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What is the legal framework in your jurisdiction covering the behaviour of dominant firms?
Saudi Arabia adopted a Competition Law in 2004 (Royal Decree No. M/25 04/05/1425H (22/06/2004G) (as amended) (the Competition Law) and its associated Regulations and Competition Rules (Resolution No. 126 04/09/1435H (01/07/2014G) (the Regulations). Together these comprise Saudi Arabia’s Competition Law regime. This regime is enforced by the Competition Council, which has additionally issued a number of guidance rules to assist with necessary procedural aspects and guidelines, which are designed to help raise awareness of and help businesses comply with the Competition Law and Regulations.
This regime applies to all firms (with the exception of public corporations and fully state-owned enterprises) doing business in Saudi Arabia. It is concerned with three main separate but connected issues:
- restrictive practices (conduct no firm may engage in);
- restrictions imposed on businesses in a dominating position; and
- restrictions on economic concentrations.
A firm is widely defined as a factory, corporation or company owned by natural or corporate persons and all groupings practising commercial, agricultural, industrial or service activities or selling and purchasing commodities and services.
Definition of dominance
How is dominance defined in the legislation and case law? What elements are taken into account when assessing dominance?
A dominating position is subject to a two-limb definition. It comprises:
- an entity or group of entities has sales of at least 40 per cent of total sales in the market for a period of 12 months; or
- an entity or group of entities being in a position to influence the prevailing price in the market at any time.
Only sales within Saudi Arabia will be considered when calculating whether the 40 per cent threshold is reached. While the first limb applies expressly to sellers the second limb has the potential to include purchasers as well.
The rules governing dominating position provide that in determining whether a firm is in a dominating position the Competition Council shall consider the relevant market in terms of the product, functional level and geographic area, the market share of the relevant firm, the level of actual or potential competition and any barriers to the entry of competitors to the market.
Firms are not prohibited from having a dominating position, but are prohibited from the abuse of a dominant position.
Purpose of legislation
Is the purpose of the legislation and the underlying dominance standard strictly economic, or does it protect other interests?
The broad aims of the Competition Law are stated to be to protect and encourage fair competition and combat monopolistic practices that affect competition. The Competition Law and Regulations seek to achieve this through a number of mechanisms:
- first by prohibiting agreements and arrangements between firms if their objective or effect is to restrict commerce or competition;
- second by restricting the ability of a firm to acquire a dominating position in the market; and
- finally by making abuses of a dominating position by a firm illegal.
Sector-specific dominance rules
Are there sector-specific dominance rules, distinct from the generally applicable dominance provisions?
Saudi Arabia prohibits foreign investment in a range of sectors. Known as the Negative List, these range from real estate in Madinah and Makkah to recruitment and printing to poison centres. The full list can be obtained from the Saudi Arabian General Investment Authority at www.sagia.gov.sa. Nevertheless, local investment in Negative List activities remains subject to the requirements of the Competition Law.
Exemptions from the dominance rules
To whom do the dominance rules apply? Are any entities exempt?
Public corporations (ie, government entities) and fully owned state enterprises are exempt from the Competition Law.
Firms can apply to the Competition Council for an exemption. An exemption may be granted if it can be established that the practices benefit the consumer and that this benefit outweighs the restriction on competition. Such exemptions will not be granted for prohibited activities for firms with a dominating position.
Transition from non-dominant to dominant
Does the legislation only provide for the behaviour of firms that are already dominant?
The Competition Law provides for the potential for a firm to become dominant as the 40 per cent criteria (see question 2) is assessed on a 12-month basis.
The law is drafted to catch a wide range of anticompetitive practices; some (such as price-fixing) are presumed always to be anti-competitive. The Competition Law provides (article 4) that ‘practices, agreements or contracts among current or potential competing firms, whether the contracts are written or verbal, expressed or implied, shall be prohibited if the objective . . . or their effect is the restriction of commerce or the violation of competition between firms.’
There are also controls on attempts on economic concentration which is considered to take place when a merger, takeover, acquisition or combination of management results in the acquisition of a dominating position. Where this is expected to occur a written request must be made to the Competition Council detailing the consequences of the economic concentration and any positive effect it will have on the market.
Is collective dominance covered by the legislation? How is it defined in the legislation and case law?
The definition of a dominating position in the Competition Law covers a firm acting alone or in concert with other firms.
Does the legislation apply to dominant purchasers? Are there any differences compared with the application of the law to dominant suppliers?
The definition of a firm in the Competition Law states that it applies equally to sellers and purchasers. As per question 2 there is a two-limb definition of a dominating position. While the first limb (40 per cent sales) applies expressly to sellers, the second limb (ability to influence prevailing price) has the potential to include purchasers as well.
Market definition and share-based dominance thresholds
How are relevant product and geographic markets defined? Are there market-share at which a company will be presumed to be dominant or not dominant?
Relevant markets under the Competition Law comprise two elements, relevant products and geographical area. Products or ‘commodities’ are defined as a good or service or a combination thereof which ‘in terms of price, characteristics and uses, substitute each other to meet a specific consumer need in a given geographic area of homogenous competition conditions’.
See question 2 for more details on the definition of a dominant position.
Abuse of dominance
Definition of 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.
Exploitative and exclusionary practices
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.
Link between dominance and abuse
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.
Specific forms of abuse
Types of conduct Types of conduct
Article 5(1) of the Competition Law and article 7(2) of the Regulations prohibit the commission of any act that would hinder the entry of a competitor into the market, force it out or expose it to losses. Therefore, the effect of any rebate scheme would be considered and to the extent the scheme could be seen to fall under this provision it could be considered an abuse. This is particularly so if the scheme resulted in products being sold at a loss.
Tying and bundling
Article 5(3) of the Competition Law prevents the imposition of special conditions on the supply of a good or service. Further the Regulations at article 7(10) prohibit firms from making the sale of a good or the offer of a service contingent of the purchase of another good or service or any specific quantity of goods and services.
Where a dominating position exists exclusive dealing would be considered contrary to article 7(10) of the Regulations (compelling or agreeing with a client to refrain from dealing with a competing entity).
Predatory pricing is prohibited through article 5(1) of the Competition Law (a prohibition on the sale of a good or service below cost with the intention to force competitors from the market).
Price or margin squeezes
Price or margin squeezes are prohibited by article 4(1) of the Competition Law (a prohibition on the control of the prices of goods and services).
Refusals to deal and denied access to essential facilities
There are a number of separate prohibitions that cover refusals to deal and denial of facilities.
Article 4 of the Competition Law prohibits the deprivation of goods and services available in the market (4(5)) and the freezing or restricting of manufacturing, distribution, development or marketing (4(8)). Refusing to deal with another firm in order to prevent its entry into the market is prohibited by article 5(4) of the Competition Law. Article 7 of the Regulations prevents firms in a dominating position from seeking to monopolise materials necessary to another firm (7(8)) and refusing to deal with a specific client (without good cause) under normal commercial terms (7(9)).
Predatory product design or a failure to disclose new technology
Predatory product design or failures to disclose new technology are not specifically referred to under the Competition Law or the Regulations. However, they could be considered caught by article 7(8) of the Regulations (prohibition on the monopolisation of certain materials). The restrictions in the Competition Law and Regulations are not exhaustive and to the extent product design or failure to disclose new technology had a negative impact on competition in Saudi Arabia it might be considered a potential form of abuse. The extent to which this would apply would depend on the specific facts of the matter.
There is potential for price discrimination, if it occurs in the context of a dealing with a Saudi government entity, to give rise to breaches of the Saudi government’s Tenders and Procurements Law regime as well as the procurements regimes of particular Saudi government-owned entities.
Exploitative prices or terms of supply
Unfair pricing is prohibited by article 4(1) of the Competition Law (the control of prices of goods and services) and article 7(1) of the Regulations also prohibits price-fixing and the imposition of minimum prices or terms of resale.
Abuse of administrative or government process
This avenue of abuse is not specifically referred to in the Competition Law or Regulations. However, the examples listed in the Competition Law and Regulations are not exhaustive and such practices could be considered an abuse of position. In any event, attempts to exclude a competitor from a market or to increase their costs are both specifically contrary to the provisions of both the Competition Law and Regulations.
Mergers and acquisitions as exclusionary practices
Firms involved in merger discussions or desiring to acquire assets, shares etc, which will result in them having a dominating position are required to notify the Competition Council at least 60 days in advance. A similar requirement applies to firms wanting to combine different managements into one if that will result in a dominating position.
The Competition Council will review all necessary information before deciding whether to approve or not allow the proposed merger and will give reasons.
The prohibitions on restrictive practices and abuse of a dominating position as set out in the Competition Law and Regulations are non-exhaustive. Therefore, it is possible for a firm to commit an abuse that is not specified in the legislation. In reviewing whether or not an abuse has occurred, the Competition Council will consider the impact of the actions on competition within the market.
Which authorities are responsible for enforcement of the dominance rules and what powers of investigation do they have?
The Competition Council is the responsible enforcement authority. Investigations may be initiated following the receipt of a complaint of on the Council’s own initiative. If, on their investigation, they believe a breach of the Competition Law has occurred it will allow the firm concerned an opportunity to defend their position.
Sanctions and remedies
What sanctions and remedies may the authorities impose? May individuals be fined or sanctioned?
The Competition Council may:
- require the prohibited conduct to stop, dispose of assets and take other action to remove the effects of the violation within a specific time frame; and
- impose a daily fine not less than 1,000 Saudi riyals and not more than 10,000 Saudi riyals until the violation is removed.
Sanctions for violations are determined on a case-by-case basis, which ranges between a fine not exceeding 10 per cent of the total turnover or not exceeding 10 million Saudi riyals. In the event of recurrence, the fine may be doubled. The judgment shall be published at the expense of the violator.
In all cases, the violator shall reimburse all profits achieved as a resulted of the violation.
An individual or company that suffers harm as a result of a practice prohibited by the Competition Law may file a claim for compensation with the competent court.
If the violator does not put an end to the violation after the issuance of the decision or the judgment, the Competition Council may either suspend the permitted activities of the violator or revoke its licence to carry on those activities.
Appeals against decisions of the Competition Council are to the Administrative Court.
Can the competition enforcers impose sanctions directly or must they petition a court or other authority?
The Competition Council is competent to impose sanctions directly.
What is the recent enforcement record in your jurisdiction?
There is no ‘average length of abuse of dominance proceedings’ because the length of time of an investigation will be responsive to the particular circumstances.
Information about enforcement proceedings is not made public.
Where a clause in a contract involving a dominant company is inconsistent with the legislation, is the clause (or the entire contract) invalidated?
The invalidity would apply the clause, not the contract in its entirety.
To what extent is private enforcement possible? Does the legislation provide a basis for a court or other authority to order a dominant firm to grant access, supply goods or services, conclude a contract or invalidate a provision or contract?
The Competition Council may investigate allegations of abusive conduct that have been made by third parties.
The Islamic shari’ah is the foundation of all Saudi Arabian law, and a claim for compensation could be pursued by a third party on the basis of the harm done to that party by the illegal conduct. The claim could include an application for ancillary relief.
Saudi courts do not adhere to legal precedent.
Do companies harmed by abusive practices have a claim for damages? Who adjudicates claims and how are damages calculated or assessed?
Anyone who has suffered harm as a result of an infringement of the Competition Law or Regulations may apply to the Saudi Arabian courts for compensation.
To what court may authority decisions finding an abuse be appealed?
Appeals against decisions of the Competition Council are to the Administrative Court.
Unilateral conduct by non-dominant firms
Are there any rules applying to the unilateral conduct of non-dominant firms?
Article 4 of the Competition Law prohibits practices and arrangements between competitors if their intention or effect is anticompetitive. The existence of a dominant position is not required.
There is potential for abusive conduct, if it occurs in the context of a dealing with a Saudi government entity, to give rise to breaches of the Saudi government’s Tenders and Procurements Law regime as well as the procurements regimes of particular Saudi government-owned entities.
Update and trends
Are changes expected to the legislation or other measures that will have an impact on this area in the near future? Are there shifts of emphasis in the enforcement practice – for example, that enforcement is expected to focus on a particular business sector in the time to come, or that, more generally, economic considerations are given greater weight than in the past?
35 Are changes expected to the legislation or other measures that will have an impact on this area in the near future? Are there shifts of emphasis in the enforcement practice?
The General Authority for Competition (GAC) has announced that a new Competition Law will come into force during 2019.
A draft Competition Law was approved by the Shoura Council in 2018, but unusually no consultation draft was released. The current draft was approved by the Council of Ministers on 5 March 2019, but a Royal Decree had not yet been issued, nor had any draft of the new Competition Law been made available, at the time of writing.
The information available to us indicates that a number of important changes are to be made in the new Law, including the following:
- state-owned companies will be made subject to the Competition Law regime unless they provide goods or services on an exclusive basis;
- violators will be able to obtain leniency from the GAC in return for informing on co-offenders;
- maximum fines per violation will be increased substantially;
- under the current Competition Law, a proposed merger notification must be made 60 days prior to completion (this period can be extended by another 30 days by the GAC). The notification period will be increased to 90 days prior to completion; and
- the GAC will be allowed to exempt companies in certain circumstances from provisions relating to cartel conduct, abuse of dominant position and economic concentrations provided that the relevant conduct can be shown to enhance performance of the market, enhance product quality, or enhance technical development or innovation.