Relevance of Competition Law on the Uber-Grab Merger

On 25 March 2018, Uber Technologies Inc. was reported to have agreed to sell its Southeast Asian operations to Grab

I. Background 
 
E-hailing transportation services ventured into Malaysia in 2012 with two main competitors in the market: Uber and Grab.[1] These companies have made headlines multiple times over the last 6 years, especially for issues of the legitimacy of their operations and the insufficiency of regulations.[2] On 30 November 2017, the Land Public Transport (Amendment) Act 2017 and Commercial Vehicles Licensing Board (Amendment) Act 2017 came into force, which then legalised the operations of Uber and Grab as ‘intermediation businesses’.[3]
 
Since then, both companies have been relatively uncontroversial until recently on 25 March 2018, when Uber Technologies Inc. was reported to have agreed to sell its Southeast Asian operations to Grab.[4] This was not the first ‘retreat’ by Uber in a regional market, having sold its business in Russia and China to Yandex NV and Didi Chuxing respectively.[5] The details of the agreement were undisclosed, however it was confirmed that Uber will take a 27.5% stake in Grab, and Grab will take over Uber's operations in Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.[6] The agreement is also particularly beneficial for the biggest shareholder in both Uber and Grab – SoftBank Group Corp. – which avoids possible conflicts of interest since the competing rivals are now consolidated.
 
The acquisition of Uber by Grab, or the ‘Uber-Grab merger’ raises several questions as to the nature of the agreement and whether it violates competition law. The after-effects of a merger which involves two major competing rivals in the same industry may lead to the monopoly of market and price fixing, which are issues of public interest. Assuming that the nature of the Uber-Grab deal is a merger, this article purports to discuss the jurisdiction of the Malaysia Competition Commission (MyCC) on mergers as well as possible issues of pricing and anti-competitive behaviour.
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II. Limited Role of the MyCC
 
The MyCC was established pursuant to Section 3(1) of the Competition Commission Act 2010[7] and is under the supervision of the Ministry of Domestic Trade, Co-operative and Consumerism to implement and enforce the provisions of the Competition Act 2010.[8] Although the Uber-Grab merger would result in Grab being the dominant e-hailing service provider, the Competition Act 2010 prohibits neither monopoly of business nor mergers and acquisitions. Hence, there is no violation based on the current merger per se to grant the MyCC jurisdiction.

Other ASEAN countries like the Philippines, Indonesia, Singapore, Thailand, and Vietnam include merger control in their legislations concerning competition law.[9] In comparison with Singapore, Section 54 of their Competition Act 2004 prohibits mergers that have or may substantially lessen competition within any market in Singapore for goods and services.[10] If the Consumer Commission of Singapore (CCS) decides that a merger or an anticipated merger has infringed the Section 54 prohibition, the Commission may prohibit the anticipated merger from being carried into effect;[11] and dissolve or modify an existing merger.[12]

As of now, the CCS has outlined interim measures against Grab,[13] and issued a statement that it has "reasonable grounds for suspecting" that the merger infringed Section 54 of the country's Competition Act, specifically on "substantial lessening of competition" related to the provision of chauffeured point-to-point passenger and booking services.[14] Unlike Singapore, competition law in Malaysia will not extend beyond the issue of lawfulness of the agreement between Uber and Grab as the Uber-Grab deal is a case of merger and acquisition (M&A).
 
Notwithstanding the fact that the MyCC does not have jurisdiction to deal with mergers and acquisitions, a member of the MyCC, Professor Dr Saadiah Mohamad stated that they will be closely monitoring the e-hailing market to ensure that there are no anti-competitive behaviours post-merging.[15] The MyCC is empowered to conduct investigations if there are suspicious anti-competitive practices[16] and issue interim measures for an ongoing investigation if it is urgent to prevent serious or irreparable damage to the economy or public interest.[17] After the completion of investigation, the MyCC shall write a proposed decision on its findings,[18] and if it decides that there is indeed an infringement, it may direct for the cessation of such infringement, impose fines, or issue any other appropriate directions.[19] Parties may appeal to the Competition Appeal Tribunal (the Tribunal), where its decision is final and binding on all parties,[20] to review any decision made by the Commission.[21]. The Tribunal’s decision may be accorded the same enforcement power as a court of law if given leave of the High Court.[22]
 
III. ANTI-COMPETITIVE PRACTICES AS PROHIBITED UNDER THE COMPETITION ACT 2010 
 
The Competition Act 2010 prohibits two categories of anti-competitive practices which are horizontal and vertical agreements,[23] and abuse of dominance.[24]
 
A. Horizontal and Vertical Agreements 
An agreement between enterprises in the production or distribution chain is “horizontal” if both enterprises operate at the same level, but is “vertical” if they operate on different levels.[25] Both horizontal and vertical agreements are prohibited if they have the object or effect of significantly preventing, restricting or distorting competition in any market for goods and services.[26] Vertical agreements may occur in instances of resale price maintenance, exclusive customer allocation agreements, and up-front access payment.[27] Horizontal agreements that are illegal per se includes a non-exhaustive list of agreements that aim to perform an act of bid rigging,[28] price fixing,[29] and controlling or limiting market share or production.[30]  However, the statutory exceptions of individual exemption[31] and block exemption[32] to both types of agreements suggest that there is room for flexibility in enforcing anti-competitive agreements. Section 5 also allows enterprises which have infringed Section 4 to relief their liabilities.[33] Although the Competition Act 2010 does not have retrospective effect, the MyCC may consider events and circumstances that took place before the coming into force of the Act.[34]
 
On the prohibition of an agreement to share market or sources of supply as promulgated in Section 4(2)(b), the Competition Appeal Tribunal ruled in Malaysian Airline System Berhad that the Collaboration Agreement (CA) entered by Malaysia Airlines(MAS) and AirAsia (the Appellants) was not an infringement. The MyCC argued that the infringement on market sharing was satisfied when the CA’s objective was to maximize commercial revenue which also resulted in the Firefly’s[35] withdrawal of 4 domestic routes, leaving AirAsia as the sole low cost carrier.[36] The Tribunal looked into the intention of the Appellants by construing the words and expression used.[37] The terms and conditions of the CA showed that the Appellants intended to explore possibilities of collaboration in order to utilise their respective core competencies and optimise efficiency.[38] In rejecting MyCC’s argument, the Tribunal opined that the purpose of the CA was instead to utilise both parties’ core competencies, optimise efficiency, and increase the competitiveness of all parties with other industry players. Furthermore, the cancellation of Firefly’s services has no causal link to the CA, but was because of severe financial losses incurred in 2011.[39]
 
On the issue of Section 4(2)(b) as a deeming provision, the Tribunal relied on Ahmad Najib Aris[40] and held that a deeming provision’s primary function is to bring in something which would otherwise be excluded, and thus must be construed strictly as only for the purpose for which it was created. The MyCC had the onus to establish that the object of the CA was to share market, but such onus was not discharged when they failed to identify the relevant market in its Final Decision.[41] A simplistic use of the deeming provision was not proper because there is a widespread practice amongst airlines to undertake alliances, code sharing, and maintenance of aircrafts on behalf of others.[42] Further, the CA was a conditional agreement that was not yet enforceable and hence, a mere entry into the CA was not an infringement.[43]
 
Reverting back to the Uber-Grab merger, as of now there are no prevailing issues on either horizontal or vertical agreements as the nature of the deal per se is of a horizontal merger and acquisition.[44] It is also far-fetching to argue that the Section 4 prohibition would be extended to govern mergers and acquisition when specific provisions on mergers were explicitly left out from the Competition Act 2010.[45] However, there is still room for scrutiny especially on the content of the deal to determine whether that deal engages in anti-competitive cartel practices.
 
B. Abuse of Dominant Position 
An enterprise is in a dominant position if it possesses significant power in a market to adjust prices, outputs or trading terms without effective constraint from competitors or potential competitors.[46] In general, the MyCC considers a market share above 60% as an indication of dominant position,[47] but market share is not the sole determinant,[48] as the MyCC would still consider a range of competitive conditions in the relevant market.[49] If such position is established, its abuse is prohibited by Section 10 of the Competition Act 2010.[50] Situations which may constitute an abuse of dominant position include (but is not limited to) imposing an unfair purchaser/trading condition or selling price,[51] refusing to supply a particular enterprise or groups of enterprises,[52] and limiting or controlling production, investment, market outlets or market access.[53] Nonetheless, this provision allows dominant enterprises to take steps against a competitor as long as there is reasonable commercial justification or response.[54]
 
As of today, the only appeal heard by the Competition Appeal Tribunal concerning Section 10 was the My EG Services Bhd & Anor v Competition Commission case.[55] The Appellants were the sole enterprise that was authorised to provide renewal service of the Pas Lawatan (Kerja Sementara) (PLKS), and it was not disputed that they were in a dominant position in the upstream market. A complaint was filed alleging that Section 10(2)(d)(iii) of the Competition Act 2010 was infringed when the Appellants advised employers to purchase Mandatory Insurances through their wholly subsidiary company. The subsidiary company had a prior agreement with RHB Insurance for commission to be paid to them for every agency business transacted.
 
The main issue revolved around the interpretation of “applying different conditions to equivalent transactions” as found in Section 10(2)(d) of the Act. The term “Equivalent transactions” was found to mean the “same type of transaction”, where the issue of different methodology is immaterial. Flowing from that, the purchase of Mandatory Insurance – either directly from the Appellants or any other insurance companies would still amount to an “equivalent transaction”.[56]
 
The Tribunal did not elaborate on the meaning of “applying different conditions”, but held that there was indeed difference in conditions when an additional step of scanning and uploading the Mandatory Insurance was imposed to only those that did not purchase insurance policies from the Appellants. The Tribunal reasoned that such additional step would invariably delay the renewal as it would need a longer verification time and subsequently cause harm to companies in the downstream market. [57] There was no violation per se when the Appellants competed in the insurance business, but they had to compete on a level playing field by giving automatic verification to all Mandatory Insurance, not just to those bought from RHB Insurance.[58]
 
Uber’s share of the private vehicle hailing market in the region is not known. However, it is not a stretch to contend that the post-merging company has monopolistic control over both the third-party taxi hailing and private vehicle hailing market.[59] Reiterating the point mentioned in Section II, being a dominant player per se is not illegal in Malaysia.[60] In investigating any possible infringements, the MyCC would have to first define the “relevant market” through market reviews,[61] which factors in all close substitutes on both the demand and supply sides.[62] The prohibition in Section 10 would then come to play if Grab abuses its dominance over the relevant market by for example, imposing sudden increase in fares[63] or is found to be involved in unfair practices.[64]
 
IV. Conclusion
 
The Grab-Uber merger per se does not fall under the scope of the Competition Act 2010 or the jurisdiction of the MyCC. It is premature to speculate whether there may be any infringement of the prohibitions in Section 4 and Section 10 with the merger deal being confidential and the acquisition being in its early stage. Further, the Competition Act 2010 being a relatively new legislation lacks case-laws and interpretations for the construction of valid arguments.

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Written by Alyson Phung, a third year student in the Faculty of Law, University of Malaya. Edited by Corina R. Mangharam.
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Disclaimer: The opinions expressed in this article are those of the author and do not necessarily reflect the views of the University of Malaya Law Review, and the institution it is affiliated with.

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Footnotes:

[1] About Us, 24 May 2017, Grab, Accessed on 15 December 2017, <https://www.Grab.com/my/about/>; “Uber is officially in Kuala Lumpur!” 9 January 2014, Uber On Team KL, Accessed on 15 December 2017, <https://www.uber.com/en-MY/blog/kuala-lumpur/uber-is-officially-in-kuala-lumpur/>.

[2] Minderjeet Kaur, “Uber, Grab issue stimulates lively debate in Dewan Rakyat”, Free Malaysia Today, 26 July 2017, Accessed on 11 April 2017, <http://www.freemalaysiatoday.com/category/nation/2017/07/26/uber-grab-issue-stimulates-lively-debate-in-dewan-rakyat/>; Rogers, M. Uber and Suffocating Government Regulations, 23 September 2017, November 10, 2017, <https://intpolicydigest.org/2017/09/23/uber-and-suffocating-government-regulations/>.

[3] S.2(a) Land Public Transport Act 2017 Act A1552; S.2(a) Commercial Vehicles Licensing Board (Amendment) Act 2017 A1553.

[4] Yoolim Lee, “Uber Pulls Out of Southeast Asia, Selling Operation to Rival Grab”, Bloomberg Technology, 26 March 2018, Accessed on 12 April 2018, <https://www.bloomberg.com/news/articles/2018-03-26/uber-cedes-southeast-asia-to-chief-rival-grab-in-latest-pullout>.

[5] Eric Newcomer, “Uber Cedes Russia to Yandex with $3.7 Billion Merger Agreement”, Bloomberg, 13 July 2017, Accessed on 12 April 2018, <https://www.bloomberg.com/news/articles/2017-07-13/uber-cedes-russia-to-yandex-with-3-7-billion-merger-agreement>.

[6] Jacquelyn Cheok, “Grab confirms acquisition of Uber’s South-east Asia business; Uber gets 27.5% stake in Grab”, The Straits Times, 26 March 2018, Accessed on 12 April 2018, <http://www.straitstimes.com/business/companies-markets/grab-buys-ubers-south-east-asia-business-uber-gets-275-stake-in-grab>.

[7] Act 713.

[8] Act 712; Section 16(a), (d) and Section 18(1) of the Competition Commission Act 2010 Act 713.

[9] Section 2 of the Republic Act No. 10667, the Philippines; Article 28 and 29 of Law No. 5 of 1999 on the Prohibition against Monopolistic Practices and Unfair Competition (Antimonopoly Law), Indonesia; Section 54 Competition Act (Chapter 50B) Act 46 of 2004, Singapore; Section 51 Trade Competition Act BE 2560 (2017), Thailand; Article 16 and 17 of the Competition Law 2004, Vietnam.

[10] Competition Act (Chapter 50B) Act 46 of 2004.

[11] Section 69(2)(ba) Competition Act (Chapter 50B) Act 46 of 2004.

[12] Section 69(2)(c) Competition Act (Chapter 50B) Act 46 of 2004.

[13] Fathin Ungku, Miyoung Kim, “Singapore watchdog says Uber-Grab deal may have infringed competition”, Reuters, 30 March 2018, Accessed on 12 April 2018, <https://www.reuters.com/article/us-uber-grab-singapore/singapore-watchdog-says-uber-grab-deal-may-have-infringed-competition-idUSKBN1H60KG>.

[14] Eileen Yu, “Uber-Grab merger under investigation for possible violation of Singapore competition laws,” ZD Net, 30 March 2018, Accessed on 12 April 2018, < https://www.zdnet.com/article/uber-grab-merger-under-investigation-for-possible-violation-of-singapore-competition-laws/>.

[15] Emir Zainul, “MyCC to continue monitoring Grab post-merger”, The Edge Markets, 10 April 2018, Accessed on 12 April 2018, <https://www.theedgemarkets.com/article/mycc-continue-monitoring-grab-postmerger>.

[16] Section 14 Competition Act 2010 Act 712.

[17] Section 35(1), (2) Competition Act 2010 Act 712.

[18] Section 36(1) Competition Act 2010 Act 712.

[19] Section 40(1)(a) – (d) Competition Act 2010 Act 712.

[20] Section 58(3) Competition Act 2010 Act 712.

[21] Section 44 Competition Act 2010 Act 712.

[22] Section 59 Competition Act 2010 Act 712.

[23] Section 4 Competition Act 2010 Act 712.

[24] Section 10 Competition Act 2010 Act 712.

[25] Section 2 Competition Act 2010 Act 712.

[26] Section 4(1) Competition Act 2010 Act 712.

[27] Malaysia, Malaysia Competition Commission, Guidelines on Anti-Competitive Agreements, 2 May 2012, 13 April 2018. <http://www.mycc.gov.my/sites/default/files/handbook/MYCC-4-Guidelines-Booklet-BOOK1-10-FA-copy_chapter-1-prohibition.pdf>.

[31] Section 6 Competition Act 2010 Act 712.

[32] Section 8 Competition Act 2010 Act 712.

[33] Section 5 Competition Act 2010 Act 712.

[34] Malaysian Airline System Berhad & Anor v Competition Commission [2016] MLJU 903, para 132, 143.

[35] Fly Firefly Sdn Bhd is a wholly-owned subsidiary of MAS. For the purposes of the Competition Act 2010, Section 2 deems a parent and subsidiary company as a single enterprise, and despite their separate legal entity, both form a single economic unit where subsidiaries do not enjoy real autonomy in determining its own actions in the market.

[36] See footnote 35 above, para 39.

[37] The Tribunal referred to the principle in Pioneer Shipping Ltd and others v BTP Tioxide Ltd The Nema [1981] 2 ALL ER 1030, 1035 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913 which was adopted as the Malaysian position in Berjaya Times Square Sdn Bhd v M-Concept Sdn Bhd [2010] 1 CLJ 269.

[38] See footnote 33, para 84.

[39] Para 123, 125

[40] [2009] 2 CLJ 800.

[41] See footnote 33, para 89. The Tribunal stressed on the importance of identification of relevant market as an integral element in any competition inquiry, and relied on Europemballage and Continental Can Corporation v Commission Case 6/72 [1973] ECR 215 to explain that “the possibility of competition may only be judged in relation to those characteristics of the products in question by virtue of which those products are particularly apt to satisfy an inelastic need and are only to a limited extent interchangeable with other products.”.

[42] See footnote 33, para 90.

[43] See footnote 33, para 107 – 111.

[44] Horizontal merger is defined as merger between firms that produce and sell the same products, i.e. between competing firms. Horizontal mergers, if significant in size, can reduce competition in a market and are often reviewed by competition authorities. Horizontal mergers can be viewed as horizontal integration of firms in a market or across markets. Compiled by R.S. Khemani, D.M. Shapiro, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, Glossary of Industrial Organisation Economics and Competition Law, Organisation for Economic Co-operation and Development (OECD), 1993. http://www.oecd.org/regreform/sectors/2376087.pdf

[45] cf Section 54 Malaysian Aviation Commission Act 2015 Act 771.

[46] Section 2 Competition Act 2010 Act 712.

[47] Malaysia, Malaysia Competition Commission, Guidelines on Market Definition, 2 May 2012, 25 April 2018, para 2.2.

[48] Section 10(4) Competition Act 2010 Act 712.

[49] Malaysia, Malaysia Competition Commission, Guidelines on Market Definition, 2 May 2012, 25 April 2018, para 2.8.

[50] Section 10 Competition Act 2010 Act 712.

[51] Section 10(2)(a) Competition Act 2010 Act 712.

[52] Section 10(2)(c) Competition Act 2010 Act 712.

[53] Section 10(2)(b) Competition Act 2010 Act 712.

[54] Section 10(3) Competition Act 2010 Act 712.

[55] Appeal No: TRP 3-2016.

[56] See footnote above, para 39.

[57] See footnote 48, para 40.

[58] See footnote 48, para 45.

[59] Kamarul Azhar, “Tech; Uber-Grab merger raises anti-competitive concerns,” The Edge Malaysia, 11 April 2018, Accessed on 24 April 2018, <http://www.theedgemarkets.com/article/tech-grabuber-merger-raises-anticompetitive-concerns>.

[60] See footnote above.

[61] Malaysia, Malaysia Competition Commission, Guidelines on Market Definition, 2 May 2012, 25 April 2018, para 1.1 – 1.2.

[62] Malaysia, Malaysia Competition Commission, Guidelines on Market Definition, 2 May 2012, 25 April 2018, para 1.4.

[63] https://www.thestar.com.my/business/business-news/2018/04/02/malaysia-puts-grab-on-anti-competition-watchlist-after-uber-stake-buy/

[64] Section 10(2)(d) Competition Act 2010 Act 712. ​​