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Competition Law Enacted: What About IP?

The long-awaited Law on Competition was enacted on October 5, 2021, bringing Cambodian law in line with its ASEAN and WTO obligations, but leaving open questions regarding intellectual property rights. The Law calls for the establishment of the Cambodia Competition Commission, which is yet to be accomplished. Until this institution is in place, as well as supporting regulations enacted, it remains to be seen how the Competition Law will be interpreted and implemented.



Summary


The Law aims to ensure competitive markets by prohibiting activities that prevent, restrict or distort competition. Three types of activities are specifically treated: anti-competitive agreements, abuses of dominant market positions, and anti-competitive business competitions.


The Law seeks to apply extra-territorially, by covering activities that distort competition in a market in Cambodia - regardless of whether the activity takes place in Cambodia or abroad. Further, the Law prohibits not just anti-competitive business activities themselves, but also any actions supporting such activities. The scope of such supporting activities could obviously be very broad - from leasing an office space, to providing payment services, or other supplies - and it will need to be clarified how far this secondary liability extends.



Anti-Competitive Agreements


With certain exceptions, the Law prohibits agreements that harm competition. The prohibition applies to any form of contract, agreement, arrangement or understanding - regardless if written, verbal or implied. Both direct and indirect coordination is addressed, where that coordination has the object or effect of either a) influencing the conduct of one or more market actors, or b) disclosing what a market actor has decided to do, or contemplating doing. Horizontal agreements (between persons at the same level of production/distribution chain) and vertical agreements (persons at different levels), are treated in turn.


First, entering into and implementing any horizontal agreement is prohibited if it directly or indirectly affects competition related to:

  • Fixing, controlling or maintaining the price of goods or services

  • Preventing, restricting or limiting:

  • The quantity offered for sale

  • The type of goods or services offered for sale

  • The development of new goods or services

  • Allocating geographic areas between competitors

  • Allocating customers between competitors

  • Favoring one bidder over another for bids for a contract in private procurement


Second, vertical agreements are prohibited if they:

  • Require a buyer to resell goods or services at a minimum price, whether directly or indirectly

  • Limit a buyer to reselling only within a geographic area

  • Limit a buyer to reselling only to specific customers, or specific categories of customers

  • Require a buyer to purchase all, or nearly all, its goods or services exclusively from the seller

  • Prevent a seller from selling to another buyer

  • Require a buyer to buy unrelated goods or services in addition to those that they want to purchase ("tying").



Abuses of Dominant Market Position


A "dominant market position" is defined as a situation where a person (or business) has the power to act in a market significantly without any effective constraint from other competitors. As with many terms in the Law, how "significant" and what constitutes an "effective constraint", will need to be determined by the CCC, which is likely to look to the absolute and relative market shares.


With a dominant market position comes the obligation not to engage in activities that have the object or effect of significantly preventing, restricting or distorting competition as follows:

  • Requiring or inducing a supplier or customer not to deal with a competitor

  • Refusing to supply to a competitor

  • Selling on the condition that unrelated goods or services are also purchased

  • Selling below the cost of production

  • Refusing a competitor's access to an "essential facility", defined as "infrastructure or resources which cannot be duplicated and, without access to which, competitors cannot reasonably provide goods or services to their customers

However, such activities are permitted if the CCC determines that a) there is a reasonable reason to perform the activities for its business benefit, and b) the activities do not significantly prevent, restrict or distort market competition.



Anti-Competitive Business Combinations


Business combinations (meaning a merger or acquisition) are prohibited if it has, or may have, a significant effect in preventing, restricting or distorting market competition. The CCC is to have the power to review mergers and acquisitions, with the requirements and procedures to be determined by forth-coming regulations.



Exemptions


Given the expansive wording of the prohibitions, the Law also gives the CCC the power to grant exemptions if each of four criteria are satisfied:

  • There are significant identifiable technological, economic or social benefits,

  • Such benefits would not exist without the otherwise prohibited activity,

  • The benefits significantly outweigh the harm to competition, and

  • Competition is not eliminated in any important aspects of goods or services.

The request for exemption must be made prior to entering into the agreement or undertaking the otherwise prohibited activity. Thus, the exemption is not a defense to an enforcement action under the law, but rather a pre-clearance procedure. The Law states that the CCC may set an expiration date on the exemption, and require payment of a fee, but otherwise leaves the procedures and requirements for further regulations.


Interestingly, the CCC has the power to grant categorical exemptions for certain types of activities and agreements that they judge not harmful to competition. An application for a collective exemption still needs to be requested, with the requirements to be determined by the CCC.



Intellectual Property Rights & Competition Law


While the Law establishes the broad framework for ensuring competitive markets, it leaves many important questions to be determined by the CCC and/or further implementing regulations. One set of issues surrounds intellectual property rights, and what restrictions the Competition Law will place on licensing and enforcement. Whether in the form of patents, copyrights, trademarks or other forms, IP can (but does not necessarily) give an owner market power, and potentially even a "dominant market position". Further, a number of the activities and practices prohibited under the Law are common and permitted in other jurisdictions (to a degree) when based on IPR.


The only mention of intellectual property rights in the Law pertains to penalties, where the CCC has the power to require violators to share or license IP rights in order to restore, maintain or protect competition in a market. This could, for instance, be used to require a patent-holder with a dominant market position to license standard-essential patents to a competitor.


How the CCC, and eventually the courts, will reconcile these two areas of law remains to be seen. The provisions for the CCC to grant exemptions is one solution, especially since IPRs should have a relatively strong case of satisfying the requirement of technological, economic or social benefits. However, the exemption would need to be granted before the agreement is entered into, which is likely unworkable in most licensing situations. Perhaps the CCC will use its power to grant categorical exemptions for certain IP-related practices. Here too, it is unclear whether such exemptions could apply to all market-actors at large, or only to those that have applied to the CCC.


Until the CCC is established and further implementing regulations are enacted, there will unfortunately be significant uncertainty regarding what limits the Law on Competition places on IP rights.



Cambodia Competition Commission


The principal regulator will be established as the Cambodia Competition Commission ("CCC"), with the Consumer Protection, Competition and Fraud Repression (""CCF") Directorate General as its implementing body and Secretariat. The CCC - which is yet to be formed - will be lead by the Ministry of Commerce, with the involvement of other ministries and institutions. Five independent members shall serve five-year terms, and be chosen from the judiciary, legal profession, and economic experts.


The main activities of the CCC are as follows:

  • Establish policies and plans regarding competition.

  • Advise on draft legislation and regulations regarding competition.

  • Request the Government to revise or amend any national and international legislation, regulations or Agreements which affect competition.

  • Issue decisions, orders and interim measures and impose fines.

  • Prepare the formalities and procedures related to calculating fines.

  • Prepare rules regarding Conflicts of Interest for members of the CCC.

  • Prepare the requirements and procedures of Business Combinations.

  • Prepare the requirements and procedures that individually permit any Agreements or activities related to competition.

  • Prepare the requirements and procedures that collectively permit any Agreements or activities related to competition.

  • Prepare the requirements and procedures on the leniency policy on pecuniary fines.

  • Cooperate with national ministries, institutions, or regulators, foreign states, and international agencies related to competition.

  • Receive complaints.

  • Establish other regulations and rules that are under the authority of the CCC related to competition.

The Law establishes the basic framework for the CCC to receive and investigate complaints, with further specifics regarding its operations to be determined in subsequent implementing regulations.



Penalties


Violation of the prohibitions regarding anti-competitive agreements, abuse of dominant market positions, and anti-competitive combinations are subject to a written warning and a fine of 3% to 10% of annual turnover (up to a maximum of three years).


Additional penalties apply to participants in horizontal agreements, with imprisonment from one month to two years, and a fine from five million to two billion Cambodian Riels (approx. USD 1,250 to USD 500,000.)


Further, the CCC has the power to:

  • Order the suspension, revocation or withdrawal of an entity's business license and permits

  • Prohibit violators from continuing their unlawful actions

  • Requiring selling of shares or divestment of parts of a business

  • Requiring sharing or licensing of intellectual property rights

  • Order payment of financial compensation to parties harmed

  • Order returning of unlawfully obtained profits to the victims

  • Ordering unlawfully obtained profits to be allocated to social organizations representing the victims

  • Requiring violators to file reports demonstrating compliance

  • Requiring violators to pay fees for experts to advise the CCC

  • Taking other necessary measures to restore competition

Finally, the Law allows the CCC to grant leniency to anyone participating or assisting in a horizontal agreement, if they provide evidence or important information related to the case.