The Malaysian Competition Act 2010 (the Act) came into effect on 1 January 2012, and prohibits anti-competitive agreements between enterprises as well as abuse of dominance.
The objects of the Act include the promotion of economic development by promoting and protecting the process of competition thereby protecting the interests of consumers, and the Act was enacted following the New Economic Model unveiled by the prime minister in March 2010 which aimed to double Malaysia’s per capita income by the year 2020 and make Malaysia a more competitive, market-driven and investor-friendly country.
The Act is enforced by the Malaysia Competition Commission (MyCC), a body corporate established under the Competition Commission Act 2010, whose members are appointed by the prime minister on the advice of the minister charged with the responsibility for domestic trade and consumer affairs. The MyCC is comprised of representatives from both the public and private sectors who have experience in business, law, economics, public administration, competition law and consumer protection.
In the two years that the Act has been enforced, the MyCC’s enforcement priorities have focused on cartel activity, and the MyCC’s first finding of infringement related to a cartel at trade association level. The MyCC is presently investigating several cases of alleged cartel activity and there is a pending case of alleged market sharing between two airlines. Despite the emphasis on cartels, the MyCC has also initiated an investigation and proposed finding of infringement of abuse of dominance in the steel sector.
While these are early days, the MyCC has unequivocally announced that its enforcement activity will be ramped up. The legislation expressly empowers the MyCC to work with other competition authorities and the MyCC has benefited from cooperation and capacity building exchanges from other competition authorities, which are also expected to lead to cooperation in cartel investigations. Enterprises are therefore advised to not delay compliance as a penalty for infringement can apply to turnover of the enterprise over the entire duration of the infringement, and relate back to the period commencing 1 January 2012.
The Act applies to commercial activities within Malaysia, as well as commercial activities undertaken outside Malaysia that have an effect on competition in any market in the country. The communications and energy sectors are, however, excluded from the application of the Act and competition matters relating to these two sectors are enforced by sector regulators: the Malaysian Communications and Multimedia Commission and the Energy Commission under the Communications and Multimedia Act 1998 (communications sector); and the Energy Commission Act 2001 (energy sector).
The Act applies to enterprises. ‘Enterprise’ is defined as any entity carrying on commercial activities relating to goods or services. This would include, for example, companies, partnerships, businesses, trade associations, individuals operating as sole traders, state-owned corporations and non-profit-making bodies. It is expected that the MyCC will apply a functional approach to determining whether an enterprise is engaging in commercial activity.
Commercial activity does not, however, include:
- any activity, directly or indirectly, carried out in the exercise of governmental authority;
- any activity conducted based on the principle of solidarity; or
- any purchase of goods or services done not for the purposes of offering goods and services as part of an economic activity.
Malaysia does not have a merger control regime and there is presently no procedure to notify the MyCC of a merger. Where there are concerns that a merger or acquisition may result in a dominant position, the parties to the transaction can either conduct self-assessment that the benefits to competition outweigh the detriments or apply for an individual exemption.
Liability within a single economic unit
Where an employee engages in a conduct that would infringe the Act, liability for such infringement may be imputed to the employers. Similarly, a parent company may be liable because a parent and subsidiary company shall be regarded as a single enterprise if, despite their separate legal entity, they form a single economic unit within which the subsidiaries do not enjoy real autonomy in determining their actions on the market.
Chapter 1 of the Competition Act: prohibition on anti-competitive agreements
Chapter 1 of the Act prohibits horizontal and vertical agreements between enterprises which have the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services. This is substantively similar to the provisions of article 101 of the Treaty on the Functioning of the European Union.
The term ‘agreement’ is deliberately defined broadly and includes any form of contract (both written and oral), arrangement or understanding between enterprises, whether legally enforceable or not, and includes a decision by an association (such as trade and industry associations) and concerted practice. The concept of ‘concerted practice’ is adopted from European case law and has been defined to mean any form of coordination between enterprises which knowingly substitutes practical cooperation between them for the risks of competition. This usually involves some form of informal cooperation or collusion where parties enter into an informal arrangement or understanding.
The MyCC is likely to follow European cases on exchange of commercially sensitive information, including cases on the hub-and-spoke cartel where the parties to a cartel use a third party (eg, in a vertical agreement) as a conduit for exchanging such information. Parties to vertical agreements should thus approach the exchange of information with caution, lest they be found to facilitate collusive conduct.
Agreements are prohibited only if they have or are likely to have a significant restriction or distort competition in any market for goods or services in Malaysia. The MyCC has interpreted the term ‘significant’ to mean that the agreements must have more than a trivial impact. The impact would be assessed in relation to the identified relevant market. When defining the relevant market, the MyCC will identify close substitutes for the product under investigation in the relevant product market as well as the geographic market.
As a starting point, the MyCC’s Guidelines on Anti-competitive Agreements provide that the MyCC will generally not consider agreements between competitors in the same market whose combined market share does not exceed 20 per cent of the relevant market to have a ‘significant’ effect on competition, provided that such agreements are not hard-core cartels. Under certain circumstances, an agreement between competitors below the threshold may nonetheless have a significant anti-competitive effect and the MyCC reserves the ability to take enforcement action against the parties to such agreement.
When assessing whether an agreement has the object of restricting competition, the MyCC will not only examine the actual common intention of the parties but will assess the aims of the agreement taking into consideration the surrounding economic context. If the object of any agreement is highly likely to have a significant anti-competitive effect, then the MyCC may find the agreement to have an anti-competitive object. Once an anti-competitive object is shown, the MyCC does not need to examine the anti-competitive effect of the agreement. However, if the anti-competitive object is not found, the agreement may still infringe the Act if there is an anti-competitive effect. Provisions in agreements that infringe the Act will be unenforceable as it is considered illegal under the Contracts Act 1950.
Prohibition on anti-competitive horizontal agreements
The prohibition on anti-competitive horizontal agreements applies to enterprises operating at the same level in the production or distribution chain. Even though the term ‘object’ is not defined in the Act, there are certain horizontal agreements between enterprises which are deemed as having the object of significantly restricting competition and the MyCC does not need to examine and prove any anti-competitive effects of such agreements. The agreements that are deemed to be anti-competitive include those which:
- fix, directly or indirectly, a purchase or selling price or any other trading conditions;
- share markets or sources of supply;
- limit or control production, market outlets or market access, technical or technological development or investment; or
- perform an act of bid rigging.
Section 5 of the Act provides relief from liability provided all of the criteria are satisfied.
Prohibition on anti-competitive vertical agreements
Vertical agreements refer to agreements by enterprises operating at a different level in the production or distribution chain. Generally, the MyCC considers vertical agreements to be less harmful to competition compared to horizontal agreements. This is because parties to a vertical agreement usually have a joint interest in ensuring that the final product or service is competitive as opposed to horizontal agreements which are between competitors operating at the same level in the production or distribution chain.
The MyCC has expressly indicated that it considers resale price maintenance, including other similar schemes which achieve this, such as maximum or recommended retail pricing which serves as a focal point for downstream collusion, as highly anti-competitive. This may apply even where the market shares of the parties are less than the 25 per cent de minimis threshold.
For example, where a manufacturer sets a price which is to be followed by its wholesaler, distributor and retailer, these distribution channels do not compete on price, thus hurting competition. Agreements which established fixed prices and margins prior to the Act will need to be amended to remove such pricing structures. Generally, maximum prices and genuine recommended prices would be permissible provided that they are not guises for fixed resale prices.
It is possible, although as yet untested, that the MyCC will follow the European position and consider true agency structures as falling outside of the ambit of the chapter 1 prohibition. In a true agency structure, the principal bears all commercial risks and is thus able to dictate the prices at which the agent enters into a sale on its behalf. This would not be applicable where the ‘agent’ assumes commercial risk for the sale or collections.
Anti-competitive non-price restraints are generally not considered significant where the market shares of the seller or buyer do not exceed 25 per cent of their relevant market. Examples of such restraints include the following:
- Exclusivity or single branding, where the competitors are foreclosed from the market. This could include loyalty and other rebates or cumulative discounts which incentivise a buyer to buy exclusively or nearly all of its needs from a single supplier.
- Exclusive territorial allocation, where a distributor is given exclusivity over a demarcated area within Malaysia, thereby limiting inter-brand competition.
- Exclusive customer allocation, which similarly raises competition issues where there is no significant inter-brand competition.
- Tied sales, where a customer who purchases a product is forced to also purchase another product (the tied product). Such tying could restrict access to the tied product market by competitors, particularly if the first product is a ‘must have’.
- Upfront access payments, which suppliers pay to distributors to get exclusive access to distribution, for example, the best shelf-space in a retail outlet.
Where vertical restraints raise competition issues, they can nevertheless be relieved from liability where the criteria in section 5 are proven.
Section 5 of the Competition Act: Relief from liability for chapter 1 prohibition
In principle, no activity is precluded from the application of section 5 which allows parties to an agreement which restricts competition to defend the restriction based on pro-competitive grounds. However, in practice, extremely convincing evidence is needed to satisfy the MyCC that the benefits to competition outweigh the detriments.
Section 5 of the Act provides that an anti-competitive agreement prohibited under chapter 1 of the Act may be relieved from liability where all the following criteria are proven by the parties to the agreement:
- there are significant identifiable technological, efficiency or social benefits directly arising from the agreement;
- the benefits could not reasonably have been provided without the agreement having the anti-competitive effect;
- the detriment to competition is proportionate to the benefits provided; and
- the agreement does not eliminate competition in respect of a substantial part of the goods or services.
All four criteria must be cumulatively met and the parties claiming this relief have the onus of proving that the benefits gained are passed on to the consumers.
Parties to an agreement should conduct a self-assessment and determine whether it is able to justify its conduct under section 5. If it is able to make a case, and desires certainty before proceeding with a course of action, it can apply for an exemption under the Act which provides for
- individual exemptions granted to specific applicants; and
- block exemptions granted to a class of enterprises.
As filing for an exemption is not a precondition to raising a section 5 defence, some enterprises choose not to apply for an exemption and instead raise their defence arguments when the MyCC investigates the conduct or issues a notice of a proposed finding of infringement.
The Act empowers the MyCC to establish a leniency regime which provides for reduction of up to a maximum of 100 per cent of any penalties, which would otherwise have been imposed (ie, full immunity). The leniency regime is only available in cases where the enterprise has:
- admitted its involvement in an infringement of chapter 1 prohibition of the Act; and
- provided information or other form of cooperation to the MyCC which significantly assisted, or is likely to significantly assist, in the identification or investigation of any finding of the infringement against any other enterprises.
The leniency regime permits different percentages of reductions to be available to an enterprise. This would depend on whether the enterprise was the first person to bring the suspected infringement to the attention of the MyCC, as well as the stage in the investigation at which it admits its involvement in the infringement. Given the illicit nature of cartels, the leniency regime is designed to encourage cartelists to race to be the ‘first in’ to supply as much information as possible in order to expedite the MyCC’s investigation.
An infringing enterprise that is second in line may still benefit from the leniency regime. However, the percentage of reduction would largely depend on the stage in the investigation at which it admits its involvement in the infringement and the value of the incremental information or other cooperation it is able to provide. Such percentage of reduction is expected to commensurate with the additional information and assistance such enterprise is able to provide to the MyCC.
Parties would in practice consider:
- whether the MyCC is already investigating the cartel, which may affect its position in the leniency queue;
- the possibility that another cartelist has blown the whistle;
- the competition law implications in other jurisdictions, as the MyCC is able to disclose the information to competition authorities in other jurisdictions, some of which may have criminal sanctions;
- whether concurrent leniency applications should be made in multiple jurisdictions; and
- whether the enterprise can offer an undertaking on acceptable terms to the MyCC.
The MyCC recently released draft guidelines on the leniency regime, which are available for public consultation. These provide guidance on the reduction, as a percentage, of financial penalties; the procedure for making a leniency application; and the grant of leniency.
Chapter 2 of the Competition Act: prohibition on abuse of dominance
Chapter 2 of the Act prohibits an enterprise, whether independently or collectively, from engaging in any conduct which amounts to an abuse of a dominant position in any market for goods or services in Malaysia. This prohibition is substantially similar to article 102 of the Treaty on the Functioning of the European Union and the concept of joint dominance from case law in other jurisdictions is expressly included within the Act. It should be noted that where there is collusion between enterprises, this may also be caught by the chapter 1 prohibition of both horizontal and vertical agreements which restrict competition. As there is no need to establish dominance in a chapter 1 prohibition, collective dominance cases are expected to be rare. Establishing an infringement of the chapter 2 prohibition is a two-step process. The MyCC will first assess whether the enterprise that is being complained about is dominant in the relevant market in Malaysia; and, if so, the MyCC will assess whether the enterprise is abusing that dominant position.
By implication, the chapter 2 prohibition of the Act therefore does not apply to non-dominant enterprises. While the Act prohibits a dominant enterprise from engaging in certain conduct that non-dominant enterprises can do, a dominant enterprise is not restricted from engaging in conduct which has a reasonable commercial justification or which is a reasonable commercial response to market entry or conduct by a competitor.
A ‘dominant position’ is defined as a situation in which one or more enterprises possess such significant power in a market to adjust prices or outputs or trading terms without effective constraint from competitors of potential competitors. An enterprise, whether it is a supplier or a buyer, is considered to be dominant if it has significant market power in a relevant market in Malaysia.
As a starting point, the MyCC will define the relevant market to assess whether the enterprise has significant market power. This involves the identification of close substitutes for the product under investigation in the relevant product market as well as the geographic market applying the hypothetical monopolist test, ie, the smallest group of products (in a geographic area) that a hypothetical monopolist can profitably sustain a price above the competitive price. The MyCC will typically apply a small but significant non-transitory increase in price of 5 to 10 per cent above the competitive price.
Once the relevant market has been defined, the MyCC will determine whether an enterprise has a dominant position. While the MyCC considers that a market share above 60 per cent is indicative of dominance, the Act expressly specifies that market share is not by itself conclusive of dominance, which is to be assessed in terms of the enterprise’s ability to act without regard to its competitors’ response or to dictate the terms of competition in a market in Malaysia. Thus, even if an enterprise has a high market share, it would not be considered dominant if it was not in a position to increase price above the current level due to the possibility of new entrants or imports.
Although market share is a starting point for the assessment of dominance, the MyCC will also consider constraints on the enterprise including existing competitors (as indicated by market shares), potential competitors, barriers to entry and other constraints imposed by significant buyer power or economic regulation imposed by the government such as price regulation, degree of product differentiation and the degree to which innovation drives competition. The MyCC’s chapter 2 prohibition guidelines indicate that a new product with patented features may be considered dominant even though its market share is only 20 to 30 per cent of the market if there is a rapid growth of consumers who switch to this product.
Abuse of dominance
The concept of abuse is not defined in the Act. Broadly, the chapter 2 prohibition of the Act generally provides for two main types of abuse of dominant position:
- Exploitative conduct, such as excessive pricing that may result from structural conditions in the market whereby the dominant enterprise is able to set a high price to exploit consumers where there is no or low likelihood of new entrants in the relevant market. In determining whether prices are excessive, the MyCC will, in principle, consider the actual price set in relation to the costs of supply and other factors such as the dominant enterprise’s profitability.
- Exclusionary conduct, which refers to the ability of an enterprise to dictate the level of competition in a market by preventing efficient new competitors from entering or significantly harming existing equally efficient competitors either by driving them out of the market or preventing them from effectively competing.
The MyCC will apply an effects-based approach in assessing whether an exclusionary conduct amounts to abuse and apply two key tests: does the conduct adversely affect consumers; and does the conduct exclude a competitor that is just as efficient as the dominant enterprise? Exclusionary conduct includes predatory pricing, price discrimination, exclusive dealing, bundling up and tying.
Section 10(2) of the Act provides a non-exhaustive list of conduct that may constitute an abuse of dominant position:
- directly or indirectly imposing an unfair purchase or selling price or other unfair trading condition on a supplier or customer;
- limiting or controlling production, market outlets or market access, technical or technological development or investment to the prejudice of consumers;
- refusing to supply to particular enterprises or group or category of enterprises;
- discriminating by applying different conditions to equivalent transactions that discourage new market entry or market expansion or investment by an existing competitor, seriously damage or force a competitor that is just as efficient from the market or harms competition in the market in which the dominant enterprise operates or in any upstream or downstream market;
- forcing conditions in a contract which have no connection with the subject matter of the contract (eg, making the contract conditional on buying an unrelated product);
- any predatory behaviour towards competitors; or
- buying up scarce supply of inputs (either goods or services) where there is no reasonable commercial justification.
The MyCC’s Guidelines on the chapter 2 prohibition indicate that an enterprise which is dominant in one market can abuse that dominance in a separate market. For example, where a dominant company sells an essential input to downstream enterprises, sets up a subsidiary in the downstream market and then refuses to sell the input to the other buyers in the downstream market or initiates a margin squeeze. The MyCC’s first abuse of dominance case involves an alleged margin squeeze in the steel sector.
Defence for abuse of dominance
Dominant enterprises are not precluded from engaging in conduct that has reasonable commercial justification or represents a reasonable commercial response to the market entry or market conduct of a competitor, the so-called ‘meeting the competition defence’.
Examples given by the MyCC include:
- refusing to sell to a buyer who did not pay for past purchases;
- refusal to grant access to a dominant enterprise’s infrastructure that is already being used to capacity;
- offering a loyalty rebate that is related to the reduced costs of supplying that particular customer; and
- meeting a competitor’s price even though the price may be below cost in the short term.
In contrast to the chapter 1 prohibition (where an enterprise can get confirmation that an agreement which is at risk of being anti-competitive can nevertheless be justified based on pro-competitive benefits), there is no exemption process for a Chapter 2 infringement. The defence will have to be raised in response to the MyCC’s allegations of an abuse of a dominant position. The onus of proof of the reasonable commercial justification or response lies on the dominant enterprise.
Investigations by the MyCC
The MyCC may conduct any investigation, on its own accord, as it thinks expedient where it has reason to suspect that any enterprise has infringed or is infringing any prohibition under the Act. The minister charged with the responsibility for domestic trade and consumer affairs also has powers to direct the MyCC to investigate any suspected infringement. The MyCC may also conduct an investigation when it receives a complaint from a person or information from a participant in a cartel seeking benefits under the leniency regime. If the MyCC decides not to investigate a complaint, it must inform the complainant of the decision and the reasons for the decision.
The MyCC has a wide discretion on how it collects evidence and may direct a person to give the MyCC access to his books, records, accounts and computerised data. However, these powers are subject to lawyer-client privilege and may, at the request of the person disclosing, be protected by confidentiality. As anti-competitive conduct is not a crime, there is no privilege against self-incrimination.
The MyCC may, by written notice, require any person (not only those suspected of being in a cartel but also third parties) whom the MyCC believes to be acquainted with the facts and circumstances of the case to produce relevant information or documents. The MyCC may also require the person to provide a written explanation of such information or document. Where the person is not in custody of the document, he must, to the best of his knowledge and belief, identify the last person who had custody of the document and state where the document may be found. A person required to provide information has a responsibility to ensure that the information is true, accurate and complete, and such person must provide a declaration that he or she is not aware of any other information that would make the information untrue or misleading.
The MyCC may search premises with a warrant issued by a magistrate, where there is reasonable cause to believe that the premises has been used for infringing the Act or there is relevant evidence of such infringement on the premises. The warrant may authorise the MyCC officer named on the warrant to enter the premises at any time by day or night and by force, if necessary. During such searches, MyCC officers may seize any record, book, account, document, computerised data or other evidence of infringement.
The powers extend to the search of persons on the premises and there is no distinction in the powers for business or residential premises. Where it is impractical to seize the evidence, the MyCC may seal the evidence to safeguard it. Attempts to break or tamper with the seal constitute an offence.
Where the MyCC officer has reasonable cause to believe that any delay in obtaining a warrant would adversely affect the investigation or the evidence will be damaged or destroyed, he or she may enter the premises and exercise the above powers without a warrant.
In addition to the powers under the Act, the MyCC investigating officers have the powers of a police officer as provided for under the Criminal Procedure Code.
On finding an infringement under the Act, the MyCC may impose a financial penalty of up to 10 per cent of the enterprise’s worldwide turnover of an enterprise over the period during which the infringement occurred. Liability may be imputed on the parent company if its subsidiaries do not have autonomy to determine their actions on the market.
The financial penalty is potentially higher in Malaysia than that in other jurisdictions where the fine is limited to a specified number of years. This is because, in Malaysia, the penalty imposed may be for the entire duration of an infringement. However, the magnitude of this may not be felt for a while as this relates back only to 1 January 2012, the date on which the Act came into force.
Upon finding an infringement, the MyCC must require that the infringement be ceased immediately, and may specify steps to be taken to achieve this or give any other appropriate direction. The MyCC may bring proceedings before the High Court against any person who fails to comply with its directions and the High Court shall make an order requiring the person to comply with the direction or decision. If there is a failure to pay a penalty within the specified period, the High Court shall, apart from ordering the person to pay the penalty, order the person to pay interest at the normal judgment rate running from the day following that on which the payment was due.
The MyCC recently released draft guidelines on how it determines financial penalties, including aggravating and mitigating factors.
The aggravating factors taken into consideration include the following:
- the role of the enterprise as an instigator or leader, or the enterprise having engaged in coercive behaviour with others;
- obstruction of, or lack of cooperation in, the investigation;
- the enterprise having a record of committing similar infringements or other infringements of a part II prohibition (recidivism);
- continuance of the infringement after the start of investigation; and
- involvement of board members or senior management in the infringement.
The following non-exhaustive list of mitigating factors may also be taken into consideration:
- a low degree of fault;
- a relatively minor role in the infringement especially if involvement is secured by threats or coercion;
- cooperation by the enterprise in the investigation;
- the existence of a corporate compliance programme that is appropriate with regard to the nature and size of the enterprise; and
- any compensation made to victims of the infringements.
A person aggrieved by the decision of the MyCC may appeal to the Competition Appeal Tribunal (CAT), which has exclusive jurisdiction to review any findings of infringement or non-infringement made by the MyCC. The president of the CAT is a judge of the High Court and the CAT is composed of between seven and 20 other members appointed by the prime minister on the recommendation of the minister charged with the responsibility for domestic trade and consumer affairs.
An appeal is commenced by the filing of a notice of appeal to the CAT within 30 days of the decision, which states in summary form the substance of the decision of the MyCC appealed against, and an address for service of notices related to the appeal.
The CAT has the power to confirm or set aside the MyCC’s decision from being appealed, or any part of it, and may:
- remit the matter to the MyCC;
- impose or revoke, or vary the amount of, a financial penalty; and
- exercise the MyCC’s powers to make decisions, give directions, or take such other appropriate actions.
The CAT’s decision is final and binding on the parties to the appeal. Nonetheless, the CAT’s decision, and any other administrative decision of the MyCC, may be subject to judicial review by the High Court.
The MyCC may accept an undertaking from an enterprise to do, or refrain from doing, anything as the MyCC considers appropriate. Where the MyCC believes that it has a strong case, it is unlikely to accept an undertaking. Conversely where an undertaking enables the MyCC to bring about a quick and effective remedy without lengthy legal proceedings, this may be seen as a more effective use of the MyCC’s resources which can then be channelled into other infringement cases.
Where the MyCC accepts an undertaking, it shall close the investigation without any finding of infringement and it shall not impose a penalty on the enterprise. Any undertaking accepted by the MyCC will be made publicly available for inspection by the public and can be enforced in the High Court. Offering a suitable undertaking is particularly useful to avoid a finding of infringement, which can trigger follow-on civil actions.
The Act specifically allows persons who have suffered loss or damage directly as a result of an infringement under the Act a right of action in civil proceedings in a court. This right is not contingent on a finding of infringement by the MyCC, although such a finding would greatly aid the claimant in proving that the Act has been infringed. A plaintiff may also claim damages even if the plaintiff has not dealt directly with the enterprise which infringed the Act.
The MyCC focused on cartel activities during its first two years of enforcement since the Act came into effect on 1 January 2012. In its first cartel case in 2012, the MyCC imposed non-financial remedies on the Cameron Highlands Floriculturist Association (CHFA) after discovering that members of the CHFA were engaging in an anti-competitive agreement to increase the prices of flowers by 10 per cent. The MyCC, however, did not impose a financial penalty on the CHFA due to its exemplary cooperation in complying with the Act.
The second cartel case involves a collaboration agreement entered into by Malaysia Airlines and AirAsia, which the MyCC alleged had the object of market sharing resulting in the withdrawal of some routes on which both airlines competed. The MyCC considers market-sharing a hard-core infringement of the Act. At the time of writing, this matter is pending proceedings, and the MyCC proposes a financial penalty of 10 million ringgit each on Malaysia Airlines and AirAsia, for the four months commencing immediately when the Act came into effect up to the time that the two airlines terminated the collaboration agreement. The financial penalties were adjusted based on mitigating factors taken into account by the MyCC such as cooperativeness in providing data and information and the voluntary action taken by the parties to amend the agreement to remove offending clauses.
This case is interesting for several reasons:
- It concerns an agreement which was entered prior to the Act coming into force, and serves as a reminder that parties to agreements which infringe the Act remain at risk for continuing conduct, although it is clear that the Act does not have retrospective effect.
- Despite the parties voluntarily amending the agreement, the MyCC continued with investigations culminating in a proposed decision one year later following public outcry and complaints from the Federation of Malaysian Consumers Association.
- This is also the MyCC’s first application of the principle of a single economic unit, as it attributes liability to AirAsia for its wholly owned subsidiary, AirAsia X (which serves the long-haul sector). The MyCC’s investigation of the alleged infringing conduct began immediately after the Act came into force, indicating its aggressive enforcement of the Act.
- In support of the objective to promote the process of competition, rather than any specific players in the market, the MyCC had no hesitation in investigating the national airline carrier, which is a government-linked company.
At this juncture, the airlines made oral representations on their respective defences prior to the MyCC coming to a decision. Similar to the position in the European Union, the MyCC has an enforcement team which investigates and presents its case to members of the MyCC who will decide whether or not there has been an infringement of the Act. The MyCC is empowered to determine procedural matters subject to rules of natural justice and procedural fairness.
As a new regulator, the MyCC has flexed its muscles as it continues to aggressively enforce the Act. In October 2013, it issued interim measures against the Pan-Malaysia Lorry Owners Association for agreeing to fix an increase of transportation charges by 15 per cent. The MyCC has also issued directions to refrain from entering into any form of communications or to facilitate any communications concerning pricing for services provided by lorry enterprises; and to amend and remove from the Association’s Constitutions any provision concerning any discussions and determination of any chargeable prices.
More recently, the MyCC has issued proposed interim measures to 26 ice manufacturers to desist from acting in accordance with their announcement, on 24 December 2013, that they will collectively raise prices. These measures are intended to prevent serious and irreparable damage, economic or otherwise, in protection of the public interest. The MyCC has also probed alleged cartel behaviour following announcements of price hikes in stationery supplies.
Despite focusing on cartel cases, in November 2013 the MyCC also issued its first proposed decision for abuse of a dominant position. The MyCC proposed a 4.5 million ringgit financial penalty on a producer of long steel, Megasteel Steel Sdn Bhd (Megasteel) for a margin squeeze following a complaint from a competitor of Megasteel.
Based on the investigations carried out by the MyCC, Megasteel is the only domestic manufacturer of hot rolled coil in Malaysia and is also involved in the production of cold rolled coil for the downstream cold rolled coil market. The MyCC alleges that Megasteel’s conduct of charging or imposing a price for its hot rolled coil is disproportionate to the artificially low selling price of its cold rolled coil and amounts to a margin squeeze that has the effect of preventing competition in the downstream market, making it a serious breach of competition law.
In determining the basic amount of the proposed financial penalty, the MyCC said that it took into account the nature of the product, the structure of the market, the market share of the enterprise, entry barriers and the effects of Megasteel’s margin squeeze on its downstream competitors, as well as the seriousness of the infringement. Based on the factors cited above, the MyCC considers Megasteel to be dominant in the hot rolled coil market, which is an essential input for the downstream manufacturers of cold rolled coil, and observed that the entry barriers and restrictions into the hot rolled coil market are high.
The MyCC alleged that Megasteel, using its very special position over the other cold rolled coil producers, imposed prices for cold rolled coils which were artificially lower that those charged by its competitors in the downstream cold rolled coil market. The MyCC alleges that the monthly margins (between cold rolled coil and hot rolled coil prices) earned by Megasteel were all insufficient for the recovery of its monthly costs of transforming hot rolled coil into cold rolled coils. Megasteel was expected to submit its defence before the MyCC in December 2013.
Since its establishment, the MyCC has issued guidelines relating to market definition, anti-competitive agreements, abuse of dominant positions, complaints procedures and compliance procedures.
The MyCC recently released draft guidelines relating to the leniency regime and financial penalties, which are available for public consultation. The MyCC also plans to issue guidelines on bid rigging in the future.