In the words of Robert Bork ‘antitrust has vacillated between the policy of preserving competition and the policy of preserving competitors from their more energetic and efficient rivals’. Although the two aforementioned policy goals differ like night and day, both should ultimately lead to the achievement of consumer welfare.

The protection of competition itself as a means of effectively allocating resources is closely linked to the efficiency defence – where an otherwise anti-competitive act results in allocative, productive or dynamic efficiency gains that outweigh the anti-competitive effects, the act will not be prohibited. On the other hand, protecting competitors instead of the competitive process can actually result in a loss of efficiency.

The question is one which is central to competition policy worldwide, for the purpose advocated by a particular legal system is decisive of the way in which its competition law will be applied by the competition authorities, and although there is a general tendency to prefer the protection of competition itself, this is not universally followed.

In the European Union, article 101(3) of the Treaty on the Functioning of the European Union, provides that where conduct which is anti-competitive in terms of article 101(1) results in efficiency gains, the provisions of article 101(1) will not apply. The inclusion of the aforementioned rule of reason in article 101(3) is the result of the European Commission’s view that the main goal of competition law in the European Union is the protection of consumers.

The South African Competition Act, 1998 (“the Act”) contains a similar rule of reason approach allowing the anti-competitive effect of certain acts to be negated by successfully raising an efficiency defence. The purpose of promoting and maintaining competition in South Africa is said to include achieving a more effective and efficient economy in South Africa, providing access to markets in which consumers can choose the quality and variety of goods they want and ensuring that South Africans have the ability to effectively compete in international markets.

Our competition authorities have had occasion to consider the purpose of competition law a number of times over the years, and the prevailing view has been that competition law is aimed at protecting the very process of competition itself: ‘competition law does not protect the competitor, it protects competition’. This policy issue has recently again come before the Competition Appeal Court (“CAC”) in the matter of Pioneer Hi-Bred International Inc v The Competition Commission (“the Pioneer case”).

Pioneer and Pannar Seed, competitors within the hybrid maize seed breeding market, appealed against the Competition Tribunal’s (“the Tribunal”) decision prohibiting their proposed merger. The hybrid maize seed breeding market is composed of three major players – Pioneer, Pannar Seed and Monsanto. The Tribunal argued that were the merger to be allowed, the pool of competitors would be reduced to two and this would prove harmful to potential entrants to the market.

Pannar could no longer compete effectively owing to a lack of sufficient access to facilities necessary for the exploitation of its germplasm and it was argued that this would eventually lead to Pannar’s exit from the market and the loss of a valuable resource in its germplasm. The only way in which its eventual exit could be prevented was by merging with an international hybrid maize breeder – Pioneer.

The CAC strongly criticised the Tribunal’s decision, stating that it had placed too much emphasis on ‘the interests of competitors rather than upon the key principle, of maintaining or promoting competition in the relevant market’. Furthermore the Tribunal failed to consider the long-term dynamic efficiency gains, which oversight is worsened by the fact that the market in question is dominated by innovation competition.

The CAC considered the efficiency gains which the merger would result in – particularly the long-term dynamic (or innovation) efficiency gains – as completely outweighing any short-term anti-competitive effects. A further important factor taken into account by CAC was that in the absence of this merger, an important local resource would be lost to the market (Pannar Seed’s valuable germplasm) which would ultimately prove harmful to both competition and consumers. With regard to the reduction of major players from three to two, the CAC held that this would actually prove beneficial to competition in the market as it would allow Pioneer to compete more effectively with Monsanto who possesses 50% of the market.

The CAC once again firmly confirmed that the purpose of South African competition law is the protection of the process of competition itself (and not competitors).

Notes:
1. Preamble to the Competition Act 89 of 1998.
2. Sasol Oil (Pty) Limited v Nationwide Poles CC 49/CAC/April05 at pg 40.
3. Pioneer Hi-Bred International Inc and Pannar Seed (Pty) Ltd v The Competition Commission 113/CAC/Nov11.
4. (n2 above) at para 22.

The article was prepared by Misha Post (Candidate Attorney) and overseen by Jac Marais (Partner in the Adams & Adams Commercial Department) – Tel: 012 432 6000