COMPETITION LAW

WEEK 2

RESTRICTIVE TRADE PRACTICES

HORIZONTAL AGREEMENTS

Restrictive trade practices are those activities that block the flow of capital or
profits in the market. They tend to manipulate prices, conditions of delivery market,
supply of goods in a way as to impose unjustified costs or restrictions. They are also
referred to as anti-competitive practices. They can either be horizontal or vertical
agreements. However, a distinction must be made between unfair trade practices
and restrictive trade practices.

The former is deceitful and misleading representation of goods and services and
portrays false image of the product while restrictive trade practices are where
traders try to change the flow of money in the market in order to maximize profits
and gains in the market.

The legal definition and requirements pertaining restrictive trade practices is found
in part III of the Competition act, section 21 and 22 particularly horizontal
agreements. According to section 21 it defines restrictive trade practices as;
agreements between undertakings, decisions of association of undertakings,
decisions by undertakings or concerted practices by undertakings which have as their
object or effect the prevention, distortion or lessening of competition trade in any
goods or services in Kenya, or a part of Kenya, are prohibited unless they are exempt
in accordance with provisions of section D of these part. 1

1
Section 21 of the Competition Act
The Competition Authority of Kenya, has guidelines on restrictive trade practices
that are intended to;

• Explain the analytical construct that the authority may use in determining
whether an undertaking is dominant.
• Identify categories of restrictive trade practices that may be subject to
exemption.
• Explain the procedure of grant of exemption.
• Explain the procedure of grant of leniency.
• Explain the procedure of determining administrative financial penalties.

The guidelines are not substitute to the provisions of restrictive trade practices
under part III of the act or any competition general rules, 2019. Additionally,
these guidelines are not binding on competition tribunals or courts and do not
constitute to legal advice and do not have the force of law.2

Horizontals agreements are those between competitors operating at the same

level of the supply chain. It occurs when the conduct of the undertaking in
question stifles competition in the market. Competitors charge higher prices or
reduce output and it can be between actual and potential competitors.

These horizontals agreements, decision or concerted practices can be in the form

of:

1. Hard core restrictions. Which are by their nature injurious to the proper
functioning of competition and have no redeeming value.
2. Price fixing on goods and services or any trading condition. Fixing price itself
or element of the price such as discounts. Setting the permitted price range
between competitors themselves.
3. Collusive tendering (bid rigging) these are competitors who tender for
provision of goods and services it may include, cover bidding, bid suppression,
4. Limits or controls productions, market outlets, technical developments or
investments.
5. Practice of minimum resale maintenance.

2
Consolidated Guidelines on Restrictive Trade Practices .pdf (cak.go.ke)
 6. Market division by allocating customers, suppliers, areas or specific types of
goods. Competitors agree not to compete for certain customers or areas. 3
7. Prevents, distorts or restricts competition.

Examples of horizontal agreements are; joint buying agreements, joint selling

agreements, specialization agreements, agreements between competitors not to
hire each other’s employees.

Approaches to restrictive trade practices

There are 2 approaches

Perse illegal approach:

This means that restrictive trade practices are prohibited by law and are thus per se illegal.

Rule of reason approach:

The practices are not condemned as such but only if they do not satisfy certain criteria provided
by the Competition Act.

1. Cartels

‘People of the same trade seldom meet together, even for merriment and
diversion, but the conversation ends in a conspiracy against the public, or in some
contrivance to raise prices.’ Adam Smith, The Wealth of Nations.

Cartels are collusive agreements or practices among competing businesses or

firms that aim to restrict competition in a particular market. Cartels typically
involve businesses within the same industry or sector. Such agreements are
usually between independent undertakings to fix prices, divide markets, to
restrict output and to fix the outcome of supposedly competitive tenders like
engaging in bid rigging.4 Usually, cartels are frowned upon and are prohibited by
virtually all systems of competition law and are the subject of even more

3
Section 21 (3) of the Competition Act
4
Wilsh, Bailey, Competition Law, (Oxford University Press, 2011)7th edn
draconian penalties. 5 They are also considered one of the most severe forms of
anti-competitive behavior.

HORIZONTAL AGREEMENTS AMONG TRADERS AND THEIR ANTI-COMPETITIVE

EFFECTS

1. Price Fixing
In the wording of the Act, price fixing entails agreements, decisions or
concerted practice which directly or indirectly fixes purchase or selling prices
or any other trading conditions.6 The authority mandated with regulation of
competition herein the Competition Authority 7 will consider a particular
conduct as amounting to price fixing if satisfies a certain criteria.8 First, the
act of price fixing itself should be evident.9 Second, an element of price fixing
ought to be present. 10 Such an element would entail fixing a discount or
setting a percentage increase.11 Setting of permitted range of prices between
competitors also constitutes price fixing.12 Price fixing is also apparent when
undertakings set the price of transport charges such as fuel charges, credit
interest rate terms among others. 13 Additionally, agreements, decisions or
concerted practice of indirectly restricting price competition through
recommending prices also amounts to price fixing under the Competition
laws.14 Lastly, price fixing also occurs when undertakings agree to share price
lists before prices are increased either directly or indirectly through an
industry or trade association or to require competitors to consult with each
other before making a pricing decision15. The Competition Authority reserves

5
For detailed texts on cartels and competition law see Jephcott and Lübigg Law of Cartels (Jordans,
2003);
6
Section 21 (3) (a).
7
Part II
8
Mutemi Mbila and Edmond Shikoli, Cartel Conduct as a Moral Wrong: A Consequential Appraisal of
the Kenyan Competition Regime on Cartels.
9
Ibid.
10
Ibid.
11
Guideline 30 (i)Consolidated Guidelines on Restrictive Trade Practices under the Competition Act.
12
Ibid, guideline 30 (ii).
13
Ibid, guideline 30 (iii).
14
Ibid, guideline 30 (iv).
15
Ibid, guideline 31.
 the power to rule that such conduct amounts to price fixing and then take
actions against the involved undertakings. 16

a) Collusive Tendering
It is also known as bid rigging.17 This form of Restrictive Trade Practice takes
place between competitors or potential competitors who tender for the
provision of goods and services. Collusive Tendering occurs in the following
forms:
i) Cover Bidding

It is also knows as complementary, courtesy, token or symbolic bidding.18 This

form of collusive tendering is the most common way in which bid rigging
schemes are executed. Undertakings may agree to submit a bid that is
nevertheless intended not to be successful. 19 Since only one undertaking will
win the bid, the unsuccessful bidders/tenderer may get kickbacks from the
undertaking that has won the bid and as such, it creates a win-win situation
for the involved undertakings. 20 Cover bidding occurs when a competitor
agrees to submit a bid that is too higher than the bid of the designated
winner.21 It also occurs when a competitor submits a bid that is known to be
too high to be accepted.22 It is further considered to have taken place when
a competitor submits a bid that contains special terms that are known to be
unacceptable to the purchaser. 23 Cover bidding is designed to give the
impression of genuine competition.24

ii) Bid Suppression

This form of collusive tendering basically entails competitors entering into
agreements to abstain from bidding. Under this scheme, competitors enter

16
Mutemi Mbila and Edmond Shikoli, Cartel Conduct as a Moral Wrong: A Consequential Appraisal
of the Kenyan Competition Regime on Cartels.

Guideline 32, Consolidated Guidelines on Restrictive Trade Practices under the Competition Act.
18
Guideline 32 (i).
19
Mutemi Mbila and Edmond Shikoli, Cartel Conduct as a Moral Wrong: A Consequential Appraisal
of the Kenyan Competition Regime on Cartels.
20
Ibid.
21
Ibid.
22
Ibid.
23
Ibid.
24
Guideline 32 (i).
 into agreements in which one or more companies agree to refrain from
bidding or to withdraw a previously submitted bid so that the designated
winner’s bid will be accepted.25 In essence, bid suppression means that a
company does not submit a bid for final consideration.
iii) Bid Rotation
Under this scheme, undertakings take turns in winning competitive
tenders. Conspiring firms continue to bid but they agree to take turns in
being the winning (that is the lowest qualifying) bidder.26 Implementation
of bid rotations agreements takes various forms. For example,
conspirators might choose to allocate approximately equal monetary
values from a certain group of contracts to each firm or allocate volumes
that correspond to the size of the company.27
iv) Market Allocation
Under this form of collusive tendering, competitors carve up the market
and agree not to compete for certain customers or in certain geographical
areas. The competing firms may, for instance, allocate specific customers
to different firms, so that competitors will not bid (or will submit only a
cover bid) on contracts offered by a certain class of potential customers
which are allocated to a specific firm. In return, that competitor will not
competitively bid to a designated group of customers allocated to other
firms in the agreement.28

a. Market Division
Under this scheme, competitors enter into agreements to divide markets
among themselves. 29 Market division basically assumes various forms:
undertakings may agree to stay out of each other’s geographical territory
or customer base, or to allocate customers between themselves. 30
Undertakings may also enter into agreements that they will make

25
Guideline 32 (ii).
26
Guideline 32 (iii).
27
Ibid.
28
Guideline 32 (iv).
29
Guideline 33.
30
Ibid.
 purchases only from certain suppliers. 31 Competitors may also agree to
specialize in certain products, particular ranges of products or in
particular technologies and the same is considered illegal under
competition laws.32
b. Output Limitation/ Restriction
It takes place when competitors agree to interfere with supply through
preventing, reducing or restricting the same with the intention to create
scarcity. 33 This agreement has the intended effect of interfering with
prices by increasing or decreasing them.34 Output limitation or restriction
is deemed to have occurred if the agreement entered into by the
competitors directly or indirectly prevents, restricts or limits: the
production or likely production of goods by any or all of the parties to the
contract, arrangement or understanding; the capacity or likely capacity of
any or all of the parties to the contract, arrangements or understanding
to supply services; or, the supply or likely supply of goods or services to
persons or classes of persons by any or all of the parties to the contract,
arrangement or understanding. 35 It is however noteworthy that an
undertaking may independently decide to reduce output to respond to
market demand, save that there is no agreement entered into between or
among the competitors regarding the coordinated restriction of output. 36

THE KENYAN CONTEXT OF RESTRICTIVE TRADE PRACTICES

With regard to the relevant bodies, the competition authority, its tribunal and
the courts, there has been some progress in addressing and remedying these
practices. For the courts and the tribunal, even though there has not been
much development in terms of jurisprudence, there are significant cases that
have set precedence in matters restrictive trade practices. One of these cases
is that of East African Tea Trade Association v. Competition Authority of

31
Guideline 35.
32
Guideline 38
33
Guideline 39.
34
Ibid.
35
Ibid.
36
Guideline 40.
Kenya,37 where the genesis of the appeal was the decision by the competition
authority to initiate the Special Compliance Process (SCP) which was to
address, among other things, the agreements between actual or potential
competitors being parties in a horizontal relationship, who are members of
a Trade Association, where such arrangements relate to the rules, practices
and procedures of the Trade Association and are likely to contravene the Act.
Though there were initial negotiations that were carried out between the two
parties to ensure compliance, there seemed to be an impasse. This was with
regard to the Appellant’s practice of fixing Brokerage fees and the proposed
38
practice of fixing warehouse prices. The appellant argued that the
agreement among the brokers to set a common price was simply to ensure
the seamless running of the tea auction and not to gain any advantage over
the market. Among other issues before the court was the issue of whether it
is a horizontal or a vertical agreement and whether such agreement could be
exempted since it was not in the intention of gaining from the market. For
the first issue, the court focused on the parties involved in the agreement
and the court came to a conclusion that the agreement was a horizontal
agreement since the parties involved in the agreement were potential
competitors. For the second issue, the court ruled partially in favour of the
appellant due to the evidence adduced.

Another such case is that of Harleys Limited v Ripples Pharmaceuticals

Limited & another,39 the plaintiff sought orders for injunction claiming that
it traded with goods bearing the same/almost similar trademarks and almost
similar goods. Both the claimant and the defendant dealt in pharmaceutical
products and for the particular product, they had the same supplier before
the supplier decided not to engage with the defendants. The claim for
injunction could not stand since the plaintiff was neither the real producer
neither the owner of the trademark. The court also stated that the situation
could not stand as an exception to the provision on restrictive trade practices

37
CT/001 OF 2017 [2020] eKLR
38
CT/001 OF 2017 [2020] eKLR, para 8
39
CIVIL CASE NUMBER 118 OF 2015, [2015] eKLR
with regard to dividing markets by allocating customers, suppliers, areas or
specific types of goods or services.

THE GLOBAL CONTEXT OF RESTRICTIVE TRADE PRACTICES

A notable case, but outside Kenya’s jurisdiction is that of Italian flat glass. In
this case, three Italian companies that held together 90% market share in the
Italian market of flat glass. The companies charged identical prices and
maintained identical conditions for sale. It was determined that the
companies had colluded to fix prices and conditions of sale. The companies
were also jointly dominant and had abused their position of dominance and
engaged in practices that amounted to abuse. However, with regard to
proving existence of such practices, it is sometimes a difficult endeavour. In
the Gas Insulated Switch gear 40 case, that participants in the cartel used
codes to conceal their companies’ names and encryption software to protect
the secrecy of emails and telephone conversations; made use of free email
providers and the anonymous mailboxes made available by them; sent
messages as password-protected documents: the passwords were regularly
changed; systematically destroyed emails; downloaded attachments on to
memory sticks rather than on to their computers; and made use of mobile
telephones provided by a member of the cartel that contained encryption
options.41

The global consensus on the harmful impact of cartels on competition and the
economy is evident in the actions taken by competition authorities and courts
in various jurisdictions. While progress has been made in addressing
restrictive trade practices, the challenges of detection and prosecution
persist, necessitating ongoing vigilance, cooperation, and adaptation in the
battle against these anti-competitive behaviors. The fight against cartels
remains a priority in the pursuit of fair and open markets worldwide.

40
Commission decision of 24 January 2007, substantially upheld on appeal Cases T-117/07 etc Areva v
Commission [2011] ECR II- 000, [2011] 4 CMLR 1421.
41
Commission decision of 24 January 2007, paras 170–176.