COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 04/CR/Jan02
In the matter between:
The Competition Commission of South Africa Applicant
and
Anglo American Medical Scheme Intervening Complainant
Engen Medical Fund Second Complainant
And
United South African Pharmacies First Respondent
Members of United South African
Pharmacies Second and further Respondents
DECISION ON EXCEPTION APPLICATIONS
On 17 January 2002 the Commission initiated complaint referral proceedings
against the respondents.
On 4 June 2002 the intervenor, (“AACMED”) was given leave to intervene in
these proceedings and it then filed its own intervenor’s referral on 18 June 2002
against the respondents.
The first respondent, whom we shall refer to as USAP, has raised a number of
exceptions to both referrals which we consider in this decision. Since some of the
issues raised in the exceptions are similar, we have dealt with them thematically,
rather than separately, in respect of each referral.
Timing of exception
1
AACMED at the outset has argued that exceptions have no place in our
proceedings, which are meant to be informal and expeditious. Whilst we do not
quibble with the latter observation we have indicated on a number of previous
occasions that where appropriate, we will entertain exceptions even at this stage
of our proceedings i.e. before the respondent has filed an answer. 1 In our view, if
these exceptions are well founded, they are appropriately raised now. For this
reason we proceed with an examination of the merits of the exceptions.
Approach to exceptions
We have previously, in our Botash and Glaxo Welcome decisions, indicated our
approach to exceptions. 2
Briefly this approach is twofold. In the first place it must be borne in mind that the
principles of exception, which parties exhort us to emulate in our proceedings,
are derived from adversarial proceedings whose objective it is to provide a forum
for the vindication of private rights. Ours in contrast are to provide a forum to
vindicate the public interest. Given this difference in objectives we should be
alive to the danger inherent in grafting the principles of exception developed by
adversarial courts uncritically on our proceedings.
Secondly the Tribunal may step into the ring at its discretion exercising its
inquisitorial powers, and hence pleadings play a less central role in our
procedures.
The effect of both these observations is that our approach to pleadings will be
less strict than would be a High Court’s. 3
That being said this does not mean that a respondent is required to answer to
any type of pleading proffered, regardless of its impoverishment of fact or legal
averment. Fairness is also a standard that our procedures must meet.
Respondents are entitled to understand the case being made out against them.
The standard set out in Rule 15 of the Tribunal Rules must be adhered to.
1 For a discussion of this see our decision in National Association of Pharmaceutical Wholesalers
& Others vs Glaxo Wellcome & Others 45/CR/Jul01. This approach was approved of by the
Competition in Appeal Court when the same matter went on appeal. See Glaxo Wellcome (Pty)
Ltd & Others and National Association of Pharmaceutical Wholesalers & Others 15/CAC/FEB02
2 American Natural Soda Ash Corp CHS Global (Pty) Ltd and the Competition Commission,
Botswana Ash (Pty) Ltd et al 49/CR/Apr00; National Association of Pharmaceutical Wholesalers
& Others vs Glaxo Wellcome & Others 45/CR/Jul01
3 We should not lose sight either of the Act’s albeit permissive injunction for our proceedings to
be informal. (See section 52(2)(b)).
2
Non Joinder (Commission and AACMED)
In both referrals USAP is cited as the first respondent. This has occasioned no
difficulty. Both referrals however seek relief against USAP’s members too. Given
that USAP has 1600 members distributed nationwide, the pleaders were faced
with a practical difficulty.
The Commission’s investigator in her affidavit simply alleges that the –
“Second respondent is all the retail pharmacies that are members of the
First respondent. I do not know the further particulars of the Second
respondents.”
AACMED alleges that –
“The second and further respondents are the members of USAP, an
estimated 1600 retail pharmacies and pharmacy groups registered under
the Pharmacy Act… situated in various suburbs, towns and cities
throughout South Africa. A list of the second and further respondents,
which also reflects each of their places of business, is annexed hereto
marked “A”.
USAP alleges that neither formulation is satisfactory and state that the members
of USAP have not been properly joined in these proceedings in that they have
neither been cited properly nor served with the papers.
The Commission in its complaint referral seeks an administrative fine against the
second respondent and a declaration that their conduct constitutes a prohibited
practice. 4 The consequence of such a declaration is that a respondent may be
faced with civil liability for damages. (See section 65(b) of the Act) AACMED
seeks an interdict against them. Failure to comply with an order of the Tribunal
can make a respondent liable for an administrative fine and criminal penalty. 5
For this reason we find that the second respondent in the complaint referral and
the second and further respondents in the intervenor’s referral have not been
properly joined. We will however give both the Commission and the intervenor
the opportunity to rectify this. Whether they do so by citing all the members of
the opportunity to rectify this. Whether they do so by citing all the members of
USAP or only those who are alleged to have participated in the boycott is for
them to decide.
Time (Commission only)
4 See prayers 2 and 3 of the Commission’s Complaint Referral.
5 See section 59(1)(c) and section 73.
3
USAP complains that the Commission has failed to allege when the prohibited
practices are suppose to have taken place. We find that they are entitled to this
information. The Commission will be given an opportunity to file an additional
affidavit to make these averments.
Failure to identify wrongdoers (Commission only)
USAP complains that the Commission have referred in paragraph 10.1 of the
complaint referral to certain members of USAP perpetrating conduct but that
these members are not identified nor is it alleged that they are in horizontal
relationships as competitors. USAP is entitled to know the identity of the
members so that it can verify whether this allegation is correct. If the Commission
is not aware of specific identities it should at least give some indication of why
they make this allegation or where it emanates from. It is noteworthy that in the
AACMED referral certain firms are specifically named. The Commission will be
given an opportunity to file an additional affidavit to make these averments.
The allegation that they are competitors repeats the market definition objection,
which we deal with below.
Limitation ( AACMED only)
USAP alleges that AACMED is not entitled to seek any relief or to pursue any
cause of action beyond the cause of action made out in the in the complaint
referral filed by the Competition Commission.
This exception is without foundation and appears to be an argument objecting to
the intervention, which has already been decided, and not to the intervenor’s
referral. There is nothing to suggest that AACMED has exceeded the bounds of
that order. As counsel for AACMED points out the very fact that AACMED
intervened to seek relief not sought by the Commission suggests that they would
need to make out a cause of action that might not be found in the Commission’s
papers.
This exception is dismissed.
papers.
This exception is dismissed.
(A) Boycott (AACMED) and (B) Failure to indicate precisely what conduct is
alleged to be an infringement of Section 4 (Commission)
USAP complains against AACMED that there are no facts “only assertions”
pleaded in relation to the second and further respondent engaging in a boycott.
4
In relation to the Commission it asserts that it is not clear which conduct
constitutes an infringement by USAP, whether by its members or both.
This objection is again without foundation. Both the Commission and AACMED
have set out sufficient information to enable the first respondent to plead. The
Commission in paragraphs 5 and 9 of its referral makes allegations in respect of
the conduct of both USAP and its members.
Similarly, in the AACMED referral, the allegations are set out sufficiently for the
purpose of enabling USAP to understand the case it has to meet.
The respondent is required to read the referrals in their totality and not isolate
specific paragraphs to complain that the case against them is inadequately
ventilated.6
Furthermore the courts will not allow an exception on the grounds that a pleading
is vague and embarrassing unless the excipient will be seriously prejudiced. This
USAP has not demonstrated. 7
This exception is dismissed both in respect of the Commission and AACMED.
Definition of the relevant market (Commission and AACMED)
USAP’s complaint here, which goes to the root of both referrals, is that neither
the Commission nor AACMED have succeeded in defining a relevant market and
hence both referrals are fatally flawed for want of alleging a necessary
jurisdictional fact.
USAP argues that in order to succeed with a claim in terms of section 4, a
claimant must show that the respondents are competitors. This is because
section 4 requires the agreement to be one between firms in a horizontal
relationship and a horizontal relationship is defined in the Act as being one
between competitors. Firms can only be competitors, it is argued, if they compete
within the same market. This entails competing in respect of either substitutable
products or services as well as in the same geographic market. It is the latter
aspect, which USAP alleges has not been pleaded properly, and hence no case
is made out that the respondents are competitors.
is made out that the respondents are competitors.
6 In Jowell v Bramwell 1998(1) SA 836 (W) at 899 G the court held that a complaint that a
pleading is vague and embarrassing cannot be directed against a particular paragraph in a cause
of action it must go to the whole cause of action.
7 See Levitan v New Haven Holiday Enterprises CC 1991 (2) SA 297 (C ) at 298A, Kennedy V
Steenkamp 1936 CPD 113 at 115, City of Cape Town v National Meat Supplies Ltd 1938 CPD at
63
5
The Commission, they argue, has alleged that the geographic markets are local.
For instance in paragraph 8.2.6 of her affidavit the Commission’s investigator
states:
“Competition between pharmacies occurs within a local area. Local in the
present matter is used to refer to either town (in the case of small towns)
or a suburb or a township (in the case of big cities).
If this is so, USAP argues, it must allege which of the second respondents
compete with one another locally, which it has not done. Secondly it is
improbable that all the second respondents who on the Commission’ s version
are located in a number of local markets could be competitors of one another.
There is, USAP maintains, a disjuncture between the Commission’s market
definition and its theory of competitive harm. How can markets be local and harm
be national?
In AACMED’s referral the geographic market is alleged to be local:
“The second and further respondents are competitors of one another in as
much as each vies with the other second and further respondents for
custom within the suburbs, towns cities and surrounding areas in which
they are located.” 8
However AACMED also allege that it is national.
“The second and further respondents also intermittently compete with one
another on a national basis.” 9
USAP’s criticism of the market definition is that it is meaningless, vague and
embarrassing and contradicts that of the Commission.
What the Commission contends for is to be found in paragraph 8.2.10 of the
Complaint referral.
Here the Commission, in a concluding paragraph, allege:
“.. the geographic market should be defined as a local market for the retail
of prescription medicines to members of the medical aid schemes. The
only case where the geographic market could be defined as national is in
the case of chronic medication for which the medical aid members may
8 Paragraph 5.2 of the intervenor’s referral.
9 Paragraph 5.3 of the intervenor’s referral.
6
order using the order pharmacies.” 10
In our view both referrals attempt to define a relevant geographic market.
The Commission and AACMED have alleged that the respondent firms compete
with one another on a local basis. AACMED go further to allege that these local
markets may also intermittently compete. Both then allege an agreement
amongst the respondents nationally to deal with AACMED members only on
certain terms.
The agreement, it is alleged, has as its purpose placing pressure on AACMED
via its members to restore its previous policy to payments of discounts. There is
thus a relationship between the manner in which the members of the second
respondent class compete at a local level and the object of the agreement viz. to
use power in local markets collectively to force compliance nationally. 11 The
case is, as we understand it, one that seeks to establish a causal link between
competition in local markets and the alleged national boycott. It is thus not
correct to state that no geographic market has been alleged both pleaders have
done so. 12For the purpose of pleading their case both the Commission and
AACMED have made sufficient allegations to enable the respondents to not only
appreciate the case being made out against them, but also to answer in the
manner required by Rule 16. Whether the theory of harm made out is adequate
or not is not a matter for exception, but for evidence and argument.
USAP’s error is to elevate a relevant market definition to the status of a prior
jurisdictional fact. What must never be lost sight of is that market definition
10 Paragraph 8.2.10 of the Commission’s referral.
11 See Commission referral paragraph 10.2
12 Nor does USAP’s argument deal with the recognition in competition law theory of chains of
12 Nor does USAP’s argument deal with the recognition in competition law theory of chains of
substitution. (See OFT Guidelines According to OFT Guidelines on Market Definition ( OFT 403 in
paragraph 4.4, chains of substitution can be an important factor in geographic, particularly in retail
markets:
“Consumers in any one location may not be willing to travel more than, say, two or three
miles to purchase a particular product, but there may be a chain of substitution creating a
much larger geographic market.”
The AACMED referral with its reference to “intermittent competition” is certainly consistent with
such a theory. So is the Commission’s allegation in paragraph 8.2.7 of the investigators affidavit
that:
“In the result, the markets are likely to be local and consequently numerous
geographical markets can be identified based on the individual towns, suburbs or
townships around South Africa.” (Our emphasis)
7
serves as a “surrogate for detrimental effects” 13
Thus if a complainant can establish detrimental effects, elaborate market
definition to establish market power is unnecessary as market power is
presumed from the existence of the anticompetitive effect.
We have made this observation albeit in a different context in the Natal
Wholesale case 14 where we stated:
“We do not share the respondent’s view that a formal market definition is a
necessary precursor to an enquiry into an alleged restrictive practice. We
concur with the claimant that the purpose of defining a relevant market is
to identify the exercise of market power defined in the Act as ‘the power of
a firm to control prices, to exclude competition or to behave to an
appreciable extent independently of its competitors, customers or
suppliers’ and that market definition is only a tool for estimating market
power, not a scientific test.”
What the Act requires by the notion that parties are in a horizontal relationship is
an allegation that they are in the same line of business. 15 Neither the language
of the Act nor the logic of how the section works requires that there be
allegations that the respondents operate in the same geographical market in
order to be considered competitors. Take, for instance, the prohibition on dividing
markets by allocating territories, set out in section 4(1)(b). If the respondent’s
argument is correct, such a practice could never be instituted against those who
divided markets before they were ever in one another’s markets. By definition,
having divided territories, they are not in the same geographic market, and
indeed may never have been. It is ludicrous to suggest that for this reason they
would not be competitors.
The respondent of course might retort that in these situations the market dividers
The respondent of course might retort that in these situations the market dividers
are potential competitors within the same geographic markets and hence their a
priori condition that they be competitors in a geographic market is still satisfied.
Yet this begins to become a more and more contrived argument, an attempt to
reconstruct a model whose initial premise is faulty.
13 The language is that of Areeda in P. Areeda, Antitrust Law paragraph 1511 pg 429, 1986.
Quoted with approval in FTC v Indiana Federation of Dentists 476 US 447, 1986 at 460.
14 Natal Wholesale Chemists (Pty) Ltd v Astra Pharmaceuticals (Pty) Ltd and others –
98/IR/Dec00 at page 14.
15 Whish describes horizontal agreements as being between firms “at the same level of the
market”, Competition Law, Fourth Edition page 91
8
The point nevertheless is that it is not a prior jurisdiction requirement that, at least
for the purpose of section 4, a complainant has to allege a relevant geographic
market. Proof of an agreement between firms in the same line of business, which
has the effect of substantially preventing or lessening competition in a market,
would suffice for a finding against the respondents, without a finding of what
constitutes the relevant geographic market. If that is so at the end of proceedings
then it can hardly be required of a complainant that they plead the relevant
geographic market at the pleadings stage.
The real complaint of the respondent, although not articulated as such, is that the
Commission and the intervenor have not alleged what their theory of harm is.
Whilst this may be a desirable feature of pleading it is not a sine qua non of a
non excipiable plea. Both referrals contain sufficient factual material to enable
the respondent to plead. They know who the respondents are, where they are
located, and what the actions constituting the alleged boycott are. Any other
deficiencies that there may be are matters for evidence.
Given what we stated earlier about our approach to pleadings being less
demanding than in adversarial proceedings, we find that the present referrals are
adequately pleaded in this respect, for the purpose of enabling the respondent to
understand and respond to the case against it.
The exception in respect of the market definition fails in respect of both the
Commission’s and the intervenor’s referrals.
Costs
Costs are relevant only between AACMED and USAP. As both parties have only
been partially successful we make no order as to costs.
22 January 2003
____________________
N. Manoim Date
Concurring: D. Lewis, M. Holden
9
For the parties: CDA Loxton SC, AG Gotz, instructed by Webber
Wentzel Attorneys (Intervening Complainant)
JWG Campbell, instructed by Gildenhuys Van Der Merwe (Respondents)
For the Commission: M. Simelane, Competition Commission
10