Legal Guide to Vertical Agreements in Indonesia: Types of Restraint
This is the fourth post in our 2014 Legal Guide to Vertical Agreements. Fahrul S. Yusuf will address a new topic each week.
How is restricting the buyer's ability to determine its resale price assessed under antitrust law?
In general, Indonesia's Antimonopoly Law prohibits resale price maintenance in the form of a minimum resale price. The Antimonopoly Law does not prohibit resale price maintenance in the form of maximum resale price or specified resale price.
Have the authorities considered in their decisions or guidelines resale price maintenance restrictions that apply for a limited period to the launch of a new product or brand, or to a specific promotion or sales campaign or specifically to prevent a retailer using a brand as a 'loss leader'?
No decisions have been rendered or guidelines issued by the Business Competition Supervisory Commission (KPPU) to address this specific issue. In general, resale price maintenance in the form of maximum resale price is permitted.
Have decisions or guidelines relating to resale price maintenance addressed the possible link s between such conduct and other forms of restraint?
Yes, guidelines issued in 2011 specifically address the possible link between resale price maintenance and abuse of dominant position (article 25), price-fixing (article 5) or price-fixing in an agency framework.
Have decisions or guidelines relating to resale price maintenance addressed the efficiencies that can arguably arise out of such restrictions?
To the best of our knowledge the guidelines issued by the KPPU did not address this specific issue. However, a business actor would not be automatically considered as violating the Antimonopoly Law by having a resale price maintenance agreement with another business actor. Further analysis would be required to determine whether the arrangement had a positive (e.g., efficiency) or negative effect (e.g., market entry barrier, increase of market power resulting in price discrimination or price increase).
Explain how a buyer agreeing to set its retail price for supplier A's products by reference to its retail price for supplier B√¢¬Ä¬ôs equivalent products is assessed.
The Antimonopoly Law, its implementing regulations and the guidelines issued by the KPPU are silent with regard to this matter. In the most likely circumstances, assuming that the buyer is dominant with a wide market reach and no market partitioning in place, the similar retail price between the products of Supplier A and Supplier B would encourage both suppliers or manufacturers to increase the quality of their products and this would benefit end-consumers. From the Antimonopoly Law's perspective, this may be deemed pro-competitive (inter-brand competition).
Explain how a supplier warranting to the buyer that it will supply the contract products on the terms applied to the supplier's most-favored customer, or that it will not supply the contract products on more favorable terms to other buyers, is assessed.
On its own, the former may raise concerns regarding discriminatory practices toward consumers, which is prohibited under the Antimonopoly Law, and it may seem that the latter would be ideal in avoiding the slightest allegation in that regard. However, with allegations of violations, the anti-competitive effects of the supplier's practice must be proven before any penalties are issued by the KPPU.
In order to legally retain the practice, one of the things that should be demonstrated to the KPPU is the justification for the different treatment among buyers (e.g., transport or delivery cost, market value) and whether that means different buyers will have different prices (e.g., according to their locations, volume commitments and contract periods). The supplier's market dominance will of course be taken into account because the more powerful the supplier the more able it is to exercise its market power and "non-favorite" buyers would be likely to be put in a very disadvantageous position. When proven, this could easily be deemed an unfair business practice from the point of view of the Antimonopoly Law.
Explain how a supplier agreeing to sell a product via internet platform A at the same price as it sells the product via internet platform B is assessed.
No decisions have been rendered or guidelines issued by the KPPU to address this specific issue.
Explain how a buyer's warranting to the supplier that it will purchase the contract products on terms applied to the buyer's most-favored supplier, or that it will not purchase the contract products on more favorable terms from other suppliers, is assessed.
Again, the market dominance of the buyer plays an important role here and this will be the first item to be identified by the KPPU when an alleged violation is reported. The different treatment may prove to be discriminatory if not sufficiently justifiable for valid economic reasons.
How is restricting the territory into which a buyer may resell contract products assessed? In what circumstances may a supplier require a buyer of its products not to resell the products in certain territories?
This type of practice is expressly prohibited under the Antimonopoly Law, but not without proven anti-competitive effects arising from such practice. In general, the Antimonopoly Law prohibits a business actor from entering into an agreement with another business actor by which the first business actor imposes terms on the second business actor by which the second business actor receiving goods or services is required to supply or to not resupply the goods or services to certain parties or certain places.
Guidelines issued in 2011 by the KPPU categorize that type of arrangement as exclusive dealing. According to the guidelines, the imposition of a restriction by a business actor on another business actor's freedom in supplying goods or services is the main criterion of exclusive dealing. However, a business actor would not automatically be considered as violating the Antimonopoly Law just by having exclusive dealing with another business actor.
Further analysis is required to determine whether such exclusive dealing results in positive (e.g., increase of specialization between producer and distributors, efficiency) or negative effects (e.g., market entry barrier, geographic allocation, increase of market power that results in price discrimination or price increase).
Explain how restricting the customers to whom a buyer may resell contract products is assessed. In what circumstances may a supplier require a buyer not to resell products to certain resellers or end-consumers?
This type of arrangement would also be considered as exclusive dealing. One example is the Semen Gresik case in 2005. According to the KPPU, Semen Gresik violated article 15 of the Antimonopoly Law because it required distributors, through an agreement, to sell the goods only to certain parties, even though the distributors were independent distributors. It was proven that this arrangement eliminated competition between the distributors, that it was impossible for the distributors to expand their business and that it was also impossible for their regular customers to obtain supplies other than from the distributors. Semen Gresik was found guilty by the KPPU and the KPPU decision was reaffirmed by the Supreme Court in 2008.
How is restricting the uses to which a buyer puts the contract products assessed?
No applicable restrictions are in place for restricting the uses to which a buyer (or a subsequent buyer) puts the contract products.
How is restricting the buyer's ability to generate or effect sales via the internet assessed?
No decisions have been rendered or guidelines issued by the KPPU to address this specific issue. This type of arrangement would also be considered exclusive dealing.
Have decisions or guidelines on vertical restraints dealt in any way with the differential treatment of different types of internet sales channel?
None so far.
Briefly explain how agreements establishing 'selective' distribution systems are assessed. Must the criteria for selection be published?
This type of arrangement would also be considered exclusive dealing. In a selective distribution system, contract products may typically only be sold to certain parties (e.g., authorized dealers, authorized workshops, end-customers). In other words, the sale of contract products to or through non-approved parties would be strictly prohibited. This is effectively a restriction imposed on a supplier or buyer to "not resupply the goods and/or services to certain parties", which can be prohibited under the Antimonopoly Law, if the prerequisite elements are fulfilled.
Are selective distribution systems more likely to be lawful where they relate to certain types of product? If so, which types of product and why?
Yes. For certain types of products (i.e., motor vehicles, heavy equipment, electronics and household electronic appliances), a supplier is required to appoint a qualified local company to act as its exclusive sole agent to import and distribute the contract products exclusively in Indonesia. Such requirement applies mainly because such types of products require after-sales service.
In selective distribution systems, what kinds of restrictions on internet sales by approved distributors are permitted and in what circumstances? To what extent must internet sales criteria mirror offline sales criteria?
No decisions have been rendered or guidelines issued by the KPPU to address this specific issue.
Has the authority taken any decisions in relation to actions by suppliers to enforce the terms of selective distribution agreements where such actions are aimed at preventing sales by unauthorized buyers or sales by authorized buyers in an unauthorized manner?
The KPPU has not taken any decisions so far with regard to this matter.
Does the relevant authority take into account the possible cumulative restrictive effects of multiple selective distribution systems operating in the same market?
No decisions have been rendered or guidelines issued by the KPPU to address this specific issue. In practice, the KPPU is quite receptive to opinions and arguments and the possible cumulative restrictive effects of multiple selective distribution systems operating in the same market should be taken into account by the KPPU should the occasion arise.
Has the authority taken decisions dealing with the possible link s between selective distribution systems and resale price maintenance policies? If so, what are the k ey principles in such decisions?
To the best of our knowledge, none so far.
Has the authority taken decisions (or is there guidance) concerning distribution arrangements that combine selective distribution with restrictions on the territory into which approved buyers may resell the contract products?
Generally, selective distribution with territorial restrictions would also be considered exclusive dealing.
How is restricting the buyer's ability to obtain the supplier's products from alternative sources assessed?
This type of arrangement can be deemed a violation of the Antimonopoly Law, particularly if it is tied with an agreement on price or a special discount to be given by the supplier to the buyer or if there is any penalty or sanction imposed by the supplier in case of breach of the agreement by the buyer.
How is restricting the buyer's ability to sell non-competing products that the supplier deems 'inappropriate' assessed?
This type of arrangement may give rise to the issue of restricting the circulation or sales of goods or services in the relevant market, which is prohibited under the Antimonopoly Law, particularly since the arrangement would probably result in less competition in the relevant market for that particular 'inappropriate' product.
How is requiring the buyer to purchase from the supplier a certain amount or minimum percentage of the contract products or a full range of the supplier's products assessed?
A requirement to purchase a certain amount or minimum percentage of contract products is permissible depending on the buyer's position in the relevant market and as long as it does not limit the buyer's capability to buy other suppliers' products. Any requirement to purchase a full range of a supplier's products may give rise to the tying prohibition under the Antimonopoly Law.
To what extent are franchise agreements incorporating licenses of IPRs relating to trademark s or signs and k now-how for the use and distribution of products assessed differently from 'simple' distribution agreements?
As is the case with intellectual property rights-related agreements, the Antimonopoly Law provides an express exemption that the provisions of the Antimonopoly Law do not apply to franchise agreements. The KPPU, however, issued guidelines in 2009 under which the main criterion for such exemption is that there are no clauses in the agreement that would potentially violate any provisions of the Antimonopoly Law, such as resale price maintenance, tying or noncompete clauses.
Explain how restricting the supplier's ability to sell directly to end-consumers is assessed.
No express prohibition on this is provided under the Antimonopoly Law. In this particular situation, and if an alleged violation is somehow reported to the authority, one of the main issues to be considered is the potential welfare loss that may be suffered by consumers by not having direct access to the supplier. Arguably, in most cases, it would be more efficient for consumers to purchase the products directly from the manufacturer or supplier, and in this respect such practice would promote both inter-brand and intra-brand competition between suppliers and buyers, which is favorable to general consumers from the standpoint of the KPPU.
Have guidelines or agency decisions in your jurisdiction dealt with the antitrust assessment of restrictions on suppliers other than those covered above? If so, what were the restrictions in question and how were they assessed?
None so far.
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.