The Competition Authority of Kenya has initiated amendments to the Competition Act, Chapter 504, Laws of Kenya. On 28 May 2024, the Competition Authority published the Competition (Amendment) Bill, 2024 and invited the public to submit comments on the proposed changes. The Competition Authority’s proposal to regulate digital activities aligns with global market trends of increased regulation in the digital sector.
Digital activities
The CAK’s proposal to regulate digital activities aligns with global market trends of increased regulation in the digital sector. The Amendment Bill defines digital activities as the ‘provision of a service by means of the internet, or the provision of digital content, for the benefit of business consumers or other consumers (whether paid for or otherwise and whether or not such activity is multisided).’ Digital activities may include:
- online intermediation services including online marketplaces and app stores
- online search engines
- online social networking services
- video-sharing platform services
- independent interpersonal communication services
- operating systems
- cloud computing services
- online advertising services
Dominance in respect of digital activities can be established even with a market share below 40%. In this case, the CAK will consider if the undertaking / platform enjoys a ‘strategic market position’. Unfortunately, the Amendment Bill does not elaborate on what factors will be taken into account in determining whether a strategic market position is present.
Abuse of superior bargaining power: a new, expansive enforcement regime
The Amendment Bill introduces a new section 40A to the Competition Act, prohibiting the abuse of a superior bargaining position. This proposal heralds a regulatory shift by the CAK intended to protect all market players, as opposed to just some. One of the challenges in the current enforcement by the CAK is that the abuse of buyer power provisions in the Competition Act is premised on a buyer-supplier relationship, without which it does not apply. Conversely, the concept of abuse of a superior bargaining position will apply to all contractual relationships irrespective of whether they are in a position of supplier or purchaser.
A superior bargaining position is defined as ‘the ability of an undertaking to control, direct, define or determine the conditions of business operations with counterparties which are favourable to itself without reference to the undertaking’s dominant market position or market power in the relevant markets.’ Whilst the establishment of a superior bargaining position is not linked to dominance or market power, in determining the presence or absence of superior bargaining position, the CAK must consider:
- the degree of dependence by the affected undertaking or undertakings on transactions with the party under investigation
- the position of the undertakings in the market
- the possibility of the affected undertaking to change its business counterpart
- whether the party under investigation is an unavoidable trading partner or critical business partner in the relevant market
The Amendment Bill provides that the following conduct will be determined to be an abuse of superior bargaining power:
- delays in payment of suppliers without justifiable reason in breach of agreed terms
- unilateral termination or threats of termination of a commercial relationship without notice or on short notice without justification
- failing to provide the affected party with prior terms and conditions
- unilateral variation of contractual terms, conditions or other rules without prior notification
- transfer of costs and commercial risk to the affected party
- demands for preferential terms unfavourable to the affected party
- imposing unduly difficult conditions for the termination of service
- obstruction of business activities or interference with the affected party’s management of its business
Contravening persons and undertakings are liable to imprisonment for a term not exceeding 5 years or to a fine not exceeding Ksh 10 million, or to both.
Enforcement of orders
The Amendment Bill proposes to do away with the magistrate court’s jurisdiction to impose penalties provided under the Competition Act, and in its stead, mandates the Competition Tribunal to issue orders to enable the CAK to recover any outstanding penalties. Under the proposed amendment, the CAK may make an ex-parte application to the Competition Tribunal for an order for recovery of such amount.
Based on this proposal, once the CAK receives an order for recovery from the Competition Tribunal, it may enforce such orders through the attachment and sale of property, attachment of debts, appointment of a receiver or in any manner as the nature of the order may require, effectively meaning that the CAK will be empowered to pursue debt recovery options against undertakings it has penalised.
Other proposals
The Amendment Bill also proposes to:
- allow the CAK to initiate investigations into consumer welfare issues without the requirement for a complaint having been lodged.
- introduce a 14-day window, after receipt of a merger notification, within which the CAK may invite members of the public to give information on a proposed merger.
- empower the CAK to analyse mergers achieved through privatization of public entities to ensure they are not anticompetitive.
- include natural persons in the definition of ‘undertaking’ to ensure the CAK can analyze mergers where natural persons are parties to ensure they are not anticompetitive.
- introduce a financial penalty of up to ten (10) percent of the immediately preceding year’s gross annual turnover in Kenya of an undertaking or undertakings which do not comply with a lawful order of the CAK.
The CAK has allowed a two-week window, until 17:00 on 11 June 2024, for the public to submit comments on the Amendment Bill. The CAK also intends to hold a physical forum on 14 June 2024 to collect more views on the proposed legislation.
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Read the original publication at Bowmans