Abuse of dominance in Saudi Arabia

Abuse of dominance

How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?

The existence of a dominating position in the Saudi market is not of itself prohibited. The abuse of the dominating position is.

‘Abuse’ of a Dominating Position requires an act of the kind described in Articles 4 and 5 of the Competition Law or article 7 of the Regulations. Broadly speaking those provisions target any practice which restricts competition between firms, in particular:

• price control;
• restricting the free flow of goods and services;
• barriers to entering and leaving markets;
• forcing out competitors;
• partitioning markets;
• client discrimination;
• compelling or agreeing with a client to refrain from dealing with a competing entity (third line forcing); and
• making the sale of a commodity or offer of service contingent on the purchase of another commodity or service (first line forcing).

These examples as stated in the Competition Law and Regulations are not exhaustive nor does the abuse need to occur in Saudi Arabia as long as the effect is felt in the country.

Like many other jurisdictions certain practices (for example, bid rigging and price-fixing) are presumed to be anticompetitive. In other cases, the impact of the conduct or agreement engaged in will be considered. Therefore, a course of action may be considered acceptable in some circumstances (for example, where it is required to establish a market) and not in others.

In some countries anti-trust provisions distinguish between vertical (eg, distribution) and horizontal (eg, cartel) relationships when determining if the relationship has an anticompetitive effect, with exemptions allowed for certain kinds of vertical contractual relationship. That is not the case with the Saudi provisions. They may need to be borne in mind in the case of certain kinds of business relationships that would generally be regarded as being beyond anti-trust provisions such as franchise and distribution agreements.

Does the concept of abuse cover both exploitative and exclusionary practices?

As seen in question 10, the concept of abuse of a dominating position in the Competition Law and Regulations is broad, non-exclusive and covers concepts of both exploitative and exclusionary practices.

What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?

The abuse must be the conduct of a firm in a dominant position. No other link (causal or otherwise) is required.

All firms, whether or not they hold a dominating position in the market, must refrain from restrictive practices between competing or potentially competing companies if the objective or impact is the restriction of commerce or a violation of competition between firms (see question 10). The restrictions on firms that enjoy a dominating position are more stringent and include (but are not limited to) prohibitions on:

• sales below cost with the intention to force competitors from the market;
• the creation of artificial shortages to raise prices;
• the imposition of special conditions on sales and purchases and on dealing with another firm; and
• refusals to deal with other firms to restrict their entry to the market.

These actions do not have to take place in Saudi Arabia, it will be enough that the effect is felt in the country.

What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?

When studying a dominating position in the market the Competition Council may consider the relevant market of goods in a specific area and the market share of the potentially violating firm. It will also consider the level of actual or potential competition looking at the number of competitors, the volume of production and the demand for the goods and any obstacles to the entry of new competitors to the market.

When deciding on what the impact of that dominating position has been on the market, the Competition Commission may take into account any or all of the following points:

• the impact on competition;
• whether a practice is or is not consistent with normal competitive behaviour. When it is possible to construe that, based on normal commercial interests, the firm that commits such practice is not in a position to enable it to influence the total demand or supply of the relevant goods or services or influence the prevailing price in the market; and
• whether a practice is or is not complying with the direct protection of intellectual property rights while the usage of intellectual property rights by market players to commit the practices stipulated herein constitutes violation of the law.