1. Our submissions represent the views of attorneys across the country, and in particular Gauteng, who deal with competition matters. We have consulted widely with such attorneys as well as with international legal practitioners, members of the South African Chamber of Commerce (SACOB) and the executive of Business South Africa (BSA) regarding their experiences with the application of the Competition Act, 1998 ("the Act") and the rules promulgated thereunder.
2. Although we welcome the introduction of the Act as a catalyst for achieving a healthy competition policy in South Africa, its technical provisions are flawed, giving rise to uncertainty, administrative delays and increased costs. Our concern is that the Competition Authorities may fall into disrepute if it has to enforce the Act in its present form. While addressing many of the issues of concern, the Bill in certain respects makes matters worse.
3. Our objective here is to represent the desire and need of legal practitioners to see the Act functioning properly, to reduce transaction costs and to minimize delays.
4. We attach –
1. a list of the amendments and additions proposed by the Transvaal Law Society and supported and endorsed by the Law Society of South Africa; and
2. a comprehensive memorandum setting out the basis and motivation for those proposals.
5. We have shared the comprehensive memorandum with the Competition Commission ("the Commission"), the Competition Tribunal and the Department of Trade and Industry and we have discussed some of the issues therein with the Commission. Although our members and other practitioners expressed strong views regarding certain aspects of the Bill at the Commissioner's focus group workshop, no significant changes have been made to the Bill to accommodate such concerns; accordingly, the Bill still does not address our substantive concerns as expressed in the comprehensive memorandum. It is perhaps regrettable that the Bill was not published for public comment to obtain more extensive input on its provisions.
6. Our main concerns regarding the Bill relate to the following:
1. The merger notification jurisdiction reaches too wide and creates uncertainty and an unnecessary chilling effect on ordinary commercial transactions, even small ones without any competition implications. This effect is exacerbated by the high fees payable upon filing and the long delays being experienced before approval of a transaction is granted by the Commission.
2. The usual protection afforded by other statutes and the common law to intellectual property (IP) rights are adversely impacted by the legislation.
3. Certain provisions relating to the prohibition of anti-competitive acts are too vague or expansive for effective protection whilst certain other should be expanded to give them "teeth" .
4. The Commission’s powers should be extended in relation to the granting of exemptions, issuing of comfort letters and the outsourcing of certain of their functions in order to make that authority more efficient and responsive.
5. The Bill increases the regulatory burden on small, micro and medium enterprises (SMME's), precisely those businesses which the Act should be assisting.
7. The proposed amendments and additions set out in the enclosed list are motivated by the following specific considerations:
1. The current per se prohibition on fixing trading conditions in a horizontal competitor relationship is too wide and may have the effect of outlawing benign trading conditions. The proposed changes to section 4(1)(b)(i) would restrict the prohibition to a more reasonable extent.
2. The definition of market power is too narrow and may have the effect that certain anti-competitive actions are allowed, contrary to the spirit of the legislation. We propose a more extended definition.
3. Normal exploitation of IP rights will contravene provisions of the Act unless such normal exploitation of IP rights is excluded from the ambit of the Act. The manner in which an IP owner exercises or exploits his/her IP rights has to take place in accordance with the provisions of the applicable IP statute. It would be inequitable to create a situation where the exercise of a right within the parameters of an applicable regulatory statute would constitute a contravention of another statute. Our proposed section 3(1)(d) would regulate the interface between the IP statutes and competition legislation in an equitable and workable manner by providing a basis on which the abuse of IP rights could be prevented.
4. The provisions for the exemption of agreements and practices involving certain statutory IP rights as contained in section 10(4) and 10(4A) as contemplated in paragraph 5 of the Bill, do not provide a workable solution. This section contemplates the lodging of individual applications for exemption by firms. Taking into account the numbers of patent applications, trade mark applications, design application, and other IP registrations filed annually, the number of individual applications for exemption would be prohibitive. Furthermore, the section does not cover non-statutory IP rights, such as the rights flowing from franchise agreements or technology know-how agreements. Our proposed sections 10(4) and 10(4A) attempts to remedy this situation.
5. The introduction of the concept of "significant interest" in the merger notification provisions expands the scope of this legislation too far. It would have the effect of requiring small, insignificant commercial transactions to be notified to the Commission, irrespective of whether it is accompanied by a measure of control over a firm. Apart from creating an unnecessary burden on business, this may have the result of flooding the Commission with applications. We propose that this concept be removed from the Bill.
6. There should be a category of mergers that are so small that they do not necessitate any regulatory intervention and should not occupy the Commission's time and resources. We suggest amendments to section 11 which will allow the Minister to set a threshold below which such mergers will not need to or be able to be investigated by the Commission.
7. The definition of "control" in section 12(2)(g) is so broad that it extends the jurisdiction of the Act to matters which is could never have been intended to cover, such as property transactions, portfolio investments and negative control situations. The proposed amendments to this section restrict it to a more reasonable extent.
8. In conclusion, we believe that the proposed amendments to the Bill are essential to ensure that the Act remains an effective instrument for positive economic change in South Africa and not a disincentive for international and domestic investment in the country.

The Law Society of Transvaal
Contact person : Mr PPJ Coetser
Chairman, Competition Law Committee
Date : 23 August 2000

PROPOSALS BY THE TRANSVAAL LAW SOCIETY FOR AMENDMENTS AND ADDITIONS TO THE COMPETITION SECOND AMENDMENT BILL, NO B41-2000

[strikethrough] Words in square brackets and struck out indicate omissions from the existing Competition Act, 89 of 1998 or the Competition Second Amendment Bill, 2000 ("the Bill")

__________ Words underlined with a solid line indicate insertions in the existing Competition Act, 1998 or "the Bill"

1. Section 1 of the Competition Act, 1998 is hereby amended -

(a) by the substitution in subsection (1) of the new definition of "acquiring firm" of the following definition:

"'acquiring firm' means a firm –

(a) that, as a result of a transaction in any circumstances set out in section 12, would [directly or indirectly acquire a significant interest in, or] establish direct or indirect control over, the whole or a material part of the business of another firm;

(b) that has direct or indirect control over [the whole or a part of the business of] a firm contemplated in paragraph (a); or

(c) [the whole or a material part of whose business] that is directly or indirectly controlled by a firm contemplated in paragraph (a) or (b);";

(b) by the substitution in subsection (1) for the definition of market power of the following definition:

"market power" means the power of a firm to control prices, to impose or demand other material trading conditions, to exclude competition or to behave to an appreciable extent independently of its competitors, customers or suppliers.";

(c) by the substitution in subsection (1) of the new definition of "target firm" of the following definition:

"'target firm' means a firm –

[(a) a significant interest in which would be directly or indirectly acquired by an acquiring firm as a result that a transaction in any circumstances set out in section 12;]

(a) the whole or a material part of whose business would be directly or indirectly controlled by an acquiring firm as a result of a transaction in any circumstances set out in section 12;

(b) that, as a result of a transaction in any circumstances set out in section 12, would directly or indirectly transfer [a significant interest in, or] direct or indirect control of the whole or a material part of, its business to an acquiring firm; or

(c) [a significant interest in which is directly or indirectly held, or the whole or part of whose business] that is directly or indirectly controlled, by a firm contemplated in paragraph (a), (b) or (c);";

2. Section 3 of the Competition Act, 1998 is hereby amended by the substitution in subsection (1) of paragraph (d) with the following paragraph:

"(d) The exercise, exploitation or enforcement of intellectual property rights, including, without limiting the generality of the aforegoing, a right acquired, derived or protected in terms of the Performers Protection Act, 1967 (Act No. 11 of 1967), the Plant Breeders Rights Act, 1976 (Act No. 15 of 1976), the Patents Act, 1978 (Act No. 57 of 1978), the Copyright Act, 1978 (Act No. 98 of 1978), the Trade Marks Act, 1993 (Act. No. 194 of 1993) and the Designs Act, 1993 (Act No. 195 of 1993), unless a complainant can prove or the Commission is satisfied that the exercise, exploitation or enforcement of those rights has resulted in the abuse of a dominant position."

3. Section 4 of the Competition Act, 1998 is hereby amended by the substitution in subsection (1) for paragraph (b)(i) of the following paragraph:

"(b)(i) directly or indirectly fixing a purchase or selling price, or any other material trading condition which substantially prevents or lessens competition in a market."

4. The new proposed section 6 of the Competition Act, 1998 as proposed to be amended by paragraph 4 of the Bill is hereby amended by -

(a) the substitution in subsection 4 of the words "Within six months" with the words "Within six months but not earlier than two months"; and

(b) the substitution in subsection 4 of paragraph (b) with the following paragraph:

"(b) the effective date of the threshold, which shall not be a retroactive date."

Amendment of section 10 of Act 89 of 1998 as proposed to be amended by Bill 41 of 2000

5. Section 10 of the Competition Act, 1998 as proposed to be amended by paragraph 5 of the Bill is hereby amended by -

(a) the substitution of subsection (1) with the following subsection:

"(1) A firm may apply to the Competition Commission to exempt from the application of this Chapter or Chapter 3 –";

(b) the insertion in subsection (3) after paragraph (b)(iv) of the following paragraphs:

"(v) the promotion of charitable, educational, scientific or other similar public interest causes;

(bb) afford such firm the possibility of eliminating competition in respect of a substantial part of such goods.";

(c) the substitution of subsection (7) with the following subsection:

"(7) The Competition Commission must [give notice] –

(a) publish a notice in the Gazette of any exemption granted, refused or revoked in terms of this section; and

(b) issue written reasons for such granting, refusal or revocation.";

(d) the substitution of subsection (4) with the following subsection:

"(4) [In addition to the provisions of subsections (2) and (3),] The Competition Commission may on its own initiative or on application by a firm or group of firms exempt from the application of this Chapter an agreement or practice, or category of either agreements or practices, that relates to the exercise of [a] intellectual property rights, including, without limiting the generality of the aforegoing, a right acquired or protected in term of the Performers Protection Act, 1967 (Act No. 11 of 1967), the Plant Breeder's Rights Act, 1976 (Act No. 15 of 1976), the Patents Act, 1978 (Act No. 57 of 1978), the Copyright Act, 1978 (Act No. 98 of 1978), the Trade Marks Act, 1993 (Act. No. 194 of 1993) and the Designs Act, 1993 (Act No. 195 of 1993).";

(e) the substitution of the new subsection (4A) of the Competition Act, 1998 as inserted by paragraph 5 of the Bill with the following subsection:

"(4A) Upon receiving an application in terms of subsection (4) or when acting on its own initiative in terms of subsection (4), the Competition Commission may grant an exemption for a specified term."

Amendment of section 11 of Act 89 of 1998 as proposed to be amended by Bill 41 of 2000

6. Section 11 of the Competition Act, 1998 as proposed to be amended by paragraph 6 of the Bill is hereby amended by -

(a) inserting the word ", intermediate" after the word "lower" in paragraph (a);

(b) the substitution in subsection 4 of the words "Within six months" with the words "Within six months but not earlier than two months";

(c) the substitution in subsection 4 of paragraph (b) with the following paragraph:

"(b) the effective date of the threshold, which shall not be a retroactive date.";

(d) the substitution in subsection (5) of paragraph (a) with the following paragraph:

"(a) 'a small merger' means a merger or proposed merger with a value [at or below] between the lower and the intermediate thresholds established in terms of subsection (1)(a);

(e) the substitution in subsection (5) of paragraph (b) with the following paragraph:

"(b) 'an intermediate merger' means a merger or proposed merger with a value between the [lower] intermediate and higher thresholds established in terms of subsection (1)(a);

Amendment of section 12 of Act 89 of 1998 as proposed to be amended by Bill 41 of 2000

7. Section 12 of the Competition Act, 1998 as proposed to be amended by paragraph 6 of the Bill is hereby amended by -

(a) the substitution in subsection (1) of paragraph (a)(i) within the following paragraph:

"(i) or establish direct or indirect control over the whole or a material part of the business of another firm.";

(b) the deletion of the new paragraph (a) (ii) in subsection (1);

(c) the substitution in subsection (2) of paragraph (g) with the following paragraph:

"(g) has the ability to materially direct or positively influence the operational activities of the firm in a manner comparable to a person who can exercise [an element of] control referred to in any of paragraphs (a) to (f), provided that these provisions shall not apply to:

(iii) acquisitions solely for the purposes of investment ."

Amendment of section 14 of Act 89 of 1998 as proposed to be amended by Bill 41 of 2000

8. Section 14 of the Competition Act, 1998 as proposed to be amended by paragraph 6 of the Bill is hereby amended by:

(a) the substitution in subsection (1) for paragraph (a) of the following paragraph:

"(a) upon good cause shown, extend the period in which it has to consider the proposed merger by a period not exceeding 40 business days, and in that case, issue an extension certificate to any party that notified it of the merger; or";

(b) the substitution in section (14A) of subsection (2) of the following subsection:

"(2) The Competition Tribunal may, upon good cause shown, extend the period for making a recommendation in respect of a particular merger upon an application by the Competition Commission, but the Tribunal may not grant an extension of more than 15 business days at a time."

9. Section 21 of the Competition Act, 1998 as proposed to be amended by paragraph 8 of the Bill is hereby amended by:

(a) the renumbering of section 21 (1) as section 21 (1A);

(b) the insertion after section 21 (1A) of the following section:

10. Section 49B of the Competition Act, 1998 as proposed to be inserted by paragraph 15 of the Bill if hereby amended by the insertion of the following new subsection (5):

11. Section 79 of the Competition Act, 1998, is hereby amended by –

(a) the substitution for subsection (1) with the following subsection (1):

"(1) The Competition Commission may prepare guidelines or practice notes to indicate the Commission’s [policy] approach to any matter within its jurisdiction in terms of the Act";

(b) the substitution of subsection (2) with the following subsection:

"(2) A guideline or practice note prepared in terms of subsection (1) –";

(c) the substitution in subsection (2) of paragraph (b) with the following paragraph :

"(b) is not binding on the Competition Commission, the Competition Tribunal or the Competition Appeal Court in the exercise of their respective discretion, or their interpretation of this Act except to the extent that a firm can show that it has in good faith acted in reliance upon such guideline or practice note after its publication in terms of subsection (2)(a).;

(d) the insertion of the following new subsections (3) and (4):

"(3) The Commissioner may from time to time, upon written request from a firm, issue a ruling or comfort letter regarding whether or not –

(b) a firm is obliged to notify the Competition Commission of a merger under Chapter 3."

"(4) A ruling or comfort letter referred to in subsection (3) –

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