By Jaco de Klerk: Director – Commercial
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It is common practice for companies to enter into exclusivity agreements with their customers in relation to products or services. It is, however, important to take cognisance of the provisions of the Competition Act 89 of 1998 (as amended) (the “Competition Act”) in relation thereto.
The Competition Act places a prohibition on firms to engage in exclusionary acts having an anti-competitive effect, which inter alia includes exclusivity agreements. For example, if a dominant firm sells products to a retail customer and that customer is compelled to only sell those products to end consumers and is prohibited from selling products of a competitor of the dominant firm.
Section 8(1)(d)(i) of the Competition Act deals inter alia with the above scenario and provides as follows:
“8. Abuse of dominance prohibited —
- (1) It is prohibited for a dominant firm to —
- engage in any of the following exclusionary acts, unless the firm concerned can show technological, efficiency or other pro-competitive gains which outweigh the anti-competitive effect of its act—
- (i) requiring or inducing a supplier or customer to not deal with a competitor;”
- engage in any of the following exclusionary acts, unless the firm concerned can show technological, efficiency or other pro-competitive gains which outweigh the anti-competitive effect of its act—
In order determine if such conduct is seen as an “exclusionary act” in terms of the Competition Act, it should be considered if:
- if the firm concerned is dominant in the market; and
- the conduct falls within the definition of section 8(d)(1)(i).
From a Competition Act perspective, a firm is regarded as dominant in the market if it has at least 45% of that market per section 7 of the Competition Act. This threshold should, however, not be viewed in isolation as a firm can have a lower market share than 45% and still be seen as dominant in the market due to its market power.
Notwithstanding the aforesaid, for a company to be in contravention of section 8(1)(d)(i) its exclusionary conduct should be coupled with having an anti-competitive effect.
In the matter between Computicket (Pty) Ltd v Competition Commission of South Africa (170/CAC/Feb19), the Competition Appeal Court (“CAC”) held that in order to determine if such exclusionary act is indeed anti-competitive in nature, the inquiry should hinge on whether the exclusionary conduct results in:
- actual harm to consumer welfare; or
- foreclosing the market to competition.
The CAC further held that actual foreclosure of a competitor is not required to be proven, it shall be deemed to be anti-competitive if the dominant firm’s rivals are rendered less effective competitors by reason of the exclusionary conduct.
It is clear that exclusionary conduct by way of an exclusivity agreement by a dominant firm shall not automatically result in the contravention of the Competition Act, however, one must take cognisance of when such exclusionary conduct can contravene the Competition Act.