Warning that commission could stifle online growth in South Africa

The Competition Commission’s final report on online markets in South Africa is “highly interventionist” and will stifle economic growth if implemented, leading competition lawyers have warned.

The report – which takes aim at successful local and international internet business, including Takealot.com, Amazon.com, Google, AutoTrader, Cars.co.za, Property24, Private Property, Uber Eats, Mr D Food, Booking.com and Netflix – was released on Monday.

Cliffe Dekker Hofmeyr director and competition law specialist Albert Aukema said it is important to consider the commission’s proposed remedial actions in context.

In 2018, the provisions of the Competition Act relating to market inquiries and the commission’s powers were amended to address the supposed historical “toothlessness” of market inquiries generally.

Previously, the commission’s powers were limited either to using the information obtained in market inquiries to pursue referrals (essentially prosecutions for well-defined competition law contraventions) against firms; or to making recommendations to the minister of trade, industry & competition – currently Ebrahim Patel – on policies that could be implemented through legislative channels.

“However, the 2018 amendments now oblige the commission to ‘take action’ to remedy, mitigate or prevent any adverse impact on competition. The requirement for a South African flag to be displayed in Google’s carousel as a remedy is a form of this action,” Aukema said.

CompCom definitions

There is a debate about the meaning of “action”, however. “While the amended Competition Act requires the commission’s remedial action to be ‘reasonable and practicable’, it does not clearly define what form this action might take. Added to this, the act doesn’t offer much in the way of enforcement to the commission for a failure to abide by the remedial actions. The act also does not make it an offence to ignore the commission’s findings, and a penalty can’t be directly imposed for a failure to do so,” he said.

Aukema said it could be argued that the commission has overextended its reach with the remedies contained in the online markets report. “There is no real legal obligation on the likes of Google to abide by the remedies.”

Read: Takealot ordered to split retail, marketplace operations

However, he said this is “quite a robust view”. The counterpoint is that it’s “unlikely the legislator went through all the trouble to amend the act to give market powers more teeth without doing so. But we certainly think the position is not clear.

“You will note that it reserves its right to approach the tribunal for an ‘appropriate order’ in instances where parties fail to abide by the obligations. What this ‘appropriate order’ might be is currently uncertain. It would most likely be an application which asks the tribunal to engage broader powers ‘to make any order necessary’ to hold the parties to the remedial findings. This would make the commission’s actions an order of the tribunal, and in those instances, were Google, for instance, to ignore it, they could be liable for an administrative penalty.”

Aukema thinks it likely that if affected parties disagree with the findings, they will appeal to the tribunal, which has the ability to consider the commission’s findings (as well as new evidence) and either confirm or overturn them. Where findings are overturned, they can either be sent back to the commission to consider anew, or simply overturned and ignored. He said there are sure to be legal challenges to some of the remedies in coming months.

However, there have been extensive engagements with stakeholders during the process and certain of the remedies may in fact be the outcome of negotiations between the parties and the commission, and so may not be challenged.

Bowmans specialist competition lawyer Lebohang Mabidikane said the nature of the remedies imposed in the final report demonstrates a “highly interventionalist approach by the commission”.

“These remedies certainly have wide-reaching consequences in that they mostly go to the core of the business models and contractual arrangements of Google, Booking.com and the others, not to mention that they will likely come at a considerable cost [to the companies].

Companies have the option to review the commission’s report in the high court or the competition appeal court

“There are questions surrounding the assessment of the perceived harm the remedies aim to cure, as well as whether the remedies are proportionate to that harm. My biggest concern is also whether innovative markets such as these will in fact benefit from these types of interventions.”

She said caution must be exercised when regulating innovative markets so that parties are not disincentivised from making the necessary technological and structural investments to grow these markets.

Read: CompCom takes aim at Uber Eats, Mr D Food

“This is the first market inquiry that has been finalised in line with the now-amended market inquiry provisions in the act. Therefore, the scope of the commission’s powers has not yet been tested. At this stage, if the commission fails to reach an agreement with the parties on these remedies, its powers are limited to initiating complaints against the specific firms involved and referring those individual complaints to the Competition Tribunal for prosecution, with the view that they be made an order of the tribunal.

Read: Property, car websites also in commission’s cross hairs

“In other words, I do not believe that the recommendations constitute an order similar to that of a tribunal or court,” Mabidikane said. “And parties have 25 business days to bring an appeal to the tribunal. They also have the option to review the commission’s report in the high court or the competition appeal court.”  — © 2023 NewsCentral Media

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