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Competition Law COMPETITION LAW SIBERGRAMME 2/2012 ISSN 1606-9986 21 August 2012 Senior Editor ROBERT LEGH Head of the Competition Law Unit of Bowman Gilfillan Inc, Johannesburg This issue by LAUREN RICHARDS and KHOFOLO KRUGER Candidate Attorneys: Bowman Gilfillan Inc Siber Ink Published by Siber Ink CC, B2A Westlake Square, Westlake Drive, Westlake 7945. © Siber Ink CC, Bowman Gilfillan Inc This Sibergramme may not be copied or forwarded without permission from Siber Ink CC Subscriptions: [email protected] or fax (+27) 086-242-3206 To view Competition Tribunal judgments, see: http://www.comptrib.co.za/ Page 2 ISSN 1606-9986 COMPETITION LAW SG 2/2012 IN THIS ISSUE: ESSENTIAL MATTERS: A COMPARATIVE ASSESSMENT OF DIFFERENT APPROACHES TO THE ESSENTIAL FACILITIES DOCTRINE............................. 2 Introduction..............................................................................................................................2 South Africa .............................................................................................................................3 The United States (US).............................................................................................................10 The European Union (EU).......................................................................................................13 Comparison of the US and EU positions .................................................................................15 Conclusion ...............................................................................................................................17 ESSENTIAL MATTERS: A COMPARATIVE ASSESSMENT OF DIFFERENT APPROACHES TO THE ESSENTIAL FACILITIES DOCTRINE1 Introduction Section 8 of the South African Competition Act 89 of 1998 (“the Act”) is the abuse of dominance prohibition. Our focus in this article is specifically on section 8(b), which prohibits a dominant firm from refusing to give a competitor access to an essential facility when it is economically feasible to do so. There is a dearth of case law articulating the essential facilities doctrine (“the doctrine”); however, an assessment of the small amount of jurisprudence available indicates that the courts tend towards a narrow interpretation of the doctrine. We first examine the South African position and identify shortfalls in the analysis that has so far been provided by the courts. Foreign jurisdictions with more established jurisprudence in this area, such as the European Union (“EU”) and the United States of America (“USA”), are then considered for guidance. We then identify principles that could aid South African courts in developing the doctrine. Any significant differences in the EU and US approaches are noted. 1 Thank you to Jean Meijer and Paula Youens, director and senior associate at Bowman Gilfillan, respectively, for their help and guidance. The authors are most grateful. Page 2 of 20 § Competition SG 2/2012 © Siber Ink CC, Robert Legh This Sibergramme may not be copied or forwarded without permission from Siber Ink CC Page 3 ISSN 1606-9986 COMPETITION LAW SG 2/2012 We conclude that as the doctrine in South Africa is governed by the Constitution of the Republic of South Africa, 1996, a balancing act between different rights is required. Furthermore, considerations of capacity, feasibility and duration should be employed to guide the enquiry. We submit that the ambit of section 8(b) is broad enough to encompass the abovementioned suggestions. South Africa Section 1 of the Act defines an “essential facility” as “an infrastructure or resource which cannot reasonably be duplicated and without access to which competitors cannot reasonably participate in the market”. Refusing to give a competitor access to an essential facility is a per se contravention2 of the Act, and the only evidentiary requirement necessary to prove that a firm has been engaging in this conduct is the conduct itself.3 The doctrine therefore does not allow a dominant firm to raise an efficiency defence. In Glaxo Wellcome (Pty) Ltd & Others v National Association of Pharmaceutical Wholesalers & Others 15/CAC/Feb02 (“Glaxo”),4 the complainants argued that pharmaceutical products amounted to “resources” in terms of the definition of an essential facility and therefore qualified as such. The Competition Appeal Court (“CAC”) rejected this argument, holding that the term ‘resource’ was not intended to include products, goods or services.5 Therefore, according to the CAC, pharmaceutical products do not qualify as essential facilities and resources for competition law purposes. The CAC held that “the widening of the application and scope of the essential facilities doctrine can have harmful economic effects such as discouraging investment in infrastructure”,6 furthermore, obliging a dominant firm to allow competitors access to a facility amounts to a 2 Minette Neuhoff (ed) et al (2006) A Practical Guide to the South African Competition Act at 112. (“Neuhoff”). 3 Neuhoff (note 2) at 125. 4 Glaxo at [51] and [53]. 5 Ibid at [53]. 6 Ibid at [54]. Page 3 of 20 § Competition SG 2/2012 © Siber Ink CC, Robert Legh This Sibergramme may not be copied or forwarded without permission from Siber Ink CC Page 4 ISSN 1606-9986 COMPETITION LAW SG 2/2012 considerable intervention. The ambit of section 8(b) has therefore been narrowed to traditional infrastructure only which includes ports, airports, electricity grids, telecommunication networks, railways and railway terminals, and pipelines. The CAC set out the following five elements that must be alleged and proved by a complainant before the per se prohibition is said to exist:7 (i) the dominant firm involved must refuse to give the complainant access to an infrastructure or resource; (ii) the complainant and the dominant firm must be competitors; (iii) the infrastructure or resource concerned must not be capable of being reasonably duplicated; (iv) the complainant must not be able to reasonably provide goods or services to its customers without access to the infrastructure or resource; and (v) it must be economically feasible for the dominant firm to provide its competitors with access to the infrastructure or resource. When determining the existence of an essential facility, a vital consideration is whether the infrastructure or equipment can be reasonably duplicated or not. The onus is first placed on the competitor to seek out means by which it can provide goods and services to its customers without the essential facility. If there are alternatives, even costly ones, the competitor cannot expect to free-ride8 on the resources of the dominant firm. It should also be noted that refusing to give competitors access to an essential facility is not the same as the refusal to supply scarce goods to a competitor.9 The enquiry also considers whether the facility permits the dominant firm to exercise market power in the relevant market. This would occur where the competitor has no alternative but to depend on the dominant firm and, therefore, without compulsory access, cannot provide 7 Ibid at [57]. 8 See Mandla-Matla Publishing (Pty) Ltd v Independent Newspapers (Pty) Ltd [2006] 2 CPLR 499 (CT) [53]-[54] for a discussion on the concept of competitors free-riding on the investments of dominant firms. 9 Glaxo at [51]. Page 4 of 20 § Competition SG 2/2012 © Siber Ink CC, Robert Legh This Sibergramme may not be copied or forwarded without permission from Siber Ink CC Page 5 ISSN 1606-9986 COMPETITION LAW SG 2/2012 the relevant goods and services.10 Clear examples of an essential facility being incapable of being reasonably duplicated are cases of physical or regulatory impossibility.11 In DW Integrators CC v SAS Institute (Pty) Ltd [1999-2000] CPLR 191 (CT) (“DW Integrators”), the respondent was a large software firm that owned valuable intellectual property, while the claimant was a firm that provided consulting services to the licensees of the respondent’s software programmes. The complainant requested a direction obliging the respondent to issue a licence to its intellectual property to the claimant, as the claimant maintained that the software in question was an essential facility. Thus, the claimant argued, the respondent’s refusal to grant a licence amounted to a violation of section 8(b) of the Act. The Competition Tribunal (“the Tribunal”) held that the complainant had failed to accurately define the relevant market.12 The Tribunal was thus not required to make a finding on the claimant’s allegations that the use of the respondent’s software was an essential facility.13 This marked a missed opportunity for the Tribunal to decide whether an intangible asset constituted an essential facility. In the large merger in Telkom SA Ltd and TPI Investments v Praysa Trade 1062 (Pty) Ltd [1999-2000] CPLR 116 (CT) (“Telkom SA”), a third party, Infracom, and competitor to TPI Investments, sought to participate in the Tribunal hearings as an interested party. Infracom, a telecommunications company, averred that the merger, and more specifically Telkom’s decision to terminate its exclusive contract with Infracom in favour of its merging partner TPI Investments, constituted a refusal to deal as the Telkom contract was considered to be an essential facility. Infracom alleged that the services that it provides are highly specialised and focus on telecommunications facilities, and that its existence depends upon the renewal of its contract with 10 Martin Brassey (ed) et al (2002) Competition Law at 205 (“Brassey”). 11 Ibid at 204. 12 DW Integrators at [23].
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