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KPPU Guidelines on Monopolistic Practices (Article 17)
Commission for the Supervision of Business Competition ("KPPU") Regulation No. 11 of 2011 ("Regulation") has been issued to provide guidelines for the implementation of Article 17 (Monopolistic Practices) of Law No. 5 of 1999 on the Prohibition of Monopolistic Practices and Unfair Business Competition. The Regulation has been in force since 28 September 2011.
Article 17 prohibits businesses from exerting control over production and/or marketing of goods and/or services in a manner that leads to monopolistic practices or unfair business competition. Effectively, the Regulation clarifies the definition of illegal monopolistic practices and prescribes sanctions for cases of unfair business competition.
Chapter II explains that a monopoly can arise in one of two ways: from a company's superior technical capabilities (e.g., special skill, economic scale, control over aspects of production); or through government regulation (e.g., intellectual property rights, exclusivity).
The factors that are considered in determining whether a business actor/group is in a monopoly position are whether:
- The goods or services involved have no close market substitute;
- The business can create barriers to entry for potential competitors; or
- The business controls over 50% of the market share for the particular good/service.
Chapter III articulates further the definition of a monopoly and explains when a business actor in a monopoly position is in violation of Article 17. A producer/supplier in a monopoly position is not automatically assumed to misuse its monopoly power, and is not in violation unless it engages in monopolistic practices and/or unfair competition in the market. Theoretically, a monopoly position is used wrongly when a business engages in any conduct designed to prevent, restrict, reduce or exploit competition. Such conduct may be directed toward existing or potential competitors or toward transaction partners (particularly consumers).
A ‘rule of reason' approach is used when considering Article 17 violations, by evaluating the following:
- Definition of the relevant market;
- Proof of the business actor's monopoly position in the relevant market;
- Identify the business actor's monopolistic practices;
- Identify and prove the negative impacts on the affected parties.
Chapter IV provides three sample case studies and prescribes sanctions for violations of the Regulation.
Administrative sanctions include:
- Orders to the perpetrators to cease the activities that have lead to monopolistic practices and/or unhealthy competition and/or harm to society;
- Orders to the perpetrators to stop abusing their dominant position in the market;
- Compensation to affected parties;
- Fines in the amount of between IDR 1 billion IDR 25 billion.
Criminal penalties can also be imposed for violations of Article 17, as stated in article 47 of Law No. 5 of 1999, and can take the form of criminal fines of between IDR 25 billion and IDR 100 billion, or imprisonment for up to 6 months as a substitute for the fine.
Under Article 49 of Law No. 5 of 1999, additional criminal sanctions can be imposed in the form of: revocation of business licenses; restrictions on individuals serving as directors or commissioners for between 2 and 5 years, or termination of actions or activities that harm other parties.
Source: Commission for the Supervision of Business Competition Regulation No. 11 of 2011; www.hukumonline.com, ILB, 19/10/2011: KPPU Regulation: Guidelines on Article 17 (Monopolistic Practices)
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