Competition enforcer terminates RPM investigation into Coca-Cola

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…