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Antitrust and Competition in Indonesia

By Wimbanu Widyatmoko, Mochamad Fachri and Farid Nasution (Hadiputranto, Hadinoto & Partners, Baker McKenzie Jakarta) Law No. 5 of 1999 on the Prohibition of Monopolistic Practices and Unfair Competition (Anti-Monopoly Law), which came into force on 5 March 2000, addresses a wide range of competition issues.

1. Overview of competition laws

The Anti-Monopoly Law prohibits many kinds of agreements and acts of “business actors.” Business actors are defined as any person or entity which is established in Indonesia or does business in Indonesia. Some of these acts and agreements are illegal per se, that is, the illegality of the alleged act or agreement depends solely on whether it fits within the definition of the prohibition. Others are qualified prohibitions, meaning that the acts or agreements are prohibited only if they may cause monopolistic practices or unfair competition.

2. Enforcement and administration

The primary enforcement authority is the Business Competition Supervisory Commission (KPPU), an independent body with power to investigate alleged violations and impose administrative sanctions. The Anti-Monopoly Law provides for criminal investigation and prosecution. To date, however, this has not resulted in actual criminal investigation or prosecution. In 2011, the KPPU entered into a Memorandum of Understanding with the National Police of the Republic of Indonesia (Police) under which the Police will give assistance during KPPU investigations if required by the KPPU.

3. Anti-competitive agreements and other conduct

3.1 Oligopoly and oligopsony

The Anti-Monopoly Law prohibits an agreement between business actors to jointly control:

  • the production and/or marketing of a product (oligopoly) or
  • the purchase of a product (oligopsony),

if the agreement may cause monopolistic practices and/or unfair competition.

3.2  Unfair pricing practices – price fixing and resale price maintenance

The Anti-Monopoly Law prohibits price-fixing agreements between competing business actors and agreements to price discriminate without qualification. Competing business actors are prohibited from agreeing to fix prices below the market price if the agreement may cause unfair competition. Likewise, minimum resale price maintenance is prohibited if it may cause unfair competition.

3.3 Market allocations

Competing business actors are prohibited from agreeing to allocate the market for products if this agreement may cause monopolistic practices and/or unfair competition. This includes vertical and horizontal allocation.

3.4 Boycotts

There are two kinds of boycott under the Anti-Monopoly Law, both of which are prohibited without qualification:

  • an agreement among competing business actors to bar another business actor from doing the same business, within a relevant market; or
  • an agreement among competing business actors to refuse to sell products of another business actor, which causes this other business actor to suffer a loss.

3.5 Combinations

Competing business actors are prohibited from agreeing to establish a cartel to regulate production and/or marketing of products or a trust (i.e., a combination of business actors) if this agreement may cause monopolistic practices and/or unfair competition.

3.6 Vertical integrations

Agreements between business actors at different levels of the supply and production chains to integrate vertically is prohibited if it may cause unfair competition and harm society.

3.7 Closed agreements

The Anti-Monopoly Law prohibits the following exclusive contract terms set out between a supplier and reseller:

  • a reseller’s purchase is conditional on the purchase of other products of the supplier;
  • a discount or price is conditional on the reseller not purchasing competing products; or
  • a reseller may only resell products to or is prohibited from reselling to certain parties or areas.

Strictly speaking, these are per se offenses. However, in 2011 the KPPU issued a guideline which provides that it will consider possible pro-competitive impacts of the restrictions. This guideline indicates a move toward a rule of reason approach.

3.8 Agreements with overseas parties

Any agreement with overseas parties, the terms of which may cause monopolistic practices and/or unfair competition, is prohibited.

4. Abuse of dominant position

“Dominant position” is defined as a situation where a business actor:

  • no longer has any significant competitors in the relevant market in terms of the market share controlled;
  • has a higher position than all of its competitors in terms of financial capability, access to supply or sales, and capability to adjust the supply or demand for certain products; or
  • has 50 percent or more of the market share.

Two or three business actors are dominant if they have a market share of 75 percent or more. As with a monopoly, being dominant in a relevant market is not, in itself, unlawful. Dominant business actors may not, however:

  • impose terms of trade with the intention of preventing and/or obstructing consumers from acquiring competitive products;
  • restrict the market and the development of technology; or
  • obstruct potential competitors from entering the market.

4.1 Interlocking management

A person who is serving as a director or a commissioner of a company is prohibited from simultaneously holding the position of director or commissioner in another company if these companies operate in the same relevant market, have strong links in terms of their field or type of business, or together have the potential to control the market share of certain products, if their interlocking management may cause monopolistic practices and/or unfair competition.

5. Exceptions

Article 50 of the Anti-Monopoly Law exempts the following actions and agreements from this law’s application:

  • actions and agreements the purpose of which is to implement current laws and regulations;
  • agreements related to intellectual property (e.g., the licensing of intellectual property), trade secrets and franchising;
  • agreements to set technical standards for products, provided these agreements do not restrict or obstruct competition;
  • agency agreements, provided they do not provide for resale price maintenance;
  • agreements for research co-operation for the purpose of promoting or improving the standard of living of the general public;
  • international agreements which have been ratified by Indonesia;
  • agreements and/or actions for export which do not disturb the domestic market’s needs and/or supplies; and
  • business operations of cooperatives which are intended to service their members (as opposed to operations which are intended for the general public).

In practice the KPPU rarely accepts an Article 50 defence; it typically finds an act or agreement does not fall within the above exemptions.

6. Mergers and acquisitions

Under the Anti-Monopoly Law, business actors are prohibited from merging or consolidating business entities or acquiring shares in companies if these actions may cause monopolistic practices and/or unfair competition.

6.1 Notification

To prevent this kind of activity, the Anti-Monopoly Law requires mergers, acquisitions or consolidations that exceed certain asset or sales value thresholds to be notified to the KPPU within 30 days after the date of the combination, merger or takeover. On 20 July 2010, Government Regulation No. 57 of 2010 on Merger or Consolidation of Business Entities and Acquisition of Shares of Companies which May Cause Monopolistic Practices and Unfair Business Competition (Merger Regulation) was issued. Under the Merger Regulation, transactions meeting the following thresholds must be notified to the KPPU within 30 days of the transaction taking effect:

  • the value of the assets of the combined businesses exceeds IDR2.5 trillion (around USD196 million) or IDR20 trillion for banks (around USD1,569 million); or
  • the sales turnover of the combined businesses exceeds IDR5 trillion (around USD392 million).

The Merger Regulation also states that in calculating the above thresholds, the assets and sales of affiliates in Indonesia will also be considered. Failure to notify is subject to a fine of IDR1 billion (around USD78,000) for each day of late filing. The maximum fine is IDR25 billion (around USD2 million). This is in addition to penalties for merger, consolidation of business entities or a company’s share acquisition that causes monopolistic practice and/or unfair business competition, which may be invalidated. Business actors may opt to voluntarily notify the KPPU of their proposed transactions before the transactions are closed. Business actors can then know in advance the KPPU’s view on the proposed transaction. However, pre-closing notification does not eliminate the mandatory post-closing notification requirement. Links to a list of merger notifications filed with the KPPU and PDF scans of the Indonesian originals of KPPU rulings on such filings are available at www.kppu.go.id.

6.2 Merger remedies

In 2012, the new KPPU Merger Guideline introduced a procedure for the acquiring entity to propose remedies within 14 days after the KPPU issues its assessment stating that the transaction is substantially lessening competition. According to the new guideline, the proposed remedies can be in the form of:

  • Structural remedies, i.e., shares or assets divestiture;
  • Behavioral remedies, i.e.,
  • relating to intellectual property rights;
  • eliminating competition barriers, e.g.,
  • exclusive contracts;
  • consumer switching cost;
  • tie in or bundling;
  • supply or purchase barriers;
  • relating to price or output;

If the KPPU accepts the proposed remedies, the KPPU will issue an opinion of conditional no allegation of monopolistic practices or unfair competition. If the KPPU rejects the proposed remedies, it will issue an opinion of allegation of monopolistic practices or unfair business competition.

6.3 Cross-shareholding

The Anti-Monopoly Law prohibits certain share acquisitions. In particular, it provides that a business actor is prohibited from owning or creating a majority shareholding of several companies of the same type which conduct business activities in the same field in the same market if:

  • one business actor or one group of business actors controls more than 50 percent of the market share of a certain type of good or service; or
  • two or three business actors or a group of business actors control(s) more than 75 percent of the market share of a certain type of good or service.

The term “majority” has been interpreted in one case to include a minority shareholding that caused monopolistic practice or unfair competition. The KPPU also asserted that the rule of reason applies to the prohibition against majority cross shareholdings which are usually regarded as illegal per se in order to extend this prohibition to cover minority shareholdings. This KPPU assertion has been affirmed by the Supreme Court on appeal.

7. Other prohibitions

7.1 Monopoly and monopsony

A market share of 50 percent or more of the production or sale of a product within a relevant market qualifies a business actor as a monopoly. Likewise, control of 50 percent or more of the purchase of a product within a relevant market qualifies a business actor as a monopsony. A monopoly or monopsony is prohibited if it may cause monopolistic practices or unfair competition.

7.2 Restrictive practices

The Anti-Monopoly Law prohibits the following restrictive practices if they may cause monopolistic practices or unfair competition:

  • barring competitors from entering the market;
  • barring customers from doing business with competitors;
  • limiting distribution of products;
  • discriminating against other business actors; or
  • predatory pricing.

Businesses are prohibited from fixing tenders and obtaining confidential information if these acts may cause unfair competition. Conspiracy to obstruct the production or distribution of a competitor’s products with the intent of reducing their supply in the relevant market is prohibited without qualification.

8. Penalties and liabilities

The KPPU is the primary enforcement body of the Anti-Monopoly Law, having wide authority to investigate and try cases (subject to review by the courts). The KPPU is authorized to impose a range of administrative penalties, including:

  • nullification of all agreements or mergers, consolidations and acquisitions which violate the Anti-Monopoly Law;
  • orders to business actors to stop all actions which violate the Anti-Monopoly Law;
  • determination of damages to compensate parties for loss; and
  • imposition of fines of between IDR1 billion and IDR25 billion.

The courts may impose:

  • criminal penalties, including fines and imprisonment;
  • revocation of a business actor’s business license;
  • a ban on individuals holding management positions in companies for between two and five years; and
  • termination of certain activities that cause losses to other parties.

The KPPU has rendered decisions in around 200 cases of violations of this law and has examined hundreds of reports of violations received from the public. A complete list of on-going cases and KPPU decisions (downloadable in their original Indonesian in PDF format) can be accessed at www.kppu.go.id.

9. Leniency

There is no leniency program in Indonesia. The KPPU may consider imposing a lesser penalty in appreciation of a good gesture to comply from a party under investigation, on a case-by-case basis.

10. Extraterritorial application

There are two cases where the KPPU has asserted jurisdiction over overseas tender participants who otherwise did not have any connection with Indonesia. In the Temasek cross-shareholding case, the KPPU asserted that it has jurisdiction over foreign parties who directly and indirectly control Indonesian companies but otherwise do not have any connection with Indonesia. This KPPU assertion has been affirmed by the Supreme Court on appeal.

11. Reform

On 23 September 2014, the House of Representatives added a draft amendment to the Anti-Monopoly Law to its list of draft laws to be discussed by the newly sworn-in members of the House of Representatives. The following is a summary of the changes to the Anti-Monopoly Law that are being proposed by the draft amendment (New Draft). New proposals may be added and the current proposals may be modified significantly or dropped completely by the House of Representatives. However, as they stand, they do represent a significant move to align the Anti-Monopoly Law with international practices. For instance, a switch from post-closing to pre-closing merger review would mean that Indonesia will follow the practice of the vast majority of countries. Likewise, the New Draft will introduce leniency procedures in cartel actions, something that has long been adopted by leading jurisdictions that have antitrust laws.

Business actors

The New Draft expands the definition of business actors so it not only covers those who engage in business activities within Indonesia but also covers those who engage in business activities outside Indonesia that affect the Indonesian economy.

Sanctions

One of the significant changes in relation to sanctions is that the New Draft abolishes all criminal sanctions for violations. On the other hand, the maximum amount of fines is increased to IDR500 billion, from IDR25 billion in the current Anti-Monopoly Law. Further, the New Draft introduces more systematic administrative sanctions. For prohibited agreements, the sanction is the cancellation of the agreement. For prohibited actions, the sanction is an order to cease from the actions. For abuse of dominant position and prohibited mergers, the sanction is an order to cease the abusive conduct and winding up the merger. Damages are still possible for each type of violation. Repeated violations will get additional sanctions in the form of a recommendation for the relevant government agencies to revoke the business license and a publication of the business actors in a blacklist.

Merger control

The New Draft includes acquisitions of assets and formations of joint ventures that meet certain criteria for mandatory notification. The current Anti-Monopoly Law only covers mergers, consolidations and acquisition of shares. Further, the New Draft stipulates mandatory pre-completion notification and abolishes mandatory post-completion notification. The New Draft stipulates that the KPPU must review a merger notification within 21 working days.

The Business Competition Supervisory Commission (KPPU)

The New Draft authorizes the KPPU to issue injunctions based on agreements or conduct that are alleged to violate the Anti-Monopoly Law. The injunction is stipulated in an interlocutory decision issued by a commissioners panel. The New Draft specifically authorizes the KPPU to reject proposed mergers and acquisitions if the KPPU’s review shows that the mergers and acquisitions have adverse competition effects. The New Draft also specifies that the Commissioners of the KPPU will only be nine persons, including one chairman and one vice chairman. The chairman and vice chairman are determined by the House of Representatives based on majority votes. There are more details of the selection procedures, requirements, prohibitions and replacement of commissioners, meeting quorum and the KPPU’s overall organization structure in the New Draft.

Confidentiality

The New Draft provides a specific chapter of confidentiality that stipulates that the commissioners and all KPPU employees must not disclose any confidential information they receive in doing their jobs. Any violation will be sanctioned according to laws and regulations.

Case Handling Procedures

The New Draft provides details of case handling procedures, i.e., complaint receipt, clarification, investigation, hearing, deliberation, decision announcement, decision implementation, objection and cassation. Some highlights of the case handling procedures under the New Draft are as follows:

  • Leniency: the KPPU may grant amnesty or a reduced punishment to business actors that admit or report a violation. The KPPU will further regulate the procedures.
  • Change of behavior: the KPPU may consider imposing a stipulation of change of behavior if a reported party accepts the allegation by investigators in the first hearing stage. There will be no further hearing in those cases.
  • Decision implementation: business actors that do not implement a final and binding KPPU decision will be charged with a criminal violation. If the implementation is to pay fines, it will be handled by the State Receivables Office.

Objections and cassation: Objections to KPPU decisions must be submitted to Commercial Courts after the business actors pay 50 percent of the amount of fines. The Commercial Courts must decide on an objection within 45 working days. The Supreme Court must decide on a cassation within 60 working days.