LEXINDO

CONSULTING
Brief Guide to the Anti-Monopoly Law of Indonesia
(August 2001)

A. Definitions
B. Prohibited Agreements
C. Prohibited Activities
D. Business Competition Supervisory Commission
E. Sanctions
F. Exceptions and Exemptions
G. Effective Date and Transition

Law No. 5 of 1999 regarding Ban on Monopolistic Practices and Unfair Business
Competition (March 5, 1999) (the “Law”) took effect on March 5, 2000. Due to a statutory 6-
month grace period granted to allow companies to bring their activities into compliance with the
Law (Art. 52), as a practical matter the effective date of the Law was September 5, 2000.

The Law was enacted in large part as a direct response to demands of the International
Monetary Fund. The Official Elucidation of the Law explains with surprising candor that much
of the economic development over the last three decades had been marred by “inefficient
government policies” leading to market distortions. Unfair business competition, it explains,
was nurtured and developed by “close relationships between public decision makers and private
entrepreneurs”. The Law, in essence, is an effort to create a level playing field for all
entrepreneurs.

Broadly speaking, the Law defines and regulates three areas: (a) Prohibited Contracts,
(b) Prohibited Activities (including special references to Dominant [Market] Positions and
Business Conspiracies) and (c) the structure and authority of the Business Competition
Supervisory Commission (“Commission”). The Law also sets out sanctions, both administrative
and criminal, for violations as determined by the Commission.

Attached is a Summary of the Law in matrix format. It attempts no analysis. It offers

only a summary of the main substantive provisions of the Law. Where thought helpful,
clarifications gleaned from the Official Elucidation are provided.

One stylistic convention used in the Summary is the use of a virgule (/) to stand for the
phrase “and/or”, e.g., “goods/services” means “goods and/or services”.

This Brief Guide is intended for informational purposes only, and should not be construed legal
advice or acted upon without obtaining professional guidance. It is provided for the personal use of
the recipient only, and is not to be mo dified or published without prior written consent of Lexindo
Consulting. All rights reserved. Lexindo Consulting © 2001

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 Another comment relates to the translation of the Indonesian phrase “sehingga dapat
mengakibatkan terjadinya” used repeatedly throughout the Law. Literally, this phrase may be
translated as “so that can result in the occurrence of”, which indicates that complaints of
monopolistic practices, unfair business competition and/or losses to the public can be alleged on
a prospective basis. For ease of expression, we have used the phrase “resulting in”, but wish to
emphasize that the text of the Law itself permits complaints to be filed based on anticipated
rather than actual economic harm.

Lastly, we provide a word on enforcement. The Law does not empower private parties to
bring lawsuits to enforce its provisions (nor the right to treble damages or attorneys’ fees).
Enforcement responsibility is placed with the Commission. Rules of procedure have been issued
by the Commission regarding the filing of complaints and conduct of investigations.

As of this writing (August 2001) the enforcement procedures relating to decisions of the
Commission are still unclear and largely untested. The Law provides that decisions of the
Commission are appealable to the District Court, but does not specify which District Court (e.g.,
domicile of the defendant, domicile of the Commission, principal place of business of the
defendant, or elsewhere). Given the Byzantine nature of Indonesian court procedures and the
well-established readiness of the judiciary to decide important civil and criminal cases on
dubious legal technicalities (frequently in favor of wealthy or powerful defendants), the failure of
the Law to provide a clear and simple enforcement mechanism may prove to be a fatal flaw.

The Commission has recently handed down decisions in two high-profile cases, and how
these decisions are treated will send a message to the business and investment community of
Indonesia regarding the efficacy of both the Law and the Commission.

A. Definitions

Following are key definitions set out in the Law. Unfortunately, the Official Elucidation
to the Law offers no further guidance on the intended meanings, commenting only that the
definitions are “sufficiently clear”.

Article Term Definition

1(8) Business Cooperation between entrepreneurs intended to control a relevant market for
Conspiracy their sole interest.

1(3) Centralization The overt control of a relevant market by one of more entrepreneurs with the
of Economic result that they can fix prices of the relevant goods/services.
Power
1(4) Dominant A situation where an entrepreneur does not have any significant competitors
Position in the relevant market in respect of a controlling market share, or where an
entrepreneur holds a dominant position among its competitors in a relevant
market with regard to its financial capability, access to supplies or sales and
the ability to adapt to the supply or demand of certain goods or services.

1(5) Entrepreneur An individual, company or other entity establishment and domiciled or

engaged in business activities within Indonesia.

1(9) Market An economic institution in which buyers and sellers can directly or indirectly
conduct trading transactions in goods/services.

1(13) Market Share The percentage of selling or buying value of certain goods or services
controlled by an entrepreneur in a relevant market in a particular calendar

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Article Term Definition
controlled by an entrepreneur in a relevant market in a particular calendar
year.

1(2) Monopolistic The centralization of economic power by one or more entrepreneurs causing
Practices the control of production/marketing of certain goods/services resulting in
unfair business competition causing damage to the public interests.
1(1) Monopoly Control of production/marketing of certain goods/services by one
entrepreneur or one group of entrepreneurs.
1(10) Relevant A market related to the range or certain marketing area of entrepreneurs for
Market the same kind or type of goods/services or substitutes thereof.
1(6) Unfair That which is conducted in an unfair manner or contradictory to the law or in
Business a manner which hampers business competition.
Competition

B. Prohibited Agreements

The following types of agreements are prohibited.

Article Subject Description

4 Oligopoly (1) An agreement with other entrepreneurs to jointly control the

production/marketing of goods/services, resulting in monopolistic
practices and/or unfair business competition.
(2) A presumption of oligopoly arises when two or three
entrepreneurs/business groups control more than 75% of the market of a
particular good/service.

5 Price Fixing An agreement with a competitor to set prices on goods/services to be paid by

customers within the same relevant market. Exceptions apply for “joint
partnerships” and “contracts based on existing law”.

6 Discriminatory An agreement causing a buyer to pay a different price than another buyer for
Pricing the same goods/services.

7 Predatory An agreement with a competitor to set prices below market price, resulting in
Pricing unfair business competition.

8 Resale Price An agreement restricting a buyer of goods/services from reselling or

Maintenance resupplying the goods/services at a price lower than the (seller’s) established
price, resulting in unfair business competition.

9 Territorial An agreement with a competitor dividing marketing territories or market

Restrictions allocations for goods/services, resulting in monopolistic practices/unfair
business competition.

10 Unlawful (1) An agreement with a competitor to bar other entrepreneurs from

Boycott conducting the same business in either the local or international market.
(2) An agreement with a competitor to refuse to sell goods/services of other
entrepreneurs resulting in or can be thought to result in losses to them or
to prevent other entrepreneurs from selling or buying goods/services from
the same market.

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Article Subject Description
11 Cartel An agreement with a competitor intended to influence prices by fixing the
(Production production/marketing of certain goods/services, resulting in monopolistic
Quotas) practices/unfair business competition.

12 Trust An agreement in the form of a joint operation by combining companies into a

holding company or a larger corporation, while still preserving the existence
of each subsidiary or member, intended to control production/marketing of
goods/services, resulting in monopolistic practices/unfair business
competition.
13 Oligopsony (1) An agreement with other entrepreneurs aiming to jointly dominate the
buying market in order to control the price of the goods/services in the
relevant market, resulting in monopolistic practices/unfair business
competition.
(2) A presumption of Oligopsony arises when two or three
entrepreneurs/business groups control more than 75% of the market share
of a particular good/service.

14 Vertical An agreement with other entrepreneurs aiming to control the production of

Integration several components belonging to a chain of production of certain
goods/services resulting in unfair business competition/public loss.

15 Closed (1) An agreement with other entrepreneurs providing that the buyer of certain
Contracts and goods/services shall only resell, or shall not resell, the goods/services to a
Tying certain party or in a certain place.
Arrangements (2) An agreement with other entrepreneurs providing that the buyer of certain
goods/services shall purchase other goods/services from the supplying
entrepreneurs.
(3) An agreement on prices or discounts on goods/services, providing that the
buyer shall purchase other goods/services from the supplying party or
shall not purchase similar or identical goods/services from a competitor
of the supplying party.

16 Foreign Party Agreements with offshore parties that result in monopolistic practices/unfair
Contracts business competition.

C. Prohibited Activities

The following types of activities are prohibited:

Article Subject Description

17 Monopoly (1) Control over production/marketing of goods/services, resulting in

monopolistic practices/unfair business competition.
(2) A presumption of monopoly arises when:
- there is no substitution available for the subject goods/services;
- other (capable) entrepreneurs are unable to compete in the same
goods/services in the relevant market; or
- an entrepreneur/group of entrepreneurs controls over 50% of the
market share of a particular good/service.

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Article Subject Description
18 Monopsony (1) Control over receipt of [demand for?] supplies or being the sole buyer of
goods/services in the relevant market, resulting in monopolistic
practices/unfair business competition.
(2) A presumption of monopsony arises when an entrepreneur/group of
entrepreneurs controls over 50% of the market share of a particular
good/service.

19 Market Control One or more activities, conducted by an entrepreneur, solely or jointly with
(Exclusionary others, resulting in monopolistic practices/unfair business competition in the
Practices) form of:
- refusing/hampering certain entrepreneurs from conducting the same
business activity in the relevant market (e.g., race-based
discrimination);
- hampering a competitor’s customer from doing business with him;
- limiting the supply/selling of goods/services in the market; or
- discriminating against certain categories of entrepreneurs.

20 Predatory Supplying goods/services through loss-sales or price cutting with the

Pricing intention to eliminate competition in the relevant market, resulting in
monopolistic practices/unfair business competition.

21 Fraudulent Fraudulent setting of production costs and other price-component-related

Production costs of goods/services, resulting in unfair business competition.
Costs
22 Business Conspiring with others to arrange the winner of a tender, resulting in unfair
Conspiracy business competition.
(Bid Rigging)
23 Business Conspiring with others to obtain confidential information regarding a
Conspiracy competitor’s business causing unfair business competition.
(Trade Secret
Theft)
24 Business Conspiring with others to obstruct the production/marketing of a competitor’s
Conspiracy goods/services in a relevant market with the intention to damage the quantity
(Sabotage) or quality of the goods/services, or to delay delivery time.

25 Dominant (1) Entrepreneurs are prohibited from using a dominant market position
Position Abuse directly or indirectly to:
- set commercial conditions intended to obstruct consumers from
obtaining goods/services that are competitive in price or quality;
- limit market or technological development; and
- obstruct potential competitors from entering the relevant market.

(2) A presumption of dominant position arises when:

- an entrepreneur or a business group controls 50% or more of the
market share of a certain type of good/service;
- two or three entrepreneurs or business groups control 75% or more of
the market share of a certain type of good/service.

26 Overlapping A director or commissioner of a company shall not at the same time be a

Boards director or commissioner of another, when those companies are:
- in the same relevant market;
- closely related in the field/type of business (e.g., supporting each other

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Article Subject Description
in production or marketing activities); or
- capable of jointly controlling the market of a certain good/service,
resulting in monopolistic practices/unfair business competition.

27 Common An entrepreneur is prohibited from establishing or owning a majority share in

Control several companies in the same business in the same relevant market, when
such ownership results in:
- one entrepreneur/business group controlling more than 50% of the
market share of a certain type of good/service;
- two or three entrepreneurs/business groups controlling more than 75%
of the market share of a certain type of good/service.

28 - 29 Mergers, Entrepreneurs are prohibited from:

Consolidations - merging or consolidating business entities, resulting in monopolistic
and practices/unfair business competition;
Acquisitions - acquiring shares of another company resulting in monopolistic
practices/unfair business competition.

Mergers, consolidations and share acquisitions exceeding a certain value (to

be set by regulation) must be reported to the Commission within 30 days of
the transaction.

Further implementing regulations to follow.

D. Business Competition Supervisory Commission

The Commission is the investigatory and enforcement agency charged with implementing the
Law.

Article Subject Description

30 - 31 Status and The Commission is an independent body, free from influence and power of
Structure the government and other parties, and responsible to the President.
The Commission is composed of:
- Chairman;
- Vice Chairman;
- and at least 7 other members.

The members are appointed and dismissed by the President with the approval
from the House of Representatives.

Further details to be stipulated by Presidential Decree.

35 Duties of The Commission has the following duties:

Commission - conduct evaluations of prohibited contracts;
- conduct evaluations of prohibited activities;
- conduct evaluations of dominant position abuses;
- take actions based on authority in Art. 36;
- provide input to relevant Government policy;
- prepare related guidelines and publications; and
- provide periodic reports to the President and DPR.

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Article Subject Description
36 Authority of The Commission has the following authorities:
Commission - receive complaints from the public and entrepreneurs;
- conduct investigations based on complaints received from the public
and entrepreneurs;
- initiate own investigations;
- reach conclusions based on investigations;
- summon entrepreneurs alleged to have violated the Law;
- request assistance from Government agencies;
- obtain and evaluate documentary evidence;
- determine whether an entrepreneur or public has suffered losses;
- notify defendant entrepreneurs of Commission’s findings;
- impose administrative sanctions as provided by the Law.

E. Sanctions

Article Subject Description

47 - 49 Sanctions 1. Administrative Sanctions

The Commission is authorized to impose the following administrative
sanctions:
- revocation of contracts;
- break-up of vertical integrations;
- cease and desist orders in respect of activities proven to have resulted
in monopolistic practices, unfair business competition or to have
caused damage to the public;
- cease and desist orders in respect of abuse of dominant positions;
- unwinding of mergers, consolidations and share acquisitions;
- award of damages;
- imposition of fines between Rp. 1 billion and Rp. 25 billion.

2. Criminal Sanctions
Criminal penalties, including fines of up to Rp. 100 billion or
imprisonment for up to six (6) months, are stipulated. Other criminal
sanctions include revocation of business license, prohibition of
individuals to serve as a director or commissioner for up to five (5) years,
and cease and desist orders regarding activities damaging other parties.

F. Exceptions and Exemptions

Article Subject Description

50 Enumerated There are nine (9) enumerated exceptions to the Law:

Exceptions - actions/contracts intended to implement existing law;
- contracts related to intellectual property rights, and contracts related to
franchises;
- contracts on technical standardization of goods/services which do not
hamper competition;
- distribution contracts which do not stipulate the resale of goods/
services at prices lower than already agreed upon;

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Article Subject Description
- research contracts for the purpose of improving the living standards of
the population in general;
- international contracts ratified by the Government of the Republic of
Indonesia;
- contracts and/or actions intended for export which do not disrupt
domestic needs and/or market supply;
- small-scale entrepreneurs [as defined in Law No. 9 of 1995 regarding
Small Scale Businesses]; or
- business activities of cooperatives serving specifically only their
members.

51 State-owned Monopolistic practices of State-owned companies (BUMN) and other

Companies government entities carried out in accordance with applicable laws are
exempted in respect of production and marketing of good/services vital to the
State or the population in general.

G. Effective Date and Transition

Article Subject Description

52 Transition September 5, 2000, being six (6) months after effective date.
Period

53 Effective Date March 5, 2000, being one (1) year from date of promulgation.

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LEXINDO
CONSULTING
Providing professional advisory services to the
business and investment community in Indonesia.

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