RTP Flashcards
definition of RTP
s. 21(1) - objective net effect test
any business arrangement between various business entities or associations that have the objective or effect of preventing, distorting or lessening competition in trading of goods or services in parts or the whole of Kenya is generally prohibited.
2 ways RTP can happen?
s. 21(2)
between parties trading in competition (undertakings in a horizontal relationship);
between an undertaking and its suppliers or customers or both (parties in a vertical relationship);
what amounts to it? 9 ways (but there seems to be a test in the 9th one - that shows that the list is not conclusive)
PENALTY
CASE: 1
S. 21(3)
1. directly or indirectly fix purchaser or selling prices, or any other trading condition;
2. divide markets by allocation of customers, suppliers, areas or specific types of goods or services;
3. involve collusive tendering;
4. involve a practice of minimum resale price maintenance (although this shall not operate to prevent a supplier or producer of goods or services from recommending a resale price to a reseller of the goods or provider of the services if it is expressly stipulated by the supplier or producer that the recommended price is not binding, and any product, document or thing relating to any such product or service bears a price affixed or applied by the suppliers or producer, and the words “recommended price” appear next to that price);
- limit or control production, market outlets or aces, technical development or investment;
- apply dissimilar conditions to equivalent trans-actions with other trading parties, as a result of which they are placed at a competitive disadvantage;
- make the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject of the contracts; or
- amount to the use of an intellectual property right in a manner that goes beyond the limits of legal protection.
- otherwise prevents, distorts or restricts competition.
penalty: S. 21(9)
an offense = imprisonment for a term not exceeding five years or to a fine not exceeding ten million shillings, or both.
CASE: CAK V Crown paint
The case involved four company players who engaged in conduct that would amount to restrictive trade practices. BASCO paints agreed to a settlement before determination by the Authority. It was determined that Crown Paints PLC, Kansai Plascon Kenya Ltd and Galaxy Paints and Coatings Ltd, engaged in practices that amounted to agreements on prices and transport charges. The discounting structure in the industry was an indicator of an overcharge in the industry, but there was no sufficient evidence to conclude that the players had engaged in collusive determination of the discounts.
findings:
1. The existence of the Association was not in contention, a fact that was confirmed by the members including Crown, Basco and Galaxy. From the definition of a trade association under section 2 of the Act, the Association needed not to be formally constituted with a constitution, officials, agenda and meeting minutes. An association was presumed as long as its members were pursuing common interest. Consequently, the Association satisfied the tenets of a trade association.
2. Meetings of competitors to discuss common strategies were anti-competitive by their nature since uncertainty in the industry was diminished leading to market distortions. Such discussions were prohibited per se as their object was to prevent, lessen or otherwise distort competition amongst the participating undertakings.
3. Plascon, Basco, Crown and Galaxy managing directors implemented price increases in early June, 2015. Correspondence between the four parties amounted to sharing of strategic information that should not ordinarily be discussed amongst competitors. Sharing of future price revision intentions would prevent, lessen or distort competition in the industry.
all 3 made to pay compensation!
rebuttal presumption?
S. 21(6)
A presumption that a prohibited agreement or concerted practice exists between two parties if one of the parties owns a significant interest in the other or has at least one director or one substantial shareholder in common. However, this presumption may be rebutted if a party, director or shareholder concerned establishes that a reasonable basis exists to conclude that any practice in which the parties engaged was a normal commercial response to conditions prevailing in the market. For the purposes of this presumption, the term director is defined broadly and includes:
- a director of a company within the meaning of the Kenyan Companies Act (Cap 486);
- a trustee of a trust;
in relation to:
- an undertaking conducted by a society, or a person responsible jointly with others for its management;
- an undertaking conducted by an individual or partnership, the owner of the undertaking or a partner of the partnership;
- any other undertaking, and a person responsible either individually or jointly with others for its management.
what will not amount to RTP? 2
s.21(8)
- a company and its wholly owned subsidiary or a wholly owned subsidiary of that subsidiary; or
- undertakings other than companies, each of which is owned or controlled by the same person(s);
exemptions : (2 provisions)
1 CASE
S. 25 - ways to make the application
S.26(!) - grant/refuse/ does not amount
s.26(2) - may grant exemption for RTP or trade associations
S. 26(3)
Other factors the Authority will take into account in determining whether or not to grant the exemption include whether or not the agreement, decision or concerted practice or the category thereof contributes to or results in, or is likely to contribute to or result in:
- maintaining or promoting exports;
- improving or preventing a decline in the production or distribution of 3. goods or the provision of services;
- promoting technical or economic progress or stability in any industry;
obtaining a benefit for the public, which outweighs the lessening of competition that would result, or that is likely to result from the agreement, decision or concerted practice or category thereof.
s.26(4) - whatever time period
1 CASE: In the matter of Cereal Millers Association
The case was an exemption application with respect to a horizontal agreement between a wheat manufacturer with provision on market/customer allocation, sharing commercially sensitive information on local wheat pricing and quantities purchased locally. The practices were likely to distort, prevent or lessen competition hence the application.
FINDINGS:
1. The pricing discussion was a government initiative to encourage continued production of wheat by the local farmers. The pricing discussion would encourage wheat farming to be stabilized and not collapse due to a lack of sufficient farmers’ incentives. Wheat was a key
staple food which was crucial in the national breadbasket and therefore the arrangement ensured national food security in the medium term and also ensured that the local wheat production did not collapse.
2. Participation in the price discussion under the Wheat Purchase Programme with the Government and the farmers was justifiable under section 26(3) of the Act.
3. There was a significant benefit to the farmers with regards to the guaranteed market for their wheat produce and hence ensuring continuity in the wheat production.
4. If the system of pricing discussion was conducted in a transparent manner, a more levelled playing field would be created, avoiding import storage and demurrage costs by millers which were trickled down to the final product i.e. wheat flour.
RTPS TO TRADE ASSOCIATIONS
- definition: 2 ways
- exemption: 2
- penalty
- CASE:
S. 22
1. DEFINITION
A. unjustifiably excluding any person from a trade association if that person is carrying on or intending to carry on in good faith the trade in relation to which the association was formed;
B. the making of a recommendation by a trade association, whether directly or indirectly, to its members (irrespective of whether or not the members comply with such a statement) which relates to:
- the prices charged or to be charged by such members or to the margins include in the prices, or the pricing formula used in the calculation of those prices;
- the terms of sale (including discount, credit, delivery, product and service guarantee terms) of such members and which directly affects prices, profit margins included in the prices or the pricing formula used in the calculation of prices.
NB: It is possible for a member of an association to disassociate itself entirely from the recommendations of the trade association by expressly notifying the trade association in writing of that fact, stating that it will not take action or will refrain from action of a kind referred to in an express or implied recommendation made by that trade association.
- exemption - S.29
(a) professional standards; or
(b) the ordinary function of the profession. - PENALTIES
any person who is found guilty of contravening the restrictive trade practice provisions of the Act shall be liable on conviction to imprisonment for a term not exceeding five years or to a fine not exceeding ten million Kenya shillings , or both. - LSK V CA
issue: Whether section 29 of the Act, which required professional associations whose rules had the effect of preventing competition in the market, to apply to the Authority for an exemption in the application of those rules, violated the freedom of association of professional associations.
held: Section 29 of the Act purposefully intended that restrictive trade practices be regulated within the context of professional associations such as the petitioner and the interested parties. The Act in no way dictated or determined how the said associations were to carry out their mandate or business in light of their enabling legislation. The Act expressly spoke to restrictive trade practices that it wished to regulate in the context of consumer protection in view of professional associations.
WAYS TO STAY down the raider from RTP:
- transparency about prices
- Research and innovation
- Code of practise
BLOCK EXEMPTIONS - applicable to S.21 and 22
1. definition
2. how it works (4 step criteria)
S. 30(2)
This gives the Authority the leeway to grant category exemptions otherwise referred to as ‘block exemptions’ in the Guidelines (Third schedule + s.23 /24 of the general competition guidelines)
1. Block exemption from competition law is accorded when regulators believe that such arrangement generates more positive than negative effects to the economy and that benefits will be passed on to end consumers.
2. s.24 of guidelines:
In determining the category of practices, decisions, or agreements that warrant grant of block exemptions under rule 30, the Authority shall be guided by the Block Exemption Guidelines set out in the Third Schedule and shall consider−
(a) the market share of each of the undertakings which are party to the agreement;
(b) whether or not the agreements have any restrictions;
(c) the nature of the markets; and
(d) any other relevant consideration.
Leniency program
1. purpose
2. provision
3. types (2)
- Leniency is the total or partial reduction of fines or other penalties granted by competition authorities to companies involved in cartels in exchange for disclosing the existence of the cartel agreement or for their cooperation during the authorities’ investigation by bringing forward evidence.
This tool helps detect secret cartels, and also to deter companies from entering into cartel agreements.
It is based on the prisoner’s dilemma: its objective is to create distrust amongst cartel participants, as there is a constant threat that one of them may report the cartel to the authorities. - Section 89(A) of the Competition Act, no 10 of 2012
DDSC - types —–
- Conditional leniency.
This is the original immunity given to the applicant temporarily after effective application for leniency.
Before being granting it, CAK has to be satisfied that material proof and data that will assist in the inquiries, conclusions, choices and subsequent proceedings has been provided by the applicant.
The applicant is required to cooperate fully with the CAK and follow the conditions as provided for in the guidelines.
Leniency is granted as ‘first through the door’!!!
- Full, total or permanent leniency is granted to an applicant after they have received conditional leniency and the entire investigation process has been completed and a final determination issued.
