OBJECTIVE OF THE COMPETITION ACT 2010

The preamble of Competition Act 2010

An act to promote economic development by promoting and protecting the process of competition, thereby protecting the interests of consumers and to provide for matters connected therewith.

OBJECTIVE OF THE COMPETITION ACT 2010

Cont…

Whereas the process of competition encourages efficiency, innovation and entrepreneurship which promotes competitive prices, improvement in the quality of products and services and wider choices for consumers.

DEFINITION OF IMPORTANT TERMS

“What is an agreement?” • any form of contract,

arrangement or understanding, whether or not legally enforceable, between enterprises, and includes a decision by an association and concerted practices

‘Concerted practice’ “co-ordination between undertakings which, without having reached a stage when an agreement properly so called, has been concluded, knowingly substitutes practical co-operation between them for the risks of competition’. Understanding between parties but they have not actually reached an agreement

DEFINITION OF IMPORTANT TERMS (continued)

“Who is an Enterprise?” • any legal entity carrying on commercial activities

relating to goods or services, and for the purpose of this Act,

• a parent and subsidiary company shall be regarded as a single enterprise if, despite their separate legal entity, they form a single economic unit within which the subsidiaries do not enjoy real autonomy in determining their actions on the market.

What is a ‘commercial activity’? [s.3(4)]

Any activity of a commercial nature but does not include- a) any activity, directly or indirectly in the exercise of

governmental authority; b) any activity conducted based on the principle of

solidarity; and c) any purchase of goods or services not for the

purposes of offering goods and services as part of an economic activity

DEFINITION OF IMPORTANT TERMS (continued)

DEFINITION OF IMPORTANT TERMS (continued)

“Who are Consumers?” • any direct or indirect user of goods or services

supplied by an enterprise in the course of business, and includes another enterprise that uses the goods or services thus supplied as an input to its own business as well as a wholesaler, a retailer and a final consumer.

SCOPE OF LAW

Applies to all commercial activities, both within and outside Malaysia which has an effect on competition in any market in

Malaysia (extra-territorial effect)

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SCOPE OF LAW (EXCLUSION)

• Commercial activities regulated under:

Communications and Multimedia Act 1998

Energy Commission Act 2001

Petroleum Development Act 1974

• Agreement or conduct that comply with any legislative requirement

• Collective bargaining activities in respect of employment terms & conditions

• Services of general economic interest or having the character of a revenue-producing monopoly

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MAIN PROHIBITIONS

ANTI-COMPETITIVE PRACTICES

ABUSE OF DOMINANT POSITION

ANTI-COMPETITIVE AGREEMENTS

ANTI-COMPETITIVE AGREEMENTS

ANTI-COMPETITIVE AGREEMENTS

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Competition Act 2010, section 4:

ANTI-COMPETITIVE AGREEMENTS

ANTI-COMPETITIVE AGREEMENTS (continued)

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Competition Act 2010, section 4:

What is a vertical agreement?

Vertical agreement means an agreement between enterprises each of which operates at a different level in the production or distribution chain

MANUFACTURER

DISTRIBUTOR

WHOLESALER

RETAILER

Vertical Agreements

VERTICAL AGREEMENTS

RPM Exclusive Distribution

Selective Distribution

Tying

Resale Price Maintenance (RPM) Occurs when the price at which the goods are to be re-sold is fixed, or a minimum resale price is imposed by the seller.

Vertical Agreements (continued)

Exclusive Distributions

A manufacturer supplies its (branded) product to only one distributor or wholesaler or retailer in a particular territory or geographical area. It may foreclose market to intra-brand competition at retail level.

Examples of Vertical Agreements (continued)

Selective Distribution

A manufacturer supplies its (branded) product to a limited number of dealers who are contractually restricted from selling other brands. It may foreclose a market to inter – brand competition at the retail level

Examples of Vertical Agreements (continued)

Tying

When a supplier makes the supply of one product (the tying product i.e. the product the customer wants) conditional on the customer buying a second product (the tied product i.e. a product the customer does not want) either from the supplier or some other specified third party.

What is a horizontal agreement?

Horizontal agreement means an agreement between enterprises each of which operates at the same level in the production or distribution chain

MANUFACTURER X MANUFACTURER Y

DISTRIBUTOR X DISTRIBUTOR Y

Horizontal Agreements

HORIZONTAL AGREEMENTS

Price-fixing

Limiting or Controlling

Bid Rigging

Market Sharing

Price Fixing

E.g- When a car spare part association members get together and fix a price for radiators

Examples of Horizontal Agreements (continued)

Example: The Federal Court in Australia ordered Malaysia Airlines Cargo Sdn Bhd to pay AU$6 million for price fixing as part of a cartel following action by the ACCC (Source: ACCC v Malaysian Airline System Berhad & Anor)

Controlling Productions

E.g- Where two manufacturers of LCD televisions agree to produce less TV’s to ensure that the price of TV’s remains high

Market Sharing E.g- Where two producers of canned drinks agree that one will only sell its products in West Malaysia and the other will only sell in Sabah and Sarawak

Examples of Horizontal Agreements (continued)

Example: The Commission found that MAS, AirAsia and AirAsia X had infringed section 4(2)(b) of the Competition Act 2010 by entering into an agreement that has as its object the sharing of markets within the air transport services sector in Malaysia.

(Source: Final Decision on the Infringement of Section 4(2)(b) of the Competition Act 2010 by Malaysian Airline System Berhad, AirAsia Berhad and AirAsia X Sdn. Bhd.)

Bid Rigging

E.g- Where two or more companies tendering for a project agree in advance on the amount they are going to submit in order to ensure the winner of the bid.

Examples of Horizontal Agreements (continued)

Examples of Horizontal Agreements (continued)

Types of bid rigging Cover bidding – pre chosen winner, the ‘loser’ deliberately bid over an agreed amount which creates an ‘artificial’ lowest competitive bidder Bid suppression – agreement not to join tender, thus ensuring pre agreed participant to win the tender Bid withdrawal – withdraws winning tender Bid rotation – rotation among competitors to win tender Non-conforming bids – deliberately including terms and conditions or specifications not in accordance with the tender

Case Examples

In April 2012, British Airways (BA) and Virgin Airlines (VA) were found guilty of price fixing in breach of the UK Competition Act. The case involved an agreement between the airlines in respect of the passenger fuel surcharges payable on long-haul flights to and from the UK. The agreement was in place from August 2004 to January 2006. The parties used the exchange of pricing and other commercially sensitive information to agree on the prices. BA was fined £58.5 million; VA blew the whistle and received a 100% reduction in fine under the OFT’s leniency policy

OFT v British Airways [CE/7691-06]

ACCC v Visy Industries Holdings Pty Ltd (No. 3) [2007] FCA 1617

Visy supplied corrugated fibreboard packaging products in Australia. For nearly 5 years, Visy and one of its competitors had an agreement whereby they “maintained” their market shares. They did this by refusing to deal with each other’s customers. If one of the customers chose to switch providers, a different customer was “swapped” in return. Together, they held a 90% market share. Penalties of $36 million were imposed on the company; penalties of $2 million were imposed on two executives.

Case Examples (continued)

INDIVIDUAL BLOCK

ANTI-COMPETITIVE AGREEMENTS Exemption Mechanism under the CA2010

EXEMPTIONS

Competition Act 2010, section 5

(a) significant identifiable technological, efficiency or social benefits

(b) benefits could not be provided without the anti-competitive agreement

(c) the detrimental effect of the agreement is proportionate to the benefits

(d) competition is not eliminated completely

RELIEF OF LIABILITY

ABUSE OF DOMINANT POSITION

ANTI-COMPETITIVE AGREEMENTS

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Competition Act 2010, section 10:

ABUSE OF DOMINANT POSITION

What is a dominant position?

A situation in which one or more enterprises possess such significant market power to adjust prices, outputs or trading terms without effective constraint from competitors

Note: 60% market share indicative of dominance

ABUSE OF DOMINANT POSITION

Unfair Selling/

Purchase Price

Refusal to Supply

Predatory Pricing

Limiting/ Restricting Production

Price Discrimination

Bundling

ABUSE OF DOMINANT POSITION (continued)

Unfair selling/purchase price

Excessive pricing occurs when a dominant enterprise charges a price that has no reasonable relation to the economic value of the product supplied. It may do this simply to exploit its dominant position or to prevent a competitor from competing in the market

Price discrimination may also occur when the same product is sold at the same price, in circumstances where there should be a difference in price (e.g. because of the different transport costs).

Price Discrimination

Refusal to Supply

As a general principle, businesses are entitled to choose for themselves who they wish to do business with. If a business does not wish to trade with another business, they are generally free to make that decision. However, where an enterprise is dominant, a refusal to supply can constitute an abuse

Bundling occurs when products are sold together at a lower price than if they were sold separately. Bundling is often used by a dominant enterprise to bundle a popular product with a less popular product. This is known as leveraging market power

Bundling

ABUSE OF DOMINANT POSITION (continued)

Limiting or Controlling Production

Limiting or controlling production occurs when a dominant enterprise limits or controls production of a particular product in order to ensure that the price of that particular product remains high. Classic example of supply and demand

ABUSE OF DOMINANT POSITION (continued)

Where a dominant firm sets low prices to drive its competitors out of the market. Once existing competitors have been eliminated and new firm are deterred, the dominant firm will raise its prices

Predatory Pricing

ABUSE OF DOMINANT POSITION (continued)

Case Examples

Napp Pharmaceutical Holdings Ltd[2001] UKCLR 597

Napp supplied morphine to private patients at a price ten times higher than it supplied the same product to hospitals. The Office of Fair Trading found that the price charged to private patients was excessive, finding Napp had abused its dominant position. A total fine of £3.2 million was imposed on Napp.

COMMISSION’S POWER

COMMISSION’S POWERS

Receive complaints

Conduct investigations

Conduct dawn raids

Impose penalties

Conduct market review

Issue guidelines

Grant exemption

Make findings

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If there is an infringement, the Commission

• Shall issue cease and desist order

• May specify steps to bring an end to the

infringement

• May impose financial penalty:

maximum 10 % of the worldwide turnover

PENALTIES

OFFENCES UNDER THE ACT

Any person who commits an offence under this act shall on conviction be liable

Body Corporate • First offence- a fine not exceeding RM5 million • Second or subsequent offence- a fine not exceeding RM10

million

Non Body Corporate • First offence- a fine not exceeding RM1 million or to

imprisonment for a term not exceeding 5 years or both • Second of subsequent offence- a fine not exceeding RM2

million or to imprisonment for a term not exceeding 5 years or both