COMPETITION LAW

1
COMPETITION LAW

• Presented by
• Heather Irvine

2
Why is competition law important?

• The Act has 2 main areas of impact on your
  practice
• prohibits certain business practices
• requires approval by the competition authorities
  before a merger or acquisition.

3
Relevant Competition Law Institutions

• Competition Commission
• receives notifications of mergers and all
  complaints against prohibited practices
• conducts all initial investigations of mergers
  prohibited practices

4
Relevant Competition Law Institutions (cont)

• decides whether an intermediate merger (or small
  merger, if notifiable) is permissible or not and
• grants exemptions to companies in respect of what
  would otherwise be prohibited practices.

5
Relevant Competition Law Institutions (cont)

• Competition Tribunal
• adjudicates matters presented to it by the
  Competition Commission
• allows or prohibits large mergers and
• adjudicates appeals from the Competition
  Commissions decisions.

6
Relevant Competition Law Institutions (cont)

• Competition Appeal Court
• Separate court of law which is the final level of
  appeal against decisions of the Tribunal.

7
Application of the Act

• Act applies to all economic activity within, or
  having an effect within, the Republic, with
  certain exceptions.

8
Penalties

• Compliance is essential because the Act provides
  for severe penalties
• In particular, the Tribunal can impose an
  administrative fine on a firm - up to 10 of
  turnover in the Republic and exports from the
  Republic
• People failing to comply may incur a fine up to
  R500 000 or 10 years imprisonment

9
Mergers

• Definition of a merger Section 12(1) of the
  Competition Act
• a merger occurs when one or more firms directly
  or indirectly acquire or establish direct or
  indirect control over the whole or part of the
  business of another firm
• A merger can be achieved in any manner, including
  by way of purchase or lease of shares, an
  interest or assets of the other firm, or by way
  of amalgamation or other combination with the
  other firm

10
Mergers (cont)

• The notion of control A person controls a
  firm if that person inter alia
• beneficially owns more than one half of the
  issued share capital of the firm
• is entitled to vote a majority of the votes at a
  general meeting of the firm, or can control the
  voting of a majority of those votes

11
Mergers (cont)

• The notion of control (cont)
• is able to appoint or veto the appointment of a
  majority of the directors of the firm
• is the holding company of that firm
• has the ability to materially influence the
  policy of the firm in a manner comparable to a
  person who in ordinary commercial practice can
  exercise an element of control referred to above.

12
Mergers (cont)

• A change of control need not amount to a change
  in sole control from one company to another it
  is sufficient if the quality of control changes
  sole to joint or joint to sole Iscor/Saldanha
  Steel
• Important in the BEE context, where minority
  rights in subscription, voting pool or management
  agreements may confer control

13
What constitutes a business or a part of a
business ?

• A purchase of assets, if those assets have an
  economic potential, may be notifiable
• mothballed furnace or tailings dump
• mineral rights
• warehousing facility
• Competition Commission/Edgars Consolidated Stores
  Limited and Retail Apparel Group (Pty) Ltd
  (95/FN/Dec02)
• Joint Ventures may also trigger notification
  see the Practitioner Update.

14
Notification Thresholds (cont)

• Small Mergers
• No obligation to notify Commission, but
  Commission may require notification within six
  months - the Commission has prohibited a number
  of small mergers.
• Intermediate Merger
• Combined figure (assets/turnover) R200
  million
• Target firm R30 million

15
Notification Thresholds (cont)

• Large Merger
• Combined figure (assets/turnover) R3.5 billion
• Target firm R100 million

16
Filing Fees

• Small Mergers
• No filing fee payable
• Intermediate Mergers
• R75 000
• Large Mergers
• R250 000
• (VAT no longer payable)

17
Penalties

• There is no specified time limit within which a
  filing must be made, but no transaction may be
  implemented until approval of the Commission or
  the Tribunal has been obtained.

18
Timing

• Intermediate Merger
• Commission initially has 20 business days, and
  may extend this period by up to 40 business days
  then must either approve or prohibit it.

19
Timing

• Large Merger
• The Commission must make a recommendation within
  an initial review period of 40 days (may be
  extended by 15 business days at a time)
• The Tribunal must schedule a date for a hearing
  within 10 days (if the matter is not complicated)
  or a pre-hearing (if there are issues to be
  clarified).

20
Examples

• Co A with turnover of R242m and assets of R80m
  purchases the business of Co B, with turnover of
  R15m and assets of R45m.

21
Examples

• American Co D with South African turnover of R10m
  and assets of R5m purchases 100 of the shares in
  Co B, with turnover of R85m and assets of R285m.

22
Examples

• Co E with turnover of R4.6bn and assets of R452m
  purchases a platinum smelter from Co F, with
  turnover of R79m and assets of R232m. The smelter
  generates turnover of R52m and has an asset value
  of R192m.

23
Documents you will need

• Joint filing
• Competitiveness report
• Form CC4(1) merger notice
• Form CC4(2) signed by the acquiring and target
  firms
• Form CC7 confidentiality claims
• Annual financial statements
• Business plans
• Proof of notification on trade unions or employees

24
Restrictive Horizontal Practices

• Practices between competitors
• In terms of Section 4(1)(a) of the Act,
  agreements, concerted practices or decisions
  between firms which prevent or lessen competition
  prohibited unless technological efficiency or
  other pro-competitive gain is proved.

25
Restrictive Horizontal Practices (cont)

• In terms of Section 4(1)(b) of the Act,
  agreements, concerted practices or decisions
  between firms are prohibited OUTRIGHT if they
  involve
• Direct or indirect fixing of a purchase or
  selling price or any other trading condition or
• Dividing markets by allocating customers,
  suppliers, territories or specific types of goods
  or services.

26
Restrictive Horizontal Practices (cont)

• Price Fixing
• may be direct or indirect
• Purchase OR selling prices so two competitors
  cannot agree to purchase at the same price from a
  supplier
• Commission suspicious of any exchange of price or
  quantity related information which could
  facilitate price fixing

27
Restrictive Horizontal Practices (cont)

• Division of Markets by allocating
• particular customers (for example, with reference
  to their identity, or a particular LSM category)
• suppliers,
• geographic territories or
• specific types of goods or services.

28
Restrictive Horizontal Practices (cont)

• Section 4 imposes a very BROAD prohibition
• an agreement includes a contract, arrangement
  or understanding whether or not legally
  enforceable
• a concerted practice is cooperative or
  coordinated conduct between firms, achieved
  through direct contact, that replaces their
  independent action, but which does not amount to
  an agreement.

29
Restrictive Horizontal Practices (cont)

• In the Botash/ ANSAC case, the SCA indicated
  that the Section 4(1)(b) prohibitions might be
  more narrowly interpreted in future
• price fixing necessarily contemplates collusion
  in some form between competitors for the supply
  into the market of their respective goods with
  the design of eliminating competition in regard
  to price

30
Examples

• Small grocery stores A and B are located in the
  same suburb. They agree to buy their bread from
  the same baker so they can get a bulk discount
  and compete with the large supermarket down the
  road.
• Would it make a difference if A and B were both
  Happy Grocer franchisees?

31
Examples

• Two estate agents decide to charge the commission
  recommended by the Gauteng Estate Agents board.

32
Restrictive Vertical Practices

• Practices between firms and their suppliers,
  their customers or both.
• Such agreements between parties are prohibited if
  they prevent or lessen competition in a market,
  unless parties can prove that the
  anti-competitive effects are outweighed by any
  technological, efficiency or other
  pro-competitive gains.

33
Restrictive Vertical Practices (cont)

• In general, only problematic where a party
  acquires market power it would not otherwise
  have, which facilitates collusion or permits an
  abuse of market power.

34
Restrictive Vertical Practices (cont)

• Vertical agreements MAY be justifiable on the
  basis that they provide efficiency gains

35
Example

• Somy, the producer of the E-pod music player,
  enters into a distribution agreement with
  Audiomart to sell them in SA -
• What if Somy is the only producer of this product
  in SA?
• What if the agreement provides that Audiomart is
  the only store which can sell them in SA?
• What if the agreement is for 1, 3 or 5 years?

36
Restrictive Vertical Practices (cont)

• Minimum resale price maintenance
• Prohibited OUTRIGHT!
• May recommend a minimum resale price, provided
• it is clear that the recommendation is not
  binding and
• the words recommended price appear next to the
  stated price.

37
Restrictive Vertical Practices (cont)

• Minimum RPM regarded as one of the most harmful
  anticompetitive practices
• Motor vehicle cases
• Federal Mogul

38
Restrictive Vertical Practices (cont)

• Minimum RPM may take various forms, for example
  if a manufacturer instructs a retailer
• not to sell the product for less than a certain
  price
• not to sell for less than a specified discount
• not to wholesale products

39
Abuse of a Dominant Position

• A firm is dominant if
• it has at least 45 of the market or
• 35 to 45 of that market (unless it can show
  that it does not have market power) or
• less than 35 of the market, but has market
  power.

40
Abuse of a Dominant Position (cont)

• Market power is the power of a firm to control
  prices, to exclude competition or to behave to an
  appreciable extent independently of its
  competitors, customers or suppliers.

41
Abuse of a Dominant Position (cont)

• A dominant firm may not
• charge an excessive price to the detriment of
  consumers
• refuse to give a competitor access to an
  essential facility
• do anything which impedes or prevents competitors
  from entering into or expanding in a market
  unless it can show a pro-competitive gain or

42
Abuse of a Dominant Position (cont)

• require or induce a supplier or customer not to
  deal with a competitor
• refuse to supply scarce goods to a competitor
• attach conditions to agreements of sale unrelated
  to the object of the agreement
• engage in predatory pricing
• buy up a scarce supply of intermediate goods or
  resources required by a competitor
• UNLESS
• the firm can show a pro-competitive gain.

43
Examples

• Inducements
• Tying or bundling

44
Price Discrimination

• Price Discrimination is an action which
• is likely to have the effect of substantially
  preventing or lessening competition and
• relates to the sale in equivalent transactions of
  goods or services of like grade and quality to
  different purchasers.

45
Price Discrimination (cont)

• Involves discrimination between those purchasers
  in terms of
• the price charged for the goods or services
• any discount, allowance, rebate or credit given
  or allowed in relation to the supply of goods or
  services
• payment for services provided in respect of the
  goods or services.

46
Price Discrimination (cont)

• Unless it can be shown that the price
  discrepancy
• relates to differences in costs of manufacture,
  distribution, sale, promotion or delivery
• is done in good faith to meet a price or benefit
  offered by a competitor
• is in response to a change in market conditions

47
Price Discrimination (cont)

• is part of a liquidation or sequestration
  procedure
• relates to perishable or obsolescent goods or
• is part of a genuine closing down sale.

48
Investigations

• Complaint laid with the Commission
• Commission has one year to investigate
• Then either the Commission or the complainant may
  refer it to the Tribunal for adjudication.

49
Resources

• CC website
• http//www.compcom.co.za/
• Copies of the merger and complaint forms
• Practitioners updates and newsletters
• Tribunal website
• http//www.comptrib.co.za/
• South African Law firms
• International competition websites
• http//ec.europa.eu/comm/competition/other_sites/
  

50
Queries

• Heather Irvine
• Deneys Reitz
• Tel [phone]
• hpi_at_deneysreitz.co.za