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In brief

The Egyptian Competition Authority (ECA) recently issued its first vertical restraints case prohibiting the vertical agreement between eight manufacturers and suppliers, along with their distributors (organized/hypermarkets and independent merchants). The ECA stated that were they found to have agreed on setting the minimum fixed resale price maintenance (RPM) and adopted Most Favoured Nation clauses (MFN) in distribution contracts of household electrical appliances. This conduct was deemed a violation of Article 7 of the Egyptian Competition Law No. 3 for 2005 (“ECL“).


In more detail

The ECA initiated a market study in the household electrical appliances market in Egypt, following repetitive price increases. Consequently, the ECA closely investigated the vertical chain involving manufacturers, suppliers and distributors (organized/hypermarkets and independent).

Upon investigation, the ECA established that the upstream companies set a minimum and fixed price for the products resale and unifying prices through MFN clauses with the downstream distributors and retailers.

Further, the upstream companies imposed sanctions or threatened the distributors and retailers in case of non-compliance with the imposed minimum RPM. For instance, they would stop dealing with the non-compliant company by not supplying the agreed quantities of the relevant products.

As a result, last week, the ECA’s Board issued its decision prohibiting these conducts and imposing the following remedies:

  1. Immediately ending all vertical restraint conducts (RPM and MFN);
  2. Amending all the contracts signed with retailers; and
  3. Removing all clauses, directly or indirectly, that impose minimum or maximum RPM and/or MFN.

It is worth noting that all the parties have begun implementing the imposed remedies issued by the ECA.

The ECA emphasises that RPM restricts competition in the market by restricting intra-brand competition by limiting (i) price competition between distributors and (ii) discounts to attract consumers.

The ECA has also added that MFN clauses are also anticompetitive as a supplier would not be able to offer the products at a lower price or on better terms to a more efficient distributor.

Conclusion and main takeaways

A number of enforcement trends can be noted from the above case including the following:

  • Following several announcements, this is the first case where the ECA has officially prohibited RPM and MFN in vertical agreements (Article 7 of the ECL). Previously, these clauses were prohibited under the abuse of dominant position (Article 8 of the ECL), as previously seen, please refer to our client alert.
  • This development is fundamental because the risk associated with RPM and MFN clauses has increased significantly in Egypt, as it is no longer a pre-requisite to have a dominant position to be considered a high-risk practice.
  • To confirm, in vertical restraint cases, all parties to an agreement (i.e., supplier and distributor), are part of the violation under the ECL.
  • ECA reconfirmed its previously stated position, in line with international best practices, that maximum or recommended RPM are not prohibited under the ECL, however, minimum and fixed RPM are prohibited.

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Updated 2023 LOGO_Egypt Helmy Hamza & Partners Cairo

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Author

Mohamed ("Mo") advises multinational companies in a wide range of industry sectors, on antitrust and competition and trade law issues. In the antitrust and competition law area, he is experienced with cartels, price fixing, and market division as well as abuse of dominance and compliance issues. Mo also works extensively on trade disputes related to customs, dumping, and safeguard measures. Mo has additional expertise providing compliance advice to clients, including in the areas of anti-bribery, compliance investigations, dawn raids, and unfair competition. He provides assistance in mergers and acquisitions transactions to obtain regulatory approvals and advise on related compliance with competition laws. Advising and representing clients as Counsel (qualified in Egypt only) in Baker McKenzie's Toronto office, Mo joined Baker McKenzie in 2014 as a Senior Associate in the Cairo office. He has worked in the Firm's London office, where he worked on investigations and merger filings in the EU, Competition & Trade Department. Mo also worked at the Egyptian Competition Authority as a case handler and consultant. Mo holds an LL.M in international and comparative law from the American University in Cairo, an LL.M in EU law from Stockholm University, a GPLL.M in Canadian law from the University of Toronto, and a Ph.D in competition law from Queen Mary, University of London where he taught Competition Law for three years. He has authored several publications on competition law matters in a wide range of peer-reviewed international journals and periodicals.

Author

Mohamed El Baroudy is an associate at Helmy, Hamza & Partners, Baker McKenzie Cairo. Prior to joining the firm, he practiced at the Egyptian Competition Authority (ECA) as Senior Case Handler almost 5 years; where he gained practical knowledge and experience from an ECA's perspective on a wide range of competition related matters. He has also chaired several rounds of negotiation in Africa on behalf of the ECA.
In the Middle East and Africa, Baroudy has also developed and trained a number of competition authorities in enforcing competition law in the region; he has also advised several competition authorities on technical antitrust queries.
In Egypt, Baroudy investigated numerous violation competition cases across several sectors and worked on the Egyptian Competition Law Amendments Project. He was responsible for reviewing the Egyptian draft legislation related to competition to ensure its compliance. He has also provided several trainings to government employees at different governmental authorities to comply with the competitive neutrality policy and the detection of anti-competitive conducts, e.g. collusive practices in public bids.
He received his LL.M. from University of Hamburg, a Master in Economics from Cairo University and a Non Degree LL.M. Diploma from Loyola University in International Merger Control Regulation.

Author

Hania Negm is a senior associate at Helmy, Hamza & Partners, Baker McKenzie Cairo. She focuses her practice on antitrust and competition law, international commercial law and trade, and compliance and investigations. Prior to joining the Firm, she worked at the Egyptian Competition Authority, where she was involved in numerous competition law cases across several sectors, such as pharmaceuticals, automotive, food and beverage, information and communication technology, sports media rights, and entertainment. She was also involved in assisting the committees drafting internal regulations and draft laws. She received an LLB from Cairo University's Faculty of Law in 2016 before receiving a Master 1 in Business Law from Universite Jean Moulin Lyon III in 2017 and a Master 2 in Public Business Law after that. Hania was admitted to the Egyptian Bar Association in 2018.

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