"The heart of our national economy long has been faith in the value of competition"
-Standard Oil Co. v. FTC, 340 U.S. 231, 248, 71 S. Ct. 240 (1951)
Firms conducting anti-competitive behavior may find their agreements to be unenforceable and risk being fined for particularly impaired conduct as well as exposing themselves to possible damages actions. In addition, individuals could also find themselves facing disqualification orders or even criminal sanctions for serious breaches of competition law. Any business, irrespective of its legal status, sector and size, needs to be aware of competition law, in order to meet its obligations to avoid the penalties and also to assert its rights to protect the position in the marketplace.
Two sets of competition rules apply in parallel in the United Kingdom (UK). Anti-competitive agreements which may affect trade within the UK is specifically prohibited by Competition Act 1998 (Chapters I and II) and the Enterprise Act 2002. Where the effect of anti-competitive behavior extends to the other EU Member States, it is prohibited by Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).
The Kingdom of Bahrain (Bahrain) issued Law Number 31 of 2018 with respect to the Competition Promotion and Protection (the Law) in order to boost its economic diversification and liberalization further. The Law came into force in 2019 and is expected to have positive repercussions on businesses carrying out their operations in the country.
It is vital to note that while Bahrain has never had a standalone competition law, specific key concepts related to competition law are embedded in various laws already in force in the country, such as the Civil Code, Commercial Code and Consumer Protection Law. However, the Law was created based on a wide range of international sources to foster Bahrain's regulatory framework in accordance with developments of international legislation.
The Law focuses on regulating the following core issues:
- anti-competitive arrangements;
- abuse of dominant position; and
- economic concentration.
Pending the issuance of a decree forming the Board of Directors and the financial allocation of the Authority for governing and enforcing the Law (the Authority) in the general budget of Bahrain, the Consumer Protection Directorate at the Ministry of Industry, Commerce and Tourism (MOICT) has been temporarily appointed as the Authority.
The powers, functions and duties of the Authority are:
- To monitor compliance with the Law;
- To receive and investigate complaints concerning the possible violations of the Law; and
- To investigate any possible violation discovered by the Authority or where requested to do so by the Minister.
Scope of Application
Article 2 lays down the scope of application of the Law. The Law shall apply:
- To all undertakings that carry out their economic activities in Bahrain;
- To any arrangement or conduct which is intended to or results in anti-competition in Bahrain, even when the party or parties are not established in Bahrain; and
- To economic activities conducted extraterritorially, yet affecting competition in Bahrain.
Provisions of the Law are not applicable:
- To arrangements approved by international conventions that are applicable in Bahrain;
- To facilities and projects owned or controlled by the state of Bahrain; and
- To arrangements necessary for the use, exploitation, transfer, assignment, or license of Intellectual Property rights; provided that these arrangements do not unreasonably hamper the competition or transfer and dissemination of technology.
Anti-competitive arrangements and exemptions (Section Two of the Law)
The Law imposes a prohibition on arrangements which have the object or effect of hindering competition in Bahrain such as:
- Influencing the prices of the products through increasing, reducing or fixing the price or by fictitious arrangements or in any other form;
- By limiting or controlling the production, marketing, technical development or investment;
- By sharing the markets or sources of supply;
- By knowingly disseminating false information about products and their prices;
- By doing collusive practice in bids or proposals with respect to the auctions, tenders or practices, and influencing the proposed selling or purchase price of products;
- By affecting other competitors through fabricating sudden abundance of products leading to exchanging these products at a false price;
- By doing a collusive practice of refusal to buy, sell or supply from a particular business (or businesses) with the purpose of preventing or hindering its practice.
Any arrangement which is found to be contrary to provisions above shall be null and void in Bahrain. However, an arrangement where all its parties are under the direct, or indirect control of one undertaking, shall not be subject to provisions above, even if the controlling undertaking is a party to the arrangement.
There are exceptions to the general prohibition against anti-competitive arrangements mentioned in Articles 4, 5 and 7 of the Law. In general terms, arrangements which would normally be prohibited on the grounds of being anti-competitive may be permitted if:
- the Authority, by virtue of a resolution, decides that the harm caused by the anti-competitive nature of such arrangements are outweighed by certain positive outcomes of the arrangement (Requirements are set out in Article 4 of the Law);
- the Authority, as per Article 5 of the Law, decides so for the categories of arrangements between small businesses having one of the positive outcomes set out in Article 4 of the Law. The exemption shall be for a specific term that may be renewable for additional terms;
- by a reasoned decision issued by the Minister, after obtaining the advice of the Authority, and approval of the Council of Ministers, on the grounds of compelling reasons of public policy. The decision may be conditional and for a specific period, subject to renewal (Article 7 of the Law).
Abuse of dominant position and exemptions (Section Three of the Law)
A dominant position exists when any business, solely or jointly with other businesses, can control or influence the market. A business enjoys a dominant position if it has an economic strength to prevent effective competition in the market and to act in a manner significantly independent from its clients and competitors.
Unless proven otherwise, a business is in a dominant position if its share is in excess of 40 percent in the relevant product market in Bahrain. An association of undertakings, consisting of two or more undertakings, are in a dominant position if their market share is in excess of 60 percent in a relevant product market. However, an undertaking may be deemed to be in a dominant position in the relevant product market, even if its share is lesser than the aforementioned percentage. A Resolution by the Authority shall set additional parameters to determine if an undertaking, individually or together with another undertaking enjoys a dominant position.
Article 9 specifically prohibits an undertaking from abusing its dominant position. The following, in particular, shall constitute abuse of a dominant position:
- Directly or indirectly imposing the selling or purchase prices or any other trading conditions;
- Limiting, to the detriment of consumers, production, markets, or technical development;
- Applying discriminating conditions concerning prices, product quality, and other terms of business, in any contracts or agreements concluded with consumers or suppliers of equivalent legal positions;
- Subjecting conclusion of a contract with respect to a certain product, to conditions such as accepting products or obligations which by their nature or commercial use have no link to the subject of the original agreement, contract or transaction;
- Refraining, without any legitimate reasoning, from concluding with any business transactions for the purchase or sale of a product, the sale of products at a price lower than the actual cost, or completely suspending transaction to eliminate competing undertakings from the market, or causing damages that will prevent such undertakings from continuing their businesses.
Similar to the exemption in case of anti-competitive arrangements, the Minister, as per Article 10 of the Law, has the power to approve an exception to the prohibition of abuse of a dominant position, if it is deemed to be in the public interest.
Market concentration and exemptions (Section Four of the Law)
The Law also regulates certain types of market concentration in Bahrain. Market concentration is established, when a shift in market control is attributed to any of the following:
- Merger, partially or fully, of two or more undertakings which were previously independent;
- Acquiring indirect or direct control, over another undertaking
partially or fully, by:
- One or more natural person, controlling one or more undertaking;
- Another undertaking or undertakings;
- Establishing a joint venture that undertakes all duties of a single independent undertaking.
Furthermore, under Article 12 of the Law, certain types of market concentration transactions are prohibited without approval from the Authority, as mentioned by the Minister's decision after obtaining the advice of the Authority.
Article 13 of the Law states that the concerned party, or its representative, shall submit to the Authority, a request to obtain approval of market concentration.
The Law prohibits economic concentrations which would have the effect of significantly limiting competition in the market. Similar to the exemption in case of anti-competitive arrangements, the Minister, as per Article 15 of the Law, has the power to approve a proposed market concentration, on the grounds of compelling reasons of public policy.
The Law grants powers to the Authority to ensure compliance with the Law and investigate circumstances where its provisions may have been breached. In case of violation of the Law, the Board of Directors may:
- Impose a fine not exceeding 5 percent of offender's daily sales of products. Such fine shall not exceed Bahraini Dinar (BD) 1,000 per day in the event of a first-time violation, and BD 2,000 per day in the event of recurrence of the same violation within three years from the date of the issuance of the first decision; and
- Impose, by virtue of reasoned resolution, an administrative penalty ranging between 1 percent and 10 percent of the total amount of sales of products for the period during which violation took place, and for a maximum period of three years.
Other penalties for violations of the Law include both criminal and pecuniary. A person who commits any of the following acts may face imprisonment of up to one year and/or a fine ranging between BD 5,000 and BD 50,000:
- Provides the Authority with false or misleading data, or data that is contrary to what is recorded in documents and registers in his possession;
- Withholds any data, information, records or documents which are required to be provided or available to the Authority for the performance of its duties under the Law;
- Prevents or delays the work of the Authority's inspectors or Authority's ongoing investigation;
- Destroys any documents that are related to an investigation that is being conducted by the Authority.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.