Draft Toolkit

Competition Law In UgandaA Toolkit

By Cornelius Dube*

Draft Toolkit

Economist,

CUTS CCIER

Contents

Abbreviations.........................................................................................................5Preface....................................................................................................................81. Introduction......................................................................................................101.1 Draft Competition Bill, 2004 – An Overview...............................................................12

2. About The Market Economy...........................................................................152.1 What is Market Economy?................................................................................................152.2 Markets and Prices – How they work?............................................................................18

3. Market and Competition..................................................................................213.1 Concept of Relevant Market and Competition Policy.................................................213.2 Competition.........................................................................................................................213.3 Relevant Market..................................................................................................................21

3.3.1 Relevant Product Market..............................................................................................223.3.2 Relevant Geographic Market.........................................................................................22

3.3.3 Temporal Market.............................................................................................................233.4. Market Share and Structure..............................................................................................23

3.4.1 Monopoly......................................................................................................................233.4.2 Oligopoly.......................................................................................................................243.4.3 Perfect Competition.......................................................................................................243.4.4 Normal Competition.....................................................................................................24

3.5 Competition Policy in Uganda..........................................................................................24

4. Restrictive Business Practices.........................................................................264.1. Current Scenario in Uganda.............................................................................................264.2 Anti-competitive Agreements...........................................................................................274.3 Horizontal Agreements among Competitors.................................................................28

4.3.1. Price-fixing...................................................................................................................284.3.2. Market Allocating Agreements.....................................................................................324.3.3. Output Restriction..........................................................................................................334.3.4. Bid Rigging.......................................................................................................................334.3.5. Boycott or Joint Refusal to Deal………………………........................................354.4. Vertical Agreements in the Distribution/Sale of products.........................................364.4.1. Resale Price Maintenance..............................................................................................374.4.2 Exclusive Dealing............................................................................................................384.4.3. Tied Selling.......................................................................................................................394.5. Abuse of Dominant Position...........................................................................................41

4.5.1. Price Discrimination.....................................................................................................42

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4.5.2. Predatory Pricing..........................................................................................................434.5.3. Refusal to Deal or Supply............................................................................................44

4.6. Dominant Position............................................................................................................454.7. Mergers and Acquisitions.................................................................................................464.8. Cross Border Abuses.........................................................................................................47

5. Enforcing Competition Law............................................................................485.1 Checks and Balances in Uganda.......................................................................................485.2 Exclusion of Jurisdiction of Civil Courts........................................................................50

6. Mergers and Acquisitions................................................................................516.1 Distinction between M&As..............................................................................................516.2 Varieties of M&A................................................................................................................52

6.2.1 Varieties of Mergers......................................................................................................526.2.2 Varieties of Acquisitions...............................................................................................53

6.3 Concerns about M&As......................................................................................................536.3.1 Cross border Effects.......................................................................................................54

6.4 Merger Review.....................................................................................................................546.5 Information in Merger Review.........................................................................................556.6 Merger Remedies.................................................................................................................566.7 Joint Ventures......................................................................................................................57

7. Unfair Trade Practices: Competition and Consumer Protection...................567.1 Unfair Trade Practices........................................................................................................607.2 Collective Price Fixing.......................................................................................................617.3 Misleading Advertisements/Information.......................................................................617.4 Sale of Counterfeit Products and Copyright Violations...............................................61

8. Cross Border Issues.........................................................................................628.1 Market Power in Global or Export Markets..................................................................628.2 Barriers to Import Competition.......................................................................................638.3 Foreign Investment and Competition ............................................................................638.4 IPRs and Competition......................................................................................................64 8.5 Dealing with Cross border Issues under Competition Law of Uganda....................64

9. Competition Law v. Intellectual Property Law...............................................669.1 Regulation of the Exercise of IPRs through Competition Law..................................679.2 Competition Concerns in Licensing Agreements..........................................................689.3 Parallel Import.....................................................................................................................699.4 Compulsory Licensing........................................................................................................709.5. IPRs and the Abuse of Dominant Position..................................................................709.6 Refusal to Deal....................................................................................................................71

10. Essential Elements for Success......................................................................7310.1 Formation of a Competition Authority........................................................................7310.2 Promoting Competition by Creating a Favorable Environment..............................74

10.2.1 Power Conferred on the Competition Authority..........................................74

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10.2.2 Accountability and Independence of the Competition Commission.........7610.2.3 Availability of Resources....................................................................................77

11. The Desired Framework for Uganda.............................................................7811.1. Amendment and Modification of Certain Provisions of the Law...........................7811.2. Appropriate Regulation over IPR related Competition Issues................................7911.3. Extension of Jurisdiction beyond Territorial Boundaries.........................................7911.4. Proper interface between the Competition Authority and

Sectoral Regulatory Agencies........................................................................................7911.5. Independence/Autonomy of the Competition Authority........................................8011.6. Active Involvement of Consumer and Other CSOs.................................................80

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Abbreviations

ACCC Australian Competition and Consumer Commission

ACP African, Caribbean and Pacific

COMESA Common Market for Eastern and Southern Africa

CUTS Consumer Unity & Trust Society

DDA Dairy Development Authority

DoJ Department of Justice

EAC East African Community

ECJ European Court of Justice

ERA Electricity Regulatory Authority

FCA Fair Competition Act

FDI foreign direct investment

FTC Fair Trading Commission

GATT General Agreement on Tariffs and Trade

GNLD Golden Neo-Life Diamite

ICPAC International Competition Policy Advisory Committee

IGAD Inter-Governmental Authority on Development

IGG Inspector General of the Government

IPR Intellectual Property Rights

JVs Joint Ventures

LDC Least Developed Countries

M&As Mergers and Acquisitions

NDA National Drug Authority

OECD Organisation for Economic Cooperation and Development

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OPEC Organisation of the Petroleum Exporting Companies

PI Parallel imports

PPDA Public Procurement and Disposal of Assets Authority

RBP Restrictive Business Practices

RPM Resale Price Maintenance

RTP Restrictive Trade Practices

SME small and Medium Enterprises

TNC Trans-national companies

TRIPs Trade Related Aspects of Intellectual Property

UCC Uganda Communications Commission

UCDA Uganda Coffee Development Authority

UEDCL Uganda Electricity Distribution Company Limited

UEGCL Uganda Electricity Generation Company Limited

UIA Uganda Investment Authority

UIC Uganda Insurance Commission

UN United Nations

UNCTAD United Nations Conference on Trade and Development

UPET Uganda Petroleum

UPL Uganda Posts Limited

UPTC Uganda Posts and Telecommunications Corporation

URA Uganda Revenue Authority

UTL Uganda Telecommunications Limited

UTODA Uganda Taxi Operators and Drivers Association

UTP Unfair Trade Practices

WB World Bank

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WIPO World Intellectual Property Organisation

WMC White Martins Corporation

WTO World Trade Organisation

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PREFACE

I am pleased to write this preface for ‘Enforcing Competition Law in Uganda: A Toolkit’. The purpose of this toolkit is to suggest ways to deal with all types of competition abuses. What we have tried to do in this toolkit is look at different types of anti-competitive practices in light of the new competition law of Uganda and juxtapose it with examples from the country and of similar cases from other jurisdictions, in particular from other developing countries.

CUTS Centre for Competition, Investment & Economic Regulation (CUTS C-CIER) has been working on competition regimes in this and other countries for many years since the mid-1990s, supported by a variety of development partners, such as the Department for International Development (DFID), UK; Swiss State Secretariat for Economic Affairs (seco); Norwegian Agency for Development Cooperation (NORAD); and International Development Research Centre (IDRC), Canada etc.

This publication is the third in a series of toolkits being produced. The other countries that we are doing toolkits in this series include:

Botswana;Vietnam;Malawi;Mauritius;Namibia; andIndia.

This toolkit is an outcome of the work that we have been doing, specifically to help citizens in Uganda to appreciate the problems and their solutions in order to promote an orderly market and economic democracy. It is a dynamic issue as the contours of anti-competitive practices and their regulation continue to evolve and change over time.

Another bit of extremely relevant literature is the Competition Assessment Framework developed by DFID, UK on which CUTS too has contributed actively. This should also be read to understand the issues better. It is available at: http://ww w .cuts-ccie r .o r g/pdf/IRPDF-01.pdf

I would also recommend that readers/users of this toolkit should have a look at an almanac that we have produced which takes stock of competition regimes around the world at www.competitionregimes.com. This would be of great help to readers to see how competition laws have evolved in over 100 jurisdictions and thus give an insightful comparative picture.

In many countries, new competition laws have been enacted after scrapping older ones, as it became irrelevant due to changes in the national and global economies. These include UK, South Africa and India. CUTS is currently engaged in another project to map out the causes and reasons as to why many countries are enacting new competition laws after scrapping their old ones, which can educate all of us on the reasons for the metamorphosis. However, this change which is taking place in many countries confirms the fact that a competition law is desirable and it needs to be updated as we move along in history.

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In our experience, a new competition law has to be implemented gradually rather than with a bang, i.e. to say the authority has to run a marathon and not a sprint. It is, therefore, that we have evolved a matrix for different stages of implementation of competition regimes. Creating a healthy competition culture depends on effective implementation of the competition law and a supportive policy environment.

How does a competition law help the country’s economy? There are few systematic studies done in Peru and South Korea, which have shown that the law has generated far greater benefits than the cost itself. In a study of the Peruvian competition agency, Indecopi, found that the first seven years of its operation yielded economic benefits amounting to US$120mn, which is significantly higher than the associated operating costs of US$20mn1. A study by the Korean Fair Trade Commission (KFTC) in 2003 found that the benefit (consumer welfare increases and income transfers) outweighed the costs (KFTC’s budget) of competition law enforcement in 2000 and 2001 by 34 times2.

A study carried out on the Australian economy estimated the expected benefits from a package of competition- promoting and deregulatory reforms (including improvements in the competition rules) would create annual gains in real gross domestic product (GDP) of about 5.5 percent, or AU$23bn (US$20bn), of which consumers would gain by almost AU$9bn (US$7.96bn) – in addition to increases in real wages, employment and government revenue3.

In terms of acknowledgement, I must thank Souvik Chatterjee, Sonia Gasparikova and Mukul Shastry for their assistance in preparing this toolkit.

Finally, in conclusion, let me reiterate that a competition regime and its implementation is dynamic. Hence, this toolkit should be considered as such, rather than a final word. Readers are invited to share their views at: c-cier@cuts.org.

Pradeep S MehtaSecretary General

1 See Caceres, A (2000), “Indecopi’s first seven years” in Beatriz Boza, ed., The Role of the State in Competition and IP Policy in

Latin America: towards an academic audit of Indecopi, Lima.

2 Chapter on Korea by Joseph Seon Hur in Competition Regimes in the World — A Civil Society Report, Pradeep S Mehta (Ed), CUTS and INCSOC, 2006

3 http://www.unctad.org/en/docs//c2em_d10.en.pdf

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1. IntroductionUganda, formerly part of British East Africa, got independence in 1962. The economy of Uganda is primarily dependant on agriculture. The population of the country is divided with 80 percent people being peasants staying in the rural areas and 20 percent people residing in urban centres. Uganda is a member of a number of regional and international socio-economic groupings like East African Community (EAC), Common Market of Eastern and Southern Africa (COMESA), Cotonou Agreement, the United Nations (UN) and the World Trade Organisation (WTO).

PROFILE4

Population: 27.3 mnGDP (Current US$): 6.3 bnPer Capita Income: (Current US$) 250 (Atlas method)

1,390 (at PPP)Surface Area: 241.038 thousand sq. kmLife Expectancy: 50 yearsLiteracy (%) 68.9 (of ages 15 and above)HDI Rank: 146

During the Colonial period, the commodity-sustained trade regime had encouraged cotton and coffee production. Manufacturing and processing industries came up and the country merged into the regional and global economic trading system.5 After independence, a number of policies in Uganda resulted in nationalisation of private businesses with the state controlling economic activities like banking, manufacturing and export.

Although the economy of Uganda is primarily dependant on agriculture, construction, telecommunication, agro-processing and transport has developed in recent times. Uganda has a relatively free market with the introduction and pursuance of economic reform agenda in the late 80s.6 Government involvement had been reduced in business with private sector development through privatisation, liberalisation and deregulation.

4 World Development Indicators Database, World Bank, 2004, and Human Development Report Statistics, UNDP, 2004.5 Preliminary Country Paper – Uganda: 7Up3 Project, In respect of Capacity Building on Competition Policy in select Countries of Eastern and Southern Africa. Published by CUTS International and Consumer Education Trust of Uganda (CONSENT), March, 2005, Page 3.6 Competition and Consumer Protection Scenario in Uganda, published by CUTS Centre for Competition, Investment & Economic Regulation and Consumer Education Trust, 2003, page 4.

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Price control in the domestic market of Uganda was eliminated, for example – price control on petroleum products, with the exception of Uganda Coffee Development Authority (UCDA).7 Tax collection and administration has improved in Uganda after the formation of the Uganda Revenue Authority (URA), although there is a perception that corruption is existent in the tax body. Uganda extends tariff preferences only to countries in the COMESA group and to Kenya and Tanzania under the East African Community (EAC) Treaty.

The country’s industrial sector is not large, but is the process of growth and is completely dominated by the private sector (local and foreign). It includes processing industries using agricultural produce like coffee, sugar, beer, leather (although leather processing is not as significant as the other processing industries), tobacco, etc. Uganda has signed regional and multi-lateral trade agreements including the WTO, the African, Caribbean and Pacific (ACP)-EU Cotonou Agreement, New Economic Partnership for Africa’s Development (NEPAD), COMESA, EAC, Inter-Governmental Authority on Development (IGAD).

The main legislations passed in different sectors include the Electricity Act, 1999, in the power sector, which also established the Electricity Regulatory Authority (ERA), the Communications Act, 1997, which established the Uganda Communications Commission (UCC), the Roads Act, Uganda Railways Corporation Statute No.13, 1992, the Airport Services Charges Act 6, 1965, etc., in the transport sector, the Bank of Uganda Statute, 1993, and the Financial Institutions Statute, 1993, in the financial services sector, the Medical and Dental Practitioners Statute, 1996, the Pharmacy and Drugs Act, 1970, the National Medical Stores Statute, 1993, etc. in the health services sector.

Although there is no competition law presently in Uganda, the Government has drafted the Competition Bill, 2004. In addition to the Draft Competition Bill, 2004, Uganda being a member of Regional Economic Bloc, like COMESA, EAC, the Regional Policy of COMESA to deal with anti-competitive practices within the region and the EAC Competition Policy acts as a guideline for issues relating to competition in the country.

This toolkit, researched and compiled by CUTS and customised in the context of Uganda, is meant to provide a simple and concise handbook on various implementation issues surrounding the Draft Competition Bill, 2004. It provides definitions, characteristics and ways to deal with the trade practices which are forbidden by the Draft Competition Bill, 2004, which are relevant in the market of Uganda at present, with practical case studies to help readers understand the issues relating to competition in Uganda.

7 Preliminary Country Paper – Uganda, in respect of Capacity building on Competition Policy in select Countries of Eastern and Southern Africa. Published by Consumer Education Trust (CONSENT) and CUTS International, March, 2005, page 8.

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1.1 Draft Competition Bill, 2004 – An OverviewIn Uganda, mergers, takeovers, monopolies, cartels, etc., were rare. After deregulation in the recent years, the Government formed a number of sectoral authorities and commissions like the National Drug Authority (NDA), Uganda Communications Commission (UCC), Uganda Insurance Commission (UIC), etc. Through the sectoral authorities, the government has provided infrastructure and framework covering licensing, supervision, regulation and surveillance. Anti-competitive activities in Uganda are regulated by a number of regulatory bodies like Electricity Regulatory Authority (ERA) in the power sector, Uganda Communications Commission (UCC) in the telecom sector, Uganda Taxi Operators and Drivers Association (UTODA) which is one of the private taxi operating associations in the transport sector, the Bank of Uganda Statute, 1993 and the Financial Institutions Statute, 1993 in the financial services sector, the Medical and Dental Practitioners Statute, 1996, the Pharmacy and Drugs Act, 1970, in the health services sector. Besides these, Uganda has guidelines in the form of national competition policies operational in Namibia, South Africa, Tanzania, Zimbabwe and Kenya and regional competition policy under the COMESA Treaty called the COMESA Competition Rules and Regulations.8

The Government introduced a Draft Competition Bill, 2004, in Uganda to deal with anti-competitive practices and also bring similarity with the laws on competition in the neighboring area and the multilateral groups of which Uganda is a member. The Draft Competition Bill, 2004, of Uganda, is composed of 10 parts and 56 Sections, namely interpretation, establishment of the Commission, formation, functions, procedures and jurisdictions of the Commission, anti-competitive practices; offences; obligations; competition advocacy, and funds, etc. The main objectives of the Draft Competition Bill, 2004, include (a) fostering competition in the Ugandan market, (b) protecting interest of consumers, while safeguarding freedom of economic action of various market participants, (c) preventing practices which limit access to markets or otherwise unduly restrain competition, affecting domestic or international trade or economic development, and (d) establishing a Competition Commission in Uganda.

1. Establishment of Ugandan Competition Commission – Part II of the Draft Competition Bill, 2004, of Uganda, establishes Ugandan Competition Commission, consisting of a Chairperson and 10 other members.9 The Chairperson and other members are persons qualified to be appointed as judge of the High Court and having special knowledge and professional experience of at least 15 years in international trade, economics, business, commerce, information technology, law, finance, accountancy, management, industry, public affairs, administration, etc. They should be full-time members.

2. Appointment of the Chairperson and the other members of the Commission – The Chairperson and other members of the Commission shall be appointed by the President on recommendation of a Committee consisting of (a) the Chief Justice or his or her nominee, (b) the Minister responsible for finance, (c) the Attorney General.10

3. Power of Competition Commission to enquire into anti-competitive agreements – The Competition Commission is empowered to enquire into anti-competitive agreements and

8 http://www.cuts-international.org/documents/Uganda_NRG.doc9 Section 6 of the Competition Bill, 2004, of Uganda.10 Section 7 of the Competition Bill, 2004, of Uganda.

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combinations either on complaint by any person, consumer, trade association, or reference made by the minister or its own knowledge or information.11

4. Appeals – An appeal shall lie against any order made by the Commission to the High Court to be made within 30 days from the date of the decision or extended period if there is sufficient cause.12

5. Prohibition of Anti-Competitive Agreements – Those agreements which are likely to cause appreciable adverse effect on competition are prohibited under Part VI of the Draft Competition Bill, 2004. The types of agreements include agreements for fixing price, limiting production, sharing markets, bid rigging, tie-in arrangement, exclusive supply and distribution agreement, refusal to deal, resale price maintenance, etc.13

6. Prohibition against Abuse of Dominant Position – Part VII of the Ugandan Draft Competition Bill, 2004, prohibits abuse of dominance on the part of any enterprise. Dominant position is defined as a position in the market which materially restrains or reduces competition in the market for a significant period of time, and where shares held by that person or enterprise of the relevant market exceeds 35 percent.14

For determining whether an enterprise enjoys a dominant position or not, the Competition Commission takes into account factors like (a) market share over 33 percent, (b) size and resources of the enterprise, (c) size and importance of the competitors, (d) commercial advantages of the enterprise over competitors, (e) technical advantages enjoyed by the firm, (f) dependence of consumers, (g) monopoly status or dominance acquired as a result of any Act, (h) entry barriers, (i) countervailing buying power, (j) market structure and size of market and (k) any other factor which is of relevance to the Commission.15

7. Regulation of Combinations – Part VIII of the Draft Competition Bill, 2004 discusses regulation of combinations. Any person, who proposes to enter into a combination, shall give notice to the Commission specifying the details of the combination. The Commission shall enquire into any combination whenever they exceed the threshold limit. It includes any (a) acquisition where (i) the parties to the acquisition, namely the acquirer and the company whose shares, voting rights or assets are being acquired, jointly would have assets worldwide, exceeding 500 currency points or turnover worldwide, exceeding 1500 currency points, (ii) the group to which the entity in which the shares, assets or voting rights, have been acquired will belong, will have (A) in Uganda, assets in excess of 2000 currency points or turnover exceeding 6000 currency points; or (B) worldwide, assets in excess of US$1bn or a turnover in excess of US$0.5bn and related limits.16 Any merger or acquisition leading to a combined market share of 35 percent in any relevant market held by the resultant undertaking shall be notified to the Commission.

8. Competition Advocacy – Part XI of the Draft Competition Bill, 2004 had dealt with competition advocacy. In formulating a law or policy, the minister may make a reference to the

11 Section 14 of the Competition Bill, 2004, of Uganda.12 Section 36 of the Competition Bill, 2004, of Uganda.13 Section 43 of the Competition Bill, 2004, of Uganda.14 Section 44 (2) of the Competition Bill, 2004, of Uganda.15 Section 44 (3) of the Competition Bill, 2004, of Uganda.16 Section 46 of the Competition Bill, 2004, of Uganda.

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Commission for its opinion on the possible effect of such law or policy on competition and on receipt of such a reference, the Commission shall, within 60 days, give its opinion to the Minister.17

9. Establishment of Competition Fund – The Minister shall establish a Competition Fund which shall consist of (a) fees received from any person for filing a complaint or any application under the Act, (b) the monies received as costs, if so directed by the Commission, from parties to proceedings before the Commission, (c) grants and donations given to the Fund by the government, companies or any other institutions for the purposes of the Fund, (d) interest accrued on the amounts referred in clauses (a) to (c), (e) the interest or other income received out of the investments made from the Fund18.

10. Reference by Statutory Authorities – Under the Draft Competition Bill, 2004, where in the course of proceeding before any statutory authority entrusted with the responsibility of regulating any utility or service, an issue is raised by any party that any decision that the statutory authority has taken is contrary to the provisions of the Competition Act, then the statutory authority shall make a reference to the Commission.19

17 Section 47 of the Competition Bill, 2004, of Uganda.18 Section 48 of the Competition Bill, 2004, of Uganda.19 Section 16 of the Competition Bill, 2004, of Uganda.

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2. About The Market Economy2.1 What is Market Economy?20

A market economy is a social system based on the division of labour where the prices of goods and services are determined in a free price system set by supply and demand. This is often contrasted with a planned economy, in which the central government determines the price of goods and services using a fixed price system. Planned economy which sometimes is referred to as Command Econmy is one where the market system is set by the Central Authority. The market demand and supply will not affect the prices and therefore the system is not affected by the market forces. Whereas in the market economy system irrespective of the political system whether communist or otherwise, the social system is such whereby the price is fixed by the market forces of demand and supply. Market economies are contrasted with mixed economy, the system that was working in India postindependence, where the price system is not entirely free but under some government control that is not extensive enough to constitute a planned economy. In the real world, market economies are regulated by society.

Supporters of capitalism believe that government has a legitimate role in defining and enforcing the basic rules of the market. The proper role for government in a market economy remains controversial. Different perspectives exist as to how strong a role the government should have in both guiding the economy and addressing the inequalities the market produces. For example, there is no universal agreement on issues such as central banking, and welfare. However, most economists oppose protectionist tariffs.

The term market economy is not identical to capitalism where a corporation hires workers as a labour commodity to produce material wealth and boost shareholder profits. Market mechanisms have been utilised in a handful of socialist states, such as Yugoslavia and even Cuba to a very limited extent. The People's Republic of China is run by the Communist Party, but its economy involves considerable private enterprise and market forces in both private and public sectors. It is also possible to envision an economic system based on independent producers, cooperative, democratic worker ownership and market allocation of final goods and services; the labour-managed market economy is one of the several proposed forms of market socialism.

In the world of business or economy the term ‘market’ is usually used to refer to a mechanism that allows people to trade, which is normally governed by the theory of supply and demand, so allocating resources through a price mechanism and bid and ask matching so that those willing to pay a price for something meet those willing to sell for it.21

Market = Products/Services + Suppliers + Customers

20 The material is based on the article from Wikipedia, http://en.wikipedia.org/wiki/Market_economy, as on July 20, 200821 From Wikipedia, the free encyclopaedia, at <http://en.wikipedia.org/wiki/Market>, as on August 03, 2008

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Demand and supply are affected by various factors, for example demand is affected by change in prices of related goods, change in income, tastes, population or expectations, etc; whereas supply is affected by changes in input prices, changes in technology, in the number of suppliers, etc. In a simplified economics model, the demand curve and the supply curve can be put together to describe market behaviours.22

As a general rule, markets move towards equilibrium, a situation in which no individual will be better off taking a different action. In case of a competitive market, we can be more specific: a competitive market is in equilibrium when the price has moved to a level at which the quantity demanded of a good equals the quantity supplied of that good. At that price, no individual seller could make itself better off by offering to sell either more or less of the good and no individual buyer could make itself better off by offering to buy more or less of the good.

The price that matches the quantity supplied and the quantity demanded is the equilibrium price, which is also known as the market-clearing price – the price that ‘clears the market’ by ensuring that every buyer willing to pay that price finds a seller willing to sell at that price, and vice versa.

There are some markets where the same good can sell for many different prices, depending on who is selling or who is buying. For example, have you ever bought a souvenir in a tourists’ shop and then seen the same item on sale somewhere else (perhaps even in the next store) for a lower price? But in any market where the buyers and sellers have both been around for some time, sales and purchases tend to converge at a generally uniform price, so that we can safely talk about the market price. This is easy to understand. Suppose a seller offered a potential buyer a price noticeably above what the buyer knew other people to be paying. The buyer would clearly be better off shopping elsewhere – unless the seller was prepared to offer a better deal. Conversely, a seller would not be willing to sell for significantly less than the amount he knew most buyers were paying; he would be better off waiting to get a more reasonable customer. So in any well-established, active market, all sellers receive and all buyers pay approximately the same price – which is called the market price. If this price is above its equilibrium level, there will be a surplus that drives the price down. Similarly, if the price is below its equilibrium level, there is a shortage that drives the price up.

Systems based on a market economyAlthough no country has ever had within its border an economy in which all markets were absolutely free, the term typically is not used in an absolute sense. Many states which are said to have a market economy have a high level of market freedom, even if it is less than some parts of the population would prefer. Thus, almost all economies in the world today are mixed economies with varying degrees of free market and planned economy traits. For example, in the US there are more market economy traits than in Western European countries.

22 For the purpose of simple explanation, only two actors of the market are considered here, which are buyers and sellers, or producers and consumers, presumably in a single sector. The role of the government will be discussed later, as well as any other factors and actors.

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CapitalismCapitalism generally refers to an economic system in which the means of production are all or mostly privately owned and operated for profit, and in which investments, distribution, income, production and pricing of goods and services are determined through the operation of a market economy. It is usually considered to involve the right of individuals and groups of individuals acting as "legal persons" or corporations to trade capital goods, labour, land and money. Capitalism has been dominant in the western world since the end of feudalism, but some feel that the term "mixed economies" more precisely describes most contemporary economies, due to their containing both private-owned and state-owned enterprises, combining elements of capitalism and socialism, or mixing the characteristics of market economies and planned economies. In capitalism, there is no central planning authority but the prices are decided by the demand-supply scale. For example, higher demand for certain goods and services leads to higher prices and lower demand leads to lower prices.

Laissez-faireLaissez-faire is synonymous with what was referred to as strict free market economy during the early and mid-19th century as an ideal to achieve. It is generally understood that the necessary components for the functioning of an ideal free market include the complete absence of government regulation, subsidies, artificial price pressures and government-granted monopolies (usually classified as coercive monopoly by free market advocates) and no taxes or tariffs other than what is necessary for the government to provide protection from coercion and theft and maintaining peace, and property rights.

Anarcho-capitalismAnarcho-capitalism, market anarchism or individualist anarchism advocates a true free market like laissez-faire and in addition the complete elimination of the state apparatus; the provision of law enforcement, courts, national defense, and all other security services by voluntarily-funded competitors in a free market rather than through compulsory taxation; the complete deregulation of non-intrusive personal and economic activities; and a self-regulated market. Anarcho-capitalists argue for a society involved in voluntary trade of private property (including money, consumer goods, land, and capital goods) and services in order to maximise individual liberty and prosperity.

Market SocialismMarket socialism refers to various economic systems in which the government owns the economic institutions or major industries but operates them according to the rules of supply and demand. In a traditional market socialist economy, prices would be determined by a government planning ministry, and enterprises would either be state-owned or cooperatively-owned and managed by its employees. Libertarian socialists and left-anarchists often promote a form of market socialism in which enterprises are owned and managed collectively by the workers, but compete with each other in the same way private companies compete in a capitalist market. The People's Republic of China currently has a form of market socialism called the socialist market economy, in which most of the industry is state-owned, but prices are not set by the government. Within this model, the state-owned enterprises are free from excessive regulation and function more autonomously in a more decentralised fashion than in other socialist economic systems.

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The situation in India, despite the various reforms undertaken post independence, till date, is far from the ideal model of market economy system. The legal framework is yet to be completely set for this sort of practice and more so the mindset of the masses is yet to be changed to adapt to the pure system of market economy. Therefore, competition law policy and enactment is a step in the right direction which shall play its role in making the Indian market in tune with the ideal system.

2.2 Markets and Prices – How they work?In economics, supply and demand describe market relations between prospective sellers and buyers of a good. The model predicts that in a competitive market, price will function to equalise the quantity demanded by the consumers and the quantity supplied by the producers, resulting in an economic equilibrium of price and quantity.23

The laws of supply and demand state that the equilibrium market price and quantity of a commodity is at the intersection of consumer demand and producer supply.24 Here quantity supplied equals quantity demanded, that is, equilibrium. Equilibrium implies that price and quantity will remain there if it begins there.

Price of market balance:• P - price• Q - quantity of good• S - supply• D - demand• P0 - price of market balance• A - surplus of demand - when P<P0• B - surplus of supply - when P>P0

23 http://en.wikipedia.org/wiki/market, as on July 11, 200724 http://www.investopedia.com/university/economics/economics3.asp

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If the price for a commodity is below equilibrium, consumers demand more quantity of the commodity than producers are prepared to supply. This defines a shortage of the commodity. A shortage results in the price being bid up. Producers will increase the price until it reaches equilibrium. Conversely, if the price for a good is above equilibrium, there is a condition of surplus of the good. Producers are motivated to eliminate the surplus by lowering the price. The price falls until it reaches equilibrium. In addition to prices, market economy is also related to quality of goods and services, innovation, government regulation, market structure, etc. India's mixed economy combines features of both capitalist market economy and the socialist command economy, but has shifted more towards the former over the past decade.

Defining relevant market has always been important in the application of the competition law. It is particularly important when dealing with three questions: whether an agreement has an appreciable “effect” on competition; whether a firm or group of firms hold a dominant position for the purpose of Article 82; and whether a concentration is compatible with the Common market under the Merger Regulation. One important judgement on market is Continental Can.

Continental Can v. Commission [1973] ECR 215

US based Continental Can used Schmalback-Lubeca-Werke AG (SLW) in Europe to supply light metal containers and lids for glass containers for foodstuff packaging. Continental used another company, Europemballage Corporation, to purchase a majority share and take over control of a competing company (TDV). Although the EC did not at that time have a regime for controlling mergers, the Commission held that structural measures such as acquisitions could constitute abuse of a dominant position contrary to Article 82, by altering the supply and demand structure in the relevant market. The ECJ was asked to consider the validity of interpretation of the Treaty. The ECJ held that Article 82 could be applied in this way.

Basic Principles of Market Definition

Competitive Constraints: Firms are subject to three main sources of competitive constraints; demand substitutability, supply substitutability, and potential competition. From an economic point of view, for the defintion of the relevant market, demand substitution constitutes the most immediate and effective disciplinary force on the suppliers of a given product, particularly in relation to their pricing decisions. A firm or a group of firms cannot have a significant impact on the prevailing conditions of sale, such as prices, if its customers are in a position to switch easily to available substitute products or to suppliers located elsewhere. Basically, the exercise of market defnition consists in identifying the effective alternative sources of supply for the customers of the undertakings involved, both in terms of products/services and of geographic location of suppliers.

Demand Substitution: The assessment of demand substitution entails a determination of the range of products that are viewed as substitutes by the consumer. One way of making this determination can be viewed as a speculative experiment, postulating a hypothetical small, lasting change in relative prices and evaluating the likely reactions of customers to that increase. The exercise of market definition focuses on prices for operational and practical purposes, and more precisely on demand substitution arising from small, permanent changes in relative prices. This concept can provide clear indications as to the evidence that is relevant in defining market.

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Supply Substitution: Supply side substitutability may also be taken into account when defining markets in those situations in which its effects are equivalent to those of demand substitution in terms of effectiveness and immediacy. This means that suppliers are able to switch production of the relevant products and market them in the short term, without incurring significant additional costs or risks in response to small and permanent changes in relative prices. When these conditions are met, the additional production that is put on the market will have a disciplinary effect on the competitive behaviour of the companies involved. Such an impact in terms of effectiveness and immediacy is equivalent to the demand substitution effect.

Potential Competition: The third source of competitive constraint, potential competition, is not taken into account when defining markets, since the conditions under which potential competition will actually represent an effective competitive constraint depends on the analysis of specific factors and circumstances related to the conditions of entry. If required, this analysis is only carried out at a subsequent stage, in general once the position of the companies involved in the relevant market has already been ascertained, and when such a position gives rise to concerns from the point of view of competition.

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3. Market and Competition3.1 Concept of Relevant Market and Competition PolicyThe concept of relevant market is closely related to the objectives pursued by competition policy. For example, under the policy of merger control, the objective in controlling structural changes in the supply of a product/service is to prevent the creation or reinforcement of a dominant position as a result of which effective competition would be significantly impeded in a substantial part of the common market. Under the Competition rules, a dominant position is such that a firm or group of firms would be in a poistion to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers.25 Such a position would usually arise when a firm or group of firms accounted for a large share of the supply in any given market, provided that other factors analysed in the assessment (such as entry barriers, customers’ capacity to react, etc.) point in the same direction.

3.2 CompetitionCompetition includes the act of players in the market of exhibiting their superiority over other players by producing better quality of products and services and reaching out to substantial number of consumers. According to the Draft Competition Bill, 2004, of Uganda, competition means the process by which economic agents, acting independently in a market, limit each other’s ability to control the conditions prevailing in that market; and include; competition from imported goods and services supplied by a person not resident or carrying on business in Uganda.26

Demand for any product or service is not dependant solely on the supply of the products and services but also the availability of substitutes, the nature of the demand, etc. Market includes a specific territory having national or international dimension within which are located sellers among whom buyers generally substitute one for another. In a competitive market, where there are huge number of products and services, which are substitutable for each other, available in the market at reasonable prices, consumers can always shift their purchase to a more competitive product or service, which compels producers to compete with each other to satisfy the preferences of consumers. According to Draft Competition Bill, 2004, market also means a collection of goods among which buyers are or would be willing to substitute one for another.

3.3 Relevant MarketCompetition, hence, is a natural trend in a market economy, where no administrative decisions can decide who can produce/sell/buy what, where and at which price. However, competition is not homogeneous in all markets. Two supermarkets in Kampala compete with each other for customers in Kampala, and not for customers in Entebbe. Or two mobile service providers compete with each other to provide better phone service and not postal service. Competition between these businesses also varies according to time, for example competition between two beer producers in summer, or during the World Cup Championship, will be fiercer than in winter.

25 Definition given by the Court of Justice in its Judgement of February 13, 1979, in case 85/76, Hoffman-La Roche, [1979] ECR 46126 Section 3 of the Competition Bill, 2004, of Uganda.

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"Relevant Market" is the first and foremost concept to understand in almost any competition analyses. ‘Relevant Market’ identifies the extent of effective competitive constraints in the market, in terms of product/services, time and location.27 It follows from here that to define the relevant market for a particular competition case, one usually looks at the ‘Product Market’ and the ‘Geographic Market’ in a specific ‘Period of Time’.

3.3.1 Relevant Product MarketA Product Market includes all products that are close substitutes for one another, both in consumption and in production.28 In a simple example, one might attempt to determine if glass bottles are in the same product market as plastic bottles. In this scenario, one looks to see if this glass bottle price increase leads to significant changes in the consumption patterns of both the two types of containers. If, in response to the price increase, consumers switch a sufficient volume of glass bottle purchases to plastic bottles, then plastic bottles would be considered to be within the same product market as glass bottles. According to the Draft Competition Bill, 2004, relevant product market means, a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of the product, characteristics of the product or its price and its intended use; and factors relevant for determining a product market may include- (i) physical characteristics or end use; (ii) price; (iii) consumer preference; (iv) exclusion of in-house production; (v) existence of specialised producers; (v) industry product classifications.29

3.3.2 Relevant Geographic MarketA Geographic Market, similarly, is determined on the basis of customers’ or consumers’ ability to switch purchase between suppliers of substitute products in case of a price hike. If the airfare between Entebbe and Addis Ababa (Ethiopia) provided by Kenyan Airways is increased, and passengers are able to switch to travelling by Ethiopian Airlines with least inconvenience, then all these airlines, though based in different countries, can be considered as competing in one geographic market, namely the Entebbe – Addis Ababa route.

In another case, even if it is otherwise convenient for a buyer to purchase a car from Singapore, the heavy import duty in Vietnam works as a disincentive for the Vietnamese consumers to buy a car from outside Vietnam. Therefore, from the viewpoint of Vietnamese car users, Vietnam is their geographic market. In addition to import duties and explicitly protectionist measures, there are other factors, such as regulations protecting health and safety, or licensing requirements, or shipping costs, which establish barriers to competition, and thus, help define geographic markets.30 According to the Draft Competition Bill, 2004, relevant geographic market means a market comprising the area in which the enterprise concerned is involved in the supply and demand of products or services, in which the conditions of competition are distinctly homogenous and can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those areas and for determining a geographic market, among others, the following factors may be taken into account- (i) regulatory trade barriers; (ii) local specification requirements or differing national standards; (iii) national procurement policies; (iv) adequate distribution facilities or differing national

27 Reckon LLP, Glossary, at <http://www.reckon.co.uk/open/Glossary>, as on April 03, 2007 28 Web-based definition from <media.pearsoncmg.com/intl/ema/ema_uk_he_lipczynski_indorg_2/0273688073_glossary.html> 29 Section 44 (7)(a) of the Competition Bill, 2004 of Uganda.30 Rai, Qureshi & Saroliya (2003), Restrictive and Unfair Trade Practices – Where Stands the Consumer?, CUTS, India, p.5

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standards; (v) transport costs; (vi) language; (vii) consumer preferences; (viii) need for secure or regular supplies or rapid after-sales services.31

3.3.3 Temporal MarketA third possible dimension to market definition is time. All the markets that are differentiated because of the time factor are covered in temporal markets. Examples of how the timing of production and purchasing can affect markets include:32

• Peak and off-peak services: This can be a factor in transport services or utilities such as electricity supply.

• Seasonal variations, such as summer versus winter months: This might have significant implication on the purchasing pattern of consumers when it comes to such goods as clothing, air-conditioners or heaters, etc.

• Innovation/inter-generational products: Customers may defer expenditure on present products because they believe innovation will soon produce better products or because they own an earlier version of the product, which they consider to be a close substitute for the current generation. Some examples are trendy garments, or computer software, etc.

• Possibility of new entry in the future: In addition to those producers who have already supplied the market (on the assumption they will do so in the future), some others can and would supply the market in response to an anti-competitive action.

To some extent, the time dimension is simply an extension of the product dimension: i.e. the product can be defined as the supply of train services at a certain time of day.

3.4. Market Share and StructureMarket share is the total amount of market space used up by a producer or service provider for doing business with the specific product or service in the market. In the competition world, market shares vary according to the definition of relevant market. Although “market” has been defined by the Draft Competition Bill, 2004, as collection of goods among which buyers are or would be willing to substitute one for another, and a specific territory, which could extend beyond the borders of Uganda, in which are located sellers among whom buyers are or would be willing to substitute one for another, the Bill has not defined market share.33

3.4.1 MonopolyMonopoly is a form of market condition where there is one or very few competitors in the market. Monopolies generally indicate that there are no close substitutes in the relevant market and there are entry barriers of new entrants in the market. As the players in the market are very few in number, consumers do not have choice and the monopolists have a scope of dominating the market. Example can be the dairy sector in Uganda. Until 1994, the dairy industry was dominated by the Dairy Corporation, which was a state-owned monopoly in pasteurised milk. There were no competitors of the Dairy Corporation in Uganda. In 1998, the Dairy Industry Act came into force with a regulatory body called Dairy Development Authority which regulated the dairy sector. The Draft Competition Bill, 2004, has not defined monopoly in the definitions section.

31 Section 44 (7)(b) of the Competition Bill, 2004, of Uganda.32 Based on Office of Fair Trading (2004), Market Competition – Understanding Competition Law (Competition Law 2004), UK, p.2033 Section 3 of the Competition Bill, 2004, of Uganda.

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3.4.2 OligopolyAn oligopoly consists of small number of sellers (oligopolists) who dominate the market. Oligopoly in some cases leads to interdependence amongst firms. As there are not many players in the market, each firm basically studies the behaviour of the other firm while making pricing and investment decisions.34 Sometimes, it leads to secret understanding between the small numbers of firms. The competition laws in most jurisdictions do not define oligopoly, and it is not defined under the Draft Competition Bill, 2004.

3.4.3 Perfect CompetitionPerfect Competition: It is an economic model which depicts a hypothetical market in which no producer or consumer has the power to influence the prices in the market. As neither the producer or seller nor the consumer can influence the prices there is no scope of abusing the powers in the market. As perfect competition is a hypothetical model which is difficult to achieve, it is considered as an ideal situation to be compared with related market structures.

3.4.4 Normal CompetitionA market structure in which a large number of firms compete with each other by making similar but slightly different products.35 Each of the firm has some control over the prices it charges since products are differentiated. However, since there are no significant barriers to entry and products are closely substitutable, the firm cannot affect the market as a whole. Such market structure is often referred to as ‘normal’ or ‘workable competition’. Many markets can be cited as examples hereby, for example, the markets for books, clothing, films and service industries in large cities.

3.5 Competition Policy in UgandaCompetition policy in any country is created to promote competition in national and local markets, restricting governmental intervention, avoiding abuse of market power, maintaining competitive structure in markets, etc. It is also essential for the efficient allocation of resources, promotion of innovation, creation of more employment, allowing the small and medium enterprises (SMEs) to participate in the market and enabling growth. An ideal competition policy and a competition law prevent entry barriers, increases market-access and provides adequate environment for trade and business. Unfortunately, Uganda does not have a competition policy, in spite of having many market-oriented reforms. The market-oriented reforms can be sustained in the long run only if competition resulting from the reforms can be protected and consolidated with suitable policies. When markets are not competitive due to lack of any competition policy, or anti-competitive behaviour by market participants, any economy can miss many potential benefits for the citizens and to the consumers in the long run.

Major reforms in Uganda, include enactment of the Electricity Act, 1999, which established the Electricity Regulatory Authority (ERA), the regulatory authority to regulate licensing relating to generation, transmission, distribution and sale of electricity; enactment of the Communications Act, 1997, which established the Uganda Communications Commission responsible for regulating and licensing competitive operators to achieve rapid network expansion, standardisation and operation of competitively priced quality services in the telecom sector; enactment of the Bank of Uganda Statute, 1993, having provisions for regulating the issuing of legal tenders and maintaining a sound

34 http://www.tutor2u.net/economics/content/topics/monopoly/oligopoly_notes.htm35 www.econ100.com/eu5e/open/glossary.html, as on April 03, 2007.

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financial structure; the enactment of the Financial Institutions Statute, 1993, dealing with financial institutions extensively, including cooperative societies, credit institutions and building societies, etc.

A comprehensive competition policy should be introduced in Uganda to give effect to the Draft Competition Bill, 2004, and implement the market-oriented reforms.

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4. Restrictive Business PracticesRestrictive Trade Practices or Restrictive Business Practices (RBPs) in the private or the public sector, are designed to reduce access to markets or restrain competition in the market in order to increase the relative market position and profits of the enterprise or organisation involved in such practice without necessarily providing goods or services at a lower cost or of high quality.

Restrictive business practices (RBPs), or anti-competitive practices, put simply, are actions by enterprises, whether in the private or public sector, designed to limit access to markets or restrain competition in the market in order to maintain or increase their relative market position and profits without necessarily providing goods and services at a lower cost or of higher quality.

It is well established that even if all other structures are in place to support a market-oriented system, it cannot be assumed that the private sector will operate independent of each other in the marketplace, or that the interaction of market forces will automatically maximise consumer welfare. Therefore, it is pertinent that the state intervenes to protect competition by prohibiting agreements and activities that undermine consumer welfare. This intervention takes the form of competition policy.

Restrictive trade practices (RTPs) include vertical arrangements that generally refer to agreements between undertakings operating at different stages of the production and marketing chain, and horizontal arrangements referring to agreements among undertakings operating at the same stage of the production and marketing chain. Vertical arrangements are the most obvious practice in the local trade environment, where resale price maintenance (RPM) prevails in several sectors through retailing outlets.

4.1. Current Scenario in UgandaThe Ugandan market economy is still in its infancy, characterised by absence of enabling laws/ institutions in some sectors (and industries) or the existence of inadequate and/or archaic policies and laws e.g. sale of goods, consumer protection, food safety, intellectual property etc. The emergence of competition in the marketplace has largely been as a result of government’s direct involvement in attraction of investments or enhancement of capacity for provision of goods and services where none existed or where their existence was inadequate.

Anti-competitive practices (ACPs) that prevail in Uganda include cartelisation, RTPs, abuse of dominance and various other RTPs as well as a host of unfair trade practices. ACPs cover agreements involving implicit or explicit arrangements between firms competing in identical or similar product categories in the same market (in Uganda or across the border). Such arrangements are mostly between producers or between wholesalers or between retailers dealing in identical or similar kinds of products. These practices may constitute an obstacle to the achievement of optimal economic growth, trade liberalisation and economic efficiency within the country and in the immediate region or beyond.

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Consequently, except in retail trade, the level of competition locally is relatively low given the infant nature of the country’s industrial and service sectors. In other areas of the services sector, there exists relative competition, although high market concentration remains a barrier to the attainment of desirable levels of competition in the marketplace. In areas involving huge capital investments, a de facto oligopolistic setup has emerged. This includes the utilities sector.

There is market concentration in several sectors of the economy, particularly in financial services (insurance), manufacturing (mainly food processing) and beverages, among others. Under this set up, dominant entities normally set the pace in form of defacto leadership on all fundamental aspects of their respective sectors thereby hurting competition. A monopolistic competitive dispensation prevails in several sectors. The effect of all this is that there are many cases of anti-competitive behaviour in the marketplace that is/or, could be deleterious to both market competition (and related consequences) as well as consumer welfare.

Alongside this, involvement of the state in business still exists to some extent, for example, in telecom, power, milk processing, etc. Also, policy options that hurt competition like ill-enforced public procurement and selective and inequitable provision of subsidies to some businesses and industry e.g. BHS Limited, GBK Limited and generally, urban formal businesses as opposed to rural and small scale businesses provide cases to examine and enforce competition in the country.

In some jurisdictions RTPs or RBPs are analysed on the basis of market power possessed by the parties to the practices without which it is not possible to influence the relevant market. The market power in most jurisdictions are determined by considering factors like (a) number and market share of competitors, (b) nature of the relevant product, (c) countervailing power of other market participants, (d) intellectual property rights, (e) market characteristics like regulatory environment, rate of technical change, (f) existence of potential competitors, (g) barriers to entry, etc. Although RBPs are not defined in the Draft Competition Bill, 2004, they are explained under Chapter VI of the Bill, as anti-competitive agreements.

4.2 Anti-competitive AgreementsAnti-competitive agreements are agreements relating to production, supply, distribution, shortage, acquisition, or control of goods or services, which can cause adverse effect on competition. Anti-competitive agreements can take place either between firms which have horizontal relationship (all parties are at the same level in production or marketing and are in chain to bring the products or the services to the consumers) or in a vertical relationship (all parties are at different levels or production or marketing). In the competition law of some countries they are categorised under anti-competitive agreements whereas in other countries they are defined under RBPs .

The anti-competitive agreements in most jurisdictions are regulated by competition law under two types of approaches, illegal per se approach and the rule of reason approach. Illegal per se means that the anti-competitive agreement is conclusively presumed to impose unreasonable restraint on the competitive process and is absolutely anti-competitive. In case of per se illegality, the anti-competitive practice is held to be illegal by itself, without any further defense. Whereas the rule of reason approach is based on the balancing factor between the pro-competitive effect of the business practice with the anti-competitive effect of such practice. Where the anti-competitive effect outweighs the pro-competitive effect, it is prohibited by the competition law, in other cases the business practice is allowed.

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4.3 Horizontal Agreements among Competitors:Part VI of the draft law on the broad area of ‘Prohibition of certain agreements’ deals with the exclusive subject of vertical and horizontal restraints, specifically referred to in Section 43 of the draft law as anti-competitive agreements. Sub-section (1) of the specified section states: “An enterprise or association of enterprises shall not enter into any agreement or take any decision or engage in any concerted action, in respect of production, supply, distribution, acquisition or control of goods, or the provision of services, which causes or is likely to cause an appreciable adverse effect on competition”.

Sub-section (2) further stating: “An agreement reached or decision taken or concerted action engaged in, in contravention of sub-section (1) is void”. Sub-section (3) deals exclusively with horizontal restraints thus: “An agreement entered into between enterprises or a decision taken by an association of enterprises, including cartels, or concerted practices between enterprises, involved in the same or similar manufacturing or trading of goods or provision of services, which:

Directly or indirectly fixes purchase or selling prices; Limits or controls production, supply, markets, technical development or investment; Shares markets or sources of production supply by territory, type, size of customer or in any other way; Directly or indirectly results in bid rigging or collusive tendering, is presumed to have an adverse effect on competition”.

Horizontal agreements include agreements between competing firms in the same industry, resulting in decrease of competition. The parties to a horizontal relationship lie at the same level of production or marketing in a chain to bring the products or services to the final consumers. Horizontal agreements include cartels which are also categorised as price-fixing cartels and market-allocating cartels. Horizontal agreements are not defined under the Draft Competition Bill, 2004, of Uganda.

4.3.1. Price-fixingPrice-fixing includes the agreement among group of enterprise or firm to fix the price to be charged on some or all customers. Price-fixing is defined under types of cartels in most jurisdictions which include secret arrangements between parties including producers, sellers, distributors, traders or service providers to fix the prices of the products or the services. According to the definition provided by Organisation for Economic Cooperation and Development (OECD), a price-fixing agreement is an agreement between sellers to raise or fix prices in order to restrict inter-firm competition and earn higher profits.36 Price fixing agreements are formed by firms in an attempt to collectively behave as a monopoly.

36 http://stats.oecd.org/glossary/detail.asp?ID=3284

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In most jurisdictions price fixing is per se illegal. The reason is that it is difficult to discover cartels. Price-fixing cartels exist at the international level where firms of industrialised nations enter into secret understanding which have anti-competitive effects and influence the economy of a number of countries. At the same time, price-fixing cartels lie at the local level where few small firms enter into cartel to raise price of any product in the relevant market.

There are leniency provisions in the Competition law in many jurisdictions which can motivate members of a cartel to disclose the existence of the cartel. A number of cartels have been disclosed after the members have voluntarily reported to the Competition Authority of the respective jurisdiction about the existence of the cartel. The economic justifications of price-fixing include reduction of buyer’s transaction costs of searching for lower-priced goods and promotion of product standardisation.

Price-fixing agreements generally include any agreement (a) on price increase, (b) on a standard formula, according to which prices will be computed, (c) to maintain a fixed ratio between the prices of competing but non-identical products, (d) to eliminate discounts or to establish uniform discounts, (e) on credit terms on what will be extended to customers, (f) to remove products offered at low prices from the market so as to limit supply and keep prices high, (g) not to reduce prices without notifying other cartel members, (h) to adhere to published prices, (i) not to sell unless the agreed on price terms are met, (j) to use a uniform price as starting point for negotiations, etc.

Under the Draft Competition Bill, 2004, price fixing is mentioned under anti-competitive agreements categorised as agreements entered into between enterprises or decision taken by association of enterprises, including cartels, which directly or indirectly fixes purchase or selling prices. Cartels are defined as association of producers, sellers, distributors, traders, or service providers who by agreement between themselves control or attempt to control the production, distribution, sale or price of or trade in goods or provision or rendering of service.37

Price fixing is prevalent in the local petroleum industry, the coffee sector, the civil aviation sector and the public transport sector in Uganda. Shell Uganda, which is an Anglo-Dutch Company and Total Uganda, which is a French company are the market leaders in petroleum industry and are involved in price leadership. Shell acquired the state-owned Uganda Petroleum (UPET) in 1990s and Italian company Agip Petroli in 2000 to increase its market share to 40 percent. Although there is circumstantial evidence about the arrangements of Shell Uganda and Total Uganda, price-fixing is considered to be in effect in the petroleum industry in Uganda. Here are examples of price-fixing taking place in Uganda and other countries.

Box 1: Price Fixing for Coffee

The Uganda Coffee Development Authority (UCDA) Statute has provisions for price fixing, which does not comply with conditions for fair competition. The law allows the UCDA, which is a semi-autonomous regulatory body in the country’s coffee sector, to monitor the price of coffee in order to ensure that no export contract for sale of coffee is concluded at below the minimum price.

Source: Capacity Building on Competition Policy in select Countries of Eastern and Southern Africa, CUTS

37 Section 3 of the Competition Bill, 2004, of Uganda.

Source: Uganda Road Fund, http://www.roadfund.ug/TransportSector.htm

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Box 2: Bus Fare – Price Fixing

The public transport sector is not adequately regulated in Uganda. Vehicle owners under associations are normally contracted by local government authorities to run bus and taxi terminals and they collude to fix bus and taxi fares. Taxi fares are charged on the basis of distance from a central point in urban areas. In the case of special hire and boda boda (bicycle and motorcycle) taxis, fares are determined on discretionary terms, mainly depending on the bargaining skills of the parties involved.

Source: Uganda Road Fund, http://www.roadfund.ug/TransportSector.htm

Box 3: Dairy – Price Fixing In South Africa

Clover, South Africa’s biggest dairy company has agreed to provide information to the Competition Commission relating to the existence of price-fixing cartel in the milk industry. It has agreed to be a state witness under the corporate leniency program where leniency is given to the informer who discloses the existence of a cartel. The other companies associated with Clover include Parmalat South Africa, Ladismith, Woodlands, Lancewood, Nestle South Africa and CSA. Clover has sought immunity for indulging in removing surplus milk from the market, thereby decreasing the supply and keeping the prices high.

Source: Clover to spill beans on price-fixing cartel, http://www.busrep.co.za/index.php?fArticleId=3644672

Box 4: TV Manufacturers’ Cartel – People’s Republic of China

Top managers of nine TV Manufacturers in the People’s Republic of China formed a cartel for setting prices for TVs sold domestically. There were other arrangements like research and development cooperation in digital technology standards and new products, joint efforts in promoting exports, etc. The State Development and Planning Commission (SDPC) publicly announced that the agreement was in breach of the 1998 Price law, but the Ministry for Information Industry which supervises the TV sector, supported the alliance saying that it promoted healthy development of the industry.

Source: Lin (2005)

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Box 5: Price Fixing – Transport SectorIn Peru, a number of companies were prosecuted for their involvement in price fixing in transportation services in Lima. In 1999, the companies informed the local authorities about their agreement to increase prices. The local authorities produced direct evidence of price fixation by the alleged companies to the Competition Authority in Peru. The evidences included copies of the documents having the communication and decision of the companies to raise prices. The Competition Authority investigated into the matter and passed an order compelling the companies to sign a document to stop the alleged practice of price-fixation. One company which did not sign the document was fined an amount equal to US$1,213.58.

Source: Summary of cartel cases described by invitees, Organisation for Economic Co-operation and Development CCNM/GF/COMP(2001)4

Box 6: Price Fixing – South African Bakeries

The South African Competition Commission has launched investigation into alleged cartel of price fixing in the bakeries sector. The investigation was started after the Commission received telephone calls from independent distributors in the Western Cape region. It was reported that Blue Ribbon, Albany, Sasko and Duens bakeries had simultaneously increased the price of bread by 30 to 35 cents per loaf before Christmas. It is also alleged that the bakeries reduced and fixed the discount awarded to independent distributors to a maximum of 75 cents per loaf, irrespective of the volumes purchased. The Commission acted on the information from Premier Foods – trading as Blue Ribbon Bakery which has received conditional immunity under the Commission’s corporate leniency program. If the evidence against Pioneer Foods and Tiger Food Brands is proved they can face fines up to 10 percent of their bakeries’ annual turnover.

Source: Global Competition Review, February 14, 2007

Box 7: Price Fixing in Aviation Sector - Brazil

In Brazil, in August 1999, several newspapers reported that five days after the presidents of four major airlines had met, ticket prices for service on the heavily traveled Rio de Janiero Sao Paolo route increased simultaneously by ten percent. In addition to the meeting of the companies’ executives, evidence revealed that price data were exchanged among the companies through postings on ATPCO, the computerised airlines price data system maintained by the Airline Tariff Publishing Company. A company could configure a price change notice so that, for an initial three-day period, the change could be viewed only by the other airline companies and not by consumers or travel agents. The posting company was thus able to abort the change if competitors failed to follow suit. In September, 2004, Brazil’s Competition Authority, Conselho Administrativo de Defesa Economica (CADE) determined that the four airlines had colluded to raise prices. Each carrier was fined one percent of the revenue earned on the effected route during 1999 and was forbidden from fixing prices and from posting price adjustments in advance.

Source: Brazil - Peer Review of Competition Law and Policy, OECDrganisation For Economic Co-Operation And Development, 2005

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4.3.2. Market Allocating AgreementsMarket allocating agreements are those agreements which allocate the market in terms of territory or customers and prevent the competitors from entering the market within the territory or the group of customers. They are termed as cartels according to competition laws of most countries. They are considered per se illegal in most jurisdictions as they do not leave any room for competition in addition to the secretive nature of such agreements. Sometimes market-allocating cartels are entered into by parties even without written agreements but with oral understandings. They also include market-sharing agreements such as agreements between competitors to refrain from (a) producing one another’s products, (b) selling in one another’s territories, (c) soliciting or selling to one another’s customers, (d) expanding into a market in which another participant is an actual or potential rival.38

Market-allocating cartels are more prevalent in the following types of industries, (a) where it is difficult or costly for new suppliers to enter the industry, (b) there are only a few suppliers, or a small group controls most of the market, (c) suppliers have similar costs or fixed cost amount for a high proportion of total costs, (d) there is active trade association which gives competitors the chance to meet and discuss the industry, (e) the products are straightforward, (f) the products or services have no close substitutes, (g) demand for the product or the service is stable, etc.

Market allocation arrangements occur both in domestic and international trade. In the case of international trade it involves market divisions on a geographical basis, reflecting previously established relation between suppliers and buyers. Enterprises involved in such arrangements generally agree not to compete in each other’s home market.

Although market allocation is not specifically defined under the Draft Competition Bill, 2004 yet it is covered under anti-competitive practices and includes agreement entered into between enterprises or a decision taken by an association of enterprises, including cartels, which shares markets or sources of production supply by territory, type, size of customer or in any other way.39 In Uganda, anti-competitive practices of market sharing or customer allocation prevail primarily in the beverage sector. Here are few examples of market allocation cartels.

38 http://www.accc.gov.au/content/index.phtml/itemId/695035/fromItemId/69498239 Section 43 of the Competition Bill, 2007, of Uganda.

Box 8: Role oOf Pepsi aAnd Coca Cola iIn Uganda

In Uganda, Pepsi bought into NC Beverages, bottlers of Highland brand mineral water and Rwenzori Beverages Companies makers of Rwenzori Brand is alleged to have gone to Coca Cola. Although the two companies have denied the allegations, saying that they have joint distribution arrangements, but theoretically, the soda companies would be able to control market shares through regulation of production of either soft drinks or bottled water.

Source: The foods and Beverages Industry, http://www.ugandainvest.com/foods.pdf

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4.3.3. Output RestrictionAn agreement on output restriction creates conditions where enterprises producing or supplying the same products or services agree to limit their supplies to a lower proportion of their previous sales. The main reason for limiting supplies is to create an artificial crisis in the market. An indication can be whether the supply of certain products in the market all of a sudden had been reduced thereby creating an artificial crisis. Sometimes companies justify output restriction on the ground of increase of supply over demand. Although, output restriction is not specifically defined under the Draft Competition Bill, 2004 yet under anti-competitive agreements those agreements which limit or control production, supply, markets, technical development or investments are mentioned which are prohibited under the law.

4.3.4. Bid RiggingBid rigging includes firms or enterprises participating in a bid for a tender, and involve a secret arrangement among themselves to determine the eventual winner. According to a definition provided by OECD, bid rigging is a particular form of collusive price-fixing behaviour by which firms coordinate their bids on procurement or project contracts.40 There are two common forms of bid rigging. In the first form of bid rigging, firms agree to submit common bids, thus eliminating price competition. In the second form of bid rigging, firms agree on which firm will be the lowest bidder and rotate in such a way that each firm wins an agreed upon number or value of contracts. Since most contracts open to bidding involve governments, it is they who are most often the target of bid rigging.

40 http://stats.oecd.org/glossary/detail.asp?ID=3334

Box 9: Market Sharing Agreement in Canada

Canada Pipe Company Limited conspired with US Pipe and Foundry Company in the sale of mid – size range ductile iron pipe in Canada. The product is used in municipal water systems to carry drinking water to residents. Canada Pipe Company entered into market – allocating agreement with US Pipe and Foundry Company to cut off Louisbourg, the distributor in Canada. Canada pipe was fined US$2.5 mn for alleged market – sharing agreement and conspiracy with US Pipe and Foundry Company.

Source: http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=1197&lg=e

Box 10: Market Sharing Agreement in Canada

Canada Pipe Company Limited conspired with US Pipe and Foundry Company in the sale of mid –size range ductile iron pipe in Canada. The product is used in municipal water systems to carry drinking water to residents. Canada Pipe Company entered into market – allocating agreement with US Pipe and Foundry Company to cut off Louisbourg, the distributor in Canada. Canada pipe was fined US$2.5mn for alleged market–sharing agreement and conspiracy with US Pipe and Foundry Company.

Source: The foods and Beverages Industry, http://www.ugandainvest.com/foods.pdf

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Few factors favour bid rigging like fewer sellers in the market, as it is easy to collude, products not easily substitutable, repetitive purchases as bidders become familiar to each other.41 The Australian Competition and Consumer Commission (ACCC), examines other signs of bid rigging or collusive tendering like (a) suppliers meet before they submit bid, (b) suppliers that will normally tender fail to do so, (c) the same supplier is always the lowest bidder, (d) prices drop when a new supplier tenders, (e) the successful bidder subcontracts work to its competitors that submitted higher tenders, (f) tenders are similar, such as identical spelling errors, miscalculations, or one firm representing several bidders, etc.

In Uganda, bid rigging is prevalent at the local market level. According to Uganda’s decentralisation arrangement provided for in the Local Government Act, the districts have a wide range of powers to award tenders for supply of goods and services. With economic liberalisation, the bidding process in the government departments has become more transparent.

Under the Draft Competition Bill, 2004, bid rigging is mentioned under anti-competitive agreements in Part VI. It is defined as any agreement, decision or enterprise involved in the same manufacturing, trading or service rendering activity which has the effect of eliminating competition for bids or which adversely affects or manipulates the bidding process. It is said that an agreement entered into between enterprises or decision taken by an association of enterprises, including cartels, which directly or indirectly results in bid rigging or collusive tendering is presumed to have an adverse effect on competition.42 In Uganda, as the Competition Authority has not started functioning since the Draft Competition Bill, 2004 is still not operational, there is no proper body to check the practice of bid rigging, although the Public Procurement and Disposal of Public Assets Authority has control over the bidding process. The Office of the Inspector General of the Government (IGG) is the only body which has sometimes intervened in response to petitions and carried out investigations in relation to bid rigging in Uganda.

Bid rigging just like price-fixing and market-allocating cartels is secretive in nature and that is why it is dealt with serious consequences in most of the jurisdictions around the world. Under US law, punishment for individuals in relation to bid rigging can include fines of US$250,000 and imprisonment up to three years, and for corporations the maximum fine is US$10mn.43 In Kenya, bid rigging is considered to be a criminal offense with imprisonment up to three years. Here are few examples of bid rigging in Uganda and other countries.

41 The U.S. Department of Justice, Antitrust Division, http://www.usdoj.gov/atr/public/div_stats/211491.htm42 Section 43 (3)(d) of the Competition Bill, 2004, of Uganda.43 US Department of Justice, 2005.

Box 11: Big Rigging in Ugandan Banking Sector

In the case of privatisation of Uganda Commercial Bank, the biggest commercial bank in Uganda, the brother of the President has been alleged to have bought the former state enterprise through a proxy, Malaysia – based Westmont Asia (Bhd). It was alleged that Westmont was awarded the bank stake through bid rigging. The controversy over the sale of the bank was publicised amidst allegations of several privatised state-owned enterprises also being sold through bid rigging.

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4.3.5. Boycott or Joint Refusal to DealA joint refusal to deal or a boycott includes the joint action of competitors to use their combined market power to force a competitor, or a customer, or a supplier to agree to an action that harms competition. In most jurisdictions, two types of boycotts are prohibited, in cases where the parties mutually agree not to supply certain customers or not to purchase from certain suppliers, and in other cases where they agree with competitors to make the supply of purchase of goods subject to certain conditions mutually agreed. They are most anti-competitive in nature in those cases where the group of competitors engaged in boycott have dominant effect in the market. By agreeing to stop buying from a supplier, the retailing customers may be able to compel the supplier not to sell any or more of its products to other retailers.

Boycott or joint refusal to deal is prohibited in major jurisdictions. For example, it is prohibited under Article 8 (6) and 8(7) of the Competition Law of Vietnam, irrespective of the combined market share of the parties involved in the boycott or joint refusal to deal. Boycott or joint refusal to deal is not defined under the Draft Competition Bill, 2004. Below are examples of cases on joint refusal to deal from other jurisdictions.

Box 12: Big Rigging in Nepal

In Nepal, specific instances of bid rigging did arise in relation to army supplies to Royal Nepalese Army and Nepalese Police. Also bid rigging was reported in the pipe manufacturing industry. Polythene pipe manufacturers were involved in bid rigging during bidding for the contract to supply pipes to the Nepal Drinking Water Corporation. The Municipalities do not follow the lowest bidder legal provision, as it is apprehensive about inferior quality of the products as a result of bid rigging.Source: OECD, 2005

Box 13: Big Rigging Conspiracy in China

In China, five groups of companies were convicted for participating in a bid rigging conspiracy affecting the operation of a brickyard plant in Zhesiang Province. In July, 1999, there was a public tender on the right to operate the plant, with the minimum bid being US$31,460. In order to force down the price, representatives of the group determined the bid winner and the winning price. It was also decided that the bid winner will pay the other four groups a total of US$3495. The agreed winner won the bid at US$31,470. The municipal administration for industry and commerce in the province declared that the bid was invalid. The respondents were fined of US$8,738.

Source: Summary of cartel cases described by invitees, OECD, CCNM/GF/COMP(2001)4

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4.4. Vertical Agreements in the Distribution/Sale of productsVertical agreements are agreements between two or more firms that are at different levels of production-supply chain. These agreements are based on vertical control within a principal and agent relationship, where generally the principal (manager) imposes contractual obligation on its agents (retailer) when delegating responsibility relating to selling of goods.

Sub-section (4) of Section 43 of the draft law deals exclusively with vertical restraints thus: “An agreement or concerted practice between enterprises at different stages or levels of the production chain in different markets, in respect of production, distribution, sale or price of or trade in goods or provision of services including: tie–in arrangement; exclusive supply agreement; exclusive distribution agreement; refusal to deal; RPM, is an agreement or practice in contravention of sub-section (1) if the agreement or concerted practice causes or is likely to cause an appreciable adverse effect on competition”.

However, the law includes more provisions to guide determination of restraints as defined in sub-section (4). This is for purposes of determining whether there is an adverse effect on competition. The draft law lists a number of factors that may be taken into account by the Commission. The Commission is expected to consider whether the agreements or concerted practices: result in creation of barriers to new entry or; result in forcing existing competitors out of the market or; result in foreclosing competition by hindering entry into a market; result in any consumer benefit or pro-competitive impact; and contribute to the improvement of production and distribution and promote technical and

economic progress, while allowing consumers a fair share of the benefits.

Nevertheless, Part VI of the draft law does not apply to any agreement, decision or concerted action leading to any combination (mergers and acquisitions), even if no notice is required to be given to the Commission under Section 45 that focuses on combinations or M&As.

Also, provisions do not restrict the right of any person to restrain any infringement of IPRs granted in Uganda or to impose such reasonable conditions as may be necessary for the purposes of protecting or exploiting such IPRs.

Box 14: Big Rigging Conspiracy in China

Anglo American and Engen filed complaint to the South African Competition Commission about alleged RTPs of boycott. The complainants alleged that a number of retail pharmacies had formed an association named United South African Pharmacies (USAP), to negotiate on the terms of supply with medical schemes on behalf of the retail pharmacists. USAP recommended a certain discount to its members (retail pharmacists) below which its members could not contract with a medical scheme. It recommended a form of boycott to its members of certain schemes which insisted on the discounts that were above the rate which USAP considered to be reasonable. The South African Competition Commission was satisfied with the evidence about the fact that USAP had contravened the provisions of South African Competition Act and referred the complaint to the South African Competition Tribunal for adjudication.

Source: Competition Commission South Africa Annual Report 2002

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The provisions of the law in Part VI do not restrict the right of any person to export goods from Uganda, to the extent to which the agreement, decision or concerted action relates exclusively to the production, supply, distribution or control of goods or provision of services for the export.

While examining vertical restraints certain factors should be considered like the effect of competition as an outcome of the agreement, any efficiency goal related to the agreement which outweighs the anti-competitive effect of the agreement. As they are considered to be less harmful than horizontal anti-competitive agreements in most jurisdictions, they are mostly treated with rule of reason approach. The Anti-trust Law in the United States has shifted generally towards more favourable evaluation of vertical restraints. The 1985 Antitrust Guidelines describing its enforcement policy in respect of vertical restraints, indicated that it would not take legal proceedings against the use of vertical practices by firms with a larger than 10 percent share. The pro-competitive effects of vertical agreements include optimising of investment levels, eliminating avoidable transaction costs, etc. But in some jurisdictions like Chile, vertical restraints are considered per se illegal. In Chile during 1973 to 1994, the Antitrust Commission has passed orders on 53 cases relating to vertical restraints on the basis of per se illegality, condemning the practices without inquiry into whether the firm had market power or whether the practices had efficient justifications.44

4.4.1. Resale Price MaintenanceRPM is an agreement between the manufacturer and the distributor that the distributors are going to sell goods of the manufacturer at a price which may be above price floor (minimum RPM) or below a price ceiling (maximum RPM). There are also efficiency goals of RPM. Sometimes RPM promotes business efficiency. At one point in time, RPM used to be considered per se illegal in most jurisdictions, as the efficiency goals were not considered at that time. In recent times, most jurisdictions have changed their stand and treat RPM with rule of reason approach.

There are serious consequences of RPM in certain jurisdictions. For example in Canada, criminal sanctions are provided for minimum and maximum RPM. The competition legislation of some states like UK, allow maximum resale prices, and recommended resale prices are allowed in US and UK. In the US, the practice of recommended resale price becomes illegal if there is a finding of any direct or indirect pressure for compliance. In the UK, although recommended resale prices are not prohibited, the Director General of Fair Trading may prohibit the misleading use of recommended resale prices, for example, where unduly high prices are recommended in order to catch the attention to apparently large price cuts. RPM prevails in many sectors in Uganda, specially the beverage sector. They are mostly prevalent in the local trade environment. The players in the market who are involved in RPM provide justification that the practice removes pricing distortions and minimises transaction costs.

One of the common area of RPM is in case of branded products. Manufacturers wishing to maintain a certain brand image often pressurise retailers not to discount their goods, fearing that it diminish the exclusive image of their goods. The other area where RPM occurs is the area of franchising. In case of franchising, the franchisors may maintain a high degree of control over franchisee businesses, even dictating what kind of products they can buy and sell, how the operation of

44 Chile - Peer Review of Competition Law and Policy, OECD

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businesses are to be conducted, even dictating the minimum prices for resale of goods, below which their franchisees must not sell, depending on the terms of the franchising agreement.

According to the Draft Competition Bill, 2004, an agreement or concerted practice between enterprises at different stages or levels of the production chain in different markets, in respect of production, distribution, sale or price of or trade in goods or provision of services including RPM, is an agreement or practice in contravention of sub-section (1) if the agreement or concerted practice causes or is likely to cause an appreciable adverse effect on competition.45 Price in the context of sale of any goods or the performance of any services include every valuable consideration, whether direct or indirect, or deferred, and includes any consideration, which in effect relates to the sale of any goods or to the performance of any services although ostensibly relating to any other matter or thing.46 Here are few examples of RPM prevalent in Uganda and other countries.

4.4.2 Exclusive DealingExclusive dealing is a vertical agreement between a retailer or wholesaler and a supplier, with an understanding that no other distributor or player in the market will be appointed or receive supplies in a particular area. Those firms which are involved in exclusive dealing sometimes justify their practice on the ground that those agreements help them organise their distribution more efficiently. By identifying the specific distributor related to the distribution of particular commodity the firms can ensure a steady supply of the product and ready availability of the requisite quantity of the

45 Section 43 (4)(e) of the Competition Bill, 2004, of Uganda.46 Section 3 of the Competition Bill, 2004, of Uganda, under the head interpretations.

Box 15: Recommended Pricing in Uganda

In Uganda, the biggest soft drink producers are franchises of big international companies like Pepsi and Coca-Cola, producing carbonated soft drinks. Century Bottling Company, the local franchise holder for Coca-Cola and Crown Beverages Limited and local franchise holder of Pepsi, are involved in the practice of setting “recommended prices”, thereby resulting in resale price maintenance. The companies have rationalised the practice arguing that it removes price distortions and minimizes transaction costs.

Source: Capacity Building on Competition Policy in select Countries of Eastern and Southern Africa Consumer Education Trust (CONSENT), 2005

Box 16: Recommended Pricing in Uganda

The Federal Court of Australia has imposed fines of 3.4 million Australian Dollars against four Jurlique companies for alleged anti-competitive activities. Jurlique companies manufacture and sell premium skin care products. The Court declared that the above-mentioned companies were involved in RPM which was investigated by the Australian Competition and Consumer Commission. It is a prohibited practice under the Australian Competition law and once proved the Court imposed a fine of US$3.18.

Source: Jurlique fined US$3.4m in resale price maintenance case, http://spahub.org/newsdetail.cfm?codeID=19766

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product. The anti-competitive effects of exclusive dealing include the rivals being foreclosed from the market altogether, or forced to use higher costs, or less effective methods to bring their products to market. For example, in Brazil, in 2002, CADE (the Competition Authority) examined a contract between White Martins Corporation (WMC) and Ultrafertil, a petrochemical company. Ultrafertil’s manufacturing processes generated as a byproduct, the main input used by WMC for the production of carbon dioxide gas. The contract gave WMC exclusive rights for ten years to all the by-products generated by Ultrafertil. A potential entrant into carbon dioxide production complained that the contract was a device to prevent new entry. After realising that WMC had dominant power in carbon dioxide production and that no input source other than Ultrafertil was available, CADE agreed that the contract was anticompetitive. WMC was fined BRL 24 million (US$9.4mn), an amount equal to five percent of its gross sales in the year preceding the complainant’s petition.47

Under the Draft Competition Bill, 2004, exclusive dealing is defined as exclusive supply arrangement and exclusive distribution agreement and is prohibited if the agreement or the concerted practice causes or is likely to cause an appreciable adverse effect on competition.48 Exclusive dealing is prevalent in Uganda. Media releases and public complaints have not been successful in terms of bringing about any public response.

47 http://www.oecd.org/dataoecd/12/45/35445196.pdf48 Section 43 (4)(b) and section 43 (4)(c) of the Competition Bill, 2004, of Uganda.

Box 17: Exclusive Dealing By Metro Cash and Carry

Metro Cash and Carry retailing group had an arrangement with selected retailing outlets for vending its products. This was an exclusive dealing arrangement practiced by the South African company. The company sold the products only to an exclusive class of people who were issued membership cards. Presently, the company has discarded the arrangement and sells the products to the general public.

Source: Competition and Consumer Protection Scenario in Uganda, CUTS Centre for Competition, Investment & Economic Regulation and Consumer Education Trust, 2003

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4.4.3. Tied sellingTied selling involves sale of one particular commodity being dependant on the condition of sale of another commodity which is called the tied product. It can either take place when there is monopolistic control of the market by some market players, or there is arrangement between a number of sellers where all of them indulge in tied selling. It is often used when the supplier makes one product that is critical to many customers dependant on the other product which is less necessary and the consumers are compelled to buy the less important product as the sale of the key product is tied to the other product. Under the US anti-trust law tying arrangement includes an agreement by a party to sell one product but only on condition that the buyer also purchases a different or tied product, not purchase the product from any other supplier.49

Under the Draft Competition Bill, 2004 tied selling is defined as tie-in-arrangement and is prohibited if the agreement or concerted practice related to tie-in-arrangement causes or is likely to cause an appreciable adverse effect on competition.50 Tied selling is prevalent in Uganda. Under Uganda’s Statutory Investment Code of 1991, investors are required to use specified proportions of locally available raw materials. It is inconsistent with the GATT agreement, 1994. There has been an amendment of Uganda’s Statutory Investment Code which may reduce tied arrangements.

Box 19: Tying Arrangements

In Uganda, local retail outlets of globally renowned food supplement makers House of Health, Swissgarde and Golden Neo-Life Diamite (GNLD) are involved in the practice of setting terms that amount to tying arrangements. Members to the schemes established by the companies are required to purchase products for a fixed amount of money as precondition for future dealings. Consumers are forced to pay for quantities of products that they may not require necessarily.

49 http://vi.unctad.org/temp/ml_frames_en.html50 Section 43 (4)(a) of the Competition Bill, 2004, of Uganda.

Box 18: Exclusive Dealing By Nestle

Portugal’s Competition Authority has fined Nestle Portugal for compelling hotels, restaurants and cafeterias to sign exclusivity clauses which effected competition in the market. Further, the clauses had no termination date. Nestle had been using the clauses since 1999. The authority has asked the company to not only pay the fine but also remove the clause.

Source: GCR, 03.05.06

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Box 20: Tied Selling

In Uganda, fast food outlet Nandos and Steers provide deals to consumers in which Coca-Cola features as a mandatory drink. The offer does not allow the consumers to exercise their own choice of drink. Unless the consumers take Coca-Cola they are not allowed to take the fast food items. The fast food outlet and Coca-Cola have a tying arrangement to include their products in the packages. As there is no functional competition law in Uganda at the moment, the practice is continuing. Once competition law will be in operation, tied selling will be prohibited under the law.

Box 21: Violating Fair Competition Act

In FTC v. Moore’s Transport case in Jamaica, Moore’s Transport contracted with a taxi driver for his services in exchange of certain salary. When the driver attempted to collect his salary, he was only given a portion of the amount that was promised to him. He was allegedly told that the remainder had to be taken in gas from a designated gas station. The Fair Trading Commission (FTC) was made aware of the allegations and after investigation, it found the conduct of the company in violation of Section 17(2)(c) of the Fair Competition Act (FCA) which prohibits tying arrangements.

Source: http://www.ftaa-alca.org/Wgroups/WGCP/English/dae/daejam1e.asp#sec2a

4.5. Abuse of Dominant PositionAbuse of dominance includes the exploitation of the monopolistic control in the market by certain firms or enterprises. Dominance includes the control over the relevant market of any firm or enterprise so that prices can be influenced by such a firm or entity. According to United Nations Conference on Trade and Development’s (UNCTAD) Model Competition law, dominant position of market power refers to a situation where an enterprise, either by itself or acting together with a few other enterprises, is in a position to control the relevant market for a particular good or service or group of goods or services.51

According to definition of OECD, there are two kinds of abuse of dominant positions (a) exploitative abuses and (b) exclusionary abuses.52 Exploitative abuses include those practices where a firm takes advantage of its market power by charging excessively high prices to its customers, discriminating among customers, paying low prices to suppliers or through related practices. Exclusionary abuses include those practices where a firm attempts to suppress competition in a number of ways, like refusal to deal with a competitor, raising competitor’s costs of entering a market, or charging predatory prices.

In both forms of abuse of dominant position, question of dominance and the ability to exert market power are examined by the competition authorities in most jurisdictions. The concept of abuse of dominant position of market power refers to the anti-competitive business practices in which a dominant firm may engage in, in order to maintain or increase its position in the market. The prohibition of abuse of a dominant position of market power has been incorporated in competition legislation in countries like Canada, France, Germany, etc.

51 http://vi.unctad.org/temp/ml_frames_en.html52 http://www.competition-regulation.org.uk/conferences/southafrica04/lee.pdf

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According to competition law in most jurisdictions a firm holds a dominant position when it accounts for a significant share of a relevant market and has a significantly larger market share than its next largest rival. When a firm holds market share of 40 percent or more, it is usually a dominant firm which can raise competition concerns when it has capacity to set prices independently and abuse its market power. At the same time dominant position by itself is not anticompetitive as such. Market power represents the ability of a firm or a group of firms to raise and profitably maintain prices above the level that would prevail under competition for a significant period of time.

In addition to higher than competitive prices, the exercise of market power can be manifested through reduced quality of service or lack of innovation in relevant markets. In other countries like India, dominant position means a position of strength, enjoyed by an enterprise, in the relevant market in India, which enables it to operate independently of competitive forces prevailing in the relevant market, or affect its competitors or consumers or the relevant market in its favour.53

In Germany, the legislation contains certain presumptions, like at least one enterprise has one third of a certain type of goods or commercial services, and a turnover of at least DM 250mn (US$173.98mn) in the last completed business year, three or fewer enterprises have a combined market share of two thirds or over, five or fewer enterprises have a combined market share of two thirds or over.54 In Poland, the competition law presumes a firm might have a dominant position when its market share exceeds 40 percent.55 The Competition law of Czech Republic presumes a firm might have a dominant position when its market share exceeds 30 percent.56 The Competition legislation of Mongolia, considers that dominance exists when a single entity acting alone or a group of economic entities acting together account for over 50 percent of supply to the market of a certain good or similar goods, products, carried out works and provided services.57

Under the Draft Competition Bill, 2004, for the purposes of determining whether an enterprise enjoys a dominant position, the factors which are taken into account include (a) market share of over 33 percent, (b) size and resources of the enterprise, (c) size and importance of the competitors, (d) economic power of the enterprise, (e) technical advantages enjoyed by the firm, (f) dependence of consumers, (g) monopoly status or dominance acquired as a result of any Act, (h) entry barriers, (i) countervailing buying power (j) market structure and size of market, (k) any other factor which the Commission considers relevant.58 The term abuse of dominance is defined by the competition laws of a number of jurisdictions like Canada, Germany, etc. Few types of abuse of dominance, like tied-selling, refusal to deal, exclusive dealing, has been dealt with in the previous chapters.

4.5.1. Price Discrimination

53 Section 4 of the Indian Competition Act, 2007.54 http://www.unctad.org/en/docs/tdrbpconf5d7.en.pdf55 Law of 24 February, 1990 on Counteracting Monopolistic Practices, Article 2 (7).56 Competition Protection Act of the Czech Republic, 1991, Article 9.57 Law of Mongolia on Prohibiting Unfair Competition, Article 3 (1).58 Section 44 (3) of the Competition Bill, 2004, of Uganda.

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Price discrimination refers to the practice of applying different conditions, normally different prices, to equivalent transactions. Price discrimination can take place in two ways. Either different prices can be charged for different customers or category of customers for the same product where the difference of price is not dependant on quality, quantity or any other characteristic of the product supplied. Or same price can be charged for different customers or category of customers even though the cost of supplying the products were different.

Discriminatory pricing can also be predatory, for example in case of discounts based on quantities, bonus systems, etc. In all these cases, in addition to injury to direct competitors, discriminatory pricing can injure competitors of the favoured purchaser. Injury to the competitors of the favoured purchaser is not considered to be a concern by the competition authorities of most jurisdictions as competition law in most countries protect competition and not the competitors. There are other forms of price discrimination like delivered pricing, which includes selling at uniform price irrespective of location and the tranportation costs of the seller, and base point selling, where one area has been designated as base point (whereby the seller charges transportation fees from that point irrespective of the actual point of shipment and its costs).

In some jurisdictions like Peru, the competition legislation considers discriminatory pricing as a form of abusive behaviour, but when discounts or bonuses related to generally accepted commercial practices are given due to special circumstances including anticipated payment, quantity, volume, etc., they are not considered to be abuse of dominance if granted to all consumers.

Although price discrimination is not defined under the Draft Competition Bill, 2004, abuse of dominance by exclusion of competitors through price sqeezing is prohibited. Under the same Bill, price in relation to the sale of any goods or to the performance of any services, include any valuable consideration, whether direct or indirect, or deferred, and includes any consideration, which in effect relates to the sale of any goods or performance of any services although ostensibly relating to any other matter or thing. Price squeezing means a price practice or undertaking, which is operating on an upstream market as well as on a downstream market, and charges its consumers to compete in the downstream market.59 Here is an example of price discrimination from Argentina.

Box 22: Price Fixing in the Cable TV Market

In 2003, the Competition Authority of Argentina had investigated allegations relating to price discrimination in the Cable TV market. When a new operator entered the regional market, the incumbent lowered his prices only to the clients in the competitive area, maintaining higher prices to the rest of the clients. The Commission imposed fines on the persons proved to have been involved in price discrimination in the Cable TV Sector.

4.5.2. Predatory Pricing

59 Section 3 of the Competition Bill, 2004, of Uganda, titled “Interpretation”.

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Predatory pricing takes place when a dominant enterprise temporarily reduces prices of commodities in order to eliminate existing competitors, or create obstacles for the entry of new competitors. It does not benefit the consumers in the long run because the reduction of price has a temporary effect which is raised the moment the predator drives the competitors out of the relevant market. According to definition provided by OECD, predatory pricing is a deliberate strategy, usually by a dominant firm, of driving competitors out of the market by setting very low prices or selling below the firm’s incremental costs of producing the output (often equated for practical purposes with average variable costs). Once the predator has successfully driven out existing competitors and deterred entry of new firms, it can raise prices and earn higher profits.

There can be signs of predatory pricing like existence of entry barriers which may include high financial costs for entry, with difficult technology and difficulty in selling off the assets if the new technology fails. Predatory pricing is prevalent in Uganda’s telecommunications sector. Uganda Communications Commission, the sectoral regulatory agency has responded to the allegation of predatory pricing in the sector by promising investigations into the allegations. The results of the investigations have not been publicised till now.

Different jurisdictions deal with predatory pricing in their own way. For example, in People’s Republic of China Law for Countering Unfair Competition, an operator (enterprise or individuals) may not sell its goods at a price that is below the cost for the purpose of excluding its competitors. The legislation of Mongolia forbids an enterprise to sell its own goods at a price lower than the cost, with the intention of impeding the entry of other economic entities into the market or driving them from the market.

Under the Draft Competition Bill, 2004, predatory price means the sale of a product or provision of a service with a view to eliminate competition or the competitors, at a price that is below the cost of production of the goods or provision of service, the cost of the production or provision being computed in accordance with regulations made by the Commission.60 Here are few examples of predatory pricing practiced in Uganda.

Box 23: Predatory Pricing in Telecommunications

In the Telecommunications market of Uganda, the new operators are reducing call tariffs significantly to give an impression to the market analysts that they are engaged in predatory pricing. Celtel Uganda, the company that had a service license since 1995, faced competition for the first time in 1998 when MTN Uganda, the second national network license operator joined the market. MTN’s tariff structure showed lower call charges, which was followed by Celtel. When the privatised state-run UTL started cellular telephony services in 2001, call rates further dropped, leading to defection of some Celtel customers to its rival networks. With new entrants appearing in the market, the scenario may change in near future.61

Source: worldbank.org/INTCOMPLEGALDB/…/UgandaMonograph.pdf

4.5.3. Refusal to Deal or Supply

60 Section 44 (5) of the Competition Bill, 2004, of Uganda.61 http://blogs.bellanet.org/index.php?/archives/174-Will-telecom-struggles-in-Uganda-benefit-the-people.html

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Practice of supplier’s refusal to supply goods to a dealer without a justifiable reason basically constitutes the act of refusal to deal. Unless any legislation expressly prohibits refusal to deal any enterprise in a free market has the option of refusing to do business with any buyer for any reason. Refusal to deal or refusal to sell products or services sometimes also arises when the purchaser does not carry sufficient inventory or provide adequate sales service, product advertising and display, etc.62

Refusal to deal apparently does not appear to be anticompetitive as firms should be free to choose to deal, and also give preferential treatment to traditional buyers, related enterprises, dealers that make timely payments for the goods they buy, or who will maintain the image or quality of the manufactured product, etc. But they are the most commonly used form of pressure for non-compliance. In respect of the manner in which it is dealt with by Competition Authorities of different countries, few examples can be stated , like the Commission of the European Communities fined a United States Corporation and three of its subsidiaries in Europe for having placed an export ban, on its product (pregnancy tests), on their dealers in one of the European countries (United Kingdom), where such products were sold at considerably lower prices than in another European country (Federal Republic of Germany), concerned.63

But competition laws in most jurisdictions discourage refusal to deal mostly in relation to essential facilities where the dominant enterprise has favourable infrastructure and does not allow any rivals from competing by refusing to supply or distribute services or products. Even where a dominant firm which has access to an essential facility refuses access of the facilities to other competitors or grants access on discriminatory terms which puts the competing firm at a disadvantage in the relevant market, it still constitutes refusal to deal. The Public utilities were at one point in time outside the purview of competition law in most jurisdictions. But in recent times, with deregulation, most countries have amended their legislations to include previously excluded sectors within the purview of Competition Legislation. For example, in United Kingdom, even state owned utilities are covered by competition law and are regularly subject to investigation. The European Commission includes within its competition rules state-owned enterprises and state monopolies having a commercial character. Refusal to deal is generally dealt with rule of reason approach which reflects the fact that such agreements are not always harmful and may be beneficial in certain market structure circumstances.

Refusal to deal is prohibited under the Draft Competition Bill, 2004, if the agreement or concerted practice between enterprises involving refusal to deal causes or is likely to cause an appreciable adverse effect on competition.64 Here is an example of refusal to deal from Argentina.

Box 24: Healthcare Sector

In August 2002, the Competition Commission of Argentina called the National Commission for Competition Defense, recommended SCDyDC to impose fine on private hospitals in Argentina located in the province of Entre Rios (named Asociacion de Clinicas y Sanatorios de la Provincia de Entre Rios) being responsible for denying access to its network of health service provider to a new medical centre, thereby being involved in refusal to deal. The investigation showed 80 percent of

62 http://stats.oecd.org/glossary/search.asp63 Official Journal of the European Communities, No. L. 377/16 of 31 December, 1980.64 Section 43 (4)(d) of the Competition Bill, 2004, of Uganda.

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suppliers of health insurance in the region satisfy the healthcare needs through the ACLER network. So the Commission in addition to the recommendation of fine advised to order ACLER to open up its network to new provider.65

Source: http://www.oecd.org/dataoecd/22/11/34830440.pdf

4.6. Dominant PositionPart VII of the proposed draft law covers the broad area of “Prohibition Against Abuse of Dominant Position”. Section 44, Sub-section (1) of the draft law prohibits enterprises from abusing their dominant positions.

In the proposed law, dominant position is defined to be a position in the market which materially restrains or reduces competition in the market for a significant period of time; and where shares by that person or enterprise of the relevant market exceeds 35 percent.According to the draft law, for the purposes of determining whether an enterprise enjoys a dominant position, or otherwise, one or more of the following factors may be taken into account: Market share of over 33 percent; Size and resources of the enterprise; Size and importance of the competitors; Economic power of the enterprise including commercial advantages over competitors, which

may be measured by reference, among other factors, to product range, established trade marks, customer loyalty, vertical integration of the firm, sales or service network;

Technical advantages enjoyed by the firm, which may be judged with reference, among other factors, to patents, know-how and copyright;

Dependence of consumers; Monopoly status or dominance acquired as a result of any Act, or by virtue of being an

undertaking of the government, government company or a public sector undertaking; Entry barriers if any, which may be judged by reference, among other factors, to regulatory

barriers, financial risks, high capital costs of entry, marketing entry barriers, technical entry barriers, economies of scale, high switching costs for customers;

Countervailing buying power; Market structure and size of market; and Any other factor which the commission considers relevant.

The proposed law states that abuse of a dominant position having an adverse effect on competition, competitors or consumers occurs when an enterprise:

Directly or indirectly imposes unfair or discriminatory purchase or selling prices or conditions, including predatory prices;

Limits production, markets or technical development to the prejudice of consumers; Indulges in actions resulting in denial of market access; Makes the conclusion of contracts subject to acceptance by other parties of supplementary

obligations which, by their nature or according to commercial usage, have no connection with the subject of those contracts; and

Uses dominance in one market to move into or protect another markets

4.7. Mergers and Acquisitions65 http://www.oecd.org/dataoecd/22/11/34830440.pdf

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Part VIII of the draft law covers regulation of “combinations” or M&As. Like competition law in other jurisdictions, the Ugandan draft law provides that it is an obligation to give notice of combinations in certain cases.

The law provides that “Any person who proposes to enter into an agreement or combination …shall give notice to the Commission in the prescribed form, specifying the details of the proposed agreement or combination, within seven days after the occurrence of any of the following events:

• The Board of Directors of respective companies accepting a proposal of merger or amalgamation;

• The conclusion of negotiations of an agreement for acquisition or acquiring of control; and• The execution of a joint venture agreement, shareholder agreement or technology agreement, in

relation to any joint venture”.

Only the Commission (competition authority/agency) has powers to grant an exemption from filing the notice required under the law. This should be in respect of an acquisition by a public financial institution, foreign institutional investor, bank or venture capital fund under any covenant of a loan, share subscription or investment agreement. The enterprise concerned should apply for exemption in the prescribed form, specifying the extent and terms of control, the circumstances for exercise of such control, the consequences of default and control of the enterprise.

However, a public financial institution, foreign institutional investor, bank or venture capital fund is not exempted from filing a notice under the law, in relation to any inter-related or controlled enterprise at the time of acquisition or establishing a combination.

4.8. Cross Border AbusesThe law provides for regulation of acts taking place outside Uganda but having an effect on competition in Uganda. The competition regulatory authority, the UCC is given powers under the draft law to regulate cross border acts.

Where any practice of an enterprise, as provided under the law, is carried on outside Uganda, but has and is likely to have an appreciable adverse effect on competition in Uganda, the Commission has jurisdiction to make such orders as may be necessary to combat the effect of the practice.

Also, the Commission is given powers to vet combinations (M&As), including in situations when one of the parties is from outside the territory of Uganda. The powers are conferred to the Commission to carryout enquiries with a view to satisfying itself whether that combination causes or is likely to cause an appreciable adverse effect on competition within the relevant market in Uganda.

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5. Enforcing Competition LawThe object of competition law in any jurisdiction is dependant on the manner of enforcement of the provisions by the Competition Authorities and other implementing agencies. The procedure for investigation, inquiry and passing of orders related to RBPs is laid down in the competition laws of most countries. In case of Canada and USA, the Government of both the countries entered into an agreement in 1995, for bringing in uniformity in the enforcement of their Competition and Deceptive Marketing Practices Laws. The agreement was signed to involve coordination, cooperation and avoiding conflicts in competition law enforcement.66 It was entered into to address extra-territorial effects of anti-competitive practices in both the countries but in the process tried to reduce the differences of laws in both countries in respect of competition law enforcement.

The Competition laws included competition law, Royal Society of Canada and the Sherman Act and Clayton Act of USA. The Competition Authorities included the Commissioner of Competition, Canada and the Antitrust Division of the US Department of Justice (DoJ) and Fair Trade Commission (FTC). Under that agreement, any party aggrieved by any anti-competitive trade practice taking place in either of the countries are allowed to file complaint before the Competition Authorities for enforcement of their competition laws.

According to model competition law provided by United Nations Conference on Trade and Development (UNCTAD), the functions and powers of the Administering Authority relating to competition include (a) making inquiries and investigations, mostly as a result of receipt of complaints, (b) taking the necessary decisions, including the imposition of sanctions, or recommending the same to a responsible minister, (c) undertaking studies, publishing reports and providing information to the public, (d) issuing forms and maintaining a register, or registers for notifications, (e) making and issuing regulations, (f) assisting in the preparation, amending or review of legislation on RBPs , or on related areas of regulation and competition policy and (g) promoting exchange of information with other States.67

5.1 Checks and Balances in UgandaMarket failures to deal with ‘excesses’ occasioned by the inbuilt safeguards and assumptions led to the conviction that competition regulation could produce significant benefits, and motivation to, in as many sectors as possible. Authorities and stakeholders alike, were not familiar with what constitutes a competitive market and what threatens it and were resigned to reliance on structural remedies which would probably prove to be a better instrument for developing competition than dependence on a set of behavioural prescriptions.

Government’s unwritten policy was to wind down both excesses and economic regulations as and when competition becomes sufficiently strong. The point of departure at which formal and broader (comprehensive) regulation should come, as instituted elsewhere has been to consider the fraction of resources devoted to such regulation of a specific sector. Sectoral regulatory bodies were largely instituted to perform their traditional ‘policing’ roles in a bid to persuade the private sector, i.e. prospective investors, that the government was committed to making the transition.

66 http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=1269&lg=e#767 Article 9 of the UNCTAD Model Law on Competition.

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Against that background, the Ugandan law, to be referred to as the Competition Act, is aimed at fostering and sustaining competition in the Ugandan market. The law will thus help protecting consumer interests while safeguarding the freedom of economic action of various market participants and preventing practices which limit access to markets or otherwise unduly restrain competition, affecting domestic and international trade which as a result will impact economic development and the establishing of a regulatory body – the Ugandan Competition Commission.Part III of the Draft Competition Bill, 2004, of Uganda, provides the jurisdiction, powers and authority of the Commission. All these provisions shall be operational once the Bill is passed and the Commission commences operation in Uganda. As RBPs are not specified under the Draft Competition Bill, 2004, they are covered under anti- competitive agreements under Section 43 of the Bill, and the Commission has the power to enquire into such practices either on the receipt of a complaint made by any person, consumer or trade association, or reference made to it by the Minister, or its own knowledge or information.68

On receipt of the complaint or reference, if the Commission thinks that there exists a prima facie case, it shall direct the Competition Commissioner to cause an investigation into the matter. The Competition Commissioner shall submit the report on his findings within a period of time specified by the Commission. On the basis of the report the Commission shall direct the Competition Commissioner to inquire into the matter.69 If after hearing the complainant the Commission agrees with the recommendation of the Competition Commissioner that no anti-competitive practice has taken place, it shall dismiss the complaint. Otherwise, the Commission shall direct the complainant to proceed with the complaint.

After inquiry, if the Commission finds that the agreements, decisions, etc., of the enterprise are in contravention of the Competition Act, it may make an order (a) directing the enterprise to discontinue and not repeat such agreement, (b) directing the enterprise to pay a fine which shall not be more than ten percent of the average of the turnover for the last three years, of each of the enterprise, (c) awarding compensation to any party, (d) directing that the agreement shall stand modified in such manner as may be specified by the Commission, (e) directing the enterprise to abide by such orders and directions, including payment of costs, as may be given by the Commission, etc.70

The Competition Commission of Uganda has the jurisdiction to make such orders as necessary against any practice of any enterprise, which is carried in Uganda and outside Uganda, but has or is likely to have an appreciable adverse effect on competition in Uganda. Although the effects doctrine is not mentioned in the Bill, generally Competition Authorities in most jurisdictions use this doctrine to exercise extra-territorial jurisdiction.71

68 Section 14 of the Competition Bill, 2004, of Uganda.69 Section 17 of the Competition Bill, 2004, of Uganda.70 Section 22 of the Competition Bill, 2004, of Uganda.71 The case United States v. Aluminium Corporation of America (Alcoa), 148 F.2d 416 (2d Cir. 1945), gave birth to the effects doctrine which said that a nation has jurisdiction to disapprove conduct that has direct effect within its borders

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Where during the inquiry before the Commission it is proved to the Commission that an act in contravention of provisions relating to abuse of dominance or unfair combination is committed and continues to be committed, the Commission may grant interim relief in the form of temporary injunction restraining the party from continuing with the act.

The Commission while exercising its duties under the Act, is bound by the procedure laid down by the Civil Procedure Rules, the principles of natural justice and rules made by the minister. The Commission when trying a suit, has powers of summoning and enforcing the attendance of any person and examining him on oath, requiring the discovery and production of documents, receiving evidence on affidavits, issuing commissions for the examination of witnesses or documents, requisitioning any public record, dismissing an application in default or deciding it exparte, etc.72

Any person aggrieved by the orders of the Commission from which an appeal is allowed by the Competition Act, but no appeal has been preferred, may apply for review of the order before the bench which made the order within 30 days after the date of the order.

An appeal shall lie against the order made by the Competition Commission of Uganda to the High Court and it shall be made within 30 days from the date when the decision or order has been passed. No appeal lies in case any decision or order has been made by the Commission with the consent of the parties.

Whenever a person fails to comply with an obligation imposed upon him by the Commission, he can be liable for penalty of one currency point for each day that he or she fails to comply with the directions given by the Commission or the Competition Commissioner. Penalties can also be imposed by the Commission against persons for offences relating to furnishing of information, which includes false statements, omissions, suppression of documents, etc.73

5.2 Exclusion of Jurisdiction of Civil CourtsThe law provides that no civil court would have jurisdiction to entertain any suit or proceeding in respect of any matter which the Commission is empowered by or under the proposed law to determine and no injunction would be granted by any court or any authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this law.74 However, the Constitution of Uganda provides that the High Court has jurisdiction in all matters. In light of this, therefore, the proposed law would have to be revisited. The would-be conflict of the law and the constitutional provision should be addressed during debate in Parliament and it is expected that it would be taken care of, as several stakeholders have already raised it.

72 Section 31 of the Competition bill, 2004, of Uganda.73 Part V of the Competition bill, 2004, of Uganda.74 Section 53 of the Competition bill, 2004, of Uganda

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6. Mergers and Acquisitions‘Mergers and Acquisitions’ (M&As), a very relevant phrase in today’s world, refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.75 The basic reasoning behind M&As is that two companies together are more valuable than two separate companies.76

6.1 Distinction between M&AsMost of the times these terms are used interchangeably but there lies a slight difference in the practical meaning of mergers and acquisitions.

The understanding of the differences between a merger and an acquisition is important to value, negotiate, and structure a client's transaction. M&As both involve one or multiple companies purchasing all or part of another company. The main distinction between a merger and an acquisition is how they are financed.

A merger happens when two firms, often of about the same size, agree to move forward and exist as a single new company rather than remain separately owned and operated. This kind of action is more specifically referred to as a "merger of equals." Mergers are often financed by a stock swap, in which the stock owners in both companies receive an equivalent quantity of stock in the new company. The stocks of both companies are surrendered and a new company stock is issued in its place.

On the other hand, when one company takes over another company and clearly establishes itself as the new owner, the purchase is called an acquisition. Legally, the target company ceases to exist, the buyer swallows the business and the buyer's stock continues to be traded. Acquisition refers to two unequal companies becoming one and the financing can involve a cash and debt combination, all cash, stocks, or other equity of the company.

In June 2006, there was an announcement of a merger between two giant telecom vendors Nokia and Siemens, which gave rise to a new entity called ‘Nokia Siemens Networks’.77

Recently, Lloyds TSB Group PLC (UK based Ltd. Co.) agreed to acquire HBOS PLC, an Edinburgh-based bank, in a stock swap transaction valued at 12.234 billion British pounds (US$22.188bin US), via a scheme of arrangement.78

In the Competition Bill of Uganda, M&As are referred as ‘combinations and mergers’79 which include interalia mergers, acquisitions and joint ventures (JVs). The Competition Bill of Uganda defines acquisitions, combinations and JVs as under, though the term merger has not been defined anywhere in the Bill80:

75 http://en.wikipedia.org/wiki/Mergers_and_acquisitions76 http://www.investopedia.com/university/mergers/mergers1.asp77 http://fmaccounting.com/an-example-of-merger-between-two-communication-giants-nokia-and-siemens/78 http://money.cnn.com/news/deals/mergers/reports/1212860040.html79 Refer to clause 4(1)(c).80 Refer clause 3

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1. ‘Acquisition’ means directly or indirectly, acquiring or agreeing to acquire shares, voting rights, management control or control over assets in any enterprise;

2. ‘Combination’, means an acquisition by a person, directly or indirectly, of shares in the capital of an enterprise, or voting rights or, any assets of an enterprise, so as to acquire direct or indirect control of the enterprise; acquisition of control by a person or entity over an enterprise when that person or entity already has direct or indirect control over another enterprise engaged in production, distribution and trading of the same or substitutable goods or provision of the same or substitutable service; merger or amalgamation of two or more enterprises;

3. ‘Joint Venture’ means an enterprise subject to joint control by two or more undertakings which are economically independent of each other;

6.2 Varieties of M&A

6.2.1 Varieties of Mergers

There are a variety of relationships between the companies involved in mergers. The following explains what these relationships are and how they affect the merger:

Horizontal Merger: involves the combining of two companies that are in direct competition with one another. In other words, they are trying to sell the same product to customers who are in a common market.

Vertical Merger: involves a customer and a company or a supplier and a company merging. Imagine a baseball bat company merging with a wood production company. This would be an example of the supplier merging with the producer and is the essence of vertical mergers.

Market-extension Merger: involves the combination of two companies that sell the same products in different markets. A market-extension merger allows for the market that can be reached to become larger and is the basis for the name of the merger.

Product-extension Merger: is between two companies that sell different, but somewhat related products, in a common market. This allows the new, larger company to pool its products and sell them with greater success to the already common market that the two separate companies shared.

Conglomeration: is the merger of two companies that have no related products or markets. In short, they have no common business ties.

Box 25: Merger between Two Communication Giants

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In June 2006, there was an announcement of a merger between two giant telecom vendors Nokia and Siemens. They are big communication giants and both share the intention to join together their respective network/communications equipment and service provider businesses to create the sectors’ third-biggest company and close the gap on market leader Ericsson. The new entity is 50-50 JV called Nokia Siemens Networks and will encompass both fixed-line and mobile networking products as well as managed services offered to carriers. The new company would instantly become the third largest communications equipment provider in the world with annual revenues of over 15 billion Euros or more than US$30bn.

Sources: http://fmaccounting.com/an-example-of-merger-between-two-communication-giants-nokia-and-siemens/

6.2.2 Varieties of AcquisitionsIn case of acquisitions, just like merger deals as discussed above, a company buys another company with cash, stock or a combination of the two. Another possibility, which is common in smaller deals, is for one company to acquire all the assets of another company. Company A buys all of Company B's assets for cash, which means that Company B will have only cash (and debt, if they had debt before). Of course, Company B becomes merely a shell and will eventually liquidate or enter another area of business.

Another type of acquisition is a reverse merger, a deal that enables a private company to get publicly-listed in a relatively short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly-listed shell company, usually one with no business and limited assets. The private company reverse merges into the public company, and together they become an entirely new public corporation with tradable shares.

6.3 Concerns about M&A’sThe task of regulatory compliance has been entrusted to the Competition Commission of Uganda by the Competition Bill 200481. Also, help from other relevant government bodies such as Ministry of Company Affairs or Sectoral Regulators82 can be taken into consideration for the same.

It can be seen that not all the combinations leave a negative impact on the competition scenario. Some mergers may even turn out to be pro-competitive, especially the ones which merger with the aim of achieving economies of scale. Further, mergers may also create new synergies, lead to innovation by combining talents of different firms, and provide additional resources to develop new products and services and therefore, the cost of production decreases.

The major concerns about the M&A activities is that whether the corporate combination will result in the healthy market practice or an anticompetitive behaviour. Also, the impact of such an activity on the consumers and other market forces is also required to be determined. Generally, merger reviews are done to establish that the combination is not having any adverse effect on the competition, market, economy and other consumers.

6.3.1 Cross border Effects

81 Refer to Clause 45(1) of CB04.82 Like the National Drug Authority (NDA), Uganda Communications Commission (UCC) and Uganda Insurance Commission (UIC) among other Sectoral Regulatory Agencies.

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According to the Competition Bill 2004 of Uganda, any M&A leading to a combined market share of 35 percent in any relevant market held by the resultant undertaking shall be notified to the Commission shall be made promptly upon the conclusion of the agreement in respect of the merger or acquisition.83 Moreover, the M&A shall not come into effect before its notification to the Commission and before a period of three months has elapsed since the date of such notification (subject to the decision of Commission, as the Commission has been empowered to extend the period referred above for another period up to three months, if it is not able to make a decision on the notified merger or acquisition.)84

Box 26: Reliance Communications Acquires Telecom Firm in UgandaOn February 21, 2008 Reliance Communications Ltd, India's second-biggest mobile operator, acquired a telecom firm in Uganda and plans to invest US$500mn in the African country over the next five years.

The acquisition was made through its Uganda-based subsidiary Anupam Global Soft Ltd. Reliance Communications did not disclose financial details of the transaction.

The license and the spectrum allocated to the target firm would help Reliance Communications offer mobile, fixed line, internet, long distance and other services in Uganda, the company said in a statement.

Reliance would launch mobile services in Uganda by the end of 2008. The company also plans to spend up to US$500mn over five years building an integrated telecom network in that country.Sources: http://www.domain-b.com/companies/companies_r/Reliance_infocom/20080221_reliance.html

6.4 Merger ReviewAccording to the Competition Bill 2004, the Commission enquires into certain proposed acquisitions, mergers and joint ventures.85 This is done to ensure that the M&A activities are in accordance with the laws of the land.86 In the clause the threshold limits in terms of currency points and US dollar has been stated for the valuation of the assets of the resultant entity. It includes any (a) acquisition where: (i) the parties to the acquisition, namely the acquirer and the company whose shares, voting rights

or assets are being acquired, jointly would have assets worldwide, exceeding five hundred currency points or turnover worldwide, exceeding one thousand five hundred currency points,

(ii) the group to which the entity in which the shares, assets or voting rights, have been acquired will belong, will have A. in Uganda, assets in excess of two thousand currency points or turnover exceeding six

thousand currency points; or B. worldwide, assets in excess of US$1bn or a turnover in excess of US$0.5bn and related

limits.87

83 As per the new proposed clauses for Clause 46.84 Ibid.85 Refer to Clause 4686 Refer to Clause 46(2)87 Ibid.

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Also, a list of few factors has been given for the commission to look into for determination as to whether a combination would have the effect of or is likely to have an adverse effect on competition in a market. Those factors88 can be listed as under: • the actual and potential level of competition through imports in the market;• the extent of barriers to entry to the market;• the level of combination in the market;• the degree of countervailing power in the market ;

• the likelihood that the combination would result in parties to the combination being able to significantly and sustainably increase prices or profit margins;• the extent of effective competition remaining in a market;• the extent to which substitutes are available in the market or are likely to be available in the market;• the market share of the parties involved in the combination, individually and as a combination;• the likelihood that the combination would result in the removal of a vigorous and effective competitor from the market;• the nature and extent of vertical integration in the market;

• the possibility of a failing business ;• the nature and extent of innovation; and• whether the benefits of the combination outweigh the adverse impact of the combination.

6.5 Information in Merger ReviewMerger review process has an essential requirement for the merging firms, that they should provide information regarding the whole deal to the reviewing authority. Also, most of the times, the merging entities are required to notify the authority beforehand about the proposed transaction. This is done so as to ensure that any anti-competitive concerns are not present in the proposed scheme.

Also, it is required for any person, who proposes to enter into any agreement or combination, to give a notice to the Commission in the prescribed form, specifying the details of the proposed agreement or combination, within seven days after the occurrence of any of the following events89-

• The Board of Directors of respective companies accepting a proposal of merger or amalgamation;

• The conclusion of negotiations of an agreement for acquisition or acquiring of control;• The execution of a joint venture agreement, shareholder agreement or technology agreement, in

relation to any joint venture.

88 Refer to Clause 46(6)89 Refer Clause 45(1).

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In accordance with the Competition Bill 2004, it is required to notify the undertaking to the Commission, any merger or acquisition leading resultant company acquiring a combined market share of 35 percent in any relevant market.90 Such a notification should be made, promptly after the conclusion of the agreement of M&A. Also, such a notification should be made by the undertaking acquiring control through the merger or acquisition.

The abovementioned M&A shall not be coming into effect, before its notification to the Commission and before a period of three months has elapsed since the date of such notification and if the Commission deems fit, they can even extend the time period for another three months.91

Box. 27: Commission Charges Vodacom OfficialOn July 25, 2008; The Competition Commission said it filed a perjury charge against one of Vodacom Group Ltd.’s executives for intentionally providing it with false information about a proposed merger.

The offense carries a maximum prison sentence of six months, a fine of 2,000 rand (US$264) or both, the regulator said in an e- mailed statement. It did not identify the official. The case relates to the 2007 acquisition of Global Telematics SA (Pty) Ltd. and Glocell Service Provider Company (Pty) Ltd. by one of the Johannesburg-based Vodacom unit.

An investigation found “the rationale for the transaction was to eliminate Glocell because it was providing discounts to customers in competition with Vodacom,” the regulator said. This was contrary to the reason provided by the Vodacom executive that the deal “was primarily driven by the declining growth of the service provider market and the desire by Vodacom to consolidate its service delivery chains.”

Vodacom has referred the issue to its lawyers and cannot comment further, company spokeswoman Dot Fields said in an e-mail statement.

Vodafone Group Plc and Telkom South Africa Ltd. each have a 50 percent stake in Vodacom, South Africa’s biggest mobile-phone company by subscribers.Sources: http://www.itnewsafrica.com/?p=780

6.6 Merger RemediesM&A control laws have been designed to check or eliminate anti-competitive effects of such activities. Three types of remedies are typically used to achieve this goal.

Prohibition or Dissolution: This involves disallowing the merger in its entirety and in cases of prior consummation; dissolution of the merged entity would be required.

90 Refer Clause 46.91 Refer Clause 46.

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Partial Divestiture: In accordance with the permission from the Competition Commission, the merged firm might be required to divest assets or operations sufficient to eliminate identified anti-competitive effects.

Regulation/Conditional Approval: It aims at regulation or modification of the behaviour of the merged firm resulting in prevention or reduction of anti-competitive effects.

Amongst the above-mentioned remedies, first two are structural while the third remedy is behavioural in nature. Structural remedies show their effect, only in the long run and not much of ongoing government intervention is required whereas, in case of behavioural remedies more ongoing regulatory oversight and intervention is required.

In Uganda, if a M&A case is found to be in violation of the Competition Bill 2004, they are not allowed to proceed with the proposed scheme. The present Competition Bill, talks about anti-competitive agreements and abuse of dominant position but nothing in specification has been talked about the M&A cases. The Competition Commission has been given the authority to start an enquiry and determine whether the company has a dominant position or not and whether the anti-competitive effects of the proposed scheme have been listed.

6.7 Joint VenturesIn the Competition Bill 2004, JVs have been discussed at the similar places as M&A and all the rules and regulations are also similar, as they are in case of M&As. In JVs, the competition analysis generally raise similar issues to those discussed under the section of restrictive agreements, and therefore would normally violate per se competitive rules in the same manner as in the case of M&As. The process and information requirements for review of a JV, however, also resemble those discussed earlier in this section on M&As. This is so because they have been referred to at similar places in the bill. Like, even for a JV, it is an obligation on the person, who proposes to enter into any JV, to give the details of such an agreement in the specified form to the Commission, within a period of seven days.92 Moreover, the commission has power to enquire into certain JVs, which satisfy the circumstances mentioned in Clause 46 of the act.

Box 28: JV between Uganda and Malaysia In October 2007, Uganda and Malaysia agreed to enter a JV in the production and refining of oil. According to a statement from State House, the agreement was reached on August 06 at a meeting between President Museveni and the Prime Minister (PM) of Malaysia, Sein Abdulah Ahmad Badawi in Malaysia.

Under the agreement, the Malaysian PM is to send a team of experts to Uganda to carry out a feasibility study on the project. In a related development, another oil exploration agreement between Uganda and Dominion Petroleum Ltd was signed. The deal is a result of a series of discussions between the government and the company that had been going on since 2005.Sources: http://www.entrepreneur.com/tradejournals/article/179269379.html

92 Refer to Clause 45.

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Box 29: Tata Coffee Ties-Up With Uganda For New BrandIn September 2005, Tata Coffee proposed to float a marketing joint venture with the Ugandan Government to create and promote a new coffee label. Then, Tata Coffee is in the process of setting up a Rs 50 crore, 3,600 tonne instant coffee plant in Uganda.

"The Ugandan Government has agreed in principle to float a joint venture to create a new brand," said M.H. Ashraff, Managing Director, Tata Coffee. The company would market the instant coffee produced from its proposed Ugandan unit under the new brand.

The Uganda Government now owns a brand called Crane, named after the country's national bird. Some Chinese roasters, who sell the Ugandan coffee under that label in China, now use the Crane brand. "We are trying to get the Crane brand name itself but are also open to have a new name," he added.

Tata Coffee was allocated 50 acres by the Ugandan Government at Jinja, about 60 km from Kampala, for the new unit, Ashraff said. He added that work on the project would start in early October and completed within nine months. The new unit is being set up jointly with Tata Africa, part of Tata International, which handles all South African projects.Sources: http://www.thehindubusinessline.com/2005/09/17/stories/2005091702861200.htm

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7. Unfair Trade Practices: Competition and Consumer ProtectionCompetition has been defined as a situation where anybody who wants to buy or sell has a choice of possible suppliers and customers93. Competition has also been defined as a market situation in which companies or sellers strive freely and independently in their own interests to attract customers with a view to achieving specific economic goals, e.g. sales, profit or market shares. This establishes a well knit link between the two.

Competition Policy is generally designed to ensure that the benefits to which the consumers are entitled should be offered to them only and any practices, which hamper the process, should be prohibited.

Competition in the market emphasises producers to offer the best quality at the most attractive price. Also, it serves the consumer with a variety of products, satisfying similar needs. This helps the consumer to shift to another similar product, in case the offer is more striking. Thus, competition law is a tool, with which not only the welfare of the consumers can be promoted but also the interests of the consumers can be protected.

Consumer protection policy works to guarantee that consumers can make well-informed decisions about their choices and that seller will fulfill their promises about the products they offer. In other words, consumer protection policy prevents producers from engaging in unfair practices while seeking to increase their sales.

In spite of the many market-oriented reforms that have taken place in Uganda, neither the country has a well designed policy on competition nor does it have a comprehensive law to regulate competition. Yet market-oriented reforms can be sustained in the long run only if competition, which would result from these reforms, is protected and consolidated by legislation and suitable policies.

The major concerns related to Competition law in Uganda are Anti-Competitive Practices (ACPs), Cartelisation, Abuse of Dominant Position and other Unfair Trade Practices (UTPs). ACPs cover agreements involving implicit or explicit arrangements between firms competing in identical or similar product categories in the same market. They arise mostly between producers or between wholesalers or between retailers dealing in identical or similar kinds of products. Parties entering into such arrangements, indulge into the following practices, for example, agreeing amongst themselves to fix prices, reducing the output or allocating customers to particular suppliers in a market. These arrangements are widely condemned by most competition authorities, as they serve no purpose other than to shift benefits from consumers to producers, the upshot being organisational inefficiencies and the making of excess profits.

93 http://siteresources.worldbank.org/INTCOMPLEGALDB/Resources/UgandaMonograph.pdf

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UTPs have a threefold impact, which is harmful to the consumers, other market players and market as a whole. If a consumer is cheated by one producer, he develops a distrust towards the entire industry or market which results in affecting the sales negatively. In a way, while preventing and punishing UTPs, consumer protection policy does more than safeguarding the interests of the consumers or promoting consumer welfare, it comes back to facilitate competition.

In Uganda, scattered provisions on consumer protection and welfare exist in sectoral policies (water, telecommunication, electricity, etc). But there is no comprehensive policy or law for consumer protection and promotion. A bill was proposed to the Uganda Law Reform Commission in 1997, during the review of commercial laws.

Through the Local Consumer Movement, the promotion and protection of consumer rights for just, equitable and sustainable economic and social development was envisaged by the National Consumer Policy. The policy was proposed to be designed, keeping in mind the following:• Empower consumers to have access to the basic needs of life;• Protect consumer from hazards to their life and safety;• Enhance the access of consumers to adequate information to enable them to make informed

and environmentally benign choices according to individual as well as societal needs;• Promote consumer education through formal as well as non-formal education system so as to

help consumers in their decision making;• Promote accountability and transparency through adoption of Citizens’ Charters;• Promote expeditious and inexpensive system of delivery of justice; and• Initiate and implement appropriate mechanism for exchange of information on measures of

consumer protection, nationally, regionally and internationally.

With the above objectives, a draft law was proposed and designed by the Uganda Consumers Protection Association, was handed over to the government for due considerations. The contents of the draft were considered and were included in the government draft produced by the Uganda Law Reform Commission, though it has not been able to get an approval from the Cabinet and then the Parliament.

7.1 Unfair Trade PracticesBefore we proceed with a discussion on the UTP, it is important to know that UTPs incorporate a broad array of torts, economic offences by use of deceptive or wrongful conduct. For example, trade secret misappropriation, unfair competition, false advertising, palming off, dilution and disparagement. Such practices can take place in all the types of the trades; however, their nature differs in all the cases.

The World Bank (WB) and Organisation for Economic Cooperation and Development (OECD) Model Law, for example, lists the following trade practices to be unfair94:

1. Distribution of false or misleading information that is capable of harming the business interests of another firm;

94 http://www.mca.gov.pk/Ordinance.htm

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2. Distribution of false or misleading information to consumers, including the distribution of information lacking a reasonable basis, related to the price, character, method or place of production, properties and suitability for use, or quality of goods;3. False or misleading comparison of goods in the process of advertising;4. Fraudulent use of another’s trademark. Firm name, or product labeling or packaging; and5. Unauthorised receipt, use or dissemination of confidential scientific, technical, production, business or trade information.

In the Competition Bill 2004 of Uganda, the consumer interests have been safeguarded by prohibiting against anti-competitive agreements and abuse of dominant position. The following are the practices, which can be seen in Uganda.

7.2 Collective Price FixingCollective price fixing, also known as cartelisation, is the most evident violation of competition law to the extent that in all jurisdictions that enforce competition law, it is per se illegal. In Uganda, government has in theory eliminated price controls in the domestic market through the consistent pursuit of free-market trade and economic policies. However, the absence of an autonomous and competent competition authority undermines adherence to the quest for market-determined pricing structures. There is not much regulation in sectors like transportation and electricity.95

7.3 Misleading Advertisements/ InformationThe business saw its expansion and the competition increased with the trade and general economic liberalisation of the 1990s. The liberalisation of the media laws led to the surfacing of over 120 commercial radio stations in the last 10 years, 12 regular newspapers and five television stations. Some of the media outlets, mostly radio stations, often broadcast misleading advertisements from competing firms.

The Broadcasting Statute, 1997 provides for the establishment of the Broadcasting Council to check malpractices that range from professional misconduct to outlawed broadcasting of misleading advertising information. Institutional weaknesses have rendered the broadcasting council unable to execute its role of policing firms and investigating market misbehaviour.

7.4 Sale of Counterfeit Products and Copyright ViolationsLike in other developing countries, infringement of intellectual property rights is rampant in Uganda usually, but not exclusively, by small operators. Dubbing and resale of audio and video cassettes is most common. Local music theatre artistes are particularly aggrieved by the apparent failure of the authorities to take appropriate action.

Piracy in the computer software industry is also rampant because it is not covered by the local copyright law and is therefore not yet illegal. Sale of counterfeit products including foodstuffs, shoes, clothing, accessories and electronic products is widespread. Although these infringements are committed by small operators, the cumulative effect of the practice is quite significant in a business sense. This has been discussed in detail in further chapters.

95 http://competitionregimes.com/pdf/Book/Africa/58-Uganda.pdf

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8. Cross Border IssuesCross border activities include mergers, cartels, abuse of dominance and other RBPs which have the potential to, among other consequences distort trade to the advantage of the perpetrators, eliminate weaker domestic trading partners, stifle entrepreneurship and ultimately retard economic development. It is widely acknowledged that anti-competitive practices with a cross-border effect can adversely affect trade flows thereby undermining those benefits which would otherwise be delivered by trade liberalisation and open markets. In this regard developing countries are most vulnerable to the effects of such anti-competitive behaviour. This situation is compounded by the fact that developing countries, unlike their counterparts in the developed world, do not have the necessary competition policies and framework in place to deal with anti-competitive behaviour of trans-national companies (“TNCs”). These issues can broadly be classified into four groups:

• market power in the global markets;• barriers to import competition;• foreign investment related; and• IPR’s related.

National competition laws to the extent that they exist and are implemented in a very limited number of developing countries96 often lack the necessary extra-territorial reach to counter such anti-competitive practices at a global level.

8.1 Market Power in Global or Export MarketsThis would include activities of “hard-core” cartels, various RBPs (including abuse of dominance and vertical restraints), unchecked merger activity, abuse of dominance in overseas markets, cross-border predatory pricing and price discrimination.

Activities of “hard-core” cartels are generally acknowledged to be the most destructive form of anti-competitive behaviour. They more or less include agreements among competitors involving price fixing, bid rigging, output restrictions or customer allocation and market restrictions. Developing countries are especially vulnerable to cartel activities since the risk of detection is often minimal due to weak legal structure and enforcement capacity in a developing nation. Furthermore, developing countries lack access to international co-operation with the competition authorities of the countries in which the cartel participants may be incorporated.

96 By way of example, of the 14 countries in the Southern African Development Community (“SADC”) only 3 countries have operational competition laws and policies, namely, South Africa, Zambia and Zimbabwe. The SADC region does however recognise the prevalence of anti-competitive behaviour in its member states. Article 25 of the Protocol on Trade in the SADC region stipulates that “member states shall implement measures within the community that prohibit unfair business practice and promote competition”.

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The effect of merely 16 cartels in developing country imports was an estimated US$ 81,1 bn, which is likely to be an underestimated amount. Furthermore, in terms of comparison with international aid flows to developing countries, the harm done by cartels to developing economies was 3 to 6 times the recent increase in US aid and that overcharges by cartels were equal to at least one-third of aid received by developing countries.

While hard-core cartels are clearly a priority, cross-border mergers on the other hand, if unchecked may result in reduction of competitiveness or contestability in a market if too much market power is concentrated in a single, merged firm. Whilst many cross-border mergers may have little or no effect in developed countries because their markets are so competitive, the merger of two TNCs could create severe problems for developing countries where the merged firm could result in a monopoly.

These cartels can be best tackled in the form of an international commitment to ban such practices. The multilateral ban on hard-core cartels should be implemented by means of corresponding domestic legislation and policies. Having regard to the fact that national laws are often ineffective where the proof lies outside a country’s borders, it is suggested that domestic competition rules to be supplemented by international avenues of co-operation. Domestic competition law provisions on this issue should ideally contain certain basic provisions which include a clear prohibition on hard-core cartels, a definition of what constitutes hard-core cartels and deterrence measures whether in the form of administrative fines and/or criminal sanctions.

In the 1990s the United States (US) Department of Justice became very active investigating and prosecuting cartels in industries such as vitamins, steel, and animal feeds. They uncovered evidence on a massive scale of global violations. The citric acid and lysine cartels involved global markets of around US$2bn in the late 1990s. These developments prompted the Department of Justice to set up an International Competition Policy Advisory Committee (ICPAC). Its report (ICPAC 2000) found that cartels existed on a large scale.

8.2 Barriers to Import CompetitionImport cartels, vertical market restraints creating import barriers, private standard setting activities, abuse of monopolistic dominance, etc, falls under this category. Import Cartels are usually horizontal agreements between purchasers of goods and services in a single nation for the purpose of coordinating the importation of goods or services into the domestic market of that nation. These are subject to domestic competition laws. But they are often authorised by domestic governments on the basis that they realise significant productive efficiencies, including reducing transaction costs and obtaining pecuniary economies of scale by way of bulk discounts and rebates. Sometimes, they are also allowed to counter export cartels but in the process competition law’s ability to prevent them from abusing market power reduces.

The US Department of Justice originally granted an authorisation to US Oil Companies in 1971 to enable them to countervail the market power of the Organisation of the Petroleum Exporting Companies (OPEC) Oil Cartel. However, this authorisation was subsequently taken back due to alleged anti–competitive effects on the US Domestic Market arising from their ability to enter into collective import arrangements.97

97 See OECD, “Strengthening the Coherence Between Trade and Competition Policies : Joint Report by the Trade Committee and the Committee on Competition Law and Policy”, OECD, Paris, OCDE/GD/(96)90, 1996

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8.3 Foreign Investment and Competition Foreign investors may improve industrial efficiency and resource allocation in their host countries by entering into industries where high entry barriers reduce the degree of domestic competition. The entry of foreign investors into these monopolistic industries is likely to raise the level of competition and force existing firms to become more efficient. It raises the fear that foreign MNCs may out compete all local firms and establish monopolies that are even worse than the domestic oligopolies they replace.

M&As can be used to reduce competition via monopolising M&As, which can take place when: (a) the acquiring firm was exporting substantially to a market before it buys a competing firm there, (b) a foreign firm with an affiliate, already in the market, acquires another, thereby acquiring a dominant or monopolistic market share, (c) the investing TNC acquires a market leader with which it had previously competed, and (d) the acquisition is intended to suppress rather than develop the competitive potential of the acquired firm.

The law governing investment in Uganda is the Investment Code, 1991. The agency established under the Code is the Uganda Investment Authority (UIA), which is to promote and facilitate investment in Uganda, advise the government on policies conducive to investment, and provide information on investment issues. One of the core functions of the UIA is attracting foreign direct investment (FDI) into the country, as well as promoting domestic investment.

An investor is required to apply to the UIA for an investment license to start a business in Uganda. An investment license is issued within five working days if the application form is properly completed. The licence is normally valid for a period of not less than five years after the implementation of the project. Although there is no legal requirement in terms of a minimum investment, in practice a threshold of US$100,000 has been applied to foreign investors and US$50,000 to local investors.

The Code allows foreigners to invest in all activities, except those relating to national security or requiring ownership of land. Foreign investors may, however, lease land for up to 99 years. They can also participate in joint ventures, including those involving the leasing of land for agricultural purposes. In addition, Uganda imposes no limit on equity ownership. Foreign ownership of up to 100 percent is allowed. Investors are also free to bring in and take out their capital.

8.4 IPRs and Competition The Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement enables the broad framework for countries to take necessary action if an IPR is abused, leading to anti-competitive outcomes, although it does not empower every country to do so. For example, in cases where there are disparities in the bargaining power between the ‘guilty’- which is often a giant TNC, and the law-enforcer, when they are developing countries with weak enforcement capacities and small markets, it will be difficult to prevent IPR abuses. The IPRs related competition issues like territorial restraint, exclusive dealing, tie-in-arrangement, grant-back requirement and Ugandan Law on compulsory licensing and parallel imports will be discussed in the following Chapter.

8.5 Dealing with Cross-border Issues under Competition Law of UgandaEffective competition policy is an essential element of any development strategy not only to promote efficient economic growth but also to ensure that the benefits of that growth reach the

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poorest in society. A sound legal and regulatory framework is essential to ensure that a few big market operators through anti-competitive business practices do not capture the benefits of liberalisation. After liberalisation of the economy most of the countries have opened up the domestic markets to foreign competition thereby opening the door to anti-competitive practices originating outside their own country. This leads to issues of multi-jurisdiction claims. It is recommended that developing countries like Uganda should be legally equipped to deal with such cases.

The Competition Bill, 2004 deals with many of the cross border issues. Article 26 states that acts taking place outside Uganda but which have or are likely to have an appreciable adverse effect on competition in Uganda, the Commission shall have jurisdiction to make such orders as may be necessary to combat the effects on the practice.

Besides in addition to the Draft Competition Bill, 2004, as Uganda is a member of Regional Economic Bloc, like COMESA, EAC, the regional policy of COMESA to deal with anti-competitive practices within the region and the EAC Competition Policy act as guidelines for issues relating to competition in the country. EAC comprising Burundi, Kenya, Rwanda, Tanzania and Uganda as members is also mandated to develop a regional competition policy, and harmonise national competition laws in the member states. EAC has adopted the regional competition bill in September 2006.

National Competition Authorities have the mandate to capture national infractions against Competition Law only. The EAC Authority will have the mandate to capture all anti-competitive practices within the EAC Region. Recently in the case of the East African Breweries and the South African Breweries, the Competition Authorities in Kenya and Tanzania were unable to prohibit seemingly clear anti-competitive practices.

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9. Competition Law vs Intellectual Property LawIPRs protection is a policy tool meant to foster innovation; which benefits consumers through the development of new and improved goods and services, and spurs sustaining economic growth. It bestows on innovators the right to legitimately exclude for a limited amount of time, other parties from the benefits arising from new knowledge and more specifically, from the commercial use of innovative products and processes based on that new knowledge. Competition Law, on the other hand, has always been regarded by most as essential in curbing market distortions, disciplining anti-competitive practices, preventing monopoly and abuse of monopoly. Thus, it becomes very important to balance these two laws for harmonious working of each other.

IP laws and competition law can affect each other. Often there are tensions, which relate to market power and dynamic efficiency. As stated earlier, IPR can convey some degree of market power to the IP developers. However, competition law is designed to constrain the use of market power. If competition law reduces the use to which IPRs can be put, then the rewards from exploiting the IPR can be lessened. Research and innovation could be reduced as a result and so dynamic efficiency (i.e. efficiency over time) will suffer. However, situations can also arise where undertakings abuse their IPR for unfair commercial advantage that is detrimental to overall market efficiency. As an illustration, a patent holder of a new drug could, for example, insist as a condition for the licence, that the licensee must purchase ordinary packaging material from its sister company at a marked-up price. By doing so, the IP rights holder could have adversely affected competition in another market by unfairly leveraging on his IPR.

Uganda is a member of the World Trade Organisation (WTO). It is therefore bound to implement the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), which aims to provide a minimum level of IP protection in all WTO members states. However, the TRIPS Agreement grants least developed countries (LDCs) the right to delay implementation into national law until 2006, and even provides for further extensions if the LDC Member makes a request for an extension to the WTO TRIPS Council. Furthermore, the Doha Declaration on TRIPS and Public Health (Doha Declaration) allows LDCs to delay enforcement of patent rights until 2016 (patents being the IP rules most affecting the cost of medicines). Uganda, as an LDC under the WTO’s criteria, has the right to use these extensions.

The law governing all trademarks is the Trademarks Act of 1964, under which any mark may be registered for an initial period of seven years, renewable for subsequent 14-year periods. This law, which does not cover service marks, is under review to incorporate developments since enactment. The Copyright Act, 1964 governs literary, musical or artistic works, cinematic films, gramophone records and broadcasts. The Act provides for the protection of broadcasts, published literary works, and musical or artistic works for a period of 50 years, and of published phonograph records and films for 45 years. There are concerns in particular from firms in the software industry that the law does not provide sufficient protection for more recent forms of intellectual property, such as those incorporated in software programmes. However, it is hoped that the government will soon incorporate the WTO TRIPs agreement into the domestic legislation. All the relevant intellectual property laws are being revised in consultation with WIPO, and a law on electronic commerce, electronic evidence and computer crime is being prepared.

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Patents are governed by the Patents Statute of 1991, which provides for the protection of inventions – products or processes that are either new or have an innovative component and are industrially applicable. A patent owner has the exclusive right to exploit his/her invention for 15 years and may have recourse to the courts for damages, injunctions or other measures if the right is infringed. The Statute bar holders of patent licences from engaging in anti-competitive practices.

There is no specific law in Uganda governing geographical indications. However, by virtue of being signatory to the WTO TRIPs Agreement, the provisions of that Treaty on Geographical indications may be said to be applicable in Uganda. Technically, however, those provisions require domestication into Ugandan law by appropriate legislation. An attempt in this direction is evident from the Draft Industrial Property Bill which awaits consideration by the Uganda Government Cabinet.

The Uganda Law Reform Commission has also prepared a Bill on Folklore and Indigenous Knowledge. The Bill recognises the mine of knowledge that is unwritten but well preserved by individuals or local communities affecting all types of social activities which must be preserved. The Bill seems to protect the knowledge and innovations of traditional and local people as their intellectual property.98

HIV/AIDS epidemic in Uganda has claimed over 800,000 lives in two decades and continues to be the country’s main cause of death amongst adults.99 In 2001, approximately 510,000 adults and 110,000 children were living with HIV/AIDS.100 Access to affordable antiretroviral (ARV) medicines is vital for these people to survive and enjoy their civil and political rights. Thus, the IPR Laws governing the manufacture, import and distribution of pharmaceuticals are drafted and implemented in a way in which Uganda can fulfill its obligations under ICCPR.

9.1 Regulation of the Exercise of IPRs through Competition LawIPRs are subject to general competition principles, when they are exercised or put into commercial use in the market. The draft Competition Bill, 2004 recognises the right of a person to protect his IPRs not only under Competition Law but also under IPR Laws of Uganda. There is no exclusive chapter on IPR abuses. There is adequate discussion of IPR Rights under the Competition Law of Zimbabwe. The Competition Act, 1996 of Zimbabwe under section 3(1) says that it applies to all economic activities within or having an effect within the Republic of Zimbabwe but shall not be construed so as to limit any right acquired under (i) the Plant Breeders Right Act; (ii) the Copyright Act; (iii) the Industrial Designs Act; (iv) the Patents Act; (v) the Trademarks Act; except to the extent that such right is used for the purpose of enhancing or maintaining prices or any other consideration in a manner contemplated in the definition of restrictive practices.

The Act is also silent on the remedies, if unreasonable conditions accompany IPR licenses and limit competition. Compulsory licensing and parallel imports are two key remedies of great importance and a competition law cannot remain silent in this regard.

98 Atwine, J. (2003) “Review of Current Situation Regarding Intellectual Property Policy : Issues, Opportunities and Challenges” Uganda Living Law Journal, Volume 1 No.2, 192.99 See Uganda AIDS Commission Secretariat, HIV/AIDS in Uganda: The epidemic and the response, 2002.100 See UNAIDS/WHO Epidemiological Fact Sheet, Uganda, 2002 Update.

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Competition law is a useful tool to keep a check on anti-competitive practices like licensing agreements and restrain marketing and product development. Accordingly the Competition Commission Authority should be empowered to deal with cases of abuse of IPRs.

Box 30: Silhoutte Intenational Schmied GmbH v. Hartlauer, [1998] ECR I –4799

The Austrian claimant produced fashion spectacles under the trademark ‘Silhouette’ and refused to supply the defendant believing that latter’s marketing technique (low cost pricing) would be harmful to the high quality image of the brand. Some outdated models sold to a third party for sale in Bulgaria were acquired by defendant and started selling the goods in Austria. Silhoutte applied for interim injunction. ECJ held that owner was entitled to prohibit parallel re-importing of branded goods outside EEA.

9.2 Competition Concerns in Licensing AgreementsLicensing constitutes an important part of the IPRs regime. It extends the opportunities for traders to stimulate the market, by facilitating the wider dissemination of the protected technologies as well as products and services using the protected patent as input. Licensing agreements have business restrictive character in territorial restraint, exclusive dealing, tie-in and grant back.

Territorial restraint is an agreement between the licensor and the licensee that the licensor will assign a certain territory to the single agreed licensee. It allows the licensor to preserve exclusive marketing right for the licensee. According to competition laws of different jurisdictions territorial restraint is anti competitive when they are used to cover price fixing or market allocation agreements. They can indirectly lead to cartel arrangement to allocate the relevant market of the respective jurisdiction.A licensing agreement related to any intellectual property right can also entail commitments by the licensee to deal exclusively with the licensor. Exclusive dealing arrangements prevent licensees from licensing, selling, distributing, or manufacturing products which employ technologies supplied by the competitors of the licensors.

The competition aspects of such exclusive dealing is examined on the basis of the duration of the exclusivity, the rationale for the restriction, the degree of foreclosure caused by the restriction to rival licensors. The anti-competitive foreclosure risk becomes relevant when the firms entering into exclusive dealing arrangements already hold a larger share of the relevant product market. It also depends on the availability of the alternative manufacturing capacity for existing or new licensors.

Tie-in –arrangements in relation to IPRs include conditioning the ability of the licensee to license one or more items of intellectual property on the licensee’s purchase of another item of intellectual property or a product or a service. There are efficiency goals of such type of tie-in arrangements when they help to ensure the effectiveness of the licensed technology or to reduce the risk inherent in the licensing of innovation whose commercial value is still not known. In cases where they facilitate horizontal collusion among licensors, and end up in secret arrangements to reduce competition especially with dissimilar products having no relationship with each other they are anti-competitive and prohibited by competition law of the respective jurisdictions.

A grant-back requirement is an agreement whereby the licensee agrees to extend to the licensor of the intellectual property the right to use the licensee’s improvement to the licensed technology. It has efficiency goals where the licensor and the licensee share the risk of the technology and reward

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the licensor for making possible further innovation based on the licensed technology. There is scope of promoting innovation and promoting the subsequent licensing of the result of the innovation. The anti-competitive effects of the grant-back generally depend on factors like (i) whether it includes technology that goes beyond the originally licensed intellectual property, (ii) whether it is in the form of an assignment, exclusive license, non-exclusive license or an option, (iii) whether the parties are competitors (iv) the effect of the grant-back on the parties’ incentive to innovate, (v) the market power of the respective parties, (vi) whether the grant-back promotes dissemination of improvements, etc. They raise competition concerns as they facilitate undue maintenance of a dominant position.

Box 31: In Illinois Tool Works Inc. v. Independent Ink, Inc., 101 Petitioners manufactured market printing systems that included a patented print head and ink container and unpatented ink, which they sold to original equipment manufacturers who agreed that they will purchase ink exclusively from the petitioners and that neither they nor their customers will refill the patented containers with ink of any kind. Respondent developed ink with the same chemical composition as petitioners’ ink. After petitioner Trident’s infringement action was dismissed, respondent filed a suit seeking a judgment of non-infringement and invalidity of Trident’s patents on the ground that petitioners were engaged in illegal “tying” and monopolisation in violation of Section 1 and 2 of the Sherman Act. Granting petitioners summary judgment, the District Court rejected respondent’s argument that petitioners necessarily had market power as a matter of law by virtue of the patent on their print-head system, thereby rendering the tying arrangements per se violations of the antitrust laws. After carefully reviewing this Court’s tying-arrangements decisions, the Federal Circuit reversed as to the Section 1 claim, concluding that it had to follow this Court’s precedents until overruled by this Court.102 It was decided that as a patent does not necessarily confer market power upon the patentee, in cases relating to tying arrangement, the complainant must prove that the defendant had market power in the tying product.

9.3 Parallel ImportParallel imports (PI), also called gray-market imports, are goods produced genuinely under protection of a trademark, patent, or copyright, placed into circulation in one market, and then imported into a second market without the authorisation of the local owner of the intellectual property right. This owner is typically a licensed local dealer.

Note that these goods are authorised for original sale, not counterfeited or pirated merchandise. Thus, parallel imports are identical to legitimate products except that they may be packaged differently and may not carry the original manufacturer’s warranty.

The ability of a right-holder to exclude PI legally from a particular market depends on the importing nation’s treatment of exhaustion of intellectual property rights (IPR). A third party who lawfully purchases the product in an overseas territory (either from the owner of the IPRs or from the owner’s licensee for that territory) may upon importing the product into Ireland be faced by an infringement action by the owner of the IPR (or perhaps by an exclusive licensee of those rights).

101 126 S.Ct. 1281 (2006).102 http://supreme.justia.com/us/547/04-1329/index.html

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There are three variants of exhaustion doctrine, national exhaustion – where IPRs end upon first authorised sale within a nation but IPR owners may prevent parallel trade with other countries, regional exhaustion – where IPRs are exhausted upon first authorised sale in a particular region only, international exhaustion-where IPRs are exhausted upon first sale anywhere and parallel imports are permitted.

Exhaustion policies vary widely; even among developed economies, the EU adopts exhaustion in all fields of intellectual property but bars parallel imports coming from outside the Community. The European Court of Justice (ECJ) has consistently upheld the right to resell legitimately procured goods within the Community as a required safeguarded for completing the internal market. There are two important exceptions:

• Countries may preclude parallel imports in pharmaceutical products that were placed on the market as a result of a compulsory licensing order.• The first showing of a theatrical movie on television broadcast abroad does not exhaust international distribution rights because of the need to make repeated showing under copyright.

Parallel Imports is banned in United State and it lobbies the representatives of other government to prevent parallel importation in their respective jurisdictions.103 The US also maintains a ‘common-control exception’ for parallel imports in trademarked goods. This principle permits trademark owners to block parallel imports except when both the foreign and US trademarks are owned by the same entity or when the foreign and US trademark owners are in a parent-subsidiary relationship.

9.4 Compulsory LicensingCompulsory licensing allows a government to force the licensing of a patent to the non-patent-holders and, thus (by itself or through third parties), distributes the production of the patent to its citizens.104 Although some payment may be made to the patent owner, compulsory licensing generally represents a modest return on invested capital and rarely includes the monopoly premium that a patent holder otherwise can receive by controlling the supply.

The three most prevalent compulsory licensing provisions are applicable where a dependant patent is being blocked, where a patent is not being worked or where an invention relates to food or medicine. Prior authorisation from the patent holder can be waived if there is a “national emergency or other situation of extreme urgency” such as an HIV/AIDS public health crisis. This is an important measure for Uganda to ensure continued access to cheaper generic drugs, especially once it has the capacity to produce ARV drugs.105

9.5. IPRs and the Abuse of Dominant Position

103 http://www.aippi.org/reports/q156/gr-q156-USA-e.htm104 Kevin Kennedy, The Protection and Enforcement of Intellectual Property Rights, in WORLD TRADE LAW 1081, 1113 (Raj Bhala & Kevin Kennedy eds., 1998)105 Implementation Of The Covenant On Civil And Political Rights Uganda - Trade-related intellectual property rights, access to HIV/AIDS medicines and the fulfilment of civil and political rights, March 2004 available at http://www.3dthree.org/pdf_3D/3DHRCUgandaBrief04en.pdf

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IPR related abuse of dominance include monopoly pricing, exclusive dealing, tied selling, etc. As the Draft Competition Bill, 2004, of Uganda, does not apply to IPRs, it does not apply to IPR related abuse of dominance also.

Monopoly Pricing: Due to lack of available substitutes in developing countries and products related to intellectual property being owned by foreign interests the regulation of monopoly pricing in respect to IPRs are of great significance in those countries. It is not a big concern in the developed countries due to the availability of a number of potential substitutes of the related intellectual property.

Exclusive Dealing: There can be exclusive dealing between the licensor and the licensee of IPR limiting the ability of the licensee to deal with competitive technologies. The factors which can be considered in relation to exclusive dealing of IPRs include the period of the exclusion, reasons, degree of foreclosure caused by restriction to rival licensors, etc.

Tied Sales: Tie-in arrangements are considered illegal where (a) it involves two separate products or services that are tied together, (b) seller has market power in the tying product and has the capability to extend such market power in the tied product due to favourable market conditions, (c) the arrangement has an adverse effect on competition in the relevant market for the tied product, (d) efficiency effect of the arrangement does not outweigh the anti-competitive effect.

Here is an example of a case on abuse of dominance in relation to IPRs from other jurisdictions.

Box 32: Fines Imposed for Abuse of Dominance

The Fair Trade Commission (FTC) of Taiwan Province of China charged Royal Phillips Electronics (The Netherlands), Sony Corporation (Japan) and Taiyo Yuden Co., Ltd., Japan, with violations of Fair Trade Law. Philips, Sony and Taiyo Yuden were alleged to have licensed a number of patents relating to CD-R specifications. To enable patent licensing to CD-R manufacturers around the world, the companies adopted a package licensing arrangement, whereby Sony and Taiyo Yuden first licensed their patent rights to Philips, and then Philips bundled the rights together for licensing to other countries. Philips represented Sony and Taiyo Yuden in acting as the exclusive licensor and signing the contested form licensing agreements with the licensed manufacturers. The FTC found that Philips was using its advantageous market position to compel the licensees to accept the license agreement and constituted abuse of dominance. The FTC imposed administrative fines on Philips, Sony and Taiko Yuden and ordered them to cease the alleged practice.106

9.6 Refusal to DealRefusal to deal in respect of intellectual property can be subject to liability under the competition law if they cause competitive damage. The IPR holder does not have any obligation to license subject matters protected to others. The ability to exclude competitors from the use of a new patent may be considered to have the essence of the rights conferred by the patent, as it is the privilege of owner of a property to use or not to use without question of motive. Courts in the UK and the US have frequently held that refusal to license a patent violate the competition law. But in both the jurisdictions it is not clarified whether refusal to deal has any anti-competitive effect when it relates to intellectual property. On one hand the non-fraudulent acquisition of patent rights through

106 http://www.unctad.org/en/docs/c2clp38_en.pdf

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government grant does not infringe anti-trust laws, on the other hand it is not illegal for a single party to accumulate patents without bad faith. But at the same time the anti-trust laws consider aggressive accumulation, non-use and enforcement of IPRs over essential inputs in a particular market for destroying competition in the market may be subject to anti-trust liability.

As the Draft Competition Bill, 2004, does not apply to IPRs, there is no provision for preventing refusal to deal in respect of IPRs in Uganda.

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10. Essential Elements for SuccessIn case of developing countries such as Uganda, the creation of an effective competition regime requires expertise at every level and skill to draft an adequate legislation. The newness of the concept and the lack of expertise in such issues pose challenges in drafting an effective model to regulate the market. Implementation and execution of the same is equally important. A few essentials for a successful regime are as follows:

10.1 Formation of a Competition AuthorityOne of the most useful tools in successful implementation of a competition regime is the establishment of a competition authority with a phased approach. Part II of the Uganda’s Draft Competition Bill, 2004 establishes the Ugandan Competition Commission, consisting of a Chairperson and ten other members.107 Given the nuances of the subject and the complicated issues at hand, the authority should start with actions that will benefit the market as a whole and would help it gain acceptance among the public. Gradually, it can introduce measures and policies which will require a cost-benefit analysis and consideration of the welfare of various sections of the public.

Development is a continuum and consists of various stages with different priorities in every stage. The following table gives a general overview of the stages in the development of a national competition regime:

The stages in the above-mentioned table are organised according to the degree of difficulty a competition authority may face in conducting a cost-benefit analysis of the impact of competition policies on the public. Thus, the final plan should take into account the damage caused to the economy and consumers of the Act as against the chances of success and the expected return on the money spent in pursuing the policy given the relative probability of success.

10.2 Promoting Competition By Creating a Favorable Environment

107 Section 6 of the Competition Bill, 2004, of Uganda.

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The second essential of a successful competition regime is the effective implementation of Competition Law in any country which requires the creation of a favorable competitive environment. The successful enforcement of a competition law depends on the following factors:

• Power conferred on the competition authority;• Accountability and independence of the authority; and• Availability of resources.

10.2.1 Power Conferred on the Competition Authority

10.2.1 (a) Institutional Set-upFor the competition authority to function properly, it is important that is should be conferred with adequate powers, which include adjudicatory and investigative powers. Both these powers help the Commission to give out orders and decisions on cases based on their investigation and analysis results. Thus the whole enforcement system can be vested in one agency alone. Generally, to counter problems of concentration of power, there is a provision of appeal from the orders of the authority. The EU follows this system, with decisions and orders given out by the European Commission being subject to appeals.

However, there are other systems wherein the adjudicatory and investigative powers are separated from each other – the investigative arm being the competition authority. One such system is where the competition authority can bring competition cases before a court of law for adjudication after investigating into the matters of violation. In such a system, private parties, consumers and their organisations can also have the right to bring action independently before the court. This is the case in the US. In India too, such a power exists. Such a system helps keep a check on the investigative and prosecutorial arms and helps in establishing a system of mutual checks and balance.

Another system of conferring power on the competition authority is one where adjudication may be taken up by a specialised competition tribunal belonging to the overall judicial system of the country. This helps take care of the dearth of specialised expertise amongst judges adjudicating all sorts of civil and criminal matters at the same time. Also, it helps to avoid the problem of concentration of power in one single authority. Such a model is adopted in South Africa where the enforcement system is bifurcated between the Competition Commission and the Competition Tribunal. This is called a ‘self-contained’ system and is strongly recommended in the OECD – World Bank Model Law.

Powers conferred on the competition authority in Uganda consists of both investigative and adjudicatory powers. It can enquire into anti-competitive agreements and abuse of dominant position, and also hand out orders and approvals in cases of unfair competition. However, this may result in concentration of power in one authority, for which there is a provision for appeal against the order of the authority before the High Court within 30 days from the date of the decision or extended period if there is sufficient cause.108

108 Section 36 of the Competition Bill, 2004, of Uganda.

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This is done in order to establish trust and fairness in the system and to avoid the trouble of having to go to the courts in every case, which is a time-consuming procedure. The Uganda Competition Commission consists of a chairperson and 10 other members.109 The chairperson and other members are qualified to be appointed as judge of the High Court and having special knowledge and professional experience of at least 15 years in international trade, economics, business, commerce, information technology, law, finance, accountancy, management, industry, public affairs, administration, etc. They should be full-time members.

10.2.1 (b) Competition AdvocacyOne of the essential powers for a developing country’s competition authority is the power of advocacy. Awareness of competition measures, policies and procedures has to be spread among industrialists, businessmen, consumers, suppliers and the media in order to enhance compliance and deterrent effect and to foster recognition and acceptance of the competition mechanism. In order to achieve this objective, advocacy has to be specifically included in the mandate of the authority. In many countries such as India, such a power is granted to the competition authority.

In the case of Uganda, Part XI of the Draft Competition Bill, 2004, of Uganda, has dealt with competition advocacy. In formulating a law or policy, the minister may make a reference to the Commission for its opinion on possible effect of such law or policy on competition and on receipt of such a reference, the Commission shall, within sixty days, give its opinion to the Minister.110 Also, under the Draft Competition Bill, 2004, of Uganda, where in the course of proceeding before any statutory authority entrusted with the responsibility of regulating any utility or service, an issue is raised by any party that any decision that the statutory authority has taken is contrary to the provisions of the Competition Act, then the statutory authority shall make a reference to the Commission.111

10.2.1 (c) Legal enforcement tools

There are several legal provisions which affect the competence of the competition authorities. Firstly, the provisions conferring power on the competition authority should be in conformity with the general principles of law and constitutional values. Secondly, the investigative powers conferred on the authority should be broad so as to monitor the market and arrive at a legal sound analysis. For this, they should be equipped with the required investigative tools such as the right to enter into business premises and collect information, to investigate the management, to demand information from businessmen etc. Lastly, the authority should be empowered to impose high penalty for violation of the provisions of the Act, such that players in the market may be deterred from indulging in anti-competitive practices.

The Competition Commission of Uganda fulfills all these requirements as can be seen from the powers that have been conferred upon it:

Power of Competition Commission to enquire into anti-competitive agreements – The Competition Commission is empowered to enquire into anti-competitive agreements and

109 Section 6 of the Competition Bill, 2004, of Uganda.110 Section 47 of the Competition Bill, 2004, of Uganda.111 Section 16 of the Competition Bill, 2004, of Uganda.

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combinations either on complaint of any person, consumer, trade association, or reference made by the minister or its own knowledge or information.112

Power of the Commission to enquire into Abuse of Dominant Position – Part VII of the Ugandan Draft Competition Bill, 2004, prohibits abuse of dominance on the part of any enterprise. Dominant position is defined as a position in the market which materially restrains or reduces competition in the market for a significant period of time, and where shares held by that person or enterprise of the relevant market exceeds 35 percent.113

For determining whether an enterprise enjoys a dominant position or not, the Competition Commission takes into account factors like (a) market share over 33 percent, (b) size and resources of the enterprise, (c) size and importance of the competitors, (d) commercial advantages of the enterprise over competitors, (e) technical advantages enjoyed by the firm, (f) dependence of consumers, (g) monopoly status or dominance acquired as a result of any Act, (h) entry barriers, (i) counter-vailing buying power, (j) market structure and size of market and (k) any other factor which is of relevance to the Commission.114

Power to Regulate Combinations – Part VIII of the Draft Competition Bill, 2004, of Uganda, discusses regulation of combinations. Any person, who proposes to enter into a combination, shall give notice to the Commission specifying the details of the combination. The Commission shall enquire into any combination whenever they exceed the threshold limit. It includes any (a) acquisition where (i) the parties to the acquisition, namely the acquirer and the company whose shares, voting rights or assets are being acquired, jointly would have assets worldwide, exceeding five hundred currency points or turnover worldwide, exceeding one thousand five hundred currency points, (ii) the group to which the entity in which the shares, assets or voting rights, have been acquired will belong, will have (A) in Uganda, assets in excess of two thousand currency points or turnover exceeding six thousand currency points; or (B) worldwide, assets in excess of US$1bn or a turnover in excess of US$1.5bn and related limits.115 Any merger or acquisition leading to a combined market share of 35 percent in any relevant market held by the resultant undertaking shall be notified to the Commission.

10.2.2 Accountability and Independence of the Competition CommissionIt is very important to ensure that the competition authority has been conferred with autonomy in matters of regulating its procedure of investigation and adjudication. The most independent competition authorities in the world are administratively separate from the government and are independently staffed by professionals. Also, they do not rely on the government for budget allocation. The least independent, on the other hand, are those that form part of the government ministry and are subject to civil service restrictions for recruitment. Also, good leadership is an essential for success of the authority since it would demand higher prestige and standing in the political arena as well as in the eyes of the public.

112 Section 14 of the Competition Bill, 2004, of Uganda.113 Section 44 (2) of the Competition Bill, 2004, of Uganda.114 Section 44 (3) of the Competition Bill, 2004, of Uganda.115 Section 46 of the Competition Bill, 2004, of Uganda.

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However, in the case of Uganda, the chairperson and other members of the Commission are appointed by the President on the recommendation of a Committee consisting of (a) the Chief Justice or his or her nominee, (b) the Minister responsible for finance, (c) the Attorney General.116

This is an issue of much controversy since the members are appointed by the government. However, in every other respect, the competition authority in Uganda has been given independence and autonomy in conducting its operations. In addition to the Draft Competition Bill, 2004, as Uganda is a member of Regional Economic Bloc, like COMESA, EAC, the Regional Policy of COMESA to deal with anti-competitive practices within the region and the EAC Competition Policy act as guidelines for issues relating to competition in the country.

10.2.3 Availability of ResourcesFor effective functioning of a competition authority, it is essential that there are adequate funds at the disposal of the authority. The levels of financial support as well as human resource management are equally essential for the success of the authority.

10.2.3 (a) Human ResourcesApplication of the law requires adequate human resources i.e., staff of a sufficient number with adequate technical skills. This is of great importance in the case of competition law for the reason that the subject requires a high level of economic analysis along with complicated legal issues in order to detect and analyse the effects of business conduct and to draw a conclusion about business practices.

Thus, competition authorities require lawyers, economists and investigators who have sufficient knowledge of competition issues. In addition, litigation attorneys who are well versed with the civil procedure should also be hired. In the nascent stage, the competition authority may be required to convince the judiciary that its cases are procedurally sound and have substantive merit.

10.2.3 (b) Financial Resources Financial resources are as essential as human resources. These expenses would entail salaries of professionals and administrative staff. Since competition cases require huge sum of money for investigation and trial, it is important that the enforcement decisions should be taken on a rational basis. This is particularly true in case of developing economies.

In case of Uganda, the Draft Bill provides that a Competition Fund shall be established which shall consist of (a) fees received from any person for filing a complaint or any application under the Act, (b) the monies received as costs, if so directed by the Commission, from parties to proceedings before the Commission, (c) grants and donations given to the Fund by the government, companies or any other institutions for the purposes of the Fund, (d) the interest accrued on the amounts referred in clauses (a) to (c), (e) the interest or other income received out of the investments made from the Fund.117 The Competition Commission should have adequate monetary resource to enquire and take action in respect of anti-competitive activities taking place within and outside Uganda which are prohibited under its Competition Act, and have influence within the market in Uganda.

116 Section 7 of the Competition Bill, 2004, of Uganda.117 Section 48 of the Competition Bill, 2004, of Uganda.

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11. The Desired Framework for Uganda11.1. Amendment and Modification of Certain Provisions of the LawFor promoting competition in the country and preventing anti-competitive activities, the competition law of the respective jurisdiction should be amended to incorporate better provisions available in other jurisdictions on the same issues and address the factors that exist at the local and national level in respective countries. The Draft Competition Bill, 2004, thus should be amended accordingly.

(a) Composition of the Competition Commission – According to the Draft Competition Bill, 2004, the Competition Commission shall consist of a chairperson and 10 other members and all of them shall serve as full-time members. The Competition Authority of UK and other countries have both full-time members and part-time members to allow the expertise of qualified members who could not work as full-time members due to professional responsibilities. So the chairperson and five members can be full-time members while five members can be part-time members.

(b) Criteria for Appointment of Chairperson and Members of the Commission – For being a chairperson and member of the Competition Commission of Uganda, persons should be qualified either as judge of the High Court or have special knowledge and professional experience of not less than 15 years in international trade, economics, business, commerce, information technology, law, finance, accountancy, management, industry, public affairs, administration, etc. Expertise in competition law and policy should be added in the criteria for appointment as the chairperson and the members are expected to handle issues on competition at the regional, national and international level.

(c) Removal of Chairperson or Members of the Competition Commission – Under the Draft Competition Bill, 2004, the President is empowered to remove the chairperson and the members from the office of the Competition Commission on the grounds mentioned in the Bill. The power of the President can be qualified with the recommendation of the same committee which appoints them consisting of the Chief Justice, the minister responsible for finance, the Attorney General, to bring in transparency.

(d) Creation of Appellate Tribunal – According to the Draft Competition Bill, 2004, appeals against the orders of the Competition Commission of Uganda can be filed before the High Court. High Courts in most of the countries are generally overburdened with cases in the original, appellate, revisional jurisdictions. Keeping the provision for filing appeal in High Courts will lead to backlogging of cases and inevitable delay. Instead, there can be an Appellate Tribunal where appeals can be filed against orders of the Competition Commission. Such a provision is there in many jurisdictions. For example the Indian Competition Act had provided separate appellate body called the Competition Appellate Tribunal.

(e) Competition Advocacy – According to the Draft Competition Bill, 2004, the minister may make a reference to the Competition Commission for its opinion on formulation of law or policy and the Competition Commission shall within 60 days give its opinion to the ministry. The provision should be amended to extend the period beyond six months in those cases on competition

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requiring deeper analysis and thorough study, so that the Competition Commission can spend more time before providing its opinion.

(f) Power of the Minister to Make Rules: The Draft Competition Bill, 2004, empowers the Minister for Trade to make rules to carry out the provisions of the Act, including conditions of service of members of Commission and the Competition Commissioner. The minister should discuss with an expert body consisting of judges, competition experts and others while framing rules to maintain transparency and ensure that the Competition Commission can work without fear or favour or prejudice.

(g) Officers and Other Employees of the Commission – According to the Draft Competition Bill, 2004, the minister shall determine the categories of officers and employees to be appointed for serving the commission including their salaries, allowances and conditions of service. Instead, appointment, salaries, allowances and conditions of services of the officers and employees can be done by the Competition Commission itself through advertisement in public, creating adequate criteria for selection and ensuring transparency in creating conditions of service.

11.2. Appropriate Regulation over IPR related Competition IssuesKeeping infringement of IPRs outside the ambit of the Competition Bill, 2004 – IPR infringement is handled very severely in a number of jurisdictions. Further in developed and developing countries, the Competition and Antitrust laws address issues relating to abuse of IPRs. Firstly the IPR statutes in Uganda are weak and cannot address issues like piracy in the computer software industry, sale of counterfeit products like clothing , accessories, electronic products, etc. At the same time abuse of dominance in relation to IPRs cannot be addressed as the Draft Competition Bill, 2004, does not apply to IPRs. The Competition laws and antitrust laws of developed countries like US and developing countries like Zimbabwe address IPR issues. So Section 43 (6)(b) should be amended to extend the scope of the Draft Competition Bill, 2004, to IPR issues also.

11.3. Extension of Jurisdiction beyond Territorial BoundariesThe Draft Competition Bill, 2004, had created extra-territorial jurisdiction by allowing the Competition Commission to address anti-competitive practices carried on outside Uganda, which is likely to have an appreciable adverse effect on competition in Uganda, although the anti-competitive practices in EAC and beyond EAC, which is COMESA, will be dealt with by the respective laws to which Uganda is a contracting party and the linkage shall be reflected in the Draft Competition Bill, 2004, of Uganda. The Draft Competition Bill, 2004, should be amended to mention that the Competition Commission of Uganda should also seek assistance and help from the Competition Authorities of the respective countries where the anti-competitive practice, or abuse of dominance or combination has taken place. Unless the assistance of Competition Authorities of the respective countries is taken it is very difficult to exercise the extra-territorial jurisdiction and prevent the anti-competitive practices taking place outside Uganda, and having an anti-competitive effect within the country.

11.4. Proper interface between the Competition Authority and Sectoral Regulatory agenciesThe major sectoral regulators in Uganda include the Uganda Communications Commission (UCC) in the communications sector, the Electricity Regulatory Authority (ERA) in the energy sector, the Uganda Insurance Commission (UIC) in the insurance sector, the Dairy Development Authority

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(DDA) in the dairy sector, etc. All these sectoral regulators have regulated anti-competitive behaviour in Uganda in the past.

For example, the UCC was instrumental in breaking the monopoly of the Uganda Posts and Telecommunications Corporation (UPTC) which was split into Uganda Telecommunications Limited (UTL), Uganda Posts Limited (UPL) and Post Bank Uganda Limited and enhanced competition in the communication sector. Similarly the ERA facilitated the splitting of the monopolistic dominance of Uganda Electricity Board into Uganda Electricity Distribution Company Limited (UEDCL), Uganda Electricity Generation Company Limited (UEGCL) and Uganda Electricity Transmission Company (UETCL), thereby promoting competition in the energy sector. According to the Draft Competition Bill, 2004, the statutory authority can make a reference to the Competition Commission, only when any party raises the issue. Instead it should be mandatory on the part of the Statutory Authority (any sectoral regulator) to refer any matter relating to competition to the Competition Commission of Uganda. The Draft Competition Bill, 2004, should be amended to create the provision.

11.5. Independence/Autonomy of the Competition AuthorityThe independence of the Competition Commission of Uganda has been jeopardised by the control of the Ministry of Trade in Botswana as provided by the Draft Competition Bill, 2004. The ministry has power to make rules regarding functioning of the Competition Commission, allocate the funds for the Commission, appoint and create service rules for the officers and employees of the Commission. With the present set up provided by the Draft Competition Bill, 2004, the Ugandan Competition Commission cannot work without fear or favour or prejudice. The ministry can consult with an expert body in framing rules regarding functioning of the Competition Commission, allow the Parliament to allocate the funds for the Commission and allow the Competition Commission to frame rules relating to appointment and terms of service of its officers and employees as discussed in details in para 11.1 (f) and (g).

11.6. Active Involvement of Consumer and Other CSOsAs the legislations relating to competition are passed for the broad purpose of consumer welfare, the Competition Authorities should have collaboration with the consumer organisation and civil society organisation for creating awareness amongst the people in respect of the rights they have and the recourse available to them in case the rights are infringed. The consumer organisation can include non-governmental organisation, voluntary consumer organisation and social welfare organisation which are formed for the specific purpose of consumer education and awareness creation.

In conclusion it can be said that although the sectoral regulatory agencies have dealt with anti-competitive practices in Uganda in the past, and taken steps to promote competition in the respective sectors, unless the present Draft Competition Bill, 2004, is implemented with the establishment of Competition Authority and passing of an adequate competition policy, the economy cannot be strengthened. Privatisation can only succeed if the trade practices have proper guidelines and yardstick to measure the pro-competitive and anti-competitive elements in them. Although there has been privatisation in different sectors in the Ugandan economy, yet it did not produce desired results due to lack of proper competition regime, existence of entry barriers and poor infrastructure in certain sectors.

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The report published by Consumer Education Trust of Uganda (CONSENT), a civil society organisation of Uganda, in collaboration with CUTS International on the competition and consumer protection scenario in Uganda,118 shows that anti-competitive practices like price fixing, price discrimination, bid rigging, etc are prevalent in different sectors in Uganda, including the public procurement sector where the Public Procurement and Disposal of Assets Authority (PPDA) was established to restore competition. Once the Competition Bill is passed and the Competition Commission established in Uganda, there is going to a huge task of addressing issues relating to cartels and mergers with the increase of foreign investment in the Ugandan economy.

At the same time once the Competition Commission starts functioning it should have harmonious relationship with the sectoral regulators, as the utilities and services are covered by the Draft Competition Bill, 2004, and the sectoral regulators can refer the Competition Commission matters relating to competition. Care should be taken that there is no conflict between the sectoral regulator and the commission, which is very common in some jurisdictions across the world.

The competition framework should be coherent with the national development strategies for poverty eradication, sustainable socio-economic development, etc. There is a requirement of review of auxiliary policy and legislation to ensure the readiness of the country’s trade sector to anticipated changes, including trade policy, investment, privatisation, policy on small and medium enterprises (SMEs) and labour.

Further those developing countries which have adopted competition law and policy in recent times have faced problems related to manpower gaps as professionals with relevant skills and experience are not many and the challenges relating to competition including international dimensions are new. Uganda has institutional and other challenges in implementation of the competition regime in future and may require training by specialised bodies for the agencies involved with the execution of the competition law and policy. Government should lend political support for enacting supportive legislation in relation to market dispensation and use advocacy measures to create mechanisms aimed at promoting competition culture for socio-economic growth and development.

For proper and systematic development of different sectors and consumer welfare, Uganda needs to design a policy and law on competition and consumer protection. Uganda, has the advantage of being a member of Regional Economic blocs like COMESA and EAC. The COMESA and EAC framework can help Uganda to develop its competition law in the same line in which other members of the Economic Bloc has developed their own laws to ensure balanced trade within the region, promote competition and consumer welfare.

Lastly a lot of publicity and communication is required in relation to the competition issues dealt by the Competition Commission of Uganda, once it starts functioning. The developed countries have created web sites which convey the news relating to infringement of their respective laws on competition. The landmark cases are reported and published and even indications are given in relation to existence of anti-competitive practices in those countries. Uganda has to create such a framework in future to enable the international organisation to have knowledge about the issues on competition in Uganda and make recommendations wherever necessary.

118 http://www.cuts-international.org/7up3/Uganda_CRR.doc

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