Antitrust: restrictive agreements and dominance
Chapters 3 and 4 of the ICL regulate provisions prohibiting vertical restraint. In addition to the above, KPPU has issued several regulations serving as guidelines for interpreting provisions under the ICL.
The ICL stipulates the following specific prohibitions related 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(s) 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, 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. 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, KPPU has rarely initiated an investigation for cases related to vertical restraint prohibitions. Based on KPPU's official website, during 2018 there were only four cases resolved by KPPU and none of these cases related to restrictive business practices or dominance issues.
In 2017, KPPU issued Decision No. 22 of 2016 on an alleged vertical restraint in the bottled water industry. The reported party in the case was a distributor of bottled mineral water named Aqua. KPPU was of the view that Aqua was the largest brand of bottled mineral water in Indonesia with insignificant competitors.
KPPU found that Aqua had allegedly instructed its sub-distributor, which was the second reported party in the case, to impede the market by prohibiting its wholesalers from selling its competitors' products.
Despite claiming that it never issued the prohibition instruction, Aqua argued that unlike a principal-agent relationship, its distributor was naturally independent and could not in any way be influenced by Aqua's decision. KPPU disregarded the distributorship agreement between Aqua and its sub-distributor and concluded that their relationship was that of an agency.
In this case, KPPU also emphasised that an act of a corporate's employee can be considered as a corporate action, despite the absence of instruction from authorised officials of the company to such employee.
Aqua and its sub-distributor were found guilty and imposed with fines of 13.8 billion and 6.2 billion rupiah, respectively.ii Trends, developments and strategies
As there are hardly any decisions that relate to vertical restraint prohibition in recent years, there have been no significant developments on the enforcement of the provisions by KPPU.iii Outlook
With the rise of digital business in Indonesia, we can expect more enforcement of the provisions by 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 conducts, 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.