Tribunal releases public reasons for granting interim relief in Wilec V Allbro
The Tribunal has released reasons for its decision to grant interim relief to Makarenge Electrical Industries (Pty) Ltd t/a Wilec (“Wilec”) against Allbro (Pty) Ltd (”Allbro”). Wilec sought interim relief against Allbro to prevent Allbro from engaging in anti-competitive conduct in the market for the provision of transformer bushings.
Transformer bushings transmit electrical power into or out of a transformer and are a crucial component in the manufacture of transformers. Eskom buys about 80% of all transformers sold in South Africa.
The parties
Both Wilec and Allbro are in the market for the supply of transformer bushings and are two of only three competitors in this market: Allbro, Wilec and Ukusa Industrial Products (Pty) Ltd (“Ukusa”). Allbro was, for a long time, the only supplier of transformer bushings in South Africa. It is a private South African company that has been operational for over 40 years.
Wilec is a private, 100% black-owned firm established in 2018, when a broad-based black economic empowerment (“B-BBEE”) entity, Makarenge Electrical Industries (Pty) Ltd (“MEI”), purchased the transformer bushings business from Actom (Pty) Ltd, a long established transformer manufacturer that would, through its “Wilec” division, self-supply transformer bushings. At the time of the sale, Actom considered transformer bushings to no longer be a core business and committed to continue sourcing from Wilec (now owned by MEI) and assist in developing and advancing black industrialists.
Interim relief
Wilec sought an order preventing Allbro from abusing its dominance by inducing customers to not deal with Wilec’s customers, alternatively, preventing Allbro from engaging in an exclusionary act, pending the determination of its complaint to the Competition Commission (“the Commission”) or for six months from the date of the Tribunal’s order, whichever occurs first.
In its reasons for granting interim relief, the Tribunal concluded that Wilec had established a prima facie case of the prohibited conduct, that it may suffer irreparable harm if the interim interdict is not granted and that the balance of convenience favoured Wilec. The reasons are available on www.comptrib.co.za. Below is a summary:
Arguments
Wilec argued that Allbro improperly secured a monopoly position in the market by bringing intellectual property proceedings against competitors. It alleged Allbro used “unconvincing, untested allegations” in those proceedings to threaten customers to not deal with its competitors, leaving customers with no choice but to procure from Allbro. Customers had thus been induced not to deal with Allbro’s competitors, creating foreclosure within the market. Wilec also alleged that Allbro’s products were more expensive than those of competitors and absent the interdict consumers would be deprived of cheaper prices and choice.
Allbro admitted that it was a dominant supplier of transformer bushings. However, it argued that it was trying to protect its intellectual property rights and justifiably prevent others from cloning its transformer bushings and infringing its intellectual property rights. Allbro also argued that the Tribunal had no jurisdiction to assess its rights of copyright, which were the subject of High Court proceedings. Further, it claimed customer choice was not harmed as its customers were exercising their choice - and said its charging of higher prices alone was not sufficient to prove negative competition effects.
Jurisdiction
The Tribunal notes that the intersection of competition law and intellectual property laws is increasingly important and is fraught with tension over the protection of intellectual property (in this case, contested copyrights) at the expense of competition, and vice versa. The Tribunal confirmed that it lacks jurisdiction to pronounce upon the merits of Allbro’s intellectual property claim, however, it has jurisdiction over all economic activity within or having an effect in the Republic. It concluded that “the exercise of intellectual property rights is not immune to regulatory oversight under competition law, and may constitute a contravention of competition law, if all the elements otherwise necessary to establish a competition law prohibited practice are proved.”
Evidence relating to the alleged prohibited practice
Allbro admitted it is dominant in the market for the supply of transformer bushings. It is prohibited for a dominant firm to engage in the exclusionary act of requiring or inducing a supplier or customer to not deal with a competitor. The Tribunal concluded that Wilec has prima facie established that Allbro’s conduct was sufficient to induce one of only two customers of transformer bushings, Actom, to not deal with both Ukusa and Wilec in contravention of section 8(1)(d)(i), alternatively that Allbro’s conduct constitutes an exclusionary act under section 8(1)(c) of the Act.
The Tribunal also considered whether the inducement had any exclusionary effects: “Our view is that given the available evidence before us, taken as a whole, Wilec has established a prima facie case of substantial foreclosure… On consumer harm, our view is that there is prima facie evidence that with competition offered by Wilec prices would be lower (and indeed are lower as Wilec alleges), however a conclusive determination of consumer harm can only be made after a full investigation.”
The Tribunal also concluded that Wilec had prima facie demonstrated that Allbro’s conduct had anti-competitive effects that were not justified by technological, efficiency or pro-competitive gains.
Irreparable harm, balance of convenience
The Tribunal weighed the prejudice that Wilec would suffer if the interim interdict were not granted against the prejudice to Allbro if it were granted. The Tribunal concluded that it could not conceive of any real prejudice that Allbro would suffer during the period of the order, pending the outcome of the Commission’s investigation. The Tribunal found that the balance of convenience strongly favoured Wilec: “There is a real possibility that Wilec will exit the market. Apart from the fact that Wilec’s exit would deprive the market of some rivalry, competitive prices and choice in what is already an overly concentrated market … it would deprive the market of the only black-owned firm in the market – a factor that the Act calls on us to consider. This is not, says Wilec, asking the Tribunal to take pity on it as a less efficient firm in need of a handout: customers have confirmed that they would like to see a competitive market place as Wilec’s products accord with the relevant industry specifications and are cheaper than Allbro’s.”
Furthermore, the Tribunal noted that Allbro’s conduct has ramifications not only for Wilec and, consequently, for competition and therefore consumers, but also for the public purse: “It is common cause that Allbro’s transformer bushings are more expensive than those of Wilec and that Eskom is the largest indirect customer of transformer bushings. Allbro’s exclusionary conduct, if permitted to continue, will deny Eskom (indirectly, the single largest transformer bushings customer) the opportunity to procure from a technically superior, cost-effective and efficient black-owned firm…”
Issued by:
Gillian de Gouveia, Communications Officer
On behalf of the Competition Tribunal of South Africa
Cell: +27 (0) 82 410 1195
E-Mail: GillianD@comptrib.co.za
Twitter: @comptrib
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