COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case Number: 14/IR/NOV99
In the matter between
DW Integrators CC Claimant
and
SAS Institute (Pty) Ltd Respondent
Decision on Application for Interim Relief in terms of Section 59
of the Competition Act, 89 OF 1998
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Introduction
1. This case is concerned with the complex interface between antitrust
and intellectual property – we are being asked, in the name of anti
trust, to oblige the respondent, SAS Institute (SAS), a large software
firm and an uncontested owner of valuable intellectual property, to
issue a licence in its intellectual property to the claimant, DW
Integrators (DWI), a firm that provides consulting services to the
licensees of SAS software programs. The services provided by DWI
and other service providers essentially enable SAS’s clients to adapt
the SAS software to their specific needs. The claimant avers that it
cannot provide its services effectively without itself possessing a
licence in SAS software and that SAS, by refusing to issue a licence to
DWI, is preventing the latter from participating in the market.
2. In other words, the claimant avers that it is being excluded from the
market by acts perpetrated by a dominant firm and, accordingly, that
the respondent is in violation of Section 8(c) of the Competition Act
which provides that it is an offence for a dominant firm to engage in an
exclusionary act if the anticompetitive effects of that act outweigh any
associated efficiency gains. Moreover, the claimant alleges that the
respondent’s software to which, it claims, it is denied access, is an
essential facility insofar as it is, in the words of the Act, ‘an
infrastructure or resource that cannot reasonably be duplicated, and
without access to which competitors cannot reasonably provide goods
or services to their customers’. Accordingly, the claimant alleges that
the respondent has thereby placed itself in violation of Section 8(b) of
the Act, which prohibits a dominant firm from denying a competitor
access to an essential facility. A violation of Section 8(b) cannot be
countervailed by efficiency gains – it is, in other words, per se illegal.
3. The claimant has submitted a complaint along these lines to the
Competition Commission. In addition, the claimant has asked the
Tribunal to make an order in terms of Section 59 that will, in the
interim, provide relief from the transgressions allegedly perpetrated by
the respondent. This is the matter with which the Tribunal is presently
seized. In order to grant interim relief the Tribunal must be satisfied
that a restrictive practice exists; that, in the absence of an order, the
claimant will incur irreparable harm or that the purposes of the Act will
be frustrated; and that the balance of convenience favours the granting
of an order. The Tribunal must be satisfied on all three counts failing
which it is not entitled to make an order in terms of Section 59.
Background
4. The respondent, SAS Institute (Pty) Ltd, is a locally registered wholly
owned subsidiary of the SAS Institute Incorporated, a private company
incorporated in the USA, and is the licensed South African distributor
of its US parent’s software. The software in which SAS specializes is
known as information delivery software. This type of software is used
known as information delivery software. This type of software is used
to store and manage large sets of data and is typically licensed to large
companies who pay initial licence fees that often run into millions of
rands.
5. DWI describes information delivery software as a specialized product
that should be distinguished from three other categories of software:
Personal productivity software, operational application software and
transactional database software. Moreover, DWI alleges that SAS
software is unique. It relies on SAS’s marketing material for
substantiation of this contention. For example, it quotes SAS’s claims
that SAS is the “only endtoend solution for managing, organising and
exploiting data throughout your business” and that SAS “provides the
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only suite of tools that allows administration of data warehouses across
the enterprise”.
6. In 1995 DWI’s predecessor began providing consulting services to
licensed users of SAS software in South Africa following suggestions
to this effect by SAS. These services included advising on the use of
SAS software, installing and customising the software, developing
turnkey applications to be used in conjunction with the software,
providing general support services for the software, and training staff in
the use of the software.
7. SAS and DWI formalised their relationship in 1996 by entering into a
‘Quality Partner Agreement’ the purpose of which, as recorded in the
preamble to the agreement, was to form the basis of a close working
relationship between the parties. On the one hand, the agreement
bestowed certain privileges on DWI as a quality partner. For example,
SAS undertook in the agreement to recommend the consulting
services of quality partners to its customers and agreed to give quality
partners access to its customer mailing lists. On the other hand, it
contained provisions aimed at ensuring that the quality partner’s staff
were properly trained and provided a satisfactory service to SAS
licensees. The agreement was valid for 1 year, renewable by
agreement. Either party could terminate the agreement on 30 days
written notice.
8. The Quality Partner Agreement was conditional on DWI’s holding a
valid licence for SAS software in terms of a SAS’s master licence
agreement. DWI duly concluded a software licence agreement with
SAS in August 1996.
9. In August 1997, SAS advised DWI that it would be terminating the
Quality Partner Agreement with effect from 5 September 1997. In its
Quality Partner Agreement with effect from 5 September 1997. In its
letter of termination, SAS ascribed its decision to terminate the
agreement to “…unwarranted, unfounded, incorrect and unprofessional
and slanderous statements [by] DW Integrators’ directors and
contractors, with regard to SAS’s employees, products and services.”
The letter further stated that various statements made by DWI’s staff
were having a negative effect on the SAS Institute’s relationship with
its customers. DWI in turn attributed the breakdown in its relationship
with SAS to three factors: first, that SAS was unhappy with the fact that
DWI was advising clients to buy only those modules of SAS software
that met the clients’ technology requirements, and not the full SAS
software suite; second, that DWI was advising clients to buy the
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software products of SAS’s competitors in cases where, in DWI’s
opinion, the alternative software better suited the needs of the clients;
third, that SAS started providing comprehensive support services
directly to licensees, and thus began to feel threatened by DWI
because it considered DWI to be its competitor in the market for
support services.
10. SAS denied these allegations. It submitted that in principle it did not
object to DWI’s recommending other software than SAS software, but
questioned DWI’s competence to do so given the fact that DWI staff
were not conversant with the full range of SAS’s software. In addition,
it denied that it intended competing in the market for support services,
stating that it considered the provision of consulting or support services
not to be its core preferred business. It pointed out that there were a
number of other consulting firms providing similar services to DWI
whose participation in the market SAS did not object to and in fact
encouraged.
11. Following attempts by DWI to convince SAS to restore DWI’s status as
a quality partner in terms of the original agreement between them, SAS
proposed a new draft Quality Partner Agreement, which DWI refused
to sign because it felt that its terms were anticompetitive and
threatened DWI’s independence as a software consultant. For
example, the new draft required the quality partner to promote SAS
software and to submit to SAS for prior review and approval all its
advertising and other promotional and display material relating to
services in support of SAS software.
12. A few months later, SAS cancelled its software licence agreement with
DWI after DWI had failed to pay its licence fees despite several
DWI after DWI had failed to pay its licence fees despite several
reminders. The parties are at odds as to whether SAS’s cancellation
complied with the terms of the licence agreement. At any rate, DWI
tried to convince SAS to change its mind and tendered payment of the
licence fee. SAS, however, rejected DWI’s late payment stating that it
would not accept payment “prior to being convinced that DWI’s
business supported the best interests of SAS Institute”. DWI
interpreted this statement to support its contention that SAS was
denying DWI a licence in order to exclude it from the market unless it
agreed to go along with the allegedly anticompetitive terms of SAS’s
new draft Quality Partner Agreement.
13. DWI maintains that without a SAS software licence it is unable to
provide adequate consulting services to its clients. It alleges that
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access to its clients’ software is scant consolation, since its clients do
not always have spare computers available for DWI consultants to
work on. Furthermore, it says that without its own licence it is unable to
run training courses for its consultants, which impairs its ability to keep
its consultants properly trained. As a result, it runs the risk of losing
some of its clients.
Interim Relief
14. As mentioned above, the Tribunal may only grant an interim relief
order in terms of Section 59 if it is satisfied that a prohibited practice
has occurred, that an interim order is necessary to prevent irreparable
harm or to prevent the purposes of the Act from being frustrated, and
that the balance of convenience favours the granting of the order.
Once the Tribunal has determined that each of these conditions has
been met, it may grant an order for interim relief although it must
ensure that the terms of the order are indeed interim in nature, that is
that they do not inadvertently have final effect.
15. The respondent pointed out that the claimant had not made any
allegation in its founding affidavit in respect of the balance of
convenience and argued that the application should fail on this ground
alone. While it is striking that the claimant failed to deal with this very
important interim relief requirement explicitly, we are of the opinion that
we have been given enough general information in this case to form an
opinion in respect of this requirement. We are therefore not prepared
to dismiss the claimant’s application merely because it failed to aver
that the balance of convenience was in its favour.
16. Per definition an application for interim relief is decided without the
advantage of a full investigation by the Competition Commission.
advantage of a full investigation by the Competition Commission.
Moreover, although not precluded from hearing oral evidence, in
proceedings of this nature the Tribunal is, for the most part, obliged to
base its decision on the papers submitted. Adjudication on contested
evidence generally requires the benefit of the full investigation and the
taking of oral evidence and this limits the Tribunal to a decision based
on uncontested evidence contained in the papers.
17. Accordingly, the Tribunal will not grant interim relief lightly. The
evidence upon which it must rely is limited, and, although underpinned
by a rich legal and economic theory, antitrust adjudication is
enormously influenced by the facts particular to each case. This is
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particularly so when efficiency arguments have to be evaluated as
provided for in Section 8(c). Conversely, when, as in Section 8(b), no
defence is provided for, the Tribunal is required to be particularly
confident of its facts before granting interim relief. Interim relief is a
powerful instrument of the Competition Act, and though of vital
importance in the context of antitrust enforcement, must be
approached with care.
18. Caution is particularly welladvised when dealing with the interface
between antitrust and intellectual property. We concur with the much
cited decision in Atari Games Corporation v Nintendo of America Inc
(897 F.2d 1572 (Fed. Cir. 1990), which warns that “the danger of
disturbing the complementary balance struck by Congress is great
when a court is asked to preliminarily enjoin conduct affecting patent
and antitrust rights. A preliminary injunction entered into without a
sufficient factual basis and findings, though intended to maintain the
status quo, can offend the public policies embodied in both the patent
and antitrust laws.” (at 1577).
Arguments in Limine
19. The respondent raised a number of points in limine in the answering
affidavit filed in its defence. It has persevered with only two of these
points. Firstly, it objects to the claimant’s software importation and
distribution activities, which it alleges are activities that fall beyond the
scope of the claimant’s founding statement. It contends that the
claimant’s present application is aimed at protecting these
unauthorised activities and consequently that if we were to allow the
application we would be encouraging the claimant to continue to act
beyond its chosen scope. This is clearly not the case. The claimant’s
beyond its chosen scope. This is clearly not the case. The claimant’s
importation and distribution activities have no bearing on the relief
sought in this application. If we were to find that the respondent’s
refusal to licence is an infringement of the Competition Act, our finding
would stand irrespective of whether the claimant is engaging in other
activities not covered by its founding statement.
20. The respondent’s second point in limine is the argument that because
the claimant’s request for the renewal of the licence and for a new
licence was made and rejected before 1 September 1999, the date on
which the Competition Act came into operation, the Competition
Tribunal has no jurisdiction to hear this application. We are not
persuaded by this argument either. The alleged antitrust violation –
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the respondent’s refusal to grant a licence – is ongoing and therefore
falls within the jurisdiction of the competition authorities under the
Competition Act. It is irrelevant when the respondent first refused to
grant a licence or what form the refusal took – the refusal continues.
The Continued Validity of the Licence Agreement
21. The principal relief that the claimant seeks from the Tribunal is a
declaration that the licence agreement which the respondent refused to
renew remains in full force and effect and is binding upon the claimant
and respondent, provided the claimant pays the relevant licence fee.
To grant an order in these terms, the Tribunal would have to find that
the respondent’s refusal to renew the licence constituted a breach of
contract. An enquiry into whether the respondent breached the
contract is not a competition law enquiry. The competition law issue
here is rather whether the respondent’s refusal to grant the licence,
whether by way of renewal of the existing licence or the issuing of a
new one, is an abuse of dominance in terms of the relevant provisions
of Section 8 of the Act. If we find that Section 8 has been transgressed,
we could order that the respondent be granted a licence, but we could
not declare that this should be by way of renewal of the existing licence
agreement rather than under a new licence agreement.
Abuse of a Dominant Position – the relevant market
22. We are then left with the allegation that the respondent, by refusing to
enter into a new licence agreement, is abusing a dominant position
and this in two ways: firstly, by perpetrating an exclusionary act in
violation of 8(c); secondly, by denying the claimant access to an
essential facility in violation of 8(b).
23. A necessary preliminary in establishing abuse of dominance, is
23. A necessary preliminary in establishing abuse of dominance, is
establishing dominance and, in order to do this, the relevant market
has to be identified. The evidence and arguments of the parties is not
helpful in identifying the relevant market with the requisite degree of
confidence. In interim relief proceedings where, without the benefit of
the Commission’s investigation, the views of the parties are all that the
Tribunal has to rely upon, the effect of the inability of the parties to
establish the relevant market is particularly debilitating.
24. The claimant holds that the relevant market is the market for
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information delivery software and, conceivably, because of the
allegedly unique qualities of the respondents product, the market for
SAS information delivery software. The claimant claims that the
respondent is dominant in the former market – the market for
information delivery software both internationally and domestically;
and obviously that it is a monopolist in the latter market, the market for
SAS information delivery software. It then identifies a ‘submarket’ the
market for servicing SAS information delivery software arguing that
SAS is leveraging its monopoly, or, alternatively, its dominant position
in the primary market in order to limit competition in the ‘submarket’.
25. Little concrete evidence is presented in support of these various
claims. We reject the contention that SAS is a monopolist. It is
common cause that there are other information delivery software
products available. While we are prepared to accept that none of
these are homogenous ‘commoditytype’ products and that the
commercial strategy of participants in this market is to continually
distinguish, primarily through innovation, its particular offering from that
of its competitors, we have no reason to believe that these products
cannot be substituted for each other. The evidence relied upon for
asserting the uniqueness (read ‘monopoly position’) of the SAS
product are the boasts made in SAS promotional literature, where, per
definition, SAS would be most inclined (and feel most free) to proclaim
the technological uniqueness of its product.
26. That having been said, SAS clearly occupies an important place –
indeed the preeminent place – in the global market for information
indeed the preeminent place – in the global market for information
delivery software. The claimant, drawing once more on SAS
promotional literature, mentions a figure of 50%. This is called into
question by the respondent’s rejoinder to the effect that this figure only
incorporates the market shares of those firms dedicated to the
production of information delivery software and, accordingly, that it
does not include the market shares of some very powerful firms – IBM
for example – who produce a wider range of software. While the
respondent has been extremely imprecise in its rejoinder, by pointing
to the casual basis whereby the claimants have arrived at the figure of
50%, the real possibility that the actual figure falls below 45% must be
considered. This is important because immediately the market share
falls below 45%, the Act requires an assessment of market power in
order to make a finding of dominance. While again less than
absolutely conclusive, the respondent’s argument calls into question
the contention that SAS exercises market power. We are impressed
by the respondent’s uncontested claim that information delivery
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software is accounting for a rapidly growing share of the total software
market and, accordingly, that this will attract the attention of other
software firms. When one considers the resources – both financial and
human capital – available in this industry and the consequent likelihood
of rapid new entry, it seems unlikely that SAS would be capable of
exercising market power. In the absence of market power, the
claimant would, in order to establish dominance, have to demonstrate
conclusively that SAS’s international market share exceeds 45%. We
do not believe that the claimant has discharged this onus where the
international market is concerned.
27. The claimant appears to be on stronger ground when they argue that
SAS accounts for a share of the local market for information delivery
software considerably in excess of 50%. While the respondent’s
rejoinder to the effect that SAS occupied a small share of the potential
information delivery software market is rejected (market share is
properly identified in relation to the existing not to the unquantifiable
potential market), we are not satisfied that the claimant has discharged
its onus to establish conclusively the respondent’s share of the South
African market. However, more damaging to the claimant’s argument
is its failure to establish the relevance of the South African, as opposed
to the international, market for information delivery software. The
nature of the product, the scale of the individual licence contracts, and
the scale and multinational character of the typical customer for
information delivery software suggests that the search, by the
customer, for the best and most costefficient product is not likely to
stop at South Africa’s borders – in other words we have no reason to
believe that there is a national market for information delivery software
believe that there is a national market for information delivery software
and every reason to believe that it is a global or international market
that is relevant for the purposes of this enquiry.
28. The respondent, for its part, holds that the market for servicing
information delivery software in South Africa is relevant. It points out
that it does not compete with the claimant in the market for information
delivery software, but only in the South African market for the servicing
of this software. The respondent points out that in this market – even if
confined to the servicing of SAS information delivery software alone –
the respondent, far from being dominant, has a smaller market share
than the claimant.
29. We do not accept the respondent’s argument here. An abuse of
dominance is generally perpetrated by a dominant firm in a particular
market vis àvis customers or suppliers in markets down or upstream
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of the market in which the alleged perpetrator is dominant. In other
words to establish dominance in the market for information delivery
software would be a legitimate basis for examining possible abuse
downstream in the servicing of this software. The question of course is
whether dominance has been established in the relevant global market
for information delivery software. As already elaborated, we are not
satisfied that this has been established.
30. There is one remaining issue relevant to the question of establishing
dominance and that concerns the claimant’s argument that, because it
has established itself as a specialist service provider for SAS software,
the respondent effectively enjoys the power of a monopolist in relation
to the claimant, regardless of whether SAS is actually in a monopoly
position in relation to the market for information delivery software (it
clearly is not) or, indeed, whether it is dominant in the market for
information delivery software (which we conclude has not been
conclusively established). We have to tread carefully here. Were this
argument to be accepted too easily it would in effect mean that any
distributor or supplier or service provider that attached itself to a
particular brand would be absolved of the necessity to establish
dominance, but would simply have to establish that an abuse took
place. A similar argument is raised in the case of franchising where
the cost to the franchisee of switching from an established franchise
into a new franchise relationship is prohibitive, thus according the
existing franchisor effective dominance, despite the putative existence
of alternative franchising opportunities. This is referred to as ‘relational
dominance’. It is a controversial concept. The US courts have for
dominance’. It is a controversial concept. The US courts have for
instance not developed a clear and unambiguous approach to this
issue. See for example Siegel v Chicken Delight 664 F.2d 43 (9 th Cir.
1971), in which the court based its analysis on a market narrowly
defined as the franchisor’s line and the subsequent US Supreme Court
decision in Eastman Kodak Co. v Image Technical Services , Inc. 504
US 451, 467 – 79 (1992), in which the court recognised that switching
costs could limit the relevant market to the seller’s line of products. In
contrast, the courts in a number of more recent cases have interpreted
the Kodak decision narrowly and have refused to accept a market
definition limited to the franchisor’s product line – see for instance
Digital Equipment v Uniq Digital Tech 73 F. 3d 756, 762 (7 th Cir. 1996)
and other cases surveyed in McDavid and Steuer’s article in the
Antitrust Law Journal, vol. 67 of 1999). Although the concept of
‘relational dominance’ might possibly be applicable in this case, we
have not been provided with either a sufficient factual or conceptual
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basis to identify dominance purely on the basis of the relationship
between the parties.
31. Our conclusion then is that dominance has not been established in the
market for information delivery software, and nor has dominance been
established in the relationship between the parties. There is
accordingly no further basis for examining the alleged restrictive
practice because it is framed as an abuse of a dominant position.
Accordingly, the application for interim relief is dismissed because it
has failed to establish the existence of a restrictive practice.
Irreparable harm/frustrating the purposes of the Act
32. The claimant’s failure to establish dominance, much less an abuse of
the dominance alleged, means that the Tribunal is not required to
examine the additional conditions that must be established if the
Tribunal is to grant interim relief. We note, however, that the claimant
has equally failed to establish that, in the absence of interim relief,
irreparable harm will result or that the purpose of the Act will be
frustrated.
33. There is clear evidence to the effect that successful providers of
services to SAS clients operate without the benefit of a licence. These
providers use the software licences of their clients to provide the
required service. There is, to be sure, evidence that the lack of a
licence will inconvenience DWI. Its ability to provide training to its
consultants may suffer somewhat as will its ability to provide
emergency services. However, should this matter come to full trial and
should the claimants prevail at that stage, the inconvenience will be
temporary. What is clear is that the claimant is, in the interim, capable
temporary. What is clear is that the claimant is, in the interim, capable
of carrying out its core service functions and that it is, in fact, presently
providing these services to its clients. Establishing irreparable harm
requires stronger evidence than this. The claimant itself makes the
highly qualified claim that, absent an order for interim relief, ‘there is a
very real risk that that the claimant may breach a contract with a client,
which could result in such client electing to cancel the contract’. We
concur with this assessment of the potential harm and it falls well short
of what the Tribunal requires to make a finding of irreparable harm.
34. Nor has the claimant established that the purposes of the Act will be
frustrated. This, too, is a sterner test than that apparently assumed by
the claimant. It requires more than a simple restatement of the
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purposes of the Act and an accompanying assertion that the
respondent’s actions are at odds with these purposes. It requires
tangible, demonstrative evidence that the administration and reputation
of the Act will be compromised by a failure to obtain interim relief. The
claimant has not discharged this onus.
Finding and order
35. The claimant’s request for interim relief is dismissed.
36. The claimant is ordered to pay the respondent’s costs in the
application on the scale as between party and party, including the
costs of one counsel and one attorney.
___________________________ ________________
D.H. Lewis Date
Presiding Member
Concurring: M.G. Holden and U. Bhoola
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