Indonesia
Guide to Competition Law in
Indonesia
2014 edition
Guide to Competition Law in Indonesia (2014 Edition)
Table of Contents
Background........................................................................................................................... 1
Enforcement Authorities ........................................................................................................ 2
The Purposes of the Law ...................................................................................................... 3
Overview of the Prohibitions.................................................................................................. 3
Prohibited Agreements.......................................................................................................... 3
Horizontal Combinations Between Unrelated Parties:................................................ 4
Unfair Pricing Practices ............................................................................................. 5
Market Allocations ..................................................................................................... 5
Boycotts .................................................................................................................... 5
Vertical Integration..................................................................................................... 6
Closed Agreements ................................................................................................... 6
Agreements with Overseas Parties............................................................................ 7
Prohibited Actions ................................................................................................................. 7
Monopoly and Monopsony......................................................................................... 7
Restrictive Practices .................................................................................................. 7
Tender-Fixing ............................................................................................................ 8
Other Conspiracies .................................................................................................... 9
Abuse of Dominant Position ...................................................................................... 9
Interlocking Management .......................................................................................... 9
Mergers, Consolidations and Acquisitions ........................................................................... 11
Voluntary Pre Completion Notification ..................................................................... 11
Timing .................................................................................................................... 11
Procedure in Brief .................................................................................................... 12
Remedies ................................................................................................................ 13
Cross-shareholding ................................................................................................. 14
Exemptions ......................................................................................................................... 14
Penalties and Liabilities....................................................................................................... 15
Administrative Penalties .......................................................................................... 15
Criminal and Civil Sanctions .................................................................................... 16
Examination by the KPPU and Appeals to Court ..................................................... 16
Proposals to Amend the Anti-Monopoly Law ........................................................... 17
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Background
During the Dutch colonial era (prior to 1942), although the colonial economy was subject to
tight state control, regulation on unfair competition was rudimentary. The Dutch issued a
large number of regulations on licensing but just one clause in their Criminal Code prohibited
the use of false information on one’s competitors to profit one’s business.
With independence in 1945 came the 1945 Constitution of the Republic of Indonesia (since
then amended several times) which is heavily influenced by socialist and populist thinking.
Article 33 of the Constitution (below) was originally drafted to provide for the State directly
controlling most of the means of production with private enterprise playing a marginal
supporting role in the economy. Later amendments introduced more pro-market concepts of
efficiency and progress but maintained the original State-oriented wording:
(1)
The economy shall be structured as a common endeavour based on family values.
(2)
Branches of production crucial to the State and influencing the livelihood of the
general public shall be controlled by the State.
(3)
Land, water and natural riches therein shall be controlled by the State and used for
the general good of the people, as much as possible.
(4)
The national economy shall be managed on the basis of economic democracy on the
principles of togetherness, efficiency that is fair, sustainable, environmentally sound
and with due balance between progress and national economic unity.”
During the first 50 years of independence, competition law continued to be neglected as the
law focused on business licensing and regulations. State monopolies bloomed during the old
order (1950-1966). Private family-controlled conglomerates gained dominance in entire
sectors of the economy during the new order (1966-1998). Aside from token references to
competition concerns in several laws, there was practically no development in competition
law during these eras.
Finally, the 1997 Asian economic crisis and political reform beginning in 1998 saw the
introduction of the Law Prohibiting Monopolistic Practice and Unfair Competition (Law No.5
of 1999: the “Anti-Monopoly Law” – issued in March 1999, effective March 2000). This Law
was sponsored by the IMF as part of its economic reform program, tied to its rescue
package for Indonesia. It was sold to the public as a measure to correct monopolistic abuses
by private conglomerates which rose during the new order.
As the IMF’s program in Indonesia was pro-free market, the Anti-Monopoly Law’s design
emphasized free markets and competition as a process. It is becoming apparent that the
socialist-populist genes of the Indonesian political economy are gaining more ground in the
Anti-Monopoly Law’s application, as can be seen below.
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The KPPU Commissioners, 2012-2017 Term
The current composition of the KPPU is as follow:
1. Muhammad Nawir Messi (Chairman until mid 2015)
2. Saidah Sakwan (Vice Chairman until mid 2015)
3. Tresna P Soemardi (member)
4. Sukarmi (member)
5. Syarkawi Rauf (member)
6. Munrokhim Misanam (member)
7. R Kurnia Sya'ranie (member)
8. Chandra Setiawan (member)
9. Kamser Lumbanradja (member)
Enforcement Authorities
The Anti-Monopoly Law provides enforcement authority to the entities listed below. Their
performances so far are mixed:
•
The Business Competition Supervisory Commission is known as the KPPU (the
abbreviation for the Indonesian name). It is a state administrator (penyelenggara
negara), a body independent from the executive and judiciary and legislative, but whose
members are appointed by the President. Its brief is to examine allegations relating to
the Anti-Monopoly Law, issue guidelines for implementation of this law and apply
administrative sanctions, subject to court control. In theory, it is a quasi-judicial body
with wide-ranging powers, but subject to court control. In practice, it is the dominant
player in developing and applying Anti-Monopoly Law.
In particular, the KPPU has the authority to issue guidelines on the application of
specific articles of the Anti-Monopoly Law. It is important to note that guidelines are not
comprehensive and the KPPU has reserved the option to decide differently (from its
own guidelines) if the circumstances of a case requires it. Nevertheless, guidelines are
useful as clues to the KPPU’s thinking on particular subjects under the law.
•
The District Court (Pengadilan Negeri) and Supreme Court are mandated to accept and
try appeals against KPPU decisions. In theory, they have decisive control over the
KPPU and interpretation of the Anti-Monopoly Law. In practice, the Courts show huge
deference to the KPPU on matters of fact and to a lesser degree on matters of law.
•
The Police and the Public Prosecutor’s office are mandated to, respectively, investigate
and prosecute the criminal sanctions of the Anti-Monopoly Law. Thus far, they have
been very passive.
In addition to the above, the executive, i.e. the various Government departments, have an
important role in implementing the Anti-Monopoly Law. In practice, the Government still
controls much of the economy through extensive licensing, reporting and registration
requirements. Recently, Indonesia has undergone much deregulation, but the basic
assumption remains that you need a license to operate a business and the Government
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intervenes in many aspects of business that affect competition, such as pricing and
contractual terms. As such, many Government regulations take the Anti-Monopoly Law into
consideration and affect the application of this law.
The Purposes of the Law
Article 3 of the Anti-Monopoly Law sets out its purposes as follows:
•
to guard the public interest and increase national economic efficiency as one method to
increase the people’s welfare;
•
to realize a conducive business environment by regulating fair competition so that equal
opportunity to do business between small scale, medium scale and large scale
businesses can be guaranteed;
•
to prevent monopolistic practices and unfair competition caused by business actors, and
•
to achieve effectiveness and efficiency in doing business.
In summary, these purposes reflect a compromise between the pro-free market intent of the
Law’s sponsors and the socialist-populist tendencies of the Indonesian political economy.
We should emphasize that Article 3 is not merely of an academic interest. Rather, the KPPU
has successfully used references to these purposes to expand the interpretation of the law
and in one case (see details of the Indomarco case in the box on page 4) to apply sanctions
in a case where there is no apparent violation of the Anti-Monopoly Law’s prohibitions.
Overview of the Prohibitions
The Anti-Monopoly Law prohibits many kinds of agreements and acts of “business actors”.
Business actors are defined as any person who does business in Indonesia, or any entity
that is established or does business in Indonesia.
The basic design of the Anti-Monopoly Law follows the classic distinction between (i) acts
and agreements that are illegal per se, that is, if the act or agreement fulfils this Law’s
definition, there is no need to establish whether it harms the economy and (ii) qualified
prohibitions, meaning that the act or agreement is prohibited only if it has harmed or might
cause harm to the economy, i.e. it has caused or might cause monopolistic practices or
unfair competition.
That said, the KPPU has not been deterred from blurring the lines between per se and the
Rule of Reason. Tender-fixing, which formally requires a competitive harm assessment, is
effectively treated by the KPPU as per se illegal. In one recent case cross-shareholding,
which in theory is per se illegal, was applied using a market effect test.
It should also be noted that the KPPU often reads into its economic analysis other public
interest factors that are not readily apparent from the text of the Anti-Monopoly Law. In the
above mentioned case, for instance, economic harm was deemed to exist in the concept of
consumer loss, not loss to any competitor, on the reasoning that essentially, loss to
consumers is a loss to the public.
Prohibited Agreements
The Anti-Monopoly Law’s definition of agreements covers both written and unwritten
agreements. In many cases, the existence of an agreement is proven by means other than
writing, chiefly testimony of witnesses.
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Horizontal Combinations Between Unrelated Parties:
Oligopoly and Oligopsony
The Anti-Monopoly Law prohibits an agreement between business actors to jointly control (a)
the production and/or marketing of a product (oligopoly), or (b) the purchase of a product
(oligopsony), if the agreement might cause monopolistic practices and/or unfair competition.
Cartels
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.
It should be noted that the KPPU tends to regard all horizontal combinations as unlawful.
According to KPPU Guideline on Cartel (No. 04/2010), KPPU will consider the following as
cartel indicators. None of these factors are conclusive on their own but the presence of
several may lead to finding of a cartel :
•
Small number of business actors and high concentration market
•
Comparable size of those business actors
•
Homogeneous products
•
Multiple contacts between competitors.
•
Overstock/oversupply of products
•
Affiliation between competitors
•
High entry barriers
•
Stable and inelastic demand
•
Buyers have no counter-vailing power
•
There is regular information exchange between competitors
•
There is a regulated price or contract
Cartel Investigations Trend
In 2013, we saw KPPU focusing its cartel investigations on basic goods, e.g., cartel
allegations on garlic, shallot and beef. While these commodities need to be imported to fill in
the shortage from domestic producers, the number of importers is very small and KPPU
alleged that those importers are manipulating the supply to the market to keep those prices
high.
In 2013 KPPU also investigated an allegation on bank loan interest rates given that the
average Indonesian bank loan interest rate is the highest in the region.
From all of the cartel allegations investigated in 2013, only one case is now in the hearing
stage, i.e., the cartel allegation of garlic. It seems the other allegations will continue to be
investigated in 2014 without any signs that the cases will be heard in the near future.
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Unfair Pricing Practices
Price-Fixing
The Anti-Monopoly Law prohibits price-fixing agreements between competing business
actors. Article 5 of the Anti-Monopoly Law, however, provides two exemptions to this rule.
Competitors may agree on price within the framework of a joint venture or if mandated by
Law.
Although District Courts have annulled all KPPU decisions that concluded there was price
fixing based on indirect evidence, KPPU Guidelines on Price Fixing (No. 4/2011) still
maintains the use of indirect evidence in the absence of hard evidence to prove the
existence of a cartel. The typical indirect evidence put forward by KPPU is an identical price
increase between competitors on or about the same time without any justification.
Other Pricing Practices
Competing business actors are prohibited from agreeing to fix prices below the market price
or from imposing a predatory price if it causes monopolistic practices or unfair business
competition. KPPU Guideline on Predatory Pricing (No. 6/2011), provides the following
question as a test of whether there is predatory pricing:
•
Are prices unreasonably low? Are prices below cost?
•
Will the party carrying out predatory pricing be able to recoup losses?
Minimum resale price maintenance is prohibited if it may cause unfair competition. According
to KPPU Guideline on Resale Price Maintenance (No.8/2011), suggested resale price is
permissible.
Businesses may not agree to discriminate on price between buyers.
As with agreements in general, in finding pricing arrangements, the KPPU often uses
indirect, sometimes circumstantial evidence in making its decisions. For instance, in one
case the KPPU found evidence of resale price maintenance in a situation where the supplier
penalized resellers who were selling below price although the resale contract itself did not
provide for a mandatory minimum resale price.
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
allocation of territory (horizontal) as well as allocation of customers, either at the same level
or different levels of trade (vertical).
Boycotts
There are two kinds of boycott under the Anti-Monopoly Law, both of which are essentially
agreements to bar entry to the market or make entry to the market too costly:
•
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 the other business actor to suffer a loss.
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Vertical Integration
Agreement between business actors on different levels of the supply and production chain to
integrate vertically is prohibited if it may cause unfair competition and harm society.
According to KPPU Guideline on Vertical Integration (No. 5/2010), vertical integration may
violate the law if:
•
it forecloses market access to essential input
•
it forecloses market access to a primary buyer
•
it serves as a tool for coordinating collusion
Closed Agreements
The Anti-Monopoly Law prohibits without qualification the exclusive contract terms set out
below 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.
Case law indicates that this is unlawful if the discount or price amounts to an inducement
not to sell competing products. Recently, however, the KPPU has been pushing for a
wider interpretation which would effectively disallow exclusive resale arrangements; or
•
a reseller may only resell products to, or is prohibited from reselling to, certain parties or
areas. It should be noted that in theory, taken on its bare text, this provision bars a
principal from allocating marketing territories to its resellers.
However, KPPU Guideline on Closed Agreements (No. 5/2011) indicate that the above close
agreement prohibitions will be subject to anti-competitive impact analysis, a looser approach
than the text of the law.
Pelindo's Stevedoring Case
In 2013, KPPU found that Pelindo, the concession holder of port management in Indonesia,
violated a closed agreement prohibition by requiring the tenants in the port areas managed
by Pelindo to exclusively use the stevedoring services provided by Pelindo while there were
other independent stevedoring service providers in the port.
Pelindo has challenged the KPPU decision on the grounds that Pelindo is entitled to set out
rules and regulations within the port area and companies are free to lease warehouses
inside or outside port areas, so there is no coercion to lease warehouses within the port.
Pelindo's also argues that its stevedoring services are more efficient and sophisticated
compared to other stevedoring companies; therefore the use of Pelindo's stevedoring
services will improve the tenant's efficiency.
The appeal decision on this case still remains to be seen and it is very likely that this case
will go to the Supreme Court level.
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Agreements with Overseas Parties
Agreements with overseas parties are prohibited if their terms are likely to cause
monopolistic practices and/or unfair competition. It appears the original intent of this article
was related to contracts between business actors and their foreign counterparts within
Indonesian businesses who would not otherwise fall within the definition of business actors.
However, KPPU advanced a single economic entity theory that would classify all foreign
parties affiliated with Indonesian parties as business actors, thus appearing to reduce the
scope of this prohibition.
In the Temasek (2007) and Astro (2008) cases, KPPU used the single economic entity
theory to hold overseas companies liable under the Anti-Monopoly Law. Practically, the use
of single economic entity theory extends the law's reach to foreign entities. This theory is
also reflected in Government Regulation No. 57 of 2010, which provides that an entity would
be regarded as having control over another entity if either of the following conditions is
satisfied:
•
ownership or control of shares or voting rights above 50% in a business entity; or
•
ownership or control of shares or voting rights equal to or less than 50% but where there
is an ability to influence or determine management policy or the management of a
business entity
Prohibited Actions
Monopoly and Monopsony
A market share of 50% 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% or more of the
purchasing 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.
You may note that the definition of monopoly is identical to the definition of dominance. In
the definition, both abuse of dominance and a monopoly requires a market share of 50% or
more. In practice, the KPPU often charges a monopolist with abuse of dominance
simultaneously.
We should point out that the KPPU’s practice as regards market definition has varied widely.
In some cases, the market has been defined nationally, while in others the market has been
defined locally, and sometimes without any clear analysis. In one case, the market was
defined without any analysis as the supply of a single product to a single customer.
Restrictive Practices
The Anti-Monopoly Law prohibits the restrictive practices set out below if they might 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.
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The prohibitions (a) through (d) above are worded in general terms. Essentially, they serve
as catch-all prohibitions that cover anti-competitive acts that are not included in the other
prohibitions. It should be noted that this generality has allowed the KPPU to use these
prohibitions aggressively and interpret them broadly. According to KPPU Guideline on
Discriminative Practices (No. 3/2011), a violation of prohibition on discriminative practice
occurs if:
•
the relevant business actor has “market power” (which is not defined by this Guideline”)
•
the specified act of discrimination has no social, economical, or technical justification and
is not done for reasons of efficiency
Tender-Fixing
Businesses are prohibited from fixing tenders if this might cause unfair competition. As noted
above, in practice, the KPPU always regards tender-fixing as unfair. In effect tender-fixing
has become per se illegal.
Since tender-fixing is relatively easy to report and examine, it has become by far the number
one competition law issue in terms of cases reported and decided by the KPPU. Roughly
half of all KPPU cases are tender-fixing cases. As can be seen from the data on tenderfixing below, there are many situations that the KPPU treats as evidence of tender-fixing,
ranging from direct evidence of collusion to circumstantial evidence, such as likeness
between tender documents.
The following is a list of some of the common facts cited as evidence of tender-fixing by
conspiracy among bidders or between bidders and the tender committee:
•
Submission of similar bid documents, e.g., similar cover letter, similar bid price, similar
wording and typographical errors, similar office address, similar telephone and fax
number, similar shareholders, and similar directors.
•
Submission of documents used in previous bids for the same party, without revision.
•
Post bidding practices, e.g. allowing submission of incomplete tender documents,
allowing continued participation despite the bidder’s incapability to complete
administrative requirements, and allowing submissions after the deadline.
•
Goods or services’ specifications are directed and only available exclusively to certain
producers
•
Communication by way of e-mails and letters discussing the bid/offer price. The
subsequent adjustment of those bid/offer prices has been cited as evidence of collusion.
•
Lack of transparency as regards the tender announcement, i.e., publication in only one
local newspaper.
•
The promise of work to a losing bidder by the winning bidder.
•
A statement from the tender committee that the sole purpose of the tender is to ascertain
the true market price (although the rules do not contain mention of such an exercise).
•
Members of the same group of companies submitting several separate bids.
•
The failure of the tender committee to conduct surveys or research to determine a
benchmark price for evaluating the bids.
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Other Conspiracies
•
Obtaining confidential information about another business actor is prohibited if it causes
unfair competition.
•
Conspiracy to obstruct the production or distribution of a competitor’s products with the
intent of reducing the competitor’s supply in the relevant market is prohibited without
qualification.
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 the highest position in relation to 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 a 50% or more market share.
Two or three business actors are dominant if they have a 75% or more market share. In
theory this term allows the KPPU to group two or three affiliated entities within one group of
dominant actors. In practice, the KPPU has promoted one theory for grouping companies
within a single group, i.e. the single economic entity doctrine which essentially provides that
otherwise independent businesses may be regarded as belonging to the same group if they
are jointly controlled by their parent.
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.
According to KPPU Guideline on Abuse of Dominant Position (No. 6/2010), the above
prohibitions are not subject to qualification. Competitive impact analysis may serve to
strengthen the allegation of abuse but is not a compulsory element that must be proved.
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,
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According to KPPU Guideline on Interlocking Management (No. 7/2009), this provision is
only applicable if the interlocking management negatively affects competition.
KPPU Case Statistics
Between 2000 and 2013, KPPU rendered 207 decisions. The number of cases soared in
2008 and it continuously dropped after 2008. The breakdown of cases per year can be seen
in the following table:
The majority of those decisions were on collusive tender cases. The comparison between
collusive tender and other anti-monopoly cases can be seen as follows:
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Mergers, Consolidations 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. Even though acquisition may take the form of asset
acquisition, the Anti-Monopoly Law strictly applies for share acquisitions only.
The Anti-Monopoly Law requires that the KPPU be notified of mergers, acquisitions, or
consolidations that exceed certain asset or sales values (“Notification Thresholds”) within
30 working days after the date of the combination, merger, or share acquisition (Mandatory
Post Completion Notification).
Government Regulation No 57 of 2010 (“GR 57”) further stipulates the Notification
Thresholds as follows:
•
•
the combined value of the assets exceeds:
o
IDR2,500,000,000,000 (IDR two and half trillion); or
o
IDR20,000,000,000,000 (IDR twenty trillion) for banks;
the combined value of the sales turnover exceeds IDR5,000,000,000,000 (IDR five
trillion)
It is also important to note that GR 57 specifies that in calculating the above thresholds,
the assets and sales of affiliates in Indonesia will also be counted
Overseas mergers which affect the Indonesian market are also subject to these provisions,
subject to a rule that only assets or sales, including those of their affiliates, within Indonesia
will be counted.
Once notification is received, KPPU will review and issue an opinion on the competitive
impact of the merger, consolidation or acquisition within a maximum of 90 working days.
GR 57 authorizes KPPU to impose fines of IDR1,000,000,000 (IDR one billion) per day of
delay with a maximum of IDR25,000,000,000 (IDR twenty-five billion) for failure to notify the
KPPU of a merger or consolidation or share acquisition that meets the threshold.
Voluntary Pre Completion Notification
GR 57 provides an opportunity for parties to voluntarily notify KPPU prior to closing a
merger, acquisition or consolidation. This provision is aimed to prevent the parties from
suffering losses if KPPU decides to annul a merger, acquisition or consolidation under the
mandatory post-completion notification procedure. The voluntary pre-completion does not
eliminate the obligation to file post-completion notification, but it has the advantage that the
parties obtain KPPU’s opinion before the closing. The Notification Thresholds for precompletion notification are the same as those in the mandatory post-completion notification.
Timing
For post-completion notification, the 30 working days to file the notification will be started
from when the merger or consolidation or acquisition is effectively legal and valid.
For pre-completion notification, there is no specific time requirement to file notification.
However, KPPU accepts a notification if there is already a contract, memorandum of
understanding, or other written documentation.
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To date, there has been only one case in 2012 in which a company, PT Mitra Pinasthika
Mustika, was fined IDR4.6 billion by KPPU for failure to file the acquisition of PT Austindo
Nusantara Jaya Rent within 30 working days after the acquisition was effectively legal and
valid.
On the acquisition itself, KPPU issued an opinion which stated that there was no allegation
that monopolistic practices or unfair business competition were caused by the transaction.
Pre-review Administrative Procedures Prolong the Timeline for
Review
Although the review timeline appears to be exact, KPPU will initially review the
completeness of the documents for each notification and only proceed with the review stage
after the documents are considered complete. Unlike the review stages that have statutory
timelines, the pre-review administrative requirements stage does not have a specific
timeline.
In practice, we have seen KPPU stretch out this pre-review administrative stage into months.
KPPU used this prolonged stage to start reviewing the market definition and seek
clarification on other substantive issues. As a result, the total time for a review to be
completed was significantly prolonged.
Procedure in Brief
•
The KPPU will initially assess whether the transaction gives rise to a high market
concentration. High market concentration is indicated by a Hirschman-Herfindahl Index
above 1800 and a change above 150.
•
If there is a high market concentration, KPPU will proceed to a comprehensive
assessment of factors such as: entry barriers, likelihood of anti-competitive conduct,
efficiency analysis and failing firm defense.
•
After the initial or comprehensive assessment, KPPU will issue one of the following
opinions:
o
there is no allegation of monopolistic practices or unfair business competition
o
there is an allegation of monopolistic practices or unfair business competition
o
there is no allegation of monopolistic practices or unfair business competition with
certain conditions.
•
KPPU will proceed to an investigation if in its opinion there is a risk of monopolistic
practices or unfair business competition or the conditions stipulated for no allegation are
not met.
•
Pre-completion assessment is broken down into two stages: initial assessment, a
maximum of 30 working days to review the market concentration only; and
comprehensive assessment, maximum of 60 working days.
•
Post-completion assessment has no stages and a maximum of 90 working days.
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Remedies
The KPPU Merger Guideline provides a procedure for the acquiring entity to propose
remedies within 14 days after KPPU issues its assessment stating that the transaction is
substantially lessening competition.
According to the Guideline, the proposed remedies can be in the form of:
•
Structural remedies, i.e. shares or assets divestiture;
•
Behavioral remedies, i.e.:
o
relating to intellectual property rights
o
eliminating competition barriers, e.g.:
−
exclusive contracts;
−
consumer switching cost;
−
tie in or bundling;
−
supply or purchase barriers
o
relating to price or output
o
etc.
If KPPU accepts the proposed remedies, KPPU will issue an opinion of conditional no
allegation of monopolistic practices or unfair competition. If KPPU rejects the proposed
remedies, KPPU will issue an opinion of allegation of monopolistic practices or unfair
business competition.
Nestle-Wyeth Acquisition: The First Merger Remedy Case
In 2013, Nestle acquired the nutrition business of Wyeth from Pfizer. In Indonesia, both
Nestle and Wyeth are engaged in the business of manufacturing or distributing nutrition
products (i.e. infant formula).
According to the KPPU opinion, the transaction has caused a high concentrated market in
the markets of (a) formula milk for 0 - 6 months old and (b) formula milk for above 1 year old.
KPPU also found that there is an absolute and structural entry barrier in formula milk for the
0 - 6 months old market. On the other hand, KPPU did not find any absolute or structural
entry barriers for formula milk for the above 1 year old market.
However, KPPU concluded that although the acquisition of Wyeth will not cause any anticompetitive concerns, given the potential for collusive conduct, KPPU requires the parties to
submit a report of monthly price and volume of formula milk products for 0 - 6 months old
and above 1 year old. The above data must be submitted every 6 months (in June and
December) for the next 3 years. The first data should be submitted by December 2013 to
KPPU.
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Cross-shareholding
The Anti-Monopoly Law prohibits a business actor 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 concerned if:
•
one business actor or one group of business actors controls more than 50% of the
market share of a certain type of goods or service; or
•
two or three business actors or a group of business actors control(s) more than 75% of
the market share of a certain type of goods or service.
According to KPPU Guideline on Cross-shareholding (No. 7/2011), “majority shareholding”
means: control of a company’s capital which results in the shareholder having control over
the management, direction, strategy and policy of the company, including the determination
of commissioners/directors, determination of veto rights, access to private information, profit
allocation and corporate action, including merger, consolidation and acquisition, spin off,
divestment, investment, shares listing on capital market and privatization.
The guideline also states that this provision applies without qualification.
Exemptions
Article 50 of the Anti-Monopoly Law exempts the following actions and agreements from this
Law’s application:
•
actions and agreements whose purpose is to implement current laws and regulations.
According to KPPU Guideline on the Exemption of Article 50 a (No. 5/2009), this
exemption has to be mandated by a law (Undang-undang) passed by the Indonesian
House of Representatives, not by lower level regulations.
•
agreements related to intellectual property (e.g. the licensing of intellectual property),
trade secrets and franchising. According to KPPU Guideline on the Exemption of IP
Agreements (No. 2/2009), the exemption only applies if the license agreement is made in
accordance with IP Laws and the agreement does not cause an actual condition of
monopolistic practices or unfair business competition. Further, according to KPPU
Guidelines on the Exemption of Franchises (No. 6/2009), the following provisions cannot
be exempted from the application of the Anti-Monopoly Law:
•
Territorial allocation that causes absolute territorial protection and restricts
competition in the relevant market;
•
Purchase obligation if it is unrelated to the Intellectual Property that is the
essence of the franchise business or causes entry barriers for other suppliers;
•
Resale price maintenance that leads to a price cartel that diminishes
competition;
•
Non-compete clauses of more than one year if the franchised technology has
become public domain and no significant investment is necessary to establish
the business.
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•
agreements to set technical standards for products, provided these agreements do not
restrict or obstruct competition;
•
agency agreements, as long as they do not provide for resale price maintenance.
According to KPPU Guideline on Agency Agreements (No. 7/2010), ‘Agent’ has the
following characteristics:
o
the agent acts for and on behalf of a principal
o
the agent does not have title over the goods/services
o
the agent does not have the right to set the price
o
the agent does not bear risk over the goods/services traded.
•
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 affect 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 defense. It typically finds
that an act or agreement does not fall within the above exemptions.
Penalties and Liabilities
Administrative Penalties
The KPPU is authorized to impose a range of administrative penalties, including:
•
nullification of all agreements or mergers which violate the Anti-Monopoly Law;
•
orders for business actors to stop all actions which violate the Anti-Monopoly Law;
•
determination of damages to compensate parties for loss; and
•
fines of between IDR 1 billion and IDR 25 billion.
It should be noted that the KPPU has always taken an expansive view of its authority and
the Court has proven to be deferential to this view. For instance, in one case the KPPU
imposed treble damages although the Anti-Monopoly Law does not provide a specific
mandate for this; and, in at least two cases, the KPPU has ordered the divestment of shares
for a violation of the cross-shareholding rule although, under the Law, the KPPU does not
have the authority to do this.
According to KPPU Guideline on Administrative Sanctions (No. 4/2009), damages must be
sought by the injured party. The Guideline also states that KPPU will consider aggravating
and alleviating factors to adjust the fines to be imposed.
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The KPPU has rendered decisions in around 198 cases of violations of this law and has
examined around 1400 reports of violations received from the public. A complete list of
ongoing cases and KPPU decisions (downloadable in their original Indonesian PDF format)
can be accessed at www.kppu.go.id.
Criminal and Civil Sanctions
The Court 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.
Parties may also submit civil actions to seek remedies for unlawful acts under Article 1365 of
the Indonesian Civil Code. To date, we are aware of at least two cases where such actions
have reached cassation level, with possibly other cases under trial at various levels of the
judiciary.
Other than the above, we have seen a group of consumers file a class action lawsuit against
business actors based on a KPPU decision. This lawsuit sought damages for “consumer
loss”, the amount of which is based on the KPPU finding of consumer loss in its decision.
The lawsuit also uses the KPPU finding as evidence, arguing that a KPPU decision
constitutes conclusive evidence under the Consumer Protection Law and Civil Procedure.
Although this consumer class action was dismissed later on by a District Court due to the
plaintiff's lack of class certification to be eligible to file a class action, this case illustrated that
a KPPU decision may give an opening to affected parties to submit civil lawsuits for
damages using the KPPU’s findings as evidence.
Examination by the KPPU and Appeals to Court
The following is a summary of the KPPU examination process and appeal at the District
Court and Supreme Court. All reference to ‘days’ below refers to business days, unless
indicated otherwise.
•
The KPPU may initiate an examination itself or as a result of a report by an interested
party. A KPPU initiative case may be sourced from KPPU research, study, monitoring or
rejected report due to the lack of initial evidence ("Pre-investigation Stage").
•
Pre-investigation Stage may involve parties being summoned to give information and or
to be interviewed by KPPU. Cooperation in this stage is voluntary. There is no time limit
for Pre-Investigation Stage. It could last indefinitely and its end and initiation are
completely internal.
•
Reports to KPPU will be clarified within 10 days. Reports would be dismissed if KPPU
considers the report is not administratively complete. This process is closed to public; it
is limited to the reporting party and KPPU only. The reported party and the public would
have no information on this stage.
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•
If based on the Pre-Investigation Stage or a report KPPU decides that there is a valid
allegation, an investigation is launched. There is no time limit to complete an
investigation, it can be extended until all necessary evidence is obtained or it can be
dropped due to the lack of evidence to support the allegation. Note, this means that this
pre-examination investigation may last for an indefinite period.
•
If the evidence is considered sufficient, KPPU will begin an open hearing of preliminary
examination and appoint an examination panel. The preliminary examination will last a
maximum of 30 days. During this period, the reported party may submit a list of
witnesses to be summoned by the examination panel.
•
In the further examination, both the reported party and the KPPU investigator have the
right to present evidence, including witnesses and experts, to the examination panel in
an open hearing and may cross-examine. Both the reported party and the KPPU
investigator have the right to submit a conclusion at the end of the further examination.
The period for further examination of the case is 60 days with a possible extension of 30
days.
•
The Anti-Monopoly Law requires cooperation with the KPPU during its examination.
Failure to cooperate can result in criminal penalties of fines of up to IDR 5 billion or three
months’ detention. However, the KPPU does not have the authority to impose criminal
penalties and therefore any such violations of this requirement would be subject to
normal criminal procedures.
•
Within 30 days after the end of the further examination period, the examination panel will
have a deliberation to decide the case and will announce its decision in an open hearing.
•
A party may file an objection against the KPPU’s decision to a District Court within 14
days after receipt of an official copy of the decision, or after the KPPU posts its decision
on its website, whichever happens earlier. This normally happens within two weeks after
the decision announcement session, so that in practice, a party usually has around one
month to prepare an objection.
•
The District Court has 30 working days to decide on the objection, excluding the period
during which the case was remanded to the KPPU. In practice, the District Court decides
either (i) to uphold the KPPU decision or (ii) to revoke the decision.
Proposals to Amend the Anti-Monopoly Law
KPPU has been considering amending the Anti-Monopoly Law for years. In January 2014,
an agenda item to amend the Anti-Monopoly Law was added to the National Legislation
Program of the House of Representatives. There is no assurance that the House of
Representatives will pass the amendment in 2014 and issues may be added on or dropped
during the House of Representatives' deliberation. That said, the following are issues that
KPPU has been discussing publicly and should therefore be discussed in the House of
Representatives:

Changing the mandatory post-merger notification system to mandatory pre-merger
notification system with suspension period, i.e., a merger cannot be closed until KPPU
issues its clearance.

Requiring for the first time notification of establishment of a joint venture company and
assets acquisition.
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
Granting rights for KPPU to conduct dawn raids on business premises, confiscate
evidence and compel anyone to appear for investigation.
For further information, please contact:
Wimbanu Widyatmoko
Managing Partner
Tel: +62 21 2960 8694
E-mail: [email protected]
Mochamad Fachri
Partner
Tel: +62 21 2960 8547
E-mail: [email protected]
Hadiputranto, Hadinoto & Partners
18
www.hhp.co.id
Hadiputranto, Hadinoto & Partners
The Indonesia Stock Exchange Building
Tower II 21st Floor Sudirman Central
Business District
Jl. Jenderal Sudirman Kav. 52-53
Jakarta 12190, Indonesia
Tel: +62 21 2960 8888
Fax: +62 21 2960 8999
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