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Malaysia’s new competition law

The coming into force of the Competition Act 2010 on January 1 2012 ushers in a comprehensive competition regime in Malaysia. This new regime is expected to herald a paradigm shift in the way business is conducted in the country. Entrenched business practices that are seen to hinder competition will now come under close the scrutiny of the Malaysian Competition Commission (MyCC).

As the new law beds down, it is clear that cartels and other forms of collusive behaviour between competitors are prohibited. Less obvious though, is the impact of the Act on age-old commercial practices such as exclusive distributorships, controls on re-sale prices, tying and bundling, and joint ventures, to name a few.

MyCC's Draft Guidelines on Chapter 1 Prohibition and Market Definition (final versions are expected soon) provide an initial insight into its approach and enforcement priorities. They favour an economic approach by subjecting the prohibitions in the Act to an assessment of an enterprise's market power and the impact of that power on the competitive process.

If the notion of power over market is key to analyzing competition issues, then it is imperative that the "market" or "relevant market" is defined, as it is in MyCC's own words, "a crucial first step in competition analysis". MyCC's Draft Guidelines on Market Definition deploy the "hypothetical monopolist test" (also known as the Small but Significant Non-transitory Increase in Price test, or SSNIP) to define the relevant market.

According to this test, a relevant market is the narrowest collection of products that a hypothetical monopolist would find it profitable to institute an SSNIP (specified at a 5-10% increase). Simply put, the test includes in the market everything that offers substitution to the product and excludes un-realistic substitutes. As such, the more narrowly the relevant market is defined, the more likely enterprises will be found to have market power.

Examples of agreements that require assessment of significant anti-competitive effect
(agreements between enterprises at the same level in the production/distribution chain)
(agreements between enterprises at different levels in the production/distribution chain)
Agreements relating to:

•  Information sharing

•  Restrictions in advertising

•  Standardisation - that limit new product innovation or acts as a barrier to entry
Agreements relating to:

•  Vertical price fixing such as resale price maintenance

•  Vertical non-price restrictions that have the effect of foreclosing the market to competitors such as tying, exclusive distribution agreements, exclusive customer allocation agreements, franchise agreements, or up-front access payments.

Safe harbours

While not the sole determinant, an enterprise's market share is the first indication of its competitive importance in a market. The Guidelines prescribe market share thresholds which may point to how influential market share figures will be in analysing anti-competitive practices in days to come. Like it or not, these thresholds serve as a useful benchmark for competition analysis on the following practices controlled by the Act:

  • Horizontal agreements with the object of engaging in cartel practices – section 4(2). For example price fixing, market sharing and bid rigging. There are no safe harbours for these practices. These are deemed anti-competitive as they are so clearly inimical to the objective of fostering competition. .
  • Anti competitive agreements (horizontal and vertical) that significantly prevent, restrict or distort competition – section 4(1) The legitimacy of such arrangements under section 4(1) must be tested for its anti-competitive effect and this requires a wide ranging analysis of the significance of the conduct on the market. Safe harbours are provided for agreements between competitors where the combined market share of parties is less than 20%, and agreements between parties that are not competitors where their individual market share is not more than 25%.

Parties affected by the prohibitions in section 4 can apply for relief of liability under section 5 provided that evidence in support of efficiency gains can be adduced.

  • Abusive behaviour (including unilateral actions) by a dominant entity with substantial market power – section 10. No safe harbour threshold has as yet been prescribed for an assessment of dominance. A crucial factor to note is that dominance per se is not unlawful, only abuse. Yet, a dominant entity in Malaysia may be subject to "a special responsibility not to allow its conduct to impair undistorted competition ..." as has been routinely held of dominant entities in Europe by their regulators and Courts.

A person (including an aggrieved competitor) who suffers loss or damage directly as a result an infringement above enjoys a parallel right to seek relief through the Courts under section 64, independently of a finding of infringement by the MyCC.

The MyCC is set to embrace international standards of competition law enforcement. Enterprises should take a close look at their existing commercial practices, strategies, arrangements and agreements to avoid being caught unawares.

Dato' E Sreesanthan and Shanthi Kandiah

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