In the recent case of Computicket v the Competition Commission, the Competition Appeal Court was called upon to analyse and explain the standard that must be met to establish an exclusionary abuse of dominance under South Africa’s Competition Act. The case provides insight into important practical and policy questions – what do we mean by “anti-competitive effects” and how high is the hurdle that must be cleared to establish such effects?
The case involved exclusivity provisions in agreements between Computicket (a firm found to be dominant in the market for outsourced ticketing distributing services) and numerous inventory providers (such as theatres, sports or concert venues and events companies) that employ the services of Computicket to sell tickets to their events. The Competition Tribunal had found that Computicket’s exclusivity requirements contravened section 8(d)(i) of the Competition Act because they (1) constituted the exclusionary act of “requiring or inducing a supplier or customer not to deal with a competitor”, and (2) had anti-competitive effects which were not outweighed by technological, efficiency or other pro-competitive gains.
On appeal, Computicket disputed the Tribunal’s finding of anti-competitive effects, suggesting that the Tribunal had placed “excessive emphasis… on the experience of a “single would-be competitor”…, that was (a) not an “efficient competitor”; (b) had focused its efforts on the sale of theatre tickets (which represented no more than 3% of the opportunities in the outsourced ticketing market in the relevant period); and (c) in fact had not been excluded from participation in the relevant market”. Computicket argued that there was no actual foreclosure of a rival, and because the conduct was not shown to have a market-wide effect, the criterion of substantiality was not met.
The dispute provided occasion for the Court to set out the position under pre-existing case law on this subject, and further interpret the key concept of anti-competitive foreclosure when used in the context of exclusionary abuse of dominance in South Africa. The Court’s synopsis, found in paragraphs 25 to 38 of the judgment, is difficult to follow in places, however, our interpretation may be summarised as follows:
- There must be a causal relationship between the dominant firm’s exclusionary act and the anti-competitive effects.
- Anti-competitive effects may take the form of (1) actual harm to consumer welfare or (2) substantial or significant foreclosure of the market to rivals.
- The exclusionary conduct has the effect of foreclosure if it renders the dominant firm’s rivals less effective competitors. Put differently, the conduct must in a non-trivial way diminish the competitive constraints on the dominant firm to which it would otherwise have been subject, and thereby strengthen its dominant position.
- Foreclosure need not involve the exit of a rival from the market, and may be actual or potential.
- The inquiry of whether there has been foreclosure may require an “aggregative” examination of the market, exploring issues such as (1) the extent of the firm’s dominance, (2) the extent of sales affected by the exclusionary conduct, and (3) barriers to entry and expansion.
- However, the aggregative inquiry is not necessarily determinative. Anti-competitive effects could result from an impact on a small firm that plays an important role in constraining the dominant firm in a part of the market.
- In such circumstances, “substantiality” can be inferred. A market-wide impact need not be proved for the conduct to be “substantial or significant in terms of its effect in foreclosing the market to rivals”.
- The more substantial the exclusionary effect, the more likely it is that its impact on the market will also be substantial, and the less likely it will be outweighed by pro-competitive gains. But substantiality is not a requirement for a finding of anti-competitive effects.
- Size and efficiency of a competitor are not determinant factors in establishing likely competitive effects.
It is unclear from the judgment whether anything ultimately turned on the Court’s articulation of the subtleties within the foreclosure test. The Court found that the exclusive contracts were “substantial in terms of foreclosing the market to rivals” and “there is evidence pointing to actual harm on consumers (although the latter is not necessary to show).” This finding may well have been made even on Computicket’s formulation of the appropriate test.
Nevertheless, the case develops the test for abuse in an important way. By jettisoning Computicket’s version of substantiality, the Court seems to have lowered the bar for establishing abuse of dominance. Taken to its logical limit, the judgment could be applied to find an abuse of dominance in circumstances where conduct is likely to have a potential impact on one small, inefficient firm in one small portion of the market, provided that (1) the firm plays an important role in constraining the behaviour of the dominant firm in a part of the market, (2) the conduct renders the small firm a less effective competitor, and (3) there are no countervailing pro-competitive effects arising from the conduct.
On the one hand, the judgment does not change the law fundamentally. The exclusionary abuse provisions that apply an “effects test” for exclusionary abuse continue to do so, as is international best practice. One may argue, however, that this outcome applies a theme that is in line with the prevailing policy sentiment in South Africa, which is to strengthen the ability of competition law to address concentration in markets and to promote the ability of small firms to effectively participate.
In the context of recent changes to the Competition Act that explicitly protect small and medium sized businesses, this case gives dominant firms further cause to be increasingly vigilant in evaluating the potential effects of potential market strategies on smaller challengers.