What are the legal sources that set out the antitrust law applicable to vertical restraints?
The primary legal basis of antitrust law in Indonesia is Law No. 5 of 1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition (the Indonesian Competition Law (ICL)). Chapters 3 and 4 of the ICL regulate restrictive agreements and restrictive activities, set out provisions prohibiting vertical restraint. In addition to the above, the relevant authority, the Indonesian Competition Commission (KPPU), has issued several regulations serving as guidelines for interpreting provisions under the ICL.
Types of vertical restraint
List and describe the types of vertical restraints that are subject to antitrust law. Is the concept of vertical restraint defined in the antitrust law?
Although there is no definition of the vertical restraints concept in the ICL, KPPU delineates the concept in KPPU Regulation No. 8 of 2011 regarding guideline of article 8 on Resale Price Maintenance (KPPU Regulation No. 8/2011) as ‘a restriction of a transfer of entitlement upon a certain product or services during an economic exchange between two parties at different stages’.
The ICL stipulates the following specific prohibitions related to vertical restraints:
- resale price maintenance (RPM): any agreement with distributors or other undertakings obliging distributors to refrain from reselling or resupplying goods or services below the set minimum price, creating unfair business competition;
- vertical integration: any agreement requiring manufacturers controlling the production of products or the provision of services included in the production chain of certain related goods or services where each product link constitutes part of the end product;
- 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 (ie, 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.
Is the only objective pursued by the law on vertical restraints economic, or does it also seek to promote or protect other interests?
There is no mention in the ICL of any specific objective of prohibiting vertical restraint. However, the stipulation on vertical restraints is an inseparable part of the ICL itself, whereas the ICL’s general objectives are:
- to promote public interest and enhance the efficiency of national economics;
- to create a sound business environment ensuring an equal opportunity for all undertakings;
- to prevent monopolistic practices or unfair business, or both; and
- to create effectiveness and efficiency in businesses.
This said, vertical restraints provisions will still serve the ICL’s objective.
Which authority is responsible for enforcing prohibitions on anticompetitive vertical restraints? Where there are multiple responsible authorities, how are cases allocated? Do governments or ministers have a role?
Established in 2000, KPPU is the independent and sole authority responsible for the enforcement of the ICL. KPPU may initiate an investigation and case examination, decide a case and impose administrative sanctions against all violations of the ICL. For the purpose of the investigation, KPPU has the power to summon undertakings, witnesses or experts to obtain, examine and evaluate documents or other evidence. KPPU can also request clarification from government regarding the ongoing case.
What is the test for determining whether a vertical restraint will be subject to antitrust law in your jurisdiction? Has the law in your jurisdiction regarding vertical restraints been applied extraterritorially? Has it been applied in a pure internet context and if so, what factors were deemed relevant when considering jurisdiction?
The ICL can be applicable to companies outside Indonesia if one or more of the defendants is established and has domicile in Indonesia or directly or indirectly engages in business activities in Indonesia. If either condition is met, KPPU may pursue the case when it considers that its action to enforce the ICL would be effective (eg, by enforcing its decision against local subsidiaries or affiliates of foreign companies.
Further in this regard, there has been a precedent of KPPU applying the extraterritorial doctrine in its investigation of violations of the ICL through the single economic entity doctrine. This doctrine was raised in KPPU Decision No. 7/KPPU-L/2007 regarding the cross-ownership of Temasek Holding Pte Ltd (Singapore) (Temasek). Other precedents for the implementation of this doctrine by KPPU can be found in various KPPU Opinions relating to foreign merger notifications, essentially noting that such transactions are notifiable to KPPU despite being foreign.
Although the above precedents and the underlying regulations do not relate to vertical restraints cases, KPPU’s position on the extraterritorial application of the ICL is worth noting as the most likely approach KPPU will take in any investigation of violation of the law in general.
Agreements concluded by public entities
To what extent does antitrust law apply to vertical restraints in agreements concluded by public entities?
The ICL is applicable to all undertakings. Meanwhile article 1(5) of the ICL further delineates undertakings as any individual or business entity, either incorporated or not incorporated as a legal entity, established and domiciled or conducting activities within the jurisdiction of the state of Indonesia, either individually or jointly based on agreement, conducting various business activities in the economic sector. Therefore, vertical restraint agreement is binding on all parties, including publicly traded companies or state-owned companies.
Do particular laws or regulations apply to the assessment of vertical restraints in specific sectors of industry (motor cars, insurance, etc)? Please identify the rules and the sectors they cover.
There are no industry-specific provisions or defence applicable under the ICL, except for small businesses and certain forms of cooperatives.
Are there any general exceptions from antitrust law for certain types of agreement containing vertical restraints? If so, please describe.
Exceptions or exemptions can be found in article 50 of the ICL, which includes agreements or activities:
- intended to implement any applicable laws and regulations;
- related to intellectual property rights;
- related to the application of technical standards of goods or services that do not inhibit or impede competition;
- involving a research cooperation agreement intended to improve the standard of life of society at large;
- international agreements that have been ratified by the government of the Republic of Indonesia;
- related to exports of goods or services that do not disrupt domestic needs and supplies;
- made by and between small business undertakings; and
- made by and between cooperatives aimed specifically at serving their members.
KPPU issues several guidelines to set conditions that need to be satisfied by undertakings to benefit from the exemptions. In several cases, there are indications that KPPU might discreetly decide whether a condition would fall into a particular exemption. Thus, it is advisable for undertakings to maintain awareness even if they are running their business as apparently falling within a particular exemption.
Types of agreement
Is there a definition of ‘agreement’ - or its equivalent - in the antitrust law of your jurisdiction?
The ICL essentially defines the term ‘agreement’ as an act of one or more undertakings to bind him or herself to one or more other undertakings under whatever names, in either written or verbal form. In cartel cases, KPPU often seem to broaden the definition of ‘agreement’, which also covers concerted practices, where it finds undertakings guilty of practising a cartel without a formal agreement.
In order to engage the antitrust law in relation to vertical restraints, is it necessary for there to be a formal written agreement or can the relevant rules be engaged by an informal or unwritten understanding?
In some cases related to vertical restraint, KPPU has typically relied on a formal written agreement, such as a distributorship agreement. However, as often applies in cartel cases, KPPU may expand the definition of ‘agreement’ into concerted practices that focus on the existence of any ‘parallel conduct’, ‘concerted action’ or ‘following the leader’. Important to note, however, is the fact that KPPU decided that PT Tirta Investama (Tirta), a bottled mineral water manufacturer, together with PT Balina Agung Perkasa, the distributor, violated the vertical restraints articles (ie, through exclusive dealing and by prohibiting Tirta’s outlet from selling a certain competitor’s product despite there being no agreement between Tirta and Balina).
Parent and company-related agreements
In what circumstances do the vertical restraints rules apply to agreements between a parent company and a related company (or between related companies of the same parent company)?
Currently, there are no specific implementing regulations or guidelines from KPPU related to agreements between a parent company and a related company. However, since its application to the Temasek case, KPPU has consistently applied the single economic entity doctrine (SEE) in its antitrust assessments, including, but not limited to, its competition litigation cases and merger notifications. It is worth noting that in the Temasek case decision, KPPU adopted Alison Jones and Brenda Sufrin’s approach to the definition of SEE and quoted it as: ‘a theory viewing a parent and subsidiary relation of which the subsidiary has no independence to determine the company’s policy as an integrated economic entity’.
However, the above is unlikely to be applicable to an undertaking holding a dominant position and access to an essential facility in the respective relevant market. The deal between PT Garuda Indonesia Tbk (Garuda), a national flag-carrier and the owner of 95 per cent of the shares of PT Abacus Indonesia (Abacus), an Abacus system provider, and Abacus, regarding ticket distribution within Indonesia that can only be managed by dual access through the Abacus terminal, examined in 2003 by KPPU (Garuda/Abacus) is a broad example of this. In the Garuda/Abacus case, instead of KPPU considering Garuda and Abacus as a single economic entity owing to Garuda’s ownership of Abacus, KPPU declared that Garuda had violated the vertical restraints provisions under articles 14 and 15(2) of the ICL. Article 14 of the ICL prohibits vertical integration that causes anticompetitive outcomes. Garuda has been considered to be violating this provision by imposing a requirement for travel agents to use the Abacus system in order to act as Garuda’s domestic flight agents. Article 15(2) of the ICL essentially prohibits undertakings from entering into a tying agreement. Garuda’s action to require its agents to purchase the Abacus system in addition to the ARGA system has been considered as violating article 15(2) of the ICL.
The vertical restraints provisions are silent on the definition of a related company. Nevertheless, such a concept may mimic the affiliates concept (described at length under KPPU Regulation No. 2 of 2013 regarding the Third Amendment of Guidelines of Mergers, Consolidations and Acquisition (KPPU Regulation No. 2/2013)) that is a relationship (i) of inter-companies, within which companies are directly or indirectly controlling or controlled by one company, and (ii) between two companies that are controlled, either directly or indirectly, by the same party (horizontal relationship). Meanwhile, a ‘controlling company’ refers to an undertaking owning more than 50 per cent of the shares or voting rights in a company, or less than 50 per cent of the shares or voting rights in a company when still able to influence and determine the management policy of the company or influence and determine the management of the company.
In what circumstances does antitrust law on vertical restraints apply to agent-principal agreements in which an undertaking agrees to perform certain services on a supplier’s behalf for a sales-based commission payment?
In general, according to article 50(d) of the ICL, such agent-principal agreements are exempt from the application of the ICL.
Where antitrust rules do not apply (or apply differently) to agent-principal relationships, is there guidance (or are there recent authority decisions) on what constitutes an agent-principal relationship for these purposes?
The ICL sets an exemption for ‘agreement for agency purposes which does not prohibit the agent to resupply the contracted goods or services with prices lower than the agreed prices’. In KPPU Regulation No. 7 of 2010 regarding the guideline on the exemption of agency agreement, KPPU sets the conditions for an agency agreement that can benefit from the exemption as follows:
- the agent acts for and on behalf of the principal;
- the selling price is determined by the principal;
- the principal will take responsibility for agreements entered into by the agent and third party;
- the principal is a controlling party; and
- the agent receives commission or salary from the principal.
Agency agreements that fail to meet the above conditions are excluded from the exemption of article 50(d).
Intellectual property rights
Is antitrust law applied differently when the agreement containing the vertical restraint also contains provisions granting intellectual property rights (IPRs)?
KPPU Regulation No. 2 of 2009 on the guideline for the exemption of IPR-related agreements stipulates the exemptions on agreements related to IPRs. However, these exemptions are not absolute; that is, to be exempted under this provision, an agreement must fulfil the following requirements:
- exemption must be applied only for an issue that is not categorised as ‘essential facilities’;
- the agreement must be a licensing agreement related to IPR;
- the agreement must fulfil all requirements as stipulated by laws and regulations (ie, registered with the Directorate General of Intellectual Property Rights); and
- the agreement must not contain any anticompetitive clauses.
Analytical framework for assessment
Analytical framework for assessment
Explain the analytical framework that applies when assessing vertical restraints under antitrust law.
When assessing vertical restraint under the ICL, KPPU should undertake an analysis of whether all the elements of the related ICL article have been fulfilled. KPPU should know the facts concerning the vertical restraint background and also the implications of the agreement for all parties. Further, the KPPU should stress its analysis of market structure and whether a dominant undertaking has the ability to abuse its market power. 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.
According to KPPU’s guideline on article 15 of the ICL, a closed agreement will be declared a violation of article 5 of the ICL if the following conditions are met:
- such closed agreement should substantially or potentially reduce the volume of trade;
- the closed agreement has been made by undertakings that have market power and the market power can be increased owing to the closed agreement;
- in a tying agreement, the tying products should be different from the main product; and
- a tying undertaking should have significant market power in order to force buyers to buy the tying products.
The ICL considers RPM (article 8), vertical integration agreement (article 14) and market control (article 19) as rule of reason analysis. In order to declare a violation of such articles, the vertical restraint must be proved by (i) the emergence of a negative impact on the market, and (ii) the motive and economic benefits gained by the undertaking to carry out such restraint.
To what extent are supplier market shares relevant when assessing the legality of individual restraints? Are the market positions and conduct of other suppliers relevant? Is it relevant whether certain types of restriction are widely used by suppliers in the market?
Vertical restraint may be used by an undertaking as a wholesaler to the distributor. In these cases, identifying both undertakings’ market share is relevant to determine whether the vertical restraint will reduce competition substantially. For example, wholesaler A, which has a dominant market share, made an exclusive agreement with X as distributor. Competitors of X will have difficulty in obtaining A’s supplies. On the other hand, if X also has a dominant market share, the competitor of A will also have difficulty in selling their products. With the exclusive agreement, A and X would create additional cost and supply constraints for competitors in both relevant markets.
To what extent are buyer market shares relevant when assessing the legality of individual restraints? Are the market positions and conduct of other buyers relevant? Is it relevant whether certain types of restriction are widely used by buyers in the market?
See question 16. To date there has been no case on vertical constraint in the online sales market.
Block exemption and safe harbour
Is there a block exemption or safe harbour that provides certainty to companies as to the legality of vertical restraints under certain conditions? If so, please explain how this block exemption or safe harbour functions.
There is neither block exemption nor safe harbour applied for any antitrust provisions under the current ICL. However, on the contrary, KPPU Regulation No. 5 of 2011 concerning guidelines for article 15 on Exclusive Dealing (KPPU Regulation No. 5/2011) sets out, without the need for further evidence, exclusive dealing that has met the criteria to be declared a violation of article 15 of the ICL as follows:
- such closed agreement should substantially reduce the volume of trade;
- exclusive dealing has been made by undertakings that have market power and the market power can increase owing to the closed agreement. An undertaking is considered as having market power if the undertaking has a market share of 10 per cent or more;
- in a tying agreement, the tying products should be different from its main product; and
- a tying undertaking should have significant market power in order to force buyers to buy the tying products. The value of market power is having market share of 10 per cent and above.
Despite the rise of online markets, there have up to now been no specific regulations regulating online markets or case precedents involving online markets in vertical restraint matters.
Types of restraint
Assessment of restrictions
How is restricting the buyer’s ability to determine its resale price assessed under antitrust law?
Based on KPPU Regulation No. 8/2011, the ICL only prohibits minimum resale price and does not prohibit maximum resale price and specified resale price that can cause unfair business competition. The risk of violation or RPM will be higher if the supplier has a dominant position in the market.
Have the authorities considered in their decisions or guidelines resale price maintenance restrictions that apply for a limited period to the launch of a new product or brand, or to a specific promotion or sales campaign; or specifically to prevent a retailer using a brand as a ‘loss leader’?
According to publicly available information and based on decisions published on the KPPU’s website, there have been no precedents for, or investigations of, such specific matters. The same goes for guidelines or regulations. KPPU Regulation No. 8/2011, nevertheless, does not prohibit the application of maximum and specified RPM, as these will potentially benefit consumers. Yet caution must be applied to the specified resale price, as KPPU may see this as a facilitating device for a cartel.
Have decisions or guidelines relating to resale price maintenance addressed the possible links between such conduct and other forms of restraint?
Yes, KPPU Regulation No. 8/2011 addresses possible links to:
- abuse of dominant position (article 25 of the ICL);
- minimum RPM that will have a significant impact if it was set up by a seller, supplier or buyer who has dominant market share;
- price-fixing (article 5 of the ICL);
- minimum RPM carried out by an undertaking to facilitate collusion;
- price-fixing in an agency framework (article 50(d) of the ICL); and
- minimum RPM being used for price-fixing in the agency framework.
Have decisions or guidelines relating to resale price maintenance addressed the efficiencies that can arguably arise out of such restrictions?
KPPU Regulation No. 8/2011 and the precedent in the Semen Gresik case (2005) are both silent on the efficiency aspect.
Explain how a buyer agreeing to set its retail price for supplier A’s products by reference to its retail price for supplier B’s equivalent products is assessed.
There are currently no exact guidelines provisioning the pricing relativity agreement. However, as a rule of thumb, the buyer must be free to set the retail price to the consumer. In this particular circumstance, the price-fixing behaviour of the hypothetical buyer colluding with supplier A’s product and fixing the price would be likely to violate article 5 of the ICL on price-fixing.
Explain how a supplier warranting to the buyer that it will supply the contract products on the terms applied to the supplier’s most-favoured customer, or that it will not supply the contract products on more favourable terms to other buyers, is assessed.
When suppliers provide a better service in terms of price and services to certain buyers only, this may raise concern regarding discriminatory conduct against other buyers. Discriminatory behaviour by suppliers to certain buyers is prohibited by the ICL. The anticompetitive impacts of the supplier’s conduct must depend on whether discriminatory conduct has any legal, social, economic, technical or other justification. The suppliers’ market power will be considered because the more powerful the supplier, the more the supplier will use their market power to exercise the market and put buyers in a disadvantageous position.
Explain how a supplier agreeing to sell a product via internet platform A at the same price as it sells the product via internet platform B is assessed.
In this case, theoretically speaking, it is understandable when a supplier sets the same price on platform A and platform B as long as the price is a reasonable one. Reasonable price means that the price set by suppliers is the normal price, instead of the monopoly price. Hence, it is possible for pricing on platform A to be equal to that on platform B. Furthermore, the supplier must be able to show that it does not engage in any discriminatory behaviour against any particular platform. Here, KPPU would most likely focus on the important rules in discriminatory conduct, including, but not limited to:
- whether there are any differences in the treatment of certain undertakings in the relevant market;
- market dominance of the suppliers or buyers, or both;
- whether the different requirements are not justifiable in terms of, among others, legal, social, economic, technological or other acceptable reasons; and
- discriminatory effects that will cause unfair business competition.
Explain how a supplier preventing a buyer from advertising its products for sale below a certain price (but allowing that buyer subsequently to offer discounts to its customers) is assessed.
This condition depends, among other things, on the market dominance of both the supplier and the buyer. KPPU may consider this practice as a type of RPM and, provided there is no economic justification that such RPM policy is pro-competitive, KPPU may well see such as an alleged violation of the ICL.
Explain how a buyer’s warranting to the supplier that it will purchase the contract products on terms applied to the buyer’s most-favoured supplier, or that it will not purchase the contract products on more favourable terms from other suppliers, is assessed.
This depends on the ability of buyers in the market. As long as the buyer has a dominant market share in the market, then the buyer will be able to ask suppliers to supply products to a specific buyer. This condition will create discrimination against other buyers, who will receive different treatment. The anticompetitive impacts of the buyer’s conduct shall depend on whether such discriminatory conduct has any legal, social, economic, technical or other justification. The buyer’s market power will be considered because the more powerful the buyer, the more it will use its market power to influence the market and put suppliers in a disadvantageous position.
Restrictions on territory
How is restricting the territory into which a buyer may resell contract products assessed? In what circumstances may a supplier require a buyer of its products not to resell the products in certain territories?
This type of restriction is prohibited by the ICL and is per se illegal. The ICL prohibits an undertaking from entering into an agreement with another undertaking by which the first undertaking imposes terms on the second undertaking in which the second undertaking receiving goods or services is required to supply or not to resupply the goods or services to certain parties or certain places. On the other hand, KPPU Regulation No. 5/2011 states that exclusive dealing may have positive and negative impacts on competition. Based on the positive impacts caused by exclusive dealing, an undertaking will not automatically be alleged to be violating the ICL. KPPU will undertake further analysis to determine whether exclusive dealing results in a positive or negative impact on competition. Again, in exclusive dealing, market power plays an important role in determining whether the agreement raises competition issues.
Have decisions or guidance on vertical restraints dealt in any way with restrictions on the territory into which a buyer selling via the internet may resell contract products?
KPPU has not taken any decisions or issued guidelines with regard to this specific issue.
Restrictions on customers
Explain how restricting the customers to whom a buyer may resell contract products is assessed. In what circumstances may a supplier require a buyer not to resell products to certain resellers or end-consumers?
This case is also considered as exclusive dealing; see question 28.
Restrictions on use
How is restricting the uses to which a buyer puts the contract products assessed?
No decisions have been rendered or guidelines issued by the KPPU to address this specific issue.
Restrictions on online sales
How is restricting the buyer’s ability to generate or effect sales via the internet assessed?
KPPU has not taken any decisions or issued guidelines regarding this specific issue.
Have decisions or guidelines on vertical restraints dealt in any way with the differential treatment of different types of internet sales channel? In particular, have there been any developments in relation to ‘platform bans’?
The vertical restraints guidelines are applicable to all sectors on all platforms. However, to date there have been no decisions involving the internet sales channel.
Selective distribution systems
Briefly explain how agreements establishing ‘selective’ distribution systems are assessed. Must the criteria for selection be published?
This agreement may be considered an exclusive dealing agreement. In terms of a distribution scheme, products may only be distributed to one or several companies, such as the main distributor, authorised dealers, a shop and end-consumers. If selective distribution were to raise efficiency issues for the company and customers, the agreement would be more likely to be considered as not opposing the ICL. KPPU will undertake further analysis to determine whether exclusive dealing results in a positive or negative impact on competition. Again, in exclusive dealing, market power plays an important role in determining whether the agreement raises any anticompetitive issues.
Are selective distribution systems more likely to be lawful where they relate to certain types of product? If so, which types of product and why?
Yes, selective distribution is lawful - such as in electronic appliances, motor vehicles (motors, cars), heavy equipment (mining cars and trucks) and other high-technology utility products. The manufacturers will require local companies to act as sole agent, main dealer and dealers. Exclusive agreements between manufacturers and dealers will increase the economies of scale of each party, while reducing the element of uncertainty in the distribution process.
In selective distribution systems, what kinds of restrictions on internet sales by approved distributors are permitted and in what circumstances? To what extent must internet sales criteria mirror offline sales criteria?
The vertical restraints guidelines are applicable to all sectors on all platforms. However, there has to date been no decision involving this issue.
Has the authority taken any decisions in relation to actions by suppliers to enforce the terms of selective distribution agreements where such actions are aimed at preventing sales by unauthorised buyers or sales by authorised buyers in an unauthorised manner?
KPPU has not taken any decisions regarding this specific issue.
Does the relevant authority take into account the possible cumulative restrictive effects of multiple selective distribution systems operating in the same market?
KPPU has not taken any decisions or issued guidelines regarding this specific issue.
Has the authority taken decisions (or is there guidance) concerning distribution arrangements that combine selective distribution with restrictions on the territory into which approved buyers may resell the contract products?
KPPU has not taken any decisions or issued guidelines regarding this specific issue.
How is restricting the buyer’s ability to obtain the supplier’s products from alternative sources assessed?
This agreement may raise competition issues where buyers may not purchase the same or similar goods or services from another undertaking that became a competitor of the supplier undertaking and that included a clause about price and discount from supplier to buyers. KPPU will undertake further analysis to determine whether exclusive dealing results in a positive or negative impact on competition. Again, in exclusive dealing, market power plays an important role in determining whether the agreement raises competition issues.
How is restricting the buyer’s ability to sell non-competing products that the supplier deems ‘inappropriate’ assessed?
KPPU has not provided any guidelines about this specific issue. Furthermore, there is no precedent on this specific issue.
Explain how restricting the buyer’s ability to stock products competing with those supplied by the supplier under the agreement is assessed.
See question 40.
How is requiring the buyer to purchase from the supplier a certain amount or minimum percentage of the contract products or a full range of the supplier’s products assessed?
Firstly, the market dominance and market power of both the buyer and supplier need to be determined, as those are crucial in deciding whether the agreement raises competition issues. The buyer’s position, if there is a requirement to purchase a certain amount of the contract products, depends on the characteristics and value of the products. However, if the number of sales of contract products is not significant, then the buyer should have the ability to buy other products with significant sales value. The requirement may raise competition issues because, according to the law, the undertaking is prohibited from creating a requirement that the buyer must be willing to buy goods and or services from the supplier. KPPU will undertake further analysis to determine whether such an arrangement will result in a positive or negative impact on competition.
Explain how restricting the supplier’s ability to supply to other buyers is assessed.
See question 16.
Explain how restricting the supplier’s ability to sell directly to end-consumers is assessed.
There is no provision in the ICL that prohibits suppliers from selling products directly to end-consumers. It depends upon the ability of the company in the form of capital and human resources in making direct sales to end-consumers. Direct sales to the end-consumer may increase consumer benefits by cutting the distribution cost. This is as in a case handled by KPPU, where KPPU sought to reduce the cost from the distribution chain.
Have guidelines or agency decisions in your jurisdiction dealt with the antitrust assessment of restrictions on suppliers other than those covered above? If so, what were the restrictions in question and how were they assessed?
KPPU has not taken any decisions regarding this, other than those covered above.
Outline any formal procedure for notifying agreements containing vertical restraints to the authority responsible for antitrust enforcement.
This is not applicable under the current ICL. The procedure of leniency shall be further defined with a KPPU regulation under the draft amendment to the ICL.
If there is no formal procedure for notification, is it possible to obtain guidance from the authority responsible for antitrust enforcement or a declaratory judgment from a court as to the assessment of a particular agreement in certain circumstances?
This is not applicable under the current ICL. The procedure of leniency shall be further defined with a KPPU regulation under the draft amendment to the ICL.
Complaints procedure for private parties
Is there a procedure whereby private parties can complain to the authority responsible for antitrust enforcement about alleged unlawful vertical restraints?
Under the current ICL and its subsequent regulations, private parties may file a complaint (or a report) to KPPU with the following procedures:
- submission of a report on an alleged violation or violations: the submission can be done at any time and there is no particular form that the reporting party needs to fill in or structure that needs to be satisfied. The report must be addressed to the chairperson of the KPPU and must satisfy the administrative requirements, such as clear identities of the reporting and reported parties, any possible witnesses and preliminary evidence, and such report must be within the KPPU’s jurisdiction; and
- clarification of a report on an alleged violation or violations: this is the stage at which the report will be administratively assessed by the report clarification team.
If all the requirements are satisfied, the report will proceed to the investigation process, a stage at which the assigned investigators shall acquire at least two pieces of evidence of violation of the ICL. If the requirements during the investigation process are fulfilled, the report will become a case and an examination hearing will be commenced.
The investigators shall report their investigation to the commission assembly no later than 60 working days from the date of record in the investigation registration book. The commission assembly may extend the investigation period for a maximum of 60 working days after the end of the investigation. An undertaking that has allegedly violated the ICL will be named as the ‘reported party’.
Preliminary examination stage
The commission council will summon the reported parties and the investigators will then read the report on the alleged violations. The reported parties are allowed to submit a defence and a list of witnesses, experts and any other relevant documents. The hearing will be open to the public unless there are confidential issues that will be presented by the parties before the commission council. The examination must be concluded no later than 30 working days after it started. Within such period, the commission council and the registrar will draft a report on the preliminary examination (the preliminary examination report), which is presented to the commission assembly.
Further examination stage
The commission assembly will determine a further examination schedule. In this phase, the commission council will examine the evidence presented by the investigators and the reported party. The commission council will summon all the witnesses and experts to testify at the hearing. The reported party shall be duly informed of the hearing schedules in the further examination stage. The investigators and the reported party may cross-examine the witnesses and experts. Before further examination ends, the commission council will allow the investigators and the reported party a chance to present their written conclusion. Further examination shall end 60 working days after it began, and can be extended for a period of 30 working days.
Commission council hearing and commission’s decision
Following a further examination stage, the commission council must be held within 30 working days of the end of the further examination period.
How frequently is antitrust law applied to vertical restraints by the authority responsible for antitrust enforcement? What are the main enforcement priorities regarding vertical restraints?
Cases investigated by KPPU are still dominated by bid-rigging cases, and there has recently been a small increase in cartel cases. The number of vertical restraint-related cases, however, remains very low. Few cases were related to tying or bundling provisions.
What are the consequences of an infringement of antitrust law for the validity or enforceability of a contract containing prohibited vertical restraints?
Theoretically speaking, a contract containing a prohibited vertical restraint should not be null and void as a whole; only the related clauses should be declared null and void. However, the ICL grants authority to KPPU to revoke an agreement that contradicts provisions under the ICL. This authority gives the possibility for KPPU to revoke the whole agreement, and there are precedents for this in several cases, although some of these have been dismissed by the higher courts.
May the authority responsible for antitrust enforcement directly impose penalties or must it petition another entity? What sanctions and remedies can the authorities impose? What notable sanctions or remedies have been imposed? Can any trends be identified in this regard?
KPPU may directly impose administrative sanctions to undertakings found guilty of violating the ICL. It may pass such orders as it deems fit, including annulment or adjustment of agreements or an order to discontinue any practice considered as monopolistic or unfair. KPPU may also impose a penalty upon each undertaking involved in such violation, of up to 25 billion rupiah respectively.
Investigative powers of the authority
What investigative powers does the authority responsible for antitrust enforcement have when enforcing the prohibition of vertical restraints?
KPPU has the authority to receive complaints, summon parties and witnesses, make conclusions from investigations and hearings, request statements or clarification from related government institutions, determine and stipulate the existence of losses on undertakings or society, and impose administrative sanctions. The investigative powers are set out in broad wording, such as:
- ‘conduct research’;
- ‘conduct investigation’; and
- ‘obtain, examine or evaluate’ letters, documents or other instruments of evidence.
Currently, KPPU has no authority to conduct search and seizure, dawn raids or other commanding investigative powers. These may be amended once the new draft is passed.
To what extent is private enforcement possible? Can non-parties to agreements containing vertical restraints obtain declaratory judgments or injunctions and bring damages claims? Can the parties to agreements themselves bring damages claims? What remedies are available? How long should a company expect a private enforcement action to take?
Private parties may file a report and seek damages. However, in such cases, the onus is on the plaintiff to provide sufficient evidence of the offence and not on KPPU. The procedures for filing a report and seeking damages are generally similar, except that the plaintiff or reporting party will deal directly with the reported party and KPPU will sit as the judges.
Is there any unique point relating to the assessment of vertical restraints in your jurisdiction that is not covered above?
Update and trends
What were the most significant two or three decisions or developments in this area in the last twelve months?
There were no vertical agreement cases decided by KPPU in 2018. However, it is interesting to see KPPU’s decision in late 2017 in the telecommunication sector. PT Telekomunikasi Indonesia Tbk (Telkom), a state-owned telecommunication company, was allegedly tying their fixed line (the service that was no longer preferable by their customers), with their internet and internet protocol television services (the more favoured ones), across Indonesia so that they were offered as a pure bundled product. Such programme was then allegedly used to abusively maintain Telkom’s domination by exploiting their customers. However, KPPU later took Telkom’s defence that, aside from offering the bundle programme, they still offered their customers each product separately. Consequently, their customers had the option to buy either the bundled product or each product individually. Considering such finding during the examination process, KPPU concluded that this kind of offer was not considered as pure bundling but merely as a mixed one; accordingly, there was no customer exploitation in this case since the customers’ ability to choose still prevailed. This also cleared KPPU’s initial allegation that Telkom has abused its dominance. With this case, we can see that customers’ ability to choose is among KPPU’s concerns in deciding a tying and bundling case.
As has been widely understood, the ICL is currently being amended. Considering the amendment process has been going on for quite some time, and that the general election will take place in the second quarter of 2019, parliament is expecting the new law to be enacted during the first quarter of 2019. Unfortunately, according to the publicly available draft, there will be no changes to the substantive provisions. Consequently, the enforcement of the amended law may still deal with the same issues as the current law, such as interlocking directorship, cross-ownership and merger control provisions, all of which currently sit within abuse of dominant position, and price discrimination, which sits within prohibited agreements.
Some related significant changes in the draft amendment include:
- changes to administrative fines, from a cap of 25 billion rupiah to 30 per cent of the turnover generated during the alleged period of violation;
- implementation of a criminal sanction for obstruction of justice and failure to comply with a final and binding KPPU decision;
- KPPU’s possibility to recommend business permit revocation to government institutions and to impose debarment or suspension to participate in tenders during a certain period;
- a mandatory premerger clearance, contrary to the existing mandatory post-merger notification regime; and
- a prohibition to abuse bargaining position in a partnership scheme.
The national police will process the criminal sanction, since KPPU is not authorised to execute criminal sanctions.
Aside from the above, under the draft law, businesses may have the option to enrol in the leniency programme whenever it suits them. The detailed procedure and fine reduction of the leniency programme still remain unknown since these will be further regulated by KPPU regulation. Once the new law is implemented, according to the public draft law, KPPU will have power to stop an ongoing examination and propose behavioural remedies if an offender pleads guilty. Nevertheless, it is still unclear whether such proposal, if agreed by KPPU, is final and binding, and whether such behavioural remedies will be applicable to all anticompetitive practices.