Explaining Malaysia’s Competition Act 2010

4 years into the Malaysian Competition Act 2010 (Akta Persaingan 2010) coming into force, the Malaysia Competition Commission (MyCC) has come quite a long way in enforcing it. In 2015 alone 8 decisions and 3 proposed decisions were made, with 2016 having the Competition Appeal Tribunal (CAT)’s first decision on appeal in the landmark MAS-AirAsia case, where both carriers were fined RM10 million each for what was allegedly a market-sharing agreement.

What is competition law and why is it important?

Let’s start with the basics.

Competition law serves to protect the competition process and prohibit anti-competitive behaviour, on the premise that the more competitive the market, the better off consumers are.

The modern concept of competition law came from the USA in the 1890’s where it is known as ‘antitrust law’.  The European Union later adopted the concept, calling it ‘competition law’.  Malaysia’s Competition Act takes after the European Union in its written form, so in the drafting of our Act we have benefitted from decades of principles developed by the EU (as well as the US).

Competition law is a fascinating subject, and one that is very relevant to our lives as it ensures that the competition process continues to deliver to us products and services at competitive prices.  Yet there are questions as to whether Malaysia, a developing economy, is large or mature enough to need it at this time?

For many countries the introduction of competition law is merely a facade, as if a symbol of development and coming of age, with little enforcement to show for it.  If buildings have the Petronas Twin Towers, law has competition.  Vietnam, for example, only pursued 3 cases in the first 7 years of its competition law coming into effect.

And yet, there is a growing appreciation in developing economies, as they approach a more mature economic level, that this is an important piece of legislation to have.  As of last year, the Competition Commission of Singapore has investigated over 300 cases, making that an average of 30 cases a year since their competition law came into force!

Despite ASEAN’s prospect at becoming a single economic unit trudging at a snail’s pace, there is continuous talks of harmonisation of competition law across ASEAN.  The economy does not work in a sovereign vacuum, and anticompetitive conduct in country A can have effects in country B’s market.

As for our own MyCC, it is heartening to note a few points in relation to their track record.

Firstly, there were concerns that, Malaysia being as it is, the MyCC would be weak against a climate where business and politics come hand in hand.  Yet it has gone against the likes of MAS, AirAsia, MyEG, the steel industry, container depot industry, and even the venerable Malaysian Indian Hairdressing Saloon Owners Association.  Professional bodies have also been targeted, where arbitrators, dentists and architects have been made to dismantle their scaled fees.

Secondly, the MyCC is relatively prolific, having investigated over 50 cases since coming into effect in January 2012.

And finally, in MAS and AirAsia’s appeal to the CAT (discussed another time), both the MyCC  (despite losing) and the CAT showed a sound grasp of complex competition law principles, especially considering it was the CAT’s first hearing, where it published a 71-page decision.

We now move on to the nitty gritty of how the Competition Act works.

The MyCC’s powers

The Competition Act is enforced by the MyCC, who acts as both prosecutor and judge, where it investigates, prosecutes, and decides on cases.

In coming to a decision, the MyCC may impose fines up to 10% of an enterprises’ annual turnover.  As the Act states that “a parent and subsidiary company shall be regarded as a single enterprise“, this means that the entire annual turnover of a whole group of companies may be used to calculate the fine.  The statutory limit of the fine, however, is RM10 million.

The MyCC is also empowered to do all things necessary to perform its functions in enforcing the Act.  These includes investigatory powers such as requesting for documents, or more refined powers in the form of directions to enterprises to stop the abuse, divest certain assets or even restructure themselves.

If an enterprise is unhappy with a decision made by the MyCC, they may appeal to the CAT.  The CAT’s decision is non-appealable to the Courts, and is final and binding. Whether it may be subjected to judicial review, however, remains to be seen.

What is prohibited?

In general, the Act prohibits all conduct which significantly prevents, restricts or distorts competition.

The Act categorizes two forms of prohibited anti competitive conduct: Agreements (Section 4) and Abuse (Section 10).  Different rules apply depending on which category the conduct falls into.

Agreements

Where two or more competitors come together with an agreement not to compete (i.e restrict competition), whether in general or specifically in some way such as price-fixing or bid rigging, their agreement is prohibited by the Act. This is the case even if all that has been established is an agreement to do so, because the agreement can be caught either by it having the objective of restricting competition or a likely effect of the same. There is no need to prove that the agreement has in fact been implemented.

Some forms of agreements such as price-fixing and market sharing are deemed to automatically satisfy the object requirement and are thus prohibited, whatever its actual effects on the market.

Additionally, the concept of an agreement in competition law does not have the same meaning as that in contract law (which requires elements such as offer, acceptance, consideration and to some extent a certainty of terms).  An agreement can take place even by exchanging winks with your competitor. In some advanced countries, the concept of an agreement extends to competitors who have never even directly communicated with one another but yet, through understanding how the game is played, act in ways that result in no competition among them.

The Act provides that agreements caught by the Act may be justified if the parties are able to show that the anti-competitive agreement results in benefits such as technological progress or efficiency gains. These benefits must not be outweighed by the detrimental effect on competition and the detrimental effect must be necessary to achieve those benefits.

As of writing, there is a proposal to amend the Act so that before an anti-competitive agreement may be justified it must also be shown that benefits gained are enjoyed by customers, such as in the form of lower prices.

Abuse

An abuse can only be committed by an enterprise with a dominant position. For example an enterprise with 90% of the market share for hand phone sales for Malaysia will be considered to have a dominant position, whereas Nokia would not.

For the MyCC, a market share exceeding 60% is indicative of dominance.  However, other factors will be taken into account, such as the ability of new competitors to enter the market. As the finding of dominance is largely fact sensitive, the MyCC has published guidelines on how it determines dominance.

The question of what is abusive or non-abusive conduct can be counter-intuitive.  For example, is a company with very high market share not merely competing if it uses its superior size and coffers to get an upper hand over smaller competitors?  The difference lies in what the effect of that conduct does to the competition process.

Once a company becomes too large it has the power to undertake illegitimate practices that prevent smaller firms from surviving in the market or from new competitors coming into it. These may take the form of predatory pricing: where larger companies lower their prices until they are selling at a loss, the low prices driving out smaller competitors who do not have the ability to compete in the long-term (essentially a game of chicken).

Competition law thus imposes on companies with a dominant position certain restrictions as to how it may act in order to ensure that the process of legitimate competition is protected.

The Act itself lists some behaviour as possibly abusive, although the list is not exhaustive. They include predatory pricing, refusing to deal with other enterprises, and limiting or controlling production to the detriment of consumers.  Unlike the list above in relation to prohibited agreements, however, there is no deeming provision to automatically find an object of restricting competition.  Accordingly, the MyCC must prove that the object or effect of any allegedly abusive conduct is to restrict competition.

Once found to be abusive, the Act provides that in its defence, the dominant party may argue that its conduct had reasonable commercial justification or was a reasonable commercial response.

Right to sue

The Act also provides that parties who have suffered loss or damage directly from an infringement have a right to sue the infringing enterprise.  These may take the form of damages or some other form of remedy.

As the Act provides that such action may be brought even if the party did not deal directly with the infringing enterprise, this means that it is not just competitors or consumers who may claim against the infringing enterprise.  Even those lower down the supply chain can, provided they have been harmed in some way due to the infringement.

As an illustration:

1. A, due to committing an infringement, is able to sell a product to B at a higher anticompetitive price.
2. To make up for the increased price, B proceeds to sell the product to C at a higher price than B would have had B purchased it from A at a competitive price.
3. C may then claim the difference from A, including perhaps an injunction to stop the infringing conduct.

Discussing Malaysia’s Competition Law

As for The Persaingan Blog, we will continue to write about competition law developments in Malaysia, and ASEAN when applicable, from a Malaysian perspective.  The introduction of Competition Law to Malaysia raises many questions, such as:

(i) Is the fixed scale fee for conveyancing lawyers in breach of the Act? Some Malaysian academics think so!

(ii) Will Malaysia have a merger control law, and do we even need one?  We have already pushed such control in the aviation industry.

(iii) When commodity prices rise, so do restaurant prices. However, the reverse does not happen when commodity prices fall. Is there something fishy going on here?

(iv) Are natural persons caught by the Act?  While it does provide for jail time of up to five years for natural persons, the Act does not however include them in the definition of an ‘enterprise’.

More to come.  Till then, terus bersaing!