CONCERTED PRACTICES IN TERMS OF THE COMPETITION ACT – AN OGRE DRESSED UP AS A PRINCE
Thursday August 17th, 2017
By: Ahmore Burger-Smidt, Director: Werksmans Advisory Services (Pty) Ltd and Kwazi Buthelezi, Candidate Attorney
Concerted practices are deemed by competition authorities as a vehicle for the successful operation of a cartel without detection, like an ogre disguised as a prince. But what does this ‘ogre’ named concerted practice actually entail?
Concerted practice concerns itself with the parallel market conduct between competitors, absent direct evidence that the firms in question conspired to act in a particular manner, which has the aim of distorting competition in the market. This concept is recognised in our law and has indeed been incorporated into our competition legislation. Concerted practice remains one of the most difficult prohibited practices to interpret.
CONCERTED PRACTICE – THE ELEMENTS
Section 4(1)(a) of the Competition Act, 89 of 1998 (“the Competition Act“) states that an agreement or concerted practice by firms, or a decision by an association of firms, is prohibited if it has the effect of substantially preventing or lessening competition in the market. Therefore, it is between parties in a horizontal relationship, in other words, between competing firms. Furthermore, it is prohibited where it encompasses price fixing, market division or bid rigging, amongst others.
The construct of the above provision clearly makes concerted practices alternatives to an agreement, which means a claim for concerted practice does not have an element of an agreement between firms, but, as will be shown later, the meeting of wills. The following precise definition of what constitutes a concerted practice was crafted by the European Commission, which states:
“concerted practice is a form of co-ordination between undertakings, which, without having reached the stage where an agreement properly so called has been concluded, knowingly substitutes practical co-operation between them for the risk of competition”
The above definition has found application in our competition legislation. The Competition Act adopts the same approach in defining concerted practice. In terms of the Competition Act, direct or indirect action between competitors which does not amount to an agreement could result in a concerted practice. The Competition Appeal Court (“CAC“) in Netstar made the following crucial distinction between agreements and concerted practices:
“…the case for concerted practice is based on evidence that assesses the nature of the conduct of the firms said to be party to the practice. By contrast the case for an agreement examines whether an agreement as defined was concluded and that focuses on the existence of consensus between the parties”.
Much emphasis is placed on the lack of agreement for a concerted practice to succeed. In a case of a concerted practice, there is an apparent meeting of minds between competitors in the background, but not explicit as in the case of an agreement. For instance, where information is exchanged between competitors, such exchange could amount to a concerted practice even though the meeting of wills is not blatant.
Competition law demands that competitors must determine their competitive policy independently. In other words, competitors must independently formulate a competitive strategy when it comes to price and trading conditions. In this independent competitive strategy formulation, firms are not deprived of the right to adapt themselves to the existing and anticipated conduct of their competitors. This requirement does however preclude any direct or indirect contact between competitors, where contact has the effect or intention to create conditions of competition in concert. The requirement of direct or indirect contact between competitors excludes ordinary market conduct. In terms of European competition jurisprudence, if a firm charges its customer a price in a transparent market, its competitors will have knowledge of this, but it cannot be regarded as a concerted practice. Concerted practice accordingly is seen as behaviour beyond ordinary market conduct even if it reduces the uncertainty of market competition.
To place this in context, a meeting between competitors may in principle constitute a sufficient basis to find a concerted practice. Once it has been established that a firm participated in a meeting of a potentially anti-competitive nature, it becomes important to be able to demonstrate that it distanced itself from the anti-competitive arrangement. The public distancing must be clear and unambiguous to the competitors, as a mere passive participation in a meeting does not absolve the firm from unlawfulness. In Omnico, the Competition Appeal Court held the following to demonstrate this point:
“The principle of passive attendance at a meeting to listen to ‘gossip’ among companies cannot excuse an undertaking. Consistent with European competition jurisprudence, as it has developed, there is a duty to speak or to report to authorities or publicly distance oneself from any uncompetitive behaviour. In Trefileeurope v Commission Case T-141/89  ECR 2-791 at para , the fact that an undertaking does not abide by the outcome of meetings which have manifestly anti‑competitive purposes does not relieve it of full responsibility for its participation in the cartel, if it has not publicly distanced itself from what was agreed in the meeting…having participated in the meeting without publicly distancing itself…the undertaking has given other participants clear cause to believe that it subscribed to what was decided and that it would comply therewith“.
This principle in relation to attendance without clearly distancing oneself from uncompetitive behaviour has gained much credence in South Africa, as seen in Omnico (see paragraph 6, above). A further example is the Competition Tribunal’s decision in DPI Plastics, wherein it was stated:
“…when competitors meet, even on an unintended occasion for some, once the conversation moves to proposals of an unlawful agreement, those attending must repudiate the proposal by conduct in unambiguous terms, however awkward it may be to do so, lest the other firms present reasonably infer that the accused firm had assented“.
A finding of involvement in a concerted practice is no fairy-tale. Cartel conduct, whether through agreement or concerted practice, can result in an administrative penalty and also attract jail time. Therefore, companies should be careful which table they join for a feast and consider whether they actually want to be present.
- ICI Ltd v Commission, C-48/69, EU:C:1972, par 64
- Netstar (Pty) Ltd v Competition Commission 91/CAC/May10 paras 25-26
- Cimenteries CBR SA v Commission T25/95
- T-Mobile Netherlands and others v Commission EU:C:2009:343 at para 61
- Omnico (Pty) Ltd v Competition Commission 142/CAC/2016.
- Supra at para 61
- Competition Commission v DPI Plastics CT Case No 15/CR/Feb09.
- Supra at para 98