Characterisation of Restrictive Horizontal Practices under Competition Law (Part 1)

Abstract

Sections 4(1)(a) and (b) of the Competition Act 89 of 1998 reflect the distinction in competition law between horizontal restrictive practices that may be evaluated either through a “rule of reason” analysis or treated as automatically unlawful under a “per se” approach. Section 4(1)(a) contemplates a “rule of reason” analysis in terms of which anti-competitive effects of the conduct in issue must be proved and, if such effects are demonstrated, they are susceptible to justification on technological, efficiency or pro-competitive grounds. By contrast, where the impugned conduct involves any of the restrictive horizontal practices listed in section 4(1)(b) – namely, price-fixing, market division or collusive tendering – it is prohibited “per se” in that the anti-competitive effect thereof is presumed and cannot be justified on technological, efficiency or pro-competitive grounds. Whether section 4(1)(b) includes or excludes pro-competitive agreements involving price-fixing, market division or collusive tendering depends on whether every agreement that directly falls into one of these prohibited categories automatically violates section 4(1)(b). This can be an issue because, on the face of it, not every agreement that involves price-fixing, market division or collusive tendering necessarily harms competition. Cooperation agreements, such as joint ventures, may have neutral or even positive effects on competition. Section 4(1)(b) must therefore be able to distinguish between conduct that should be condemned per se and conduct that has a legitimate purpose and requires, at the very least, a rule-of-reason analysis. This is the issue that characterisation seeks to address. It is settled in South African competition law that any conduct alleged to have contravened section 4(1)(b) must be properly characterised in order to ascertain whether the conduct in question squarely falls within the ambit of section 4(1)(b). In other words, it must be ascertained whether the impugned conduct, properly characterised, is the kind of conduct that is to be prohibited per se under section 4(1)(b), with no scope for justification. The main aim of this series of three articles is to review characterisation under section 4(1)(b) of the Competition Act, and to assess what it involves. Part 1 critically reviews the applicable South African framework and principles relevant to characterisation, as emerged from American Natural Soda Ash Corporation v Competition Commission (ANSAC) and Competition Commission v South African Breweries Ltd (SAB). Pursuant to section 1(3) of the Competition Act, appropriate foreign and international law may be considered when interpreting or applying the Competition Act. This is complementary to section 1(2)(a), which directs that the Competition Act must be interpreted in a manner that is consistent with the Constitution and that gives effect to the purposes set out in section 2. In this light, this article also considers the approach to whether conduct is anti-competitive by object or effect under article 101 of the Treaty on the Functioning of the European Union. Part 2 builds on Part 1 by reviewing and assessing further key facets of characterisation that have emerged from the South African case law since ANSAC and SAB. Part 3 reviews and assesses the approach relevant to characterisation of restraints of trade, as developed in Dawn Consolidated Holdings (Pty) Ltd v Competition Commission.