AN OVERVIEW of the competition law in Malaysia
The Competition Act, 2010 and the prohibitions
The Malaysian Competition Act 2010 ("Act") has come into force since 1 January 2012. What does the competition law mean to most companies and businesses in Malaysia?
The Act prohibits:
(a) anti-competitive agreement which means agreement (a horizontal or vertical agreement) which has the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services in Malaysia1; and
(b) any conduct by enterprises which amount to an abuse of a dominant position in any market for goods or services in Malaysia.2
The Act does not apply to any commercial activity regulated under the Communications and Multimedia Act, 1998 and the Energy Commission Act, 2001. 'Commercial activity' under the Act means 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 or services as part of an economic activity.
Further, the prohibitions under the Act do not apply to3:
(i) an agreement or conduct to the extent to which it is engaged in an order to comply with a legislative requirement;
(ii) collective bargaining activities or collective agreements in respect of employment terms and conditions and which are concluded between parties including both employers and employees;
(iii) an enterprise entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly in so far as the prohibitions under the Act would obstruct the performance, in law of in fact, of the particular tasks assigned to that enterprise.
The examples of circumstances in which the Malaysia Competition Commission ("Commission") may investigate potentially anti-competitive agreements are as follows:
(a) sharing of price information (which could fall within the conduct deemed to have the object of significantly preventing, restrict or distorting competition as exchange of current price information may facilitate price fixing and thus would be deemed to be significantly anti-competitive);
(b) sharing of non-price information such as standards and new technologies (the significant effect of which would normally be assessed on a case to case basis);
(c) restrictions on advertising imposed on competitors;
(d) a standardization agreement that limits the ability of enterprises to set new standards or to sell new products or serves as a barrier to new entrants.
If anti-competitive 'object' is shown in an agreement, an examination of the agreement by the Commission to determine if there is an anti-competitive effect may not be required. An agreement with an aim or object which is highly likely to have a significant anti-competitive effect will be deemed to be anti-competitive. However, an agreement that does not show an anti-competitive 'object' may still breach the Act if the agreement has an anti-competitive effect.
A horizontal agreement means an agreement between enterprises each of which operates at the same level in the production or distribution chain. In other words, competitors in the same market, for example, agreement between manufacturers, wholesalers or retailers.
A horizontal agreement is deemed to have the object of significantly preventing, restricting, or distorting competition in any market for goods or services if it has the object to4:
(a) fix, directly or indirectly, a purchase or selling price or any other trading conditions;
(b) share market or sources of supply;
(c) limit or control-
(i) production, for example, competitors agreeing to set a quota on production;
(ii) market outlets or market access, for example, competitors agreeing in the location of retail outlets or restricting access to the market by new entrants;
(iii) technical or technological development, for example, competitors agreeing not to introduce new products; or
(iv) investment, for example, competitors agreeing not to add production capacity; or
(d) perform an act of bid rigging.
As such, horizontal agreements with the object of engaging in cartel practices are deemed to be anti-competitive as they have the object of significantly preventing, restricting or distorting competition.
As 'agreement' includes both written and oral agreements, any communication between competitors about price might constitute an agreement.
A vertical agreement means an agreement between enterprises each of which operates at a different level in the production or distribution chain (for example, manufacturer and distributor).
A vertical agreement involving price restriction, where an upstream seller imposes a fixed or minimum price that a downstream buyer must re-sell, is deemed as anti-competitive. This is a form of resale price maintenance (RPM) which the Commission will take strong stance against. Any other form of RPM includes maximum pricing or recommended retail pricing. For example, a manufacturer fixes the price for which its products are sold at the retail level. This is considered to be anti-competitive as the effect of this is that re-sellers or retailers do not compete on price.
Examples of non-price restrictions in vertical agreements which may have anti-competitive effect are as follows:
(a) the seller imposes a condition that the buyer must buy all supplies of a product, or a substantial proportion of supplies from the seller;
(b) the supplier gives an exclusive geographical territory to a buyer which limits intra-brand competition (exclusive distribution agreement);
(c) the seller agrees to only sell to a distributor for resale to a particular group of customers (exclusive customer allocation agreement);
(d) payments made by suppliers to distributors to get access to their distribution network (up-front access payments).
The exclusive distribution agreement and exclusive customer allocation agreement may be regarded as anti-competitive if there is no inter-brand competition (competition from other brands) in the market. The Commission will also look at how much of the market share is foreclosed to new entrant and other competitors in the relevant markets when assessing whether the anti-competitive impact in certain agreements is significant.
Generally, agreements are prohibited only if they significantly prevent, restrict or distort competition in any market for goods or services5. Interestingly, 'significant' is interpreted as agreements having more than a 'trivial impact' and the impact would be assessed based on combined market share of those participating in the anti-competitive agreement in relation to the identified relevant market. What is a 'relevant market' will be further elaborated below.
Based on the guidelines6 set by the Malaysian Competition Commission, anti-competitive agreements will not be considered 'significant' if:
(a) the parties to the agreement are competitors who are in the same market and their combined market share of the relevant market does not exceed 20%;
(b) the parties to the agreement are not competitors and all of the parties individually has less than 25% in any relevant market.
Abuse of dominant position
The Act also prohibits an enterprise from engaging in any conduct which amounts to an abuse of a dominant position in any market for goods or services in Malaysia. Examples of the situation where a dominant enterprise may abuse its position are:
(a) directly or indirectly imposing an unfair purchase or selling price or other unfair trading condition on a supplier or customer;
(b) limiting or controlling production, market access, technical or technological development or investment, to the prejudice of consumers;
(c) refusing to supply to a particular group of enterprises; or
(d) any predatory behavior towards competitors.
An enterprise is said to be dominant if it has significant market power in a relevant market in Malaysia. Generally, the Commission considers a market share above 60% to be indicative that an enterprise is dominant. Other factors will also be taken into account in assessing dominance. Factors that will be taken into consideration by the Commission when determining whether there is dominance are not limited to market share of the enterprise, but dominance will also be assessed from the ability by the enterprise to act without concern about competitor's responses or to dictate the terms of competition in the market. However, market share is usually the starting point in assessing dominance.
The term 'market' under the Act means, "a market in Malaysia or in any part of Malaysia, and when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services."7 To define a 'relevant market' means to identify all the close substitutes for the product under investigation, and products can be substituted both on the demand and on the supply side.
Relief of liability
Parties to any anti-competitive agreement may rely on relief of liability under Section 5 of the Act, provided that the requirements stipulated under this section are cumulatively met:
(a) there are significant identifiable technological, efficiency or social benefits directly arising from the agreement;
(b) the benefits could not reasonably have been provided by the parties to the agreement without the agreement having the effect of preventing, restricting or distorting competition;
(c) the detrimental effect of the agreement on competition is proportionate to the benefits provided; and
(d) the agreement does not allow the enterprise concerned to eliminate competition completely in respect of a substantial part of the goods or services.
The relief of liability can be granted by the Commission in three ways as follows:
(i) individual exemption;
(ii) block exemption to a particular category of agreements, for example, a distribution agreement in a particular industry; or
(iii) by invoking Section 5 of the Act, where parties who are being investigated for breach under Section 4 of the Act or parties in litigation proceedings brought by private parties for a breach of Section 4 of the Act, may rely on relief of liability under Section 5 of the Act.
1. Section 4(1) of the Act.
2. Section 10 of the Act.
3. Section 13 of the Act.
4. Section 4(2) of the Act.
5. Guidelines on Chapter 1 Prohibition by the Malaysian Competition Commission.
6. As above.
7. Section 2 of the Act.
Originally published in July 2013.
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