On 24 March 2014, the Competition Tribunal (Tribunal) issued its reasons in respect of a matter concerning the distribution systems of South African Breweries Limited (SAB). SAB contracts with distributors for the distribution of its products on terms that grant these distributors exclusive territories for the distribution of SAB products at a distribution fee (in the form of a discount on the retail price).
The Competition Commission's (Commission) case was that SAB's conduct amounted to unlawful price discrimination in contravention of s9 of the Competition Act, No. 89 of 1998 (Act) to the extent that it charged a different price to its authorised distributors (being retail price minus a discount) than to other distributors (being the retail price), market division in contravention of s4(1)(b) of the Act as it agreed not to compete with its authorised distributors for the distribution of SAB products in the exclusive territories and, alternatively, a vertical restrictive practice in contravention of s5(1) by virtue of the territorial carve-outs being anti-competitive and not capable of justification.
In respect of the market allocation charge the Tribunal noted that SAB, through enforcing exclusivity in respect of its authorised distributors, may have engaged in conduct that amounted to market allocation. No (formal or informal) agreement existed between the authorised distributors in respect of the exclusive territories, but SAB, allegedly, acted as the hub in a hub-and-spoke arrangement in respect of this market allocation arrangement. In addition, SAB, in performing certain of its distribution functions itself, was a competitor of its authorised distributors and stood in a horizontal relationship with them. The Tribunal, however, considered a characterisation argument in respect of the ostensible transgression of s4(1)(b) of the Act.
The Tribunal considered whether SAB and its authorised distributors are basic economic units independent of SAB. In the absence of guiding case law and precedent on how to identify the boundary between a single and basic economic unit, the Tribunal concluded that the authorised distributors are not sufficiently independent of SAB in the manner that would make them competitors of SAB in respect of the distribution of products. This reasoning was not based on a single economic entity theory, but rather on the characterisation of the relationship between SAB and its authorised distributors and a conclusion that this type of independent, yet highly interrelated (and controlled), conduct is not the type of conduct the Legislature intended to prohibit as per se collusive.
In respect of the vertical and horizontal restrictive practices complaint against SAB, which are analysed based on the rule of reason, the Tribunal concluded that the Commission could not successfully show that there was a substantial lessening or prevention of price competition, as it was shown that the current distribution system employed by SAB in fact leads to the cheapest possible prices to customers and that there was insufficient evidence to prove a lessening of non-price competition.
The Commission, further, brought a case that the differentiation by SAB between its authorised distributors and other distributors in granting discounts on the retail price as remuneration for distribution services amounted to prohibited price discrimination in terms of s9(1) of the Act. SAB's approach, in other words, is that most customers except its authorised distributors are treated as retail customers and are charged retail prices for its products. The Tribunal found that the transactions between SAB and authorised distributors, on the one hand, and independent distributors, on the other hand, were not functionally equivalent, to render these transactions equivalent and capable of scrutiny under s9 of the Act.
The Commission further brought a charge of resale price maintenance against SAB in respect of the obligatory use of a computer system that limited authorised distributors from setting their own price. The Tribunal found that there was no evidence to suggest that SAB intentionally imposed the computer system on its authorised distributors in order to enforce a system of resale price maintenance or penalised its authorised distributors for granting discounts and, hence, s5(2) of the Act was not transgressed.
Accordingly, the Tribunal dismissed all charges against SAB and its authorised distributors. This decision by the Tribunal is currently the subject of an appeal by the Commission to the Competition Appeal Court.