Significant abuse of dominance amendments to the Competition Act are now in effect

A number of the most contentious amendments to the Competition Amendment Act 2018 (the Amendment Act) came into effect yesterday, 13 February 2020 by the publication of Proclamation No. 10 of 2020 in Government Gazette No. 43018. These amendments relate to buyer power and price discrimination by dominant firms. Price Discrimination and Buyer Power Regulations (collectively, the Regulations), as well as amendments pertaining to the disclosure of confidential information and penalties are also now in effect.

The timing of this game-changing development coincided with President Ramaphosa's State of the Nation Address last night, where he announced that these abuse of dominance amendments will "help even the playing field for small businesses and emerging entrepreneurs."

What are the implications of this development?

This is an important step in finalising substantial amendments to the Competition Act 89 of 1998 (the Act), a process which began in 2017, aimed at addressing concentration and the racially-skewed spread of ownership of firms in the economy.

The provisions pertaining to buyer power and price discrimination by dominant firms seek to support fair participation in the economy by small and medium enterprises (SMEs) and firms controlled or owned by historically disadvantaged persons (HDPs) - as such, the risk of complaints against dominant firms is now considerably amplified. The finalisation of the Regulations is also a key development - after two rounds of comprehensive comments from stakeholders, the Regulations will serve as an essential point of reference for firms to assess risk and guide compliance.

The amendments pertaining to confidential information may also have extensive consequences for firms involved in mergers, market inquiries and prohibited practice proceedings. The Minister of Trade and Industry (the Minister), or any other relevant Minister or regulatory authority, may now access confidential information submitted to the Competition Commission. Although this information may only be used for purposes of the Act, in certain circumstances, the Minister or any other such Minister may also refer confidential information to third parties, if the information is required to be disclosed in terms of any other law or if it discloses a potentially criminal offence. In the latter instance, the parties could approach the Competition Tribunal to dispute the disclosure. Overall, these particular amendments reflect the heightened level of government intervention in competition proceedings.

Do the Regulations differ from earlier versions?

Overall, the final Regulations are more concise and appear to have addressed a number of technical criticisms levelled against the earlier versions, such as ambiguous terminology and its overly expansive application.

The Regulations (and hopefully soon-to-be published final Commission guidelines) offer some high-level guidance as to how the new buyer power and price discrimination provisions will be applied in practice and incorporate parameters which seek to narrow the categories of prospective complainants against dominant firms.

The Regulations will only be applicable to:

  • small and medium businesses that meet certain thresholds based on total full-time equivalent paid employees and total turnover; and
  • firms controlled by HDPs that either buy less than 20% of goods / services supplied by a dominant seller (in the case of the price discrimination provisions) or supply 20% or less of the purchases of a dominant buyer (in the case of the buyer power provisions).​

In assessing risk, companies will have to assess their own market position and determine whether suppliers or customers fall within these categories.

The initial designation of the online intermediation services sector in the earlier version of the Regulations has also been replaced by the e-commerce and online services sector - which constitutes the online sale of goods or services to businesses or consumers. The scope of application within this sector is considerably broadened by this amendment.

The Regulations still pose a number of the complications identified in the earlier versions - for instance, the Minister has chosen to retain the arbitrary 20% threshold although, it may possibly extend to relatively large buyers or suppliers e.g. a purchaser that buys less than 20% of the particular dominant firm's supply.

Is the entire Amendment Act now in force?

Not yet. There are still a few remaining provisions that are yet be enacted for example, the provision which creates an obligation to notify foreign acquisitions for separate assessment of whether they may adversely affect the country's national security interest.
 

A summary of the key amendments now in effect is set out below:

Buyer Power
 
Section 8(4)

  • A dominant firm, operating in a sector designated by the Minister, may not require from or impose unfair prices or other trading conditions on a SME or HDP firm. The onus will be on the dominant firm to show that prices paid / trading conditions imposed are not unfair.
  • Sectors designated at this stage are agro-processing, grocery wholesale and retail, and e-commerce and online services.
  • It is prohibited for a dominant firm in a designated sector to avoid purchasing, or refuse to purchase, goods or services from a supplier that is a SME or HDP in order to circumvent the operation of this section.
Price Discrimination


Section 9

  • An action by a dominant firm is prohibited price discrimination if it is likely to have the effect of impeding the ability of SMEs and HDP firms to participate effectively. The onus will be on the dominant firm to show that its prices are not discriminatory or are otherwise justified.
  • It is prohibited for a dominant firm to avoid selling, or refuse to sell, goods or services to a purchaser that is a SME or HDP in order to circumvent the operation of this section.
  • It is also important to note that if there is a prima facie contravention of this section, a dominant firm cannot argue that the quantities of goods or services supplied to different purchasers, justifies the differential treatment.
Disclosure of confidential information
 
Sections 44 and 45

  • The amendments to section 44 set out the process for determining if information is confidential and the procedures in place for challenging such a determination.
  • Importantly, section 45 now stipulates that the Minister may have access to a firm's confidential information (which may only be used for purposes of the Act), unless required to be disclosed in terms of any other law, or if the Minister has reasonable grounds to believe the information discloses a potential criminal offence.
  • In addition, any other relevant Minister, and any relevant regulatory authority, may have access to a firm’s confidential information, unless the Competition Tribunal determines otherwise, which information may only be used for the purposes of this Act unless required to be disclosed in terms of any other law, or the Minister has reasonable grounds to believe the information discloses a potential criminal offence.
Penalties
 
 Section 59(1)(a)

It in terms of this amendment, a dominant firm may be liable for an administrative penalty for contravening the new buyer power and price discrimination provisions detailed above.