The Egyptian Competition Authority (ECA) Takes Actions Against MFNs and Hub and Spokes Arrangements

The Egyptian Competition Authority (ECA) has in two recent decisions expanded its enforcement practice against anti-competitive behavior by making use of the vaguely drafted article 8(a) Competition Law, Law 3/2005. Applying a broad interpretation of the provision the ECA took action against anti-competitive behavior not explicitly addressed by the more specific prohibitions of article 8(b) et seq such as hub and spokes arrangements and most favored nation clauses.

Practice Caught by Article 8 Competition Law

While article 8(b) et seq includes an exhaustive list of violations, article 8(a) is worded broad allowing the ECA to interpret it as a more general prohibition clause. Article 8 addresses vertical agreements concluded by undertakings with market dominant positions. It prohibits them from taking certain actions such as artificially limiting the supply of goods or ceasing to do business with individual businesses. Article 8(a) prohibits market dominant undertakings from taking any action “that leads to the non-manufacturing, or non-production or the non-distribution of a product for a certain period or certain periods of time”. The ECA has in recent investigations made use of this broad wording of article 8(a) to go after anti-competitive behavior not explicitly covered by article 8(b) et seq or other provisions of the Competition Law.

‍Novel Violations Defined by the ECA

In a recent investigation against a yeast producer the ECA applied such a broad interpretation of article 8(a). The ECA found that the company engaged in unlawful price maintenance by imposing a minimum resale price on its distributors. In addition, to the minimum resale price, the company imposed restrictions on passive sales, which lead to distributors only selling in pre-determined territories. These actions—in the opinion of the ECA—negatively impacted inter-distributor competition. Furthermore, the ECA concluded that these restrictions of inter-brand competition may lead to a hub and spokes information exchange arrangement between the yeast producer and its distributors. This could (potentially) have negative effects on prices for consumers. As yeast is a key ingredient in bread—a staple food in Egypt—the practice of the yeast manufacturer where of particular concern of the Egyptian authorities, which found that they could threaten food security in Egypt.

In another recent case the ECA found that a food delivery platform operator violated the Competition Law by using most favored nation clauses (MFN). The food delivery platform operator that enjoyed a dominant position in Egypt included exclusivity terms in their agreements with restaurants and vendors restricting them from offering products at lower prices than on the operator’s platform. This case marked the first time that the ECA took action against an undertaking for using an MFN clause. The ECA found that through the MFN arrangement the platform operator unlawfully prevented restaurants and other vendors doing business through the platform from freely determining their prices for direct sales or sales through other intermediaries. This unification of prices throughout all distribution channels prevented healthy competition and (potentially) lead to higher prices for consumers.

Way forward

The ECA making expensive use of the broadly worded article 8(a) allows the ECA to bring their enforcement practice in line with current antitrust practice. The authority taking actions against practices such as hubs and spokes arrangements and MFN clauses, what has long been common practice in other antitrust jurisdictions, requires undertakings to take a keener look at their activities in Egypt from an antitrust perspective. Businesses must be ware that practices previously ignored by the regulator may be increasingly scrutinized in the future.