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Indonesia – Legal Guide To Vertical Agreements: Vertical Restraints.

11 July, 2014

 

 

Agreements Concluded by Public Entities

 

6. To What Extent Does Antitrust Law Apply To Vertical Restraints In Agreements Concluded By Public Entities?

 

In general, public entities are allowed to engage in monopolistic practices or the centralization of economic power as long as it positively relates to the general public or a sector of production important to the state. In 2010 the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha, KPPU) issued guidelines that set forth the criteria for public entities to engage in monopolistic practices. Under these guidelines, public entities must first have a legal mandate to engage in monopolistic practices and such legal mandate must clearly describe the purposes of the monopolistic practice or centralization of economic power.

 

Sector-Specific Rules

 

7. Do Particular Laws Or Regulations Apply To The Assessment Of Vertical Restraints In Specific Sectors Of Industry (Motor Cars, Insurance, etc.)?

 

Most notably, in the trading sector a foreign principal may appoint a sole agent or sole distributor as the only party that can distribute or market its products in Indonesia. Principals for certain types of products like motor vehicles, heavy equipment, electronics and household appliances are required to appoint an exclusive agent to import and distribute the products in Indonesia. The agency or distribution agreement between the national trading company and the overseas principal must be registered at the Ministry of Trade. In the insurance industry, an insurance agent can act as an agent for only one insurance company.

 

General Exceptions

 

8. Are There Any General Exceptions From Antitrust Law For Certain Types Of Agreement Containing Vertical Restraints?

 

In general, the Indonesian Antimonopoly Law provides several exemptions with regard to agreements. These include:

 

  • agreements intended to implement applicable laws and regulations;
  • agreements related to intellectual property rights and franchises;
  • agreements for the stipulation of the technical standardization of goods or services that do not restrict or hamper competition;
  • agreements for agency purposes that do not contain provisions to resupply goods or services at a price level lower than the agreed price;
  • agreements on research cooperation to increase or improve the living standards of the public at large;
  • international agreements ratified by the government of Indonesia; and
  • export-orientated agreements or actions not disrupting domestic needs or supplies.

 

Such agreements are not automatically exempted from the Antimonopoly Law. Rather, the KPPU must issue exemptions.

 

Agreements

 

9. Is There A Definition Of ‘Agreement’ – Or Its Equivalent – In The Antitrust Law Of Indonesia?

 

Yes, under the Antimonopoly Law ‘agreement’ means the action of one or more business actors in binding themselves under whatever name, either in writing or not in writing.

 

10. In Order To Engage The Antitrust Law In Relation To Vertical Restraints, Is It Necessary For There To Be A Formal Written Agreement Or Can The Relevant Rules Be Engaged By An Informal Or Unwritten Understanding?

 

An agreement does not necessarily have to be a formal written agreement. A consensus between parties can be deemed an agreement. In analyzing cases related to vertical restraints, the KPPU will look at other types of evidence besides agreements, such as witness testimony, expert testimony, letters or documents and statements from business actors. See question 9.

 

Parent And Related-Company Agreements

 

11. In What Circumstances Do The Vertical Restraints Rules Apply To Agreements Between A Parent Company And A Related Company (Or Between Related Companies Of The Same Parent Company)?

 

No specific circumstances are provided for in the Antimonopoly Law and its implementing regulations. The vertical restraint rules remain applicable to agreements between related companies. A decision on a case in 2003 regarding alleged vertical integration between an airline company and its 95 percent-owned subsidiary showed that vertical restraint rules apply to agreements even between a parent company and a related company, and to date it does not seem that the KPPU has changed its policy in this regard.

 

Agent–Principal Agreements

 

12. In What Circumstances Does Antitrust Law On Vertical Restraints Apply To Agent–Principal Agreements In Which An Undertaking Agrees To Perform Certain Services On A Supplier’s Behalf For A Sales-Based Commission Payment?

 

Generally, there is no express exemption provided under the Antimonopoly Law and its implementing regulations for agent–principal agreements, including the vertical restraints provisions. Undertaking to perform certain services on a supplier’s behalf for a sales-based commission will be a factor in the KPPU’s consideration in determining the type of legal relationship between the supplier and buyer. For instance, if the legal relationship is that of a principal and an agent, then there should be no true sale in the transfer of the contract products from the supplier to the buyer and the liability and responsibility toward end-consumers would remain with the supplier. However, if the buyer is an independent distributor or reseller, then there should be no reason for the supplier to exercise control over the distribution and sale of the parts by the buyer. In this case, an exercise of such control would otherwise be viewed as exclusive dealing by the KPPU, especially if the liability or responsibility toward end-consumers is shifted from the supplier to the independent buyer or reseller.

 

13. Where antitrust Rules Do Not Apply (Or Apply Differently) To Agent–Principal Relationships, Is There Guidance (Or Are There Recent Authority Decisions) On What Constitutes An Agent–Principal Relationship For These Purposes?

 

No specification or definition of what constitutes an agent–principal relationship is provided under the Antimonopoly Law and its implementing regulations, KPPU decisions or guidelines. See question 12.

 

Intellectual Property Rights

 

14. Is Antitrust Law Applied Differently When The Agreement Containing The Vertical Restraint Also Contains Provisions Granting Intellectual Property Rights (IPRs)?

 

The Antimonopoly Law expressly provides that the provisions of the Antimonopoly Law do not apply to intellectual property rights-related arrangements (e.g., licensing agreements). The KPPU, however, issued guidelines in 2009 under which the main criterion for such exemption is that there is no significant market impact resulting from the exclusive rights given under such licensing agreement.

 

SSEK
 
For further information, please contact:
 
Fahrul S. Yusuf, Partner, Soewito Suhardiman Eddymurthy Kardono
 
Meta Nelly Mustikaningrum, Soewito Suhardiman Eddymurthy Kardono

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