COMPETITION ACT 2010

Malaysia
Chapter 1 Prohibition: Anti-Competitive Agreements Prohibiting horizontal and vertical agreements between enterprises that have object or effect of significantly preventing, restricting or distorting competition in Malaysian markets: s4(1) OVERVIEW 1. Is there an agreement? 2. Does it have the object or effect of distorting competition in a relevant market? a. Non-cumulative test: if anti-competitive object found, Malaysia Competition Commission (MyCC) need not examine effect; if object not found, agreement may still breach Act if adverse effect is established 3. Is anti-competitive agreement exempt from liability? 4. Is anti-competitive agreement excluded under the Act? Chapter 2 Prohibition: Abuse of Dominant Position Prohibiting independent or collective conduct by enterprise(s) which amounts to an abuse of a dominant position in Malaysian markets: s10(1) OVERVIEW 1. Is enterprise dominant in a relevant market? 2. If dominant, is enterprise abusing that dominant position? 3. Conduct that would otherwise constitute an abuse can be justified if it: a. Has reasonable commercial justification OR b. Is a reasonable commercial response to a competitors conduct 4. Is conduct excluded under the Act?

Is there an agreement?
AGREEMENT Any form of contract, arrangement or understanding Whether or not legally enforceable Includes: o Decision by an association o Concerted practices: Knowing practical co-operation without formal agreement including any practice involving direct or indirect contact or communication)

Is enterprise dominant in a relevant market?

DOMINANCE: Enterprise(s) possessing such significant market power in a relevant market in Malaysia that they are able to adjust prices, outputs, or trading terms without effective constraint from competitors or potential competitors DEFINING RELEVANT MARKET See below SIGNIFICANT MARKET POWER REQUIRED Relevant factors: 1. Competitive conditions in the market

Does it have the object or effect of distorting

a. Market share i. Exact level is not conclusive 1. Market share exceeding 60% of relevant market DEFINING RELEVANT MARKET generally indicative of dominance: Guidelines See below 2. E.g. of exception: new product with patented features and rapidly growing share; 20, 30% OBJECT sufficient 1. Non-exhaustive list of agreements deemed to have object of distorting ii. Whether enterprise achieved dominance through competition: efficient operations or anti-competitive conduct a. Direct or indirect fixing of price or other trading conditions iii. Market share can be calculated in various ways: e.g. b. Sharing markets or sources of supply value, volume, production capacity, etc. c. Limit or control of b. Degree of product differentiation i. Production c. Likely response by buyers to price increases ii. Market outlets or market access d. Degree to which innovation drives competition iii. Technical or technological development 2. Constraints faced by the enterprise iv. Investment a. Existing competitors d. Bid rigging b. Potential competitors; barriers to entry of market 2. Actual common intentions of parties i. Economies of scale/size 3. Aims pursued by agreement in light of agreements economic context: ii. Economies of scope If agreements effect is likely to be significantly anti-competitive, then iii. Regulated entry MyCC is more likely to find the agreement to have an anti-competitive iv. Limited Access to Necessary Inputs or Distribution object Outlets v. Network Effects EFFECT vi. High Sunk Costs Significant adverse effect required vii. Conduct by Incumbents 1. Market share: Safe harbour provisions; anti-competitive impact of the c. Countervailing buyer power agreement generally not deemed significant: d. Economic regulation imposed by government a. Where the combined market share of parties to a horizontal e. Collective dominance agreement (between competitors) does not exceed 20% 3. Possible evidence: b. Where each individual market share of parties to a vertical a. Enterprises sales data and their estimates of the market shares agreement (between parties who are not competitors) does not of their competitors exceed 25% b. Trade associations c. Market research report Non-exhaustive list of Horizontal Agreements that require investigation:

competition in a relevant market?

Information Sharing d. Internal market review Whether information sharing reduces risk of competition is assessed on a case-by-case basis Is enterprise abusing that dominant position? Relevant factors: o Number of competitors: less likely to have significant effect the CONDUCT AMOUNTING TO ABUSE OF DOMINANCE fewer competitors 1. Exploitative conduct o Frequency of confidential information exchange a. Mainly setting high prices to exploit customers o Whether exchanged information is provided to consumers b. Relevant factors: o Sharing of future price information (which may facilitate price i. Actual price set in relation to the costs of supply fixing) as opposed to historical, anonymous price trends (unlikely ii. Dominant enterprises profitability to influence future behaviour) or non-price information on 2. Exclusionary conduct standards/technologies that can improve competition a. Conduct that prevents equally efficient competitors from competing Restrictions of Advertising b. Effects-based test: whether access to a significant part of the Whether restricts competition on merit market is foreclosed Truthful advertising by trade associations unlikely to have significant i. Does conduct adversely affect consumers? effect ii. Does conduct exclude a competitor that is just as efficient as the dominant enterprise? Standardisation Agreements Whether it limits ability of enterprises to set new standards or sell new Non-exhaustive list of conduct that could be abuse: products Direct or indirect imposition of unfair price or other trading condition Imposes barrier to new entrants Whether enterprise is engaging in predatory pricing by pricing below Non-exhaustive list of Vertical Agreements that require investigation: Tend to be less harmful than horizontal agreements Anti-competitive vertical agreement more likely where one party has enough market power to have some influence over the other party to the contract (which falls short of the significant market power required for the Chapter 2 Prohibition) Relevant factors: o Market power of the enterprise imposing restriction o Justification for the restriction o Extent to which relevant market is foreclosed

cost to drive competitors out of market Different cost measures depending on circumstances and conditions in relevant market: e.g. average variable cost, average avoidable cost, long-run incremental cost, average total cost Intent can be evidence of effect, but not conclusive of predatory conduct

Limit or control of 1. Production 2. Market outlets or market access 3. Technical or technological development

o o o

Whether there are barriers to entry of relevant markets Whether there is countervailing buyer power Whether there is inter-brand competition

4.

Investment

Exclusive dealing between seller and buyer Denying supply to particular enterprise(s): E.g. Refusal to sell products to buyer which supplier also competes with, refusal to licence intellectual property rights, refusal to grant access to infrastructure necessary to supply certain products Long term incentives for innovation and investment undermined by forcing supply will be balanced against short term competition increase Discrimination Applying different conditions to equivalent transactions (e.g. price discrimination) such that it: Discourages new market entry/ expansion/ investment or Seriously damages a competitor no less efficient than the dominant enterprise or Harms competition in the relevant market Loyalty Rebates and Discounts Generally pro-competitive, but not if they are non-cost related and foreclose competitors from a significant number of buyers Imposing conditions unconnected to a contracts subject matter Hoarding Buying up a scarce supply of intermediate goods or resources required by a competitor beyond its own needs Bundling and tying Any Predatory behaviour towards competitors

Resale Price Maintanance (RPM): Imposing minimum RPM Imposing maximum RPM/ recommended pricing: more likely where it is a focal point for downstream collusion Vertical Agreement Involving Non-Price Restrictions that foreclose market to competitors: 1. Tying a. Customers required to buy a unwanted product from different market b. Distinguished from bundling: buying products typically bought together/same market as opposed to different market 2. Requiring Buyer to Buy All/ Most from Supplier 3. Exclusive Distribution Agreement Covering a Geographic Territory 4. Exclusive Customer Allocation Agreement 5. Up-Front Access Payments

SEPARATE MARKETS Enterprise that is dominant in one market can abuse that dominance by leveraging on its dominance to obtain market power in a separate market

HOW TO DEFINE THE RELEVANT MARKET?

MARKET: Market in Malaysia for certain goods or services, including goods and services substitutable for, or otherwise competitive with them Involves identifying 1. Product Market: identifying substitutable products 2. Geographic Market: identifying area over which consumers can substitute the product under consideration By Applying the Hypothetical Monopolist Test (HMT): smallest group of products (in a geographical area) that a hypothetical monopolist controlling that product group (in that area) could profitably sustain a price above the competitive price i.e. a price that is at least a small but significant amount above the competitive price (5-10%) 1. Can the hypothetical monopolist still be profitable after a 5-10% increase in price of the product in question? 2. If no, the market should include the substitute product that the customers switched to. 3. If yes, the relevant market is as defined and the process does not repeat. Relevant factors to determine demand-side and supply-side substitutability: Enterprises identification of competitors Market research surveys indicating consumers willingness to switch products Evidence on switching costs, real or perceived Similar price changes between products Peculiarities of market under investigation: e.g. compete more on product features than price Own or cross price elasticity Whether there is substitution between time periods (e.g. peak and off-peak, inter-generational products) Whether products are so differentiated that the HMT is misleading

CAN ANTI-COMPETITIVE AGREEMENT BE EXEMPTED?

CAN PROHIBITED CONDUCT BE JUSTIFIED?

Conduct that would otherwise constitute an abuse can be justified if it:

Onus to prove on parties to agreement

1. 2.

Has reasonable commercial justification OR Is a reasonable commercial response to a competitors conduct Onus to prove on parties seeking to rely on justification

s5 Cumulative Requirements for relief of liability for infringement: 1. Significant technological, efficiency or social benefits arising from agreement 2. Benefits cannot reasonably be achieved without the agreement preventing, restricting or distorting competition 3. Detrimental effect on competition is proportionate to benefit 4. Does not allow the enterprise concerned to eliminate competition completely in respect of a substantial part of the goods or services If satisfied, exemptions are granted: May be subject to conditions and obligations May be of limited duration May be revoked (both types) or varied (individual exemptions only) if there is a material change of circumstances or there is a breach or noncompliance of an imposed condition Individual exemption Granted to a particular agreement Block exemption Granted to a category of agreements Requires period of min. 30 days public consultation before it can be granted May be subject to conditions and obligations May be of limited duration May have retroactive effect May be revoked if there is a breach or non-compliance of conditions/ obligations

Non-exhaustive list of examples of justified conduct: Refusing to sell to a buyer who has not paid for past purchases Refusing to grant access to a dominant enterprises infrastructure that is already being used to capacity Offering a loyalty rebate that is related to the reduced costs of supplying a particular customer Meeting a competitors price even though the price may be below cost (in the short term)

May be subject to conditions and obligations May be of limited duration May have retroactive effect May be revoked or varied if there is a material change of circumstances or breach of an imposed condition/

obligation May be denied to a particular agreement if MyCC does not consider that it satisfies s5 requirements

IS CONDUCT OR AGREEMENT EXCLUDED UNDER THE ACT?

Onus to prove on parties seeking to benefit

Act Application Applies to: All commercial activity within or outside Malaysia that has an effect on competition in any Malaysian market for goods and services for consideration All entities carrying on commercial activities Commercial activity regulated by these Acts are exempt: Communications and Multimedia Act 1998 Energy Competition Commission Act 2001 Commercial activity means any activity of a commercial nature but does not include: Any activity, directly or indirectly in the exercise of governmental authority Any activity conducted based on the principle of solidarity Any purchase of goods or services not for the purposes of offering goods and services as part of an economic activity Activities in Second Schedule excluded from Chapter 1 and 2 prohibitions 1. Acts necessary to comply with other laws 2. Collective bargaining agreements or activities between an employer and its workers 3. Acts by an enterprise that contribute to its provision of services of general economic interest or those of a revenue-producing monopoly

LENIENCY APPLICATION?

Leniency reduction of up to 100% of any penalties available if an enterprise has admitted to and cooperated with MyCC

UNDERTAKING?
MyCC may allow the enterprise to propose an undertaking to do or refrain from doing anything MyCC considers appropriate. If it does so, MyCC will close its investigation without making any finding of infringement and not impose any penalties.

HOW TO RESOLVE A BREACH?

Past Contracts; ie. Concluded before but persist after 1 JAN 2012 1. Possible to renegotiate with other party to mitigate sanctions? Only if MyCC issued a proposed decision, not final decision. 2. Terminate agreement Future Contracts Review process, clearance or guidance from MyCC? Unavailable, self-assessment advised 2. Terminate proposed agreement
1. 1.

HOW TO RESOLVE A BREACH?

Review process, clearance or guidance from MyCC? Unavailable, selfassessment advised 2. Terminate conduct

SANCTIONS?
Interim Measures Imposed when MyCC o Reasonably believes there is infringement AND o Measures are necessary as matter of urgency to prevent serious and irreparable damage or to protect public interest Example measures include: o Desist from the suspicious agreement and suspend its effects o Desist from any conduct that is suspected of infringing the prohibitions on anti-competitive agreements and abuses of dominance o Do, or refrain from doing, any act (excluding the payment of money) Financial Penalty Up to 10% of enterprises worldwide turnover for the period of infringement

MyCC can give any other direction it deems appropriate

Criminal Charge For obstruction of MyCC investigations For tip off to third parties about imminent investigations For threats or retaliation against complainants or companies/individuals aiding investigations INDIVIDUALS First Time Offence Subsequent Offences Fine up to RM1 mil AND/OR Imprisonment up to 5 years Fine up to RM2 mil AND/OR Imprisonment up to 5 years BODY CORPORATE Fine up to RM5 mil Fine up to RM10 mil