Understanding Restrictive Agreements
Section 59 of the Federal Competition and Consumer Protection Act, 2018 (“the Act”) prohibits agreements/ arrangements (“Agreements” or “Arrangements”) amongst undertakings (“Undertakings”) and decisions (“Decisions”) by associations of undertakings (“Associations”) where such agreements or decisions are either calculated to, or have the likely effect of restricting or distorting competition. A spokesperson for Duale Ovia & Alex-Adedipe tells us more.
The Act restricts such agreements or decisions, which prevents or distorts competition directly or indirectly. The Act restricts such agreements made to: fix price (“Price Fixing”); share market (“Market Sharing”); rig or collusively tender for a competitive bid (“Collusive Tendering/Bid Rigging”); limit or control distribution of goods and services (“Limiting Agreements”); and make conclusion of an agreement predicated on the acceptance of a supplementary obligation(s), unconnected to the subject of the agreement (“Tying Arrangements”).
Forms of Restrictive Agreements under the Act
1. Price Fixing Agreements (“PFAs”): are agreements, within the scope of the Act, that have the effect of directly or indirectly fixing the purchase or selling price of goods or services. It would accommodate arrangements such as threats, promises, or actions calculated to, or has the indirect effect of influencing an increase or reduction in the price of goods or services, which an Undertaking supplies, offers to supply, or advertises. These PFAs may lead to attrition in output and misallocation of resources. The Act restricts these agreements, in order to preclude any interference with the free play of competition in the market . PFAs may take various forms such as: (1) Naked Price Fixing; (2) Collective Resale Price Maintenance Arrangements; etcetera.
2. Market Sharing Agreements (“MSAs”): are agreements that have the effect of dividing the market. These MSAs are intended to apportion the market amongst the producers and suppliers of goods or services. Similar to PFAs, MSAs may lead to reduction in output, an increase in consumption price, and may hamper freedom of choice.
3. Collusive Tendering/Bid Rigging (CT/BR): Typically, bidding and tendering processes are designed to be competitive, and bidders are required to prepare and submit bids independently. CT/BR are arrangements where one (1) or more Undertakings agree not to submit a bid in response to a call for competitive bid, or where the Undertakings, as Bidders or Tenderers, in response to a request for bid or tender, submit bids or tenders by agreement between or amongst themselves. CT/BR tilts the bargaining strength in favour of the Bidders/Tenderers, and may increase price to the detriment of Consumers.
4. Limiting Agreements: are agreements, which have the direct or indirect effect of limiting or controlling production and/or distribution of goods, services and market, and technological development.
5. Tying Arrangements: are arrangements whereby an Undertaking sells goods or provides services (“Tying Product/Service”) on the condition that the other party purchases separate goods or services, which are unrelated to the primary contract for the Tying Product/Service (“Tied Products/Services”). This hampers Consumers’ freedom of choice as Consumers may not want to purchase the Tied Products/Services, or may want to purchase it from a separate Undertaking. The arrangement discourages equally or more efficient competitors in the Market.
Notwithstanding the foregoing, the list of restrictive agreements identified under the Act is not exhaustive. Once an arrangement tends to restrict, prevent or distort competition, such arrangement shall be prohibited under the Act. The Federal Competition and Consumer Protection Commission (“the Commission”) may, however, authorize certain Restrictive Agreements, where it is satisfied by an Undertaking that such agreement:
a) Improves production and distribution of goods and services;
b) Encourages Technological and Economic Progress;
c) Is beneficial to the Consumer;
d) Is indispensable to achieving paragraph (a)-(c) above; and
e) Does not cause substantial elimination of Competition
Section 68 of the Act expressly provides certain agreements that will not qualify as Restrictive Agreements. They include, amongst others,
a) Employees’ activities for the reasonable protection of the employees.
b) Collective bargaining arrangements for the purpose of fixing terms and conditions of employments.
c) Professional Associations’ activities designed to enhance or enforce standards of professional qualification.
d) contract of service or a contract for service in so far as it contains provisions by which a person, not being a body corporate, agrees to accept restrictions as to the work, whether as an employee or otherwise, in which the person may engage during or after the termination of the contract and this period shall not exceed two years.
e) a contract for the sale of a business or shares in the capital of a body corporate carrying on business in so far as it contains provisions that is solely for the protection of the purchasers in respect of the goodwill of the body corporate.
In light of the commencement of the Act, it is imperative that firms arrange and calibrate the terms of their commercial arrangements in alignment with the provisions of the Act.