CAK found that the penalty was balanced taking into account principles of deterrence and proportionality of the infringement.

The case is noteworthy not only because it signals a clear message from the CAK that the prior implementation of mergers will attract penalties (which are likely to increase substantially as firms ought to have greater awareness of the merger control regime in Kenya) but also confirms that a move from sole to joint control of an entity or, as in this case, a move from joint to sole control, requires mandatory notification to the CAK.

The CAK has one of the most effective merger control regimes in Africa and is increasingly becoming a more robust competition agency from an enforcement perspective.

[Michael-James Currie is a competition lawyer practising across the majority of sub-Saharan African jurisdictions]

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AAT, AAT exclusive, East Africa, fraud/corruption, jurisdiction, Kenya, mergers, mobile, public-interest, Telecoms, Uncategorized

Kenyan Competition Watchdog suspends Telkom Kenya / Airtel deal

Multiple regulatory agencies, competitor complaints and public interest concerns has posed a significant impediment to the proposed merger between Telkom Kenya and Airtel.

The Competition Authority of Kenya (CAK) recently announced that the Kenyan Ethics and Anti-Corruption Commission (EACC) is investigating Telkom Kenya amidst allegations of corruption in relation to historic transactions which gave rise to the current shareholding in Telkom Kenya.

The CAK’s decision to suspend the assessment of the merger was announced approximately a week after the Communications Authority of Kenya also suspended its assessment of the transaction pending the outcome of the EACC’s investigation.

The Communications Authority’s investigation will likely include an assessment of a complaint filed with the agency by Safaricom, a competitor to the merging parties.

Furthermore, the deal was also opposed by certain Telkom employees, ostensibly on the basis that their jobs were at risk should the deal go ahead.

Accordingly, the parties appear to have a long road ahead of them before clearance to implement the deal is granted.

The proposed transaction has no doubt attracted an additional degree of scrutiny as the telecom sector in Kenya is a significant market and there have been a number of disputes regarding the CAK’s jurisdiction to assess anti-competitive conduct, particularly abuse of dominance conduct, in this sector. A study into the telecom sector prepared by the Communications Authority was presented to Parliament in 2018. The CAK objected to the findings and remedial actions contained in the report which the CAK argued would amount to “price regulating” by the Communications Authority. Instead, the CAK urged the Communications Authority to focus rather on features of the market which raise barriers to entry or preclude effective competition between competitors.

While Parliament has, as far back as 2015, urged the Communications Authority to consult the CAK before making any determination regarding a telecom service providers’ “dominance”, subsequent litigation led to a High Court ruling in 2017 which confirmed that the Communications Authority’s powers vis-à-vis competition related matters remain vested exclusively with the Communications Authority.

The concurrent jurisdiction between the CAK and the Communication’s Authority has created somewhat of an enforcement discord – at least in so far as assessing abuse of dominance cases are concerned.

The fact that both the CAK and the Communications Authority have decided to suspend their assessments of the proposed merger following the outcome of the EACC’s investigation suggests that the outcome of the EACC’s investigation is relevant to both the CAK and Communication Authority analysis of the proposed transaction. This in turn, seemingly appears that there is at least an overlap in relation to the key issues under assessment by the respective agencies. Assuming there is indeed an overlap between the CAK and the Communication Authority’s assessment of the proposed transaction that naturally raises the risk of having two agencies come to different conclusions based on the same facts.

Telkom Kenya, however, remain confident that the merger will ultimately be cleared by all regulators.

Telkom Kenya have indicated that the merger will have significant pro-competitive and pro-public interest benefits which will have a positive impact on employees (and the market more generally). Whether the CAK conducts a comprehensive assessment between the short term negative impact on employment versus long term positive impact remains to be seen.

Assuming the proposed deal does not raise any traditional competition issues, it cannot therefore be ruled out that the transaction will be approved subject to public interest related conditions regarding retrenchments and/or re-employment obligations.

Whatever decision is ultimately reached, one hopes that the authorities will publish detailed reasons based on a robust assessment of the evidence in order to provide greater objectivity and transparency as to the analysis which is undertaken by the CAK when analyzing a merger – both from a competition and public interest perspective.

The CAK has in the past number of years have made significant positive strides forward in this regard and is deserved of the recognition it receives as one of the most active and robust competition authorities in Africa.

[Michael-James Currie is senior contributor to AAT and a practicing competition lawyer who has assisted clients with competition law related matters in multiple jurisdictions across Africa]

 

 

 

 

 

 

 

 

 

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AAT, dominance, financial institutions, Mauritius, Uncategorized

Mauritius: Competition Commission orders VISA and MasterCard to lower interchange fees

[By Michael-James Currie]

On 13 August 2019, the Competition Commission of Mauritius (CCM) has, following a lengthy investigation, ordered VISA and MasterCard (Respondents) to reduce their banking interchange fees from 1% to 0,5%.

The CCM found that the Respondents set an interchange fee of 1% which in turn led to higher merchant fees. As a consequence, the interchange fee were found to have hampered the incentive for banks to issue credit/debit cards and to provide card facilities to merchants. This led to either some merchants electing not to have card accepting facilities or to increase the final price to consumers.

The high interchange fees were found by the CCM to impede competition between banks and in particular, the ability of smaller “acquirer” banks to compete with more established banks.

In determining the 0,5% “fee cap”, the CCM noted that the respondents offered a 0,5% interchange fee for payments at petrol stations and that the lower interchange fee applicable to petrol station payments has had positive effects.

The executive director of the CCM, Mr Deshmuk Kowlessur, stated that:

“The decision of the Commission requiring VISA and MasterCard to limit the interchange fees to a maximum of 0.5% is likely to reshape the competition landscape in the local payment card market. The reduction of the interchange fees will open-up the market for existing and  potential banking and other financial institutions to offer acquiring services to merchants.  At the same time, the two dominant banks will have to compete more rigorously. A  new dynamism  in  the local payment  card  market  is  likely  to encourage  existing  competitors  and  new  entrants  to  offer innovative  services.  The resulting lower merchant service commission will encourage card-acceptance by merchants and thus offer card users the convenience, security and lower costs of settling their transactions.  It can also be expected that consumers can benefit from lower prices of goods and services, as merchants’ cost of transaction will be reduced with lower merchant service commission. At the end, the  reduction  in  the  interchange  fee  will  bring  more competition  in  the  payment  card  market and positively impact  on trade,  commerce  and  economic development.”

The decision by the CCM is noteworthy for a number of reasons. The CCM’s findings is based on an abuse of dominance case by “setting a high interchange fee”. The CMM’s reasons (at those which are publicly available) do not, however, provide any indication of the benchmark used for finding that the prices were “high”. Unlike traditional excessive pricing cases (which are notoriously difficult to prosecute), the CMM does not set out the requisite test which should be used for purposes of determining whether a price is “high” (or excessive). The media release published by the CCM appears to suggest that the conduct amounted to a “collective dominance” / tacit collusion type of case without expressly stating as much.

John Oxenham, director at Primerio, says that the CCM’s remedy is noteworthy as “the CCM is for all practical purposes acting as a price regulator which is traditionally not the role of competition authorities“.

VISA and MasterCard have, however, indicated that they will appeal the CCM’s findings before the Supreme Court.

[Primerio specializes in providing competition law advice to clients across Africa including Mauritius]

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AAT exclusive, dominance, new regime, South Africa, Uncategorized

CRESSE CONFERENCE GREECE 2019: SOUTH AFRICAN AMENDMENT ACT

Africanantitrust regular contributors John Oxenham, Michael-James Currie and Stephany Torres (Primerio and Nortons Inc) authored and presented a paper on the role of non-competition law factors in competition law enforcement at the 2019 CRESSE Conference in Rhodes Island, Greece in early July 2019.

Motivated by the recent, but significant, amendments to South Africa’s Competition Act, the timing of the authors’ paper could not have been better scripted. The Amendment Act was brought into effect on 12 July 2019 – a week after presenting the paper to an esteemed delegation of competition law practitioners and economists.

The paper, titled “South African Competition Law – The role of non-competition factors in enforcing unilateral conduct: Forging ahead or falling behind?” explores the socio-economic context and objectives which underpin the recent amendments to South Africa’s legislation and highlights the expansion of what is often termed “public interest” considerations in competition law enforcement beyond merger control.

Most notably, the authors contextualise the policy debate before providing an in-depth discussion of the new thresholds and standards against which certain abuse of dominance conduct will now be assessed.

The Amendment Act introduces a public interest standard, namely what the effect of certain conduct by dominant entities will have on the ability of “small, medium businesses and businesses owned by previously disadvantaged persons” to participate effectively in the market”.

Looking specifically at the price discrimination and buyer power provisions, the paper notes that, notwithstanding the noble objectives of the Amendment Act, there are potentially a number of unintended consequences which require further deliberation so as not to dampen pro-competitive conduct.

In relation to the price discrimination provisions, the authors conclude that:

Accordingly, in light of:

  • the low market share threshold applicable to “dominant” entities;
  • the uncertainty regarding the threshold that must be met in order to sustain a case of prohibited price discrimination;
  • the evidentiary burden on a respondent to essentially prove a negative in relation to section 9(3); and
  • the threat of an administrative penalty for a first-time offence (potentially on both the South African business and its parent),

the price discrimination provisions pose a material risk to companies in South Africa who have a market share above 35%.”

As part of the presentation of the paper, it was noted that competition policy globally is constantly evolving. Issues such as “big data” and “data protection” have called on antitrust commentators to question whether the existing laws remain adequate to address broader consumer harm concerns. In South Africa, the authors point out that while the South African competition agencies have traditionally turned to European and US precedent in relation to antitrust enforcement, the socio-economic factors which have shaped competition policy in South Africa (at least from Government’s perspective) is unique and constitutes a substantial departure from more established jurisdictions.

Competition policy globally is, therefore, likely to be more divergent than convergent in the next few years.

In concluding, the authors point to the inordinate responsibility placed on the shoulders of the competition agencies in South Africa to exercise their discretion and develop a body of precedent as soon as possible that would hopefully provide practitioners and business with a more objective and transparent benchmark against which to assess their conduct. A task which could prove highly complex as the authorities will inevitable need to develop an objective basis for quantifying public interest considerations – an inherently subjective exercise.

To obtain a copy of the paper, please email the AAT editor by following the contact link below.

 

 

 

 

 

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East Africa, ECONAfrica, ECOWAS, Egypt, Extra-judicial Factors, jurisdiction, Kenya, legislation, Meet the Enforcers, mergers, new regime, Nigeria, no antitrust regime, Patel, predatory pricing, Price fixing, Protectionism, public-interest, South Africa, Tanzania, Uncategorized, Unfair Competition

Beyond Pure Competition Law – Is Africa Leading the Way Forward in Antitrust Enforcement?

To all our Africanantitrust followers, please take note of the upcoming American Bar Association webinar on 2 July 2019 (11amET/4pmUK/5pm CET) titled:

“Beyond Pure Competition Law – Is Africa Leading the Way Forward in Antitrust Enforcement?”

In what promises to be a highly topical (telecon) panel discussion, Eleanor Fox, Andreas Stargard, John Oxenham, Amira Abdel Ghaffar and Anthony Idigbe will:

  • provide critical commentary of the most recent developments in antitrust policy across the African continent;
  • highlight the most significant legislative amendments and enforcement activities in Africa; and
  • analyze some of the key enforcement decisions.

South Africa, Nigeria, Egypt, COMESA and Kenya are among the key jurisdictions under the microscope.

Practitioners, agency representatives, academics and anyone who is an antitrust enthusiast will find this webinar to be of great interest. Not to mention companies actually active or looking to enter the African market place.

For details on how to participate, please follow this Link

 

 

 

 

 

 

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