Fair competition as an agent for innovation

The much awaited Competition Act comes into effect on the 1st August 2011. The coming into force of this legislation is a major win for businesses as it encourages and promotes fair competition in the market. Fair competition is beneficial to the economy as it encourages innovation across all sectors. This in turn leads to improved quality of services and products. Consumer rights are enhanced in a competitive market; there is also a lowering of prices and diversity of choice when a market is competitive. Initially Kenya’s competition laws were largely contained in the little applied or known Restrictive Trade Practises Act.

 

The new laws are wider and legislate on unfair trade practises, mergers and consumer laws. The Act was specifically enacted to promote competition in the market, protect consumers from misleading market conduct as well as establish a competition authority.

The Board’s wide powers

The new Act is welcome and well drafted leaving little room for ambiguity. The definitions are clear and detailed. A predatory practise has been defined; dominant persons have also been defined while competition and competitors have also been defined in the Act. Such definitions are important to avoid ambiguity when interpreting the laws. The Act has also expressly stated that in the event of conflict between it and other written laws (save for the Constitution) then the Competition Act prevails. This means that any other laws that encourage anti competition action are inferior to the competition laws. The Competition Board therefore has a lot of powers in regulating the market when it comes to competition. However I believe that it is equitable for the competition laws to be read together with the Constitution. This means that in exercising its wide authority the board should be careful not to do anything that would be interpreted as unconstitutional. It would be of interest to practitioners and stakeholders at large to see how conflicts in the interpretation of laws between competition law and other laws will be handled. The Act states that competition laws super cede any other laws in the event of conflict between the two laws.

The Board’s jurisdiction goes as far as extra territorial business operations so long as the transaction has a Kenyan aspect of it.  This means that foreign companies doing business are under the jurisdiction of the board in as far as competition and consumer laws are concerned. It is therefore important for businesses to ensure adherence to this law.

 

Persons whom the law may significantly affect

Marketing, sales and advertising executives will be affected by the new laws. The advertisements should be fair and not misleading. By all means a proper balance is to be struck between sales and consumer welfare. The Act specifically states that the board may participate in formation of consumer bodies. I believe that these consumer bodies will act as watchdogs and will be very instrumental in referring causes to the tribunal. For example when an advertisement fails to mention the risk posed in consuming the product or in some cases over glorifies the product when in reality this is a sham; such misleading advertisements may form the subject of a competition tribunal.

 

Others that need to know this law are businesses that occupy a dominant market position by virtue of holding more than 50% of the market share. Some of the common marketing strategies that have been in use by these market leaders may now be deemed to be anti competitive under the Act. Practises like imposing unfair selling prices on consumers may now be interpreted as uncompetitive. A good example is the unjustifiable matatu fare hikes by the matatu owners association. Other actions that market leaders should be wary of include limiting production, discrimination and abuse of an intellectual property right amongst others. Abuse of intellectual property rights may come in when there needs to be a balance between public good and ownership of the right. A good example of how this comes in is when persons register trademarks without the intention if ever using them at all. The fact that one is an IP right holder means that nobody else is allowed to use a mark that is similar to theirs. However when it comes to competition laws such abuses are outlawed.

Provision for exemptions

There are a few exemptions granted under the Act for example where a professional association locks out some members so as to maintain its reputation or perhaps where disciplinary action is taken out against some errant members. Then this is not deemed to be anti competitive. Either way, the professional association must apply for the exemptions under the Act.

 

In general the law is well drafted and will significantly affect the market. Consumers have a reason to smile while businesses may have to restructure their systems and operations to be in tandem with the new laws.

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