An extract from The Dominance and Monopolies Review - 7th edition

Abuse

i Overview

The Act does not offer a specific definition of 'abuse', but lists instances where abuse may be seen to have occurred. The list of instances set out is not exhaustive. The Act provides that abuse of a dominant position includes:

  1. directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
  2. limiting or restricting production, market outlets or market access, investment, distribution, technical development or technological progress through predatory or other practices;
  3. applying dissimilar conditions to equivalent transactions with other trading parties;
  4. making the conclusion of contracts subject to acceptance by other parties of supplementary conditions that by their nature or according to commercial usage have no connection with the subject matter of the contracts; and
  5. abuse of an intellectual property right.

We note that the Act makes reference to abuse by dominant undertakings only. Therefore, not every undertaking found to have been involved in one of the above instances will be deemed to have committed an abuse unless the undertaking is dominant in the relevant market. Conversely, the CAK has confirmed that being dominant is not illegal per se – rather, it is the abuse of a dominant position with which they are concerned. The RTP Guidelines provide that the CAK bears the burden of proof. Further, the RTP Guidelines categorise abuse of dominance into two categories: exploitative and exclusionary abuses.

These provisions of the Act have not been subject to judicial interpretation, and the CAK has not published its decisions in sufficient detail to create a body of case law that would give market participants significant guidance on the interpretation of the relevant provisions. As things stand, the Act has supplied the CAK and the courts with a guideline as opposed to an exhaustive list of abuses, monopolisation, monopoly maintenance or illegal unilateral conduct. Additionally, the CAK and the courts will recognise 'sui generis abuses' that would be applicable under the general rules of international law as well as any treaty or convention that Kenya has ratified. This would include conventions and treaties against discrimination as well as unfair economic practices under international law.

Restrictive trade practices

Under the Act, practices such as price-fixing, limitations on sales and production, restrictions on advertising, the exclusion of competitors from the market and the entry into agreements that would otherwise assign distributors to specific regions are deemed to be restrictive trade practices. The CAK continues to focus on enforcement against businesses and undertakings engaging in restrictive trade practices, cartel behaviour and abuse of dominance. The CAK has conducted sector-specific investigations and dawn raids, and has imposed penalties on parties found to be engaged in restrictive trade practices.

The Act makes it an offence for undertakings to engage in restrictive trade practices, providing that 'agreements between undertakings, decisions by associations of undertakings, decisions by undertakings or concerted practices by undertakings which have as their object or effect the prevention, distortion or lessening of competition in trade in any goods or services in Kenya, or a part of Kenya, are prohibited, unless they are exempt in accordance with the provisions of Section D of this Part'.

The restrictive trade practices provisions apply to any agreement, decision or restrictive practice that:

  1. directly or indirectly fixes purchase or selling prices or any other trading conditions;
  2. divides markets by allocating customers, suppliers, areas, or specific types of goods or services;
  3. involves collusive tendering;
  4. involves a practice of minimum resale price maintenance;
  5. limits or controls production, market outlets or access, technical development or investment;
  6. applies dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
  7. makes the conclusion of contracts subject to acceptance by other parties of supplementary conditions that by their nature or according to commercial usage have no connection with the subject of the contracts;
  8. amounts to the use of an intellectual property right in a manner that goes beyond the limits of fair, reasonable and non-discriminatory use; or
  9. otherwise prevents, distorts or restricts competition.

The types of agreements, decisions or concerted practices that may be deemed restrictive trade practices are similar to those deemed abusive by undertakings in a dominant position. The key distinction between a restrictive trade practice and an abuse of a dominant position is that the test for a restrictive trade practice looks at the object or effect of the contract, thus arguably utilising an effects-based test and not making such arrangements a per se breach of the relevant sections of the Act.

In addition, the CAK has emphasised under the RTP Guidelines that the CAK considers that the words 'object' and 'effect' are disjunctive. Hence, while the burden of proving that a restrictive trade practice has occurred falls on the CAK, the CAK need only prove one element of the test.

ii Exclusionary abuses

As noted above, the Act prohibits conduct by a dominant undertaking that directly or indirectly imposes unfair purchase or selling prices or other unfair trading conditions. It also prohibits undertakings from restricting production, market access and development through predatory practices. These prohibitions also appear in the restrictive trade practices provisions. The restrictive trade practices provisions make it clear that such practices apply to both horizontal and vertical arrangements, whereas the latter forms of agreement are generally excluded in Western jurisdictions from being considered anticompetitive by regulators.

The CAK published Exemption Guidelines for Horizontal Practices in 2012, which provide guidance regarding the grounds on which the CAK may exempt an agreement that is anticompetitive. The exclusions will be generally based on compelling public policy reasons, which include demonstrating that the agreement maintains or promotes exports or improves production, distribution of goods or services, or will produce technical or economic progress.

Predatory pricing and price-fixing

This offence is captured under both the provisions on abuse of a dominant position and restrictive trade practices. Both prohibit an undertaking from directly or indirectly imposing unfair purchase or selling prices, or fixing the purchase price in a manner that restricts or prevents competition.

There is, unfortunately, scant case law on predatory pricing. One of the few cases in this regard was decided in 2012. It arose from a complaint made by Telkom Kenya Limited (Telkom) (which is the sole landline telephone services provider in Kenya) against Airtel Kenya (Airtel) and Essar Telekom Kenya (Essar) (both mobile phone providers). Telkom alleged that the off-net calling rates of Airtel and Essar were predatory as they were below cost. The CAK conducted an investigation into the matter and found that the allegations were not substantiated. Unfortunately, the reported decision is only a summary, and does not provide significant detail on the analysis of the facts and evidence presented.

However, the CAK has ordered the abolition of pacts fixing advertising prices, with several advertising companies having been flagged for price-fixing, with the segment topping the number of restrictive trade practice investigations in the CAK's 2017/2018 Annual Report.

Exclusive dealing and leveraging

In relation to other forms of exclusionary abuses such as loyalty rebates, exclusivity contracts and price tying, the Act prohibits such arrangements under various provisions. For example, Section 21(3)(g) in relation to restrictive trade practices and Section 24(2)(d) both state that if an undertaking makes the conclusion of a contract subject to acceptance by other parties of supplementary conditions that by their nature or according to commercial usage have no connection with the subject-matter of the contracts, then this will be deemed anticompetitive.

We would emphasise that if the offence is in relation to abuse then the test that must first be met is in relation to dominance, while for restrictive trade practices, the Act requires the practice to have the object or effect of reducing competition.

Refusal to deal

The Act prohibits abuse of intellectual property rights, which would arguably include the refusal to grant a licence, but this provision has yet to be tested in the Kenyan courts. The CAK instituted an investigation into Multi-choice (a leading video entertainment and internet company) regarding whether Multi-choice engaged in abuses of dominance through content exclusivity relating to vertical agreements, which are prohibited under Section 21 of the Act. Upon conclusion of the investigation, the CAK issued Multi-choice with notice of its proposed decision.

iii Discrimination

The Act prohibits discriminatory conduct by a dominant undertaking, including any agreement or concerted practice that applies dissimilar conditions to equivalent transactions with other trading parties. In a case involving the Kenya Association of Travel Agents (KATA) and the International Air Transport Association (IATA), the KATA complained that the IATA was engaging in discriminatory behaviour and refusing to deal with it with regard to default insurance. The CAK investigated the matter, found the allegations to be true and issued a cease-and-desist order.

iv Exploitative abuses

Exploitative abuses are generally prohibited under the restrictive trade practices provisions of the Act. An investigation into major oil marketers based on the allegation that such marketers were engaging in limiting or controlling production, market outlets access, technical development and investment was closed because of a lack of evidence. However, given the CAK's recent use of dawn raids as a means of obtaining information, future investigations may be more likely to unearth evidence that could lead to prosecutions or fines.