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Competition Law 1O1

Introduction


The Malaysian Competition Act of 2010 is the law that governs and supervises anti-competitive practices by businesses, safeguarding consumers and businesses against monopolies and dominant market players. The Act is enforced by the Malaysian Competition Commission (“MyCC”).


For now, the Act focuses on two main areas:


a) Anti-competitive agreements; and

b) Abuse of dominant position.


As of May 2023, competition law governing mergers & acquisitions have yet to be implemented in Malaysia. Once implemented, the law will regulate mergers & acquisitions and the effects of competition thereof.


It's important to note that the Act does not apply to commercial activities falling under the Communications and Multimedia Act 1998, the Energy Commission Act 2001 and the Malaysian Aviation Commission 2015.


What are Anti-competitive agreements?


According to Section 4(1) of the Act, any vertical or horizontal agreements between enterprises that significantly prevent, restrict, or distort competition in any market for goods or services are prohibited. In simpler terms, the Act prohibits anti-competitive agreements.

The term "agreement" in the Act includes both written and oral agreements.


The term “enterprise” means any entity carrying on commercial activities relating to goods or services, and for the purposes of this Act, 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.


As such, a Non-Governmental Organisation (NGO) or a Charity Organisation will not be defined as an enterprise.


What is a horizontal agreement?


Horizontal agreements refer to agreements between two enterprises operating on the same level in the business chain, such as manufacturers, wholesalers, or retailers.


The Act, under section 4(2) horizontal agreement between enterprises which has the object to:

a) fix purchase or selling prices or other trading conditions, either directly or indirectly;

b) share markets or sources of supply;

c) limit or control production, market outlets or access, technical or technological development, or investment; or

d) To perform an act of bid rigging,

is deemed to have the object of significantly preventing, restricting or distorting competition in any market for goods or services.


The word ‘object’ as not been defined but it may be associated with the meaning of ‘intention’.


Take a look at these examples;


a) ABC Sdn Bhd and 123 Sdn Bhd are the two biggest apple producers in the country with 30% & 40% market share respectively. They both enter into an agreement to fix the selling price of their apples to avoid aggressive marketing between themselves.

ABC Sdn Bhd and 123 Sdn Bhd have contravened Section 4(2)(a) of the Act.


b) Billy Goat Sdn Bhd, Grinch Sdn Bhd, Shrek Sdn Bhd and Moana Sdn Bhd intend to submit their respective submission for a government tender project involving the construction of a city hall. Based on the parties’ discussion, it was agreed that Billy Goat Sdn Bhd will submit the lowest bid while Grinch Sdn Bhd, Shrek Sdn Bhd and Moana Sdn Bhd will inflate their respective bids to increase Billy Goat’s chances to be awarded the project. Billy Goat Sdn Bhd eventually wins the tender and sub-contracts part of the works to Grinch Sdn Bhd, Shrek Sdn Bhd and Moana Sdn Bhd so that everyone will be able to share the revenue to be derived from the project.


Billy Goat Sdn Bhd, Grinch Sdn Bhd, Shrek Sdn Bhd and Moana Sdn Bhd have contravened Section 4(2)(d) of the Act.


What is a vertical agreement?


Vertical agreements are made between enterprises operating at different levels in the business chain. For instance, a wholesaler may agree with a retailer to exclusively sell their products or refrain from supplying other retailers in the area. The latter is known as an exclusive distribution agreement. Such agreements can be considered anti-competitive if they limit competition between retailers and restrict consumer choice.


According to the Act, these agreements are only prohibited if they have the object or effect of significantly preventing, restricting, or distorting competition.


Take a look at this example;


Deep Purple Sdn Bhd manufactures insect repellent and has 80% market share in Malaysia. Deep Purple Sdn Bhd subsequently enters into an exclusive distributorship agreement with INXS Sdn Bhd, to exclusively market and distribute its insect repellents in Malaysia. Such agreement is likely to contravene section 4(1) of the Act as they significantly prevent, restrict and/or distort competition at the distribution level.


So, what does "significant" mean?


The Act doesn't explicitly define "significant," but it's generally interpreted as meaning more than trivial. Guidelines provided by the MyCC suggest that an agreement will not significantly prevent, restrict or distort competition if the combined market share of the competitors involved is less than 20% of the relevant market and the combined market share for non-competitors (such as a manufacturer & a distributor) is less than 25% in the relevant market.

Take a look at these examples;


Horizontal Agreements - If two competitors, both of which has less than 5% market share in the relevant market, decide to share non-price information, it is unlikely that such agreement will cause a significant distortion of competition in such market.


Vertical Agreement – If a manufacturer, who has less than 10% market share in a relevant market, decides to enter into an exclusive distributorship agreement with a distributor (who has less than 5% market share in the relevant market), such agreement is unlikely to cause significant distortion of competition in such market.


Can you be exempted from liability under the Act?


Yes, a party to an illegal agreement may be exempt from liability if they can demonstrate:


a) The existence of significant identifiable technological, efficiency, or social benefits resulting from the agreement.

b) The benefits cannot be achieved without the agreement preventing, restricting, or distorting competition.

c) The detrimental effect on competition is proportional to the provided benefits.

d) The agreement does not enable the party to eliminate competition entirely.


Parties can also seek exemption from the prohibition of section 4 of the Competition Act by approaching the Malaysian Competition Commission.


Abuse of dominant position


Section 10(1) of the Act prohibits any business, whether individually or collectively, from engaging in conduct that constitutes an abuse of a dominant position in any market for goods or services.


What qualifies as a "dominant position"?


A business or businesses hold a dominant position when they have significant power in a market to adjust prices, outputs, or trading terms without facing effective competition or opposition from competitors or potential competitors.


The Malaysian Competition Commission has issued guidelines indicating that a market share of 60% could indicate a dominant position. However, the Act explicitly states that market share alone does not conclusively determine whether a business is in a dominant position.


The Act provides specific examples of conduct that would be considered an abuse of dominant position. The list is not exhaustive and includes actions such as:


a) Imposing unfair purchase or selling prices or other unfair trading conditions on suppliers or customers.

b) Limiting or controlling production, market access, technical or technological development, or investment to the detriment of consumers.

c) Refusing to supply to a particular business or group of businesses.

d) Applying different conditions to similar transactions with other trading parties in a way that discourages new entrants, expansion, investment by competitors, or harms existing equal competitors.

e) Making contract conclusion contingent upon accepting supplementary conditions unrelated to the subject matter.

f) Engaging in predatory behavior toward competitors.

g) Acquiring scarce supplies of goods or resources required by competitors without justification.


Take a look at this example:


Cleanex Sdn Bhd holds 100% market share in the Malaysian market of manufacturing cleaning detergents. One day, a new player called Sponge Sdn Bhd decides to enter the market of manufacturing cleaning detergents. Cleanex Sdn Bhd, upon discovering a new player has entered its market, decides to sell its products below its production costs to effectively weed out Sponge Sdn Bhd from the market. Sponge Sdn Bhd, unable to compete with the low prices offered by Cleanex Sdn Bhd, run into losses and is subsequently wound up. Cleanex Sdn Bhd, who is now the sole manufacture of detergents in the market, increases it detergent prices to cover the losses it had sustained earlier.

Cleanex Sdn Bhd would be infringing section 10(1) of the Act.


Can abuse of dominant position ever be justified?


Yes, the Act states that conduct may be justified if an enterprise can demonstrate that it is a reasonable commercial response to a competitor's conduct in the market. In such cases, the conduct is unlikely to be considered an abuse of dominant position.


Important considerations when conducting business in Malaysia


When dealing with competitors, avoid entering agreements related to prices, manufacturing, or marketing.


When dealing with customers, refrain from engaging in discussions that could be deemed an abuse of your position. Avoid discussing resale prices, imposing restrictions or conditions on purchases, or attempting to limit your customers' freedom to do business with others. Treat all customers equally.


When dealing with suppliers, avoid discussing your resale prices with them. Do not enter into agreements that limit their right to sell to others or your right to buy from others. Do not accept "special" prices that could harm your competitors.


Failing to conduct business legally and competitively can have significant consequences for you and your business. The Act grants the Malaysian Competition Commission the authority to impose severe penalties.


What kind of penalties are we talking about?


While infringing the Act is not a criminal offense, the financial consequences can be substantial. If found guilty of an infringement, you may face a fine of up to 10% of your business's worldwide turnover during the period of the infringement. The exact amount depends on factors such as the severity, duration, and impact of the infringement on competition and the market.


Interfering with any investigation by the Commission, providing tip-offs, or issuing threats to anyone involved constitutes a criminal offense with severe penalties.


Does the Malaysian Act apply to activities outside Malaysia?


Yes, the Act applies to conduct within Malaysia as well as commercial activities outside Malaysia that impact competition in any domestic market.


If you are conducting business in Malaysia or considering establishing a business there, it is crucial to be familiar with the regulations regarding anti-competitive behaviour. While you can rely on the protection offered against anti-competitive conduct by others or dominant players in the market, it is equally important to avoid engaging in any conduct that could be seen as anti-competitive. Infringing the Act can have significant consequences for both you and your business.


What if I have entered into an anti-competitive agreement which infringes Section 4(2) of the Act?


Fear not as the Act contains a leniency regime with a reduction of 100% of any penalties which would otherwise have been imposed. In order to apply for leniency under the Act, you must;


a) Admit your involvement in an infringement of any prohibition mentioned in section 4(2) of the Act; and

b) Provide information or other form of cooperation to MyCC which will significantly assist in the identification or investigation of any finding of an infringement of any prohibition by any other enterprises.


The leniency regime permits different percentages of reduction available to an enterprise depending on;


a) Whether an enterprise is the first person to bring the suspected infringement to the attention of the Commission;

b) The stage in investigation at which

- An involvement in the infringement was admitted; or

- Any information or other co-operation was provided; or

- Any other circumstances which the Commission considers appropriate to have regard to.


If you have any doubts whether you are currently engaged in anti-competitive behaviour or have potentially infringed the Act, it is advisable to consult us as soon as possible.


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