On 31 May 2016, the Egyptian Competition Authority (ECA) issued a decision condemning a market-sharing cartel between the Egyptian Union for Insurance (EUI) and the Egyptian Association for Healthcare Companies (EAHC). No fines were imposed, but this is the first time that industry associations have been held liable in their own right.
Implications and actions to consider
- This is the first cartel case in Egypt where the infringement decision is addressed to associations of undertakings, rather than to their members. The infringing protocol was signed by representatives of the EUI and the EAHC, on behalf of their members.
- Legally, both the EUI and the EAHC had the power to issue healthcare policies and to manage them. However, according to the Egyptian Competition Law (ECL), this cartel agreement made the EUI the entity responsible for issuing the insurance policies and the EAHC the managing entity. In other words, according to the ECA, this cartel changed the structure of the market, allocating responsibilities to create an upstream producer of policies and a downstream service provider.
- It seems that this upstream and downstream structure was classified by the ECA as a cartel rather than a vertical agreement. Contrary to its characterization by the EUI and EAHC as a vertical agreement, the ECA found it to be a cartel. This has potential implications for companies using independent distributors. Many such companies exclude certain groups of customers from their distribution agreements in order to preserve direct sales to those customer groups for themselves. In addition, those companies often put restrictions on their distributors, preventing them from selling to those customer groups. Once a producer engages in direct sales, it becomes a distributor itself which competes with its independent distributor. Due to the lack of selective distribution criteria under the ECL, this arrangement may potentially risk in certain circumstances being characterized as a horizontal rather than vertical arrangement.
Following this case, it is unclear whether, once the producer itself starts distributing, it will be viewed as a direct competitor to the independent distributor. Even if the agreement between them is in the form of a distribution agreement, the implications of the EUI/EAHC decision will need to be carefully considered although many companies may well argue that, absent the agreement, the distributor would not be a competitor and the agreement should be analysed as such. In the EU, such distribution agreements are viewed as vertical in nature and benefit from a block exemption safe harbour. In many emerging markets, the classification of these relationships as vertical or horizontal is unclear.
What the case says
The protocol signed by the EUI and EAHC divided the market, confirming that the EUI would only issue the health insurance policies and refrain from managing them, while the EAHC’s role would be limited to the management of the health insurance policies (which it would no longer issue). According to the ECA, this conduct limited choice for consumers, who should have been free to choose which company to deal with based on quality and price.
The EUI and EAHC tried to defend their conduct by claiming that the protocol was concluded in order to overcome the lack of legal framework governing the EAHC’s member companies. However, the ECA considered that these arguments did not constitute a valid justification.
Accordingly, the ECA issued a infringement decision requiring both parties to amend their protocol and remove the infringing terms and conditions.
Conclusion
Companies that use independent distributors but also reserve certain customer groups to themselves for exclusive direct sales should seek advice on the compatibility of these arrangements with the ECL and monitor future ECL decisions.
Associations of undertakings should ensure that they are familiar with the obligations and terms of the ECL in order to avoid breaching the competition rules and risking criminal sanctions.
