Competition/Antitrust Jakarta Client Alert August 2016 Update on the On-going Revision of the New Anti-Monopoly Law On 23 September 2014, the House of Representatives added a draft amendment to Law No 5 of 1999 on Prohibition of Monopolistic Practices and Unfair Business Competition Law ("New Anti-Monopoly Law") to its list of draft laws to be discussed by the newly sworn-in members of the House of Representatives. However, the House of Representatives failed to conclude the amendment in 2015, and the discussion on the amendment continued into 2016. Between 2014 and 2016 several drafts of the New Anti-Monopoly Law were made available to the public. In previous client alerts, we presented a summary of the changes to the Anti-Monopoly Law that have been proposed to the House of Representative to be included in the amendment. Please follow the links Client alert issued in October 2014 and Client alert issued in June 2014 for our client alerts. We recently received the latest draft of the bill, which was prepared in the middle of 2016 ("New Draft"). What is new in the New Draft? The following is a summary of the changes to the New Draft from the previous drafts (summaries of which were presented in our previous client alerts linked above). 1. Substantive Provision Changes Unlike the previous drafts, which only amended the procedures and authorities of KPPU, the New Draft introduces several substantive changes: A. Broader definition of Dominant Position The New Draft emphasizes that business actors that have a dominant position include producers, sellers, suppliers and buyers. Even in the absence of the above definition above, dominant positions can be found at every level of trade or even in the buyer's position. For example, if more than half of certain raw materials in the market are purchased by one company, the company is considered as having a dominant position. This new provision eliminates any doubts about whether dominant position can apply to buyers. Competition/Antitrust 2 Update on the on-going Revision of the New Anti-Monopoly Law August 2016 B. Introduction of Abuse of Dominant Bargaining Power Like in the Japan Anti-Monopoly Law, abuse of dominant bargaining power is separated from abuse of dominant position. This aim of this separation is to capture companies that do not necessarily have a dominant position, but have higher bargaining power so they can impose unfair terms in agreements with smaller business actors. However, the details of this provision will be set out in KPPU regulations so we have no indication as to how this prohibition will work. C. Licensing of intellectual property and franchising contracts will no longer be exempt Article 50 of the current Anti-Monopoly Law exempts several actions and agreements from this law's application, including agreements related to intellectual property (e.g. the licensing of intellectual property), trade secrets and franchising. The New Draft no longer exempts agreements related to intellectual property, trade secrets and franchising. This change is in line with other laws related to intellectual property rights that specifically require promotion of fair competition and anti-monopolistic practices in exercising those rights. The change is also consistent with KPPU's own view that there should not be absolute exemption in relation to intellectual property rights in the first place. That said, this deletion may have serious implications, especially for franchise agreements, which typically include price control and territorial allocation to protect the franchise business. 2. Enforcement Issues In addition to substantive provision changes, there are also changes to some of the proposals in the previous draft: A. Administrative fines will be based on revenue, not set as nominal amounts One of the significant changes in relation to sanctions is that the New Draft abolishes the previously proposed maximum fines of IDR 500 billion. The New Draft stipulates that fines will be calculated based on particular percentages of the business actor's sales that are earned during the violation period. Violations related to prohibited agreements, prohibited actions, abuse of dominant position and abuse of dominant bargaining power will be subject to fines of a minimum of 5% and a maximum of 30% of sales during the violation period. In addition, the New Draft stipulates that a business actor that does not implement sanctions imposed by KPPU is subject to criminal fines of a maximum IDR 2 trillion or imprisonment for a maximum of two years instead of paying the fines. B. Merger control review to be shortened The New Draft contains provisions similar to those in the previous draft. Those include acquisitions of assets and formation of joint ventures that Competition/Antitrust 3 Update on the on-going Revision of the New Anti-Monopoly Law August 2016 meet certain criteria for mandatory notification. The current Anti-Monopoly Law only covers mergers, consolidations and acquisitions of shares. The New Draft stipulates mandatory pre-completion notification and abolishes mandatory post-completion notification. Under the New Draft, the KPPU must review a merger notification within 25 working days after the applicant receives a registration number from the KPPU. The previous draft stipulated 21 working days. The time given to complete the review has been changing from draft to draft but one key problem is still not resolved, i.e., the unlimited time that KPPU can take to determine that a notification is complete and to begin the review period. Given there is no statutory time limit, closings of transactions can be delayed for a long time. C. KPPU's rights to search and seize to be introduced The New Draft provides additional rights to KPPU. Under the New Draft, in conducting investigations, KPPU is entitled to search the assets of the business actor. KPPU is also entitled to seize evidence for the purpose of its investigation. To implement these rights, the KPPU also can ask for assistance from police investigators. KPPU has been advocating to be granted this power and it has finally materialized in the New Draft. D. Application of leniency will depend on KPPU regulation. Similar with the previous drafts, the New Draft stipulates leniency provisions. Under the New Draft, KPPU may grant amnesty or reduced punishment to business actors that admit or report their violations. The New Draft says that KPPU will issue a KPPU regulation to further regulate leniency issues so there may be a delay in implementing this provision. Further, the provision is worded so that KPPU retains the ability to not grant amnesty or reduce punishment for business actors that admit or report their violations. E. Lower requirement to file Objection The New Draft stipulates that if a business actor rejects a KPPU decision, the business actor can file an objection if the business actor has paid 10% of the fine. This is down from 50% in the previous draft. The New Draft reportedly is now being reviewed by the Legislative Body of the House of Representatives. If the Legislative Body passes the draft, it will need to be approved by a plenary meeting of the House of Representatives. However, that will only start a series of joint review sessions between the House of Representatives and the government on the draft amendment. So the draft is still subject to changes. www.hhp.co.id For further information please contact Wimbanu Widyatmoko Senior Partner +62 21 2960 8694 email@example.com Mochamad Fachri Associate Partner +62 21 2960 8547 firstname.lastname@example.org Farid Nasution Senior Associate +62 21 2960 8525 email@example.com Grace Yunica Associate +62 21 2960 8532 firstname.lastname@example.org Hadiputranto, Hadinoto & Partners The Indonesia Stock Exchange Building, Tower II, 21st Floor Sudirman Central Business District Jl. Jenderal Sudirman Kav. 52-53 Jakarta 12190 Indonesia Tel: +62 21 2960 8888 Fax: +62 21 2960 8999 ©2016 Hadiputranto, Hadinoto & Partners. All rights reserved. Hadiputranto, Hadinoto & Partners is a member of Baker & McKenzie International. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. 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