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Anti-competitive behaviour and restrictive practices in terms of the Competition Act No 89 of 1998

by Dingley Attorneys

Linda Stephenson comments on Anti-Competitive Behaviour

Overview

The Competition Act distinguishes between horizontal and vertical restrictive practices which are prohibited.

A horizontal restrictive practice is defined as one where:

  • an agreement, concerted practice or decision by an association of firms exists between parties in a horizontal relationship and has the effect of substantially lessening competition in a market, unless a party to the agreement can prove that any technological, efficiency or other pro-competitive gain resulting from it outweighs that effect, or
  • it involves directly or indirectly fixing a purchase or selling price or any other trading condition, or
  • it divides markets by allocating customers, suppliers, territories or specific types of goods or services, or
    collusive tendering.

An agreement to engage in a restrictive horizontal practice is presumed to exist between two or more firms if any one of those firms owns a substantial shareholding or interest in the other or they have at least one director or substantial shareholder in common, unless it can be proved that a reasonable basis exists to conclude that the practice was a normal commercial response to conditions prevailing in the market.

Exception for wholly owned subsidiaries

The provisions do not apply to an agreement between or practice engaged in by a company, it’s wholly owned subsidiary, a wholly owned subsidiary of that subsidiary or any combination of them.

Minimum sale price can only be recommended

The practice of minimum resale price maintenance is prohibited but a supplier or producer may recommend a minimum resale price to the reseller provided it makes it clear that the recommendation is not binding and, if the product has its price stated on it, the words “recommended price” appear next to the stated price.

The Competition Amendment Act, 1 of 2009

The Act which became effective on 26 August 2009 stipulates that a complex monopoly is present in a market where at least 45% of the goods or services in that market is supplied to, or by two or more firms and these firms conduct their respective business affairs in a co-ordinated manner, irrespective of whether they do so voluntarily or not or with or without agreement or concerted practice. Participation in such a complex monopoly is prohibited if the complex monopoly has the effect of substantially preventing or lessening competition in that market and the market in which the complex monopoly subsists is characterised by either a restriction on supply, a lack of innovation, exploitive pricing, exclusionary acts, high entry barriers, uniform pricing, similar trading conditions or other indicators of parallel conscious conduct.

To give more teeth to the investigations into the so-called complex monopolies, the Act introduces a new section which allows the Competition Commission to initiate a market enquiry in order to study the general state of competition in a market for a particular good or service. This may happen without exclusive reference to the conduct or activities of any particular named business enterprise. This new section amplifies the Commission’s powers under the current Act and gives more structure, efficiency and transparency to these powers. Based on the outcome of the market enquiry the Commission may initiate a complaint against the whole market or just one or a few active enterprises, enter into a consent order with any respondent or initiate and refer the complaint directly to the Competition Tribunal. However the Commission may also report to the Minister of Trade and Industry and recommend new or amended policy, legislation or regulation or make recommendations to other authorities.

The Act further introduces individual liability for directors and individuals directly responsible for engaging in price fixing or cartel-like behaviour. Prior to the enactment of the Competition Amendment Act, directors were not held liable for such involvement, and the final penalty was payable by the company and ultimately the shareholders whilst the directors escaped liability. The new section 73A provides that involvement by persons, under certain conditions, in price fixing or cartel- like behaviour constitutes a penalty under the Competition Act and is punishable either by a fine of up to R500 000 or imprisonment of up to 10 years or both.

4 November, 2010

**Please note that these comments are summarised, may not be applicable to your particular situation and do not constitute legal advice. Please consult your legal professional should you wish to obtain a formal legal opinion.**