SUREN RAJAH. Executive of Investigation & Enforcement Division Malaysia Competition Commission

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2 SUREN RAJAH Executive of Investigation & Enforcement Division Malaysia Competition Commission

3 PRESENTATION OVERVIEW Part 1 - An overview of the Competition Act 2010 (CA2010) Part 2 Main Prohibitions of the CA2010 Part 3 - Cases & Investigation

4 OBJECTIVE OF THE COMPETITION ACT 2010 The preamble of Competition Act 2010 (Act 712) 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. 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.

5 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

6 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.

7 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.

8 DEFINITION OF IMPORTANT TERMS (continued) What is a commercial activity? [s.3(4)] Any activity of a commercial nature but does not includea) 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

9 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.

10 SCOPE OF LAW Applies to all commercial activities, both within and outside Malaysia which has an effect on competition in any market in Malaysia 10

11 SCOPE OF LAW (EXCLUSION) Commercial activities regulated under: Communications and Multimedia Act 1998 [Act 588] Energy Commission Act 2001 [Act 610] 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 11

12 PRESENTATION OVERVIEW Part 1 - An overview of the Competition Act 2010 (CA2010) Part 2 Main Prohibitions of the CA2010 Part 3 - Cases & Investigation

13 MAIN PROHIBITIONS ANTI-COMPETITIVE PRACTICES ANTI-COMPETITIVE AGREEMENTS ABUSE OF DOMINANT POSITION

14 ANTI-COMPETITIVE AGREEMENTS

15 ANTI-COMPETITIVE AGREEMENTS Competition Act 2010, section 4: 15

16 ANTI-COMPETITIVE AGREEMENTS (continued) Competition Act 2010, section 4: 16

17 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 WHOLESALER DISTRIBUTOR RETAILER

18 Vertical Agreements RPM Exclusive Distribution VERTICAL AGREEMENTS Tying Selective Distribution

19 Vertical Agreements (continued) 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. 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.

20 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 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.

21 CASE EXAMPLE ACCC v. Telwater Pty Ltd [2009] FCA 263 A manufacturer of boats supplied its dealers with a recommended retail price (RRP) list. It also gave dealers a document that said dealers should advertise the boats at the RRP. It made it known that it would not provide any advertising support to dealers that advertised at a lower price. Penalties of $280,000 were imposed on the manufacturer for RPM.

22 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

23 Horizontal Agreements Pricefixing Limiting or Controlling HORIZONTAL AGREEMENTS Market Sharing Bid Rigging

24 Examples of Horizontal Agreements (continued) Price Fixing E.g- When a car spare part association members get together and fix a price for radiators 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

25 Examples of Horizontal Agreements (continued) Bid Rigging E.g- Where two or more companies tendering for a construction project agree in advance on the amount they are going to submit in order to ensure the winner of the bid. Types of bid rigging: Cover bidding pre chosen winner, the looser 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

26 Case Examples OFT v British Airways [CE/ ] 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 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

27 Case Examples (continued) 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.

28 ANTI-COMPETITIVE AGREEMENTS Exemption Mechanism under the CA2010 EXEMPTIONS INDIVIDUAL BLOCK

29 RELIEF OF LIABILITY 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

30 ABUSE OF DOMINANT POSITION

31 ANTI-COMPETITIVE ABUSE OF DOMINANT AGREEMENTS POSITION Competition Act 2010, section 10: 31

32 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

33 Unfair Selling/ Purchase Price Limiting/ Restricting Production Price Discrimination ABUSE OF DOMINANT POSITION Bundling Refusal to Supply Predatory Pricing

34 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 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).

35 ABUSE OF DOMINANT POSITION (continued) 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 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

36 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 Predatory Pricing 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

37 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.

38 Case Examples (continued) ACCC v Baxter Healthcare Pty Ltd [2007] HCA 38 Baxter s conduct in bundling the supply of sterile fluids (the market for which was not competitive) with the supply of PD fluids (the market for which was competitive) in offers to State hospital purchasing authorities amounted to exclusive dealing under section 47 of the TPA, and a taking advantage of market power in breach of section 46. Almost eight years after the ACCC commenced proceedings, the Federal Court has imposed a penalty of $4.9 million on Baxter Healthcare Pty Limited (Baxter)

39 COMMISSION S POWER

40 Make findings Receive complaints Conduct investigations Grant exemption COMMISSION S POWERS Conduct dawn raids Issue guidelines Conduct market review Impose penalties 40

41 PENALTIES 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

42 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

43 LENIENCY REGIME Upon admission of involvement in an infringement of any prohibition Upon provision of any information or other form of cooperation in an investigation Enterprises may enjoy total immunity or reduction of penalty depending : the stage at which an involvement was admitted; the stage at which any information or other cooperation was provided

44 PRIVATE RIGHTS Do I have rights of private action? YES! If you suffer loss or damage directly as a result of the infringement Regardless of whether you have dealt directly or indirectly with the enterprise

45 PRESENTATION OVERVIEW Part 1 - An overview of the Competition Act 2010 (CA2010) Part 2 Main Prohibitions of the CA2010 Part 3 - Cases & Investigation

46 ENFORCEMENT 1 In 2012: Non-penalty decision on Cameron Highlands Floriculturist Association s case On 6 December 2012, the MyCC issued a final decision against the Cameron Highlands Floriculturist Association (CHFA) for price fixing. Being the first year of enforcement, MyCC adopted a soft approach in this case by not imposing any financial penalty on the CHFA. Outcome of the decision: A signal to all SMEs that they are also subject to the Act. Criticism that MyCC was only after the SMEs Without a penalty, enterprises continued to engage in anti-competitive activities as evidenced by the number of cases that we have in our register 46

47 2 ENFORCEMENT (continued) In 2013: Proposed penalty decision on MAS - Air Asia MyCC shifts gear and no longer adopts a 'soft approach 6 Sept The MyCC issued a proposed decision against two airlines A financial penalty of RM10,000, on MAS and AirAsia respectively proposed. Outcome of the decision Sent strong signals to the market Decision commended by Public Accounts Committee Positive comments by almost all 47

48 3 On 20 September 2013: notice issued to Pan- Malaysia Lorry Owners Association and members for price fixing Agreement to fix and increase the price of transportation rate by 15% across Malaysia on 7 September 2013 and MyCC initiated investigation on 10 September September 2013 : MyCC took proactive measures by issuing proposed interim measures to PMLOA, its members and related enterprises to cease and desist from implementing the decision 24 October 2013 : MyCC issued final interim measures against the same parties to carry out certain measures Progress of the case ENFORCEMENT (continued) MyCC is targeting to conclude the investigation by December pending the submission of information by the parties 48

49 4 ENFORCEMENT (continued) Megasteel Sdn Bhd Abuse of Dominant Position The MyCC finds that Megasteel s practice of charging or imposing a price for its Hot Rolled Coil ( HRC ) that is disproportionate to the selling price of its Cold Rolled Coil ( CRC ), amounts to a margin squeeze that produces anti-competitive effects in the market, and is an infringement of section 10(1) of the Act Progress of the case 1 November 2013 The MyCC has issued its Proposed Decision on Megasteel Steel Sdn Bhd. A financial penalty amounting RM4,500, is being proposed 49

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