Competition Law
Penalties assessed against turnover, and a merger that can be undone after completion.
The regime
The Competition Act, 2010 prohibits abuse of dominant position (section 3), certain agreements that prevent, restrict or reduce competition (section 4), and deceptive marketing practices (section 10), and requires clearance of mergers meeting the notification thresholds (section 11). It is administered by the Competition Commission of Pakistan.
What non-compliance costs
Section 38 sets the penalty structure, and the numbers are the reason this area repays attention.
For a contravention of Chapter II — which covers abuse of dominance, prohibited agreements, deceptive marketing and merger control — the Commission may impose a penalty not exceeding fifty million rupees, or not exceeding fifteen per cent of the undertaking's annual turnover (section 38(2)(a)). Turnover, not profit.
For non-compliance with an order, notice or requisition, up to one million rupees (section 38(2)(b)), and where the violation continues, a further amount up to one million rupees for every day after the first (section 38(3)).
And failure to comply with an order of the Commission constitutes a criminal offence punishable with imprisonment up to one year or a fine up to twenty-five million rupees, which the Commission may pursue in addition to or in place of the statutory penalties (section 38(6)).
Merger control, and the trap in it
Undertakings meeting the notification thresholds must apply for clearance, and must do so as soon as they agree in principle or sign a non-binding letter of intent (section 11(3)). They may not proceed until clearance is received (section 11(4)).
The timetable is defined. First-phase review is thirty days, and failure to determine within that period means the Commission has no objection (sections 11(5) and 11(7)). Second-phase review is ninety days from receipt of the information requested, with the same deemed-clearance consequence on expiry (sections 11(8) and 11(9)).
Two provisions deserve particular attention. Where a merger has been consummated without complying with subsections (1) to (4), the Commission makes appropriate orders under section 31 (section 11(12)). And where approval was obtained on false or misleading information, or conditions have not been complied with, the Commission may undo the merger or acquisition (section 11(14)).
A transaction structured without regard to the clearance requirement is therefore not merely exposed to a penalty. It is exposed to unwinding — after completion, after integration, and after the commercial rationale has been acted upon.
Deceptive marketing
Section 10 reaches distribution of false or misleading information that harms the business interests of another undertaking, false information to consumers, false or misleading comparison of goods, and fraudulent use of another's trademark or trade name. It is used considerably more often than most businesses expect, and it is available both as an exposure and as a remedy against a competitor.
Exemptions and leniency
Agreements that would otherwise be prohibited may qualify for individual exemption (section 5) or block exemption (sections 7 to 9) where the statutory criteria are met — a route that turns on how the arrangement is structured and documented, and which is available before enforcement, not after.
Section 39 provides for leniency. Where an undertaking has been party to conduct that may attract a penalty, the availability and value of leniency depend substantially on timing and on who approaches the Commission first.
How we act
On Commission investigations and enquiries, and in defending proceedings; on merger notifications and clearance strategy; on exemption applications; on compliance review of distribution, supply, pricing and agency arrangements; on deceptive marketing complaints, both bringing and defending; on leniency; and on appeals to the Appellate Bench of the Commission (section 41) and thereafter.
On the economics
A compliance review of an undertaking's agreements and market conduct is a defined, budgetable cost. A finding under Chapter II is calculated as a percentage of turnover. The two figures are not of the same order, and the sequence in which a business encounters them is a matter of choice.