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competition/antitrust

competition/antitrust | 19 Mar 2020
BY

South Africa: Coronavirus (COVID-19) and the Competition Act

On 19 March 2020, the Minister of Trade and Industry (the “Minister”) published two Regulations under section 78(1) of the Competition Act, 1998 (as amended) (the “Competition Act”), pursuant to the National State of Disaster declared on 15 March 2020 (the “National State of Disaster”).

Both of the Regulations are effective immediately. The first creates a block exemption for the Healthcare Sector. The second introduces additional consumer and customer protections in relation to the supply of certain goods and services. We highlight below some of the key components of these Regulations.

COVID-19 Block Exemption for the Healthcare Sector, 2020

These Regulations exempt certain agreements or practices solely aimed at responding to the COVID-19 pandemic from liability under sections 4 and 5 of the Competition Act, if such agreements or practices are undertaken at the request of, and in coordination with, the Department of Health.  In other words, conduct that would ordinarily be caught by the cartel and vertical restrictive practices prohibitions of the Competition Act will now be exempt for the duration of the National State of Disaster.

Notably, these Regulations come with the important caveat that any communication or agreement on prices between healthcare companies must be specifically authorised by the Minister.

The categories of agreements and conduct covered by the Block Exemption are listed below:

  • Hospitals and healthcare facilities can:
    • co-ordinate the efficient allocation of patients, medical professionals and medical supplies and equipment between hospitals;
    • communicate the utilisation of hospitals facilities, such as intensive care and isolation beds;
    • communicate the procurement of consumables required for the optimal treatment of patients; and
    • standardise the quality of care protocols.
  • Medical suppliers can:
    • communicate the availability of medical supplies; and
    • co-ordinate the procurement and distribution of medical supplies.
  • Medical specialists and radiologist can:
    • communicate data regarding the scale of the outbreak, disease and patient profile;
    • communicate regarding capacity and utilisation thereof;
    • standardise the quality of care protocols; and
    • transfer medical supplies and equipment amongst themselves.
  • Pathologists and laboratories can:
    • communicate with each other in relation to capacities and utilisation thereof;
    • co-ordinate the procurement of inputs required for testing; and
    • transfer medical supplies and equipment amongst themselves.
  • Pharmacies can:
    • communicate with each other in respect of the availability of pharmaceuticals and medical consumables;
    • co-ordinate the procurement of pharmaceuticals and medical consumables; and
    • transfer of pharmaceuticals and medical consumables amongst themselves.
  • Healthcare funders can:
    • agree with each other and with healthcare facilities and other healthcare providers to reduce the cost of diagnosis, tests and diagnostics, treatment and other preventative measures.
  • The private healthcare sector and the Department of Health can agree to:
    • make available additional capacity at healthcare facilities to the public healthcare sector; and
    • ensure adequate medical supplies to the public healthcare sector.

The Regulations note that the management of the COVID-19 pandemic is not static, and therefore to the extent that the healthcare sector identifies further agreements that are necessary to effectively treat the COVID-19 pandemic, the healthcare sector may request the Minister to expand the scope of these Regulations.

The Regulations require that parties that take advantage of the Block Exemption keep minutes of meetings held and written records of any agreements struck or practices followed.

Notably, even though the Regulations are effective immediately, any person may still make representations regarding the regulations within 14 days from their date of publication.

Consumer and customer protections in relation to the supply of goods and services

These Regulations aim to protect consumers from unlawful pricing behaviour in respect of products and services that are critical to effectively responding to the COVID-19 pandemic. These products and services are listed in two Annexures to these Regulations (reproduced below for ease of reference), to which the Minister may add or subtract as circumstances change.

Excessive Pricing and Unconscionable Unfair, Unreasonable And Unjust Practices

These Regulations put in place two measures to avoid unlawful price increases in respect of goods listed in Annexure A.

First, the Regulations introduce the following new considerations that will count towards an assessment of whether a dominant firm has engaged in excessive pricing:

  • a material price increase of a good or service must either not correspond to or not be equivalent to the increase in the cost of providing that good or service; or 
  • the increase in the net margin or mark-up on that good or service above the average margin or mark-up for that good or service in the three month period prior to 2020.

The Regulations define price increases as “a direct increase or an increase as a result of unfair conduct such as, amongst others, false or misleading pricing practices, covert manipulation of prices, manipulation through raising or reducing grade levels of goods and services.”

Second, the Regulations go on to state that price increases that have either of the abovementioned characteristics will be deemed to be unconscionable, unfair, unreasonable and unjust in terms of the Consumer Protection Act (the “CPA”).

Maximum Prices and Quantities

Notably, these Regulations provide that the Minister may, in consultation with the Minister of Health, issue directions to set maximum prices on medical goods and services relating to the testing, prevention and treatment of COVID-19 and its associated diseases during the National State of Disaster.

The Minister on his own may issue directions to set maximum quantities limiting the number of items of goods listed in Annexure B which a customer or consumer may purchase in a defined period of time.

Duties of Suppliers and Wholesalers

With respect to the goods listed in Annexure A, suppliers must maintain adequate stock and implement reasonable measures to ensure the equitable distribution of such goods to consumers or customers, including small businesses. Wholesalers, in turn, take on a responsibility to take all reasonable steps to ensure that purchases made by suppliers will not circumvent these duties. Despite these duties, suppliers have the right to limit goods and services listed in Annexure B which a customer or consumer may purchase in a defined period of time.

Importantly, suppliers must prominently display a notice in each of their stores stating how they will ensure the equitable distribution of goods listed in Annexure A to consumers or customers, including small businesses, as well as any limitations on the purchase of goods listed in Annexure B.

Penalties

Dominant firms that contravene these Regulations must be investigated by the Competition Commission and, if found to be in contravention, will be liable in accordance with the penalties provided for in the Competition Act. The Regulations go on to set in place the following general penalties for a contravention of these Regulations, subject to the Competition Act and the CPA:

  • a fine of up to ZAR1 000 000;
  • a fine of up to 10% of a firm’s turnover; or
  • imprisonment for a period not exceeding 12 months.

For further information contact our Competition/Anti-trust team.

COVID-19, also known as the Coronavirus, is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) that was declared a pandemic by the World Health Organization on 11 March 2020. The disease has since been reported in over 190 countries.

No information provided herein may in any way be construed as legal advice from ENSafrica and/or any of its personnel. Professional advice must be sought from ENSafrica before any action is taken based on the information provided herein, and consent must be obtained from ENSafrica before the information provided herein is reproduced in any way. ENSafrica disclaims any responsibility for positions taken without due consultation and/or information reproduced without due consent, and no person shall have any claim of any nature whatsoever arising out of, or in connection with, the information provided herein against ENSafrica and/or any of its personnel. Any values, such as currency (and their indicators), and/or dates provided herein are indicative and for information purposes only, and ENSafrica does not warrant the correctness, completeness or accuracy of the information provided herein in any way.