An extract from The Public Competition Enforcement Review, Edition 13
Antitrust: restrictive agreements and dominance
Vertical restraint provisions are regulated in Chapter 3 and Chapter 4 of the ICL. In addition to the above, the KPPU has issued several regulations serving as guidelines for interpreting provisions under the ICL.
The ICL stipulates the following specific prohibitions on to vertical restraints:
- resale price maintenance: any agreement with distributors or other undertakings obliging distributors to refrain from reselling or resupplying goods or services below the set minimum price, creating an unfair business competition;
- vertical integration: any agreements between businesses at different levels of the production chain with the intention of one business controlling the production of the other business's products, in which the latter's products are used as the part or parts of inputs for the former business;
- exclusive distribution agreement: any agreement requiring distributors to only supply or not supply such goods or services to certain parties or in particular places;
- tying arrangement: any agreement requiring customers who purchase one product or service to purchase another different product or service (the tied product or service);
- discount or rebate: any agreement offering certain prices or lower prices on goods or services that requires customers to purchase other goods or services from suppliers or not to purchase suppliers' competing goods or services; and
- market control: any agreement requiring suppliers to engage in discriminatory practices against certain undertakings.
There are no industry-specific provisions or rules applicable under the ICL in general or even more specifically for provisions related to prohibitions of vertical restraint.
When assessing vertical restraint under the ICL, the KPPU should undertake an analysis of whether all the elements of the related ICL article have been fulfilled. The KPPU should know the facts concerning the vertical restraint rationale and also the implications of the agreement for all affected parties. Further, the KPPU should stress its analysis of market structure and whether a dominant undertaking has the ability to abuse its market power. The KPPU may also consider whether there are any restrictions on an undertaking's strategy that forecloses access for potential entrants into upstream and downstream markets. Vertical restraint provisions under the ICL adopt the rule of reason approach, which means in order to declare a violation of such articles, the vertical restraint must be proved by (1) the emergence of a negative impact on the market and (2) the motive and economic benefits gained by the undertaking in doing such restraint.i Significant cases
Since the enactment of the ICL, the KPPU has rarely initiated an investigation for cases related to vertical restraint prohibitions. In 2020, there were only two decisions related to abuse of dominance or vertical restraint, namely KPPU Decision No. 13/KPPU-I/2019 concerning online taxis (Online Taxi case) and KPPU Decision No. 03/KPPU-L/2020 concerning the sale of cement in South Kalimantan (Cement case).
The Online Taxi case was unprecedented, as it imposed a record-breaking administrative fine of 30 billion rupiah on PT Solusi Transportasi Indonesia (STI), the Indonesian entity of Grab. The KPPU also imposed a 19 billion rupiah administrative fine on PT Teknologi Pengangkutan Indonesia (TPI), a provider of transportation rental services that entered into a cooperation with Grab for the provision of partner drivers. Prior to this case, the KPPU had only ever imposed one administrative fine (which did not exceed 25 billion rupiah) on a company even though the KPPU found that a company had violated multiple articles of the Competition Law in previous cases.
The fines were imposed based on the allegation that STI and TPI had engaged in discriminatory practices through, among other things, the implementation of priority order, and tying practice. While the tying allegation was dismissed, the KPPU still found that the discrimination is a breach of Articles 14 and 19(d) of the ICL. The KPPU viewed that the parties intended to dominate or control the market for the supply of technology-based transportation rental services application in Indonesia as their cooperation had resulted in the declining number of partner drivers as well as orders received by non-TPI partner drivers. The KPPU also found that STI had discriminated against non-TPI partner drivers by prioritising orders of and giving more favourable partnering terms to TPI partner drivers. STI and TPI filed an appeal to the South Jakarta District Court, and later the South Jakarta District Court annulled the KPPU's decision. The KPPU filed an appeal to the Supreme Court and the decision has yet to be concluded.
Meanwhile, in the Cement case, PT Conch South Kalimantan Cement (Conch) was accused of predatory pricing by selling its cement products below the production cost and eliminating its competitors in the market. In its decision, the KPPU declared Conch guilty of the allegation and imposed a fine of 22.352 billion rupiah. To date, we are unaware of whether Conch has filed an appeal or not.ii Trends, developments and strategies
As there were only two decisions relating to vertical restraint prohibition in 2020, there have been no significant developments on the enforcement of the provisions by the KPPU.iii Outlook
With the rise of digital business in Indonesia, we can expect more enforcement of the provisions by the KPPU towards companies in digital markets.
For vertical restraint prohibitions, one of the challenges of enforcement would be defining the relevant market. Since vertical restraint prohibitions are closely related to abuse of dominance conduct, the challenges in this respect also include the determination of the market shares in order to accurately conclude the relevant parties' dominance in the market.