This is the first post in our 2014 Legal Guide to Vertical Agreements. Fahrul S. Yusuff will address a new topic each week.
What are the legal sources that set out the antitrust law applicable to vertical restraints?
The applicable legal source in Indonesia is Law No. 5 of 1999 regarding the Prohibition of Monopolistic Practices and Unfair Business Competition (the "Antimonopoly Law"). To date no implementing regulations for the Antimonopoly Law have been issued, other than Government Regulation No. 57 of 2010 regarding the Merger or Consolidation of Business Entities and the Acquisition of Companies that May Result in Monopolistic Practices and Unfair Business Competition.
Indonesia's Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha or "KPPU") also issues guidelines from time to time. The purpose of the guidelines is to provide a clear picture of the requirements of the Antimonopoly Law. They are mainly for internal use only and are not binding on third parties.
Types of Vertical Restraint
List and describe the types of vertical restraints that are subject to antitrust law. Is the concept of vertical restraint defined in the antitrust law?
The Antimonopoly Law does not provide a specific definition of vertical restraint. However, it does regulate certain types of vertical restraints. The following are provisions in the Antimonopoly Law related to vertical restraints:
- Resale price maintenance (article 8): prohibition on a business actor entering into an agreement that prohibits the other party from resupplying or reselling products at lower than the agreed price.
- Vertical integration (article 14): prohibition on a business actor entering into agreements to control the production of several goods that are part of the production chain of certain related goods or services where each product link is the end product of the production process or of further processing, either in one direct link or indirect link.
- Closed agreement (article 15): there are three type of prohibition under this article, i.e., prohibitions on exclusive dealing (article 15(1)), tying agreements (15(2)) and special discounts (article 15(3)).
- Market control (article 19): prohibition on business actors conducting certain activities, either individually or jointly, with other business actors. Such activities can be those that:
- impede other business actors from conducting the same business activities
- hinder the customers of business competitors from engaging in a business relationship with such business competitors
- limit the distribution or sale of goods or services or
- result in discriminatory practices toward certain business actors.
Is the only objective pursued by the law on vertical restraints economic, or does it also seek to promote or protect other interests?
In principle, the objective of the Antimonopoly Law is to protect the public interest and to offer consumer protection, while also creating a conducive business climate.
Which authority is responsible for enforcing prohibitions on anticompetitive vertical restraints? Where there are multiple responsible authorities, how are cases allocated? Do governments or ministers have a role?
In principle, the KPPU is the authorized body to enforce prohibitions under the Antimonopoly Law. The KPPU is authorized to receive reports, conduct investigations and make decisions with regard to violations of the Antimonopoly Law. In addition to the KPPU, district courts and the Supreme Court also have enforcement authority if parties involved in a KPPU decision file an appeal with the district court and cassation to the Supreme Court. A district court hearing an appeal of a KPPU decision will examine the matter and issue a decision. It may also instruct the KPPU to conduct an additional investigation into the case.
What is the test for determining whether a vertical restraint will be subject to antitrust law in your jurisdiction? Has the law in your jurisdiction regarding vertical restraints been applied extraterritorially? Has it been applied in a pure internet context and if so what factors were deemed relevant when considering jurisdiction?
There are several elements that must be fulfilled for vertical restraints to be subject to the Antimonopoly Law. There must be:
- at least two business actors that have a vertical relationship within one production or distribution agreement or network
- an agreement entered into by such business actors (see question 9)
- goods that can be sold or used by consumers or business actors
- a service or services that can be sold or used by consumers or business actors
- manufacture or supply and distribution or resale of goods or services and
- resulting unfair business competition in the relevant market.
In addition to these six elements, there are the provisions in the different types of vertical restraints. In general, business actors engaged in activities within the jurisdiction of the Republic of Indonesia, wherever they may be located, are subject to the Antimonopoly Law. Thus foreign business actors may be subject to the Antimonopoly Law if they are engaged in business activities in Indonesia. However, they should not be subject to the law as long as they have no local presence or subsidiaries in Indonesia and their products or services are not available for sale in Indonesia.
Further, to date the Antimonopoly Law has never been applied within the context of the internet, nor has the KPPU issued guidelines to address this matter.
Reproduced with permission from Law Business Research Ltd. This article was first published in Getting the Deal Through: Vertical Agreements 2014. For further information, please visit www.GettingTheDealThrough.com.
This article is intended for informational purposes only and does not constitute legal advice. This article should not be acted upon in any specific situation without appropriate legal advice.